<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 19, 1997
REGISTRATION NO. 333-25157
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ATCHISON CASTING CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
KANSAS 48-1156578
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
</TABLE>
400 SOUTH FOURTH STREET, ATCHISON, KANSAS 66002-0188,
(913) 367-2121
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
HUGH H. AIKEN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
ATCHISON CASTING CORPORATION
400 SOUTH FOURTH STREET, ATCHISON, KANSAS 66002-0188,
(913) 367-2121
(Name, address, including zip code, and telephone number, including
area code of agent for service)
------------------------
COPIES TO:
JEFFREY T. HAUGHEY, ESQ. WILLIAM M. HARTNETT, ESQ.
BLACKWELL SANDERS MATHENY WEARY & CAHILL GORDON & REINDEL
LOMBARDI L.C. 80 PINE STREET
TWO PERSHING SQUARE NEW YORK, NEW YORK 10005
2300 MAIN STREET, SUITE 1100 (212) 701-3000
KANSAS CITY, MISSOURI 64108
(816) 274-6833
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT IS DECLARED EFFECTIVE.
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- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED MAY 19, 1997
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PROSPECTUS
[LOGO]
3,800,000 SHARES
ATCHISON CASTING CORPORATION
COMMON STOCK
---------
Of the 3,800,000 shares of Common Stock offered hereby, 2,029,024 are being
sold by Atchison Casting Corporation ("ACC" or the "Company") and 1,770,976 are
being sold by the Selling Stockholder named under "Selling Stockholder." The
Company will not receive any of the proceeds from the sale of shares of Common
Stock by the Selling Stockholder.
The Common Stock of the Company is traded on the New York Stock Exchange
under the symbol "FDY." The reported last sale price of the Common Stock on the
New York Stock Exchange on April 18, 1997 was $19.00 per share. See "Price Range
of Common Stock."
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER ALL OF THE FACTORS SET FORTH IN
"RISK FACTORS" COMMENCING ON PAGE 7 OF THIS PROSPECTUS.
-------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDER(2)
<S> <C> <C> <C> <C>
Per Share $ $ $ $
Total(3) $ $ $ $
</TABLE>
(1) For information regarding indemnification of the Underwriters, see
"Underwriting."
(2) Before deducting expenses payable by the Company, estimated to be
$175,000, and expenses payable by the Selling Stockholder, estimated to be
$5,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
570,000 additional shares of Common Stock on the same terms as set forth
above solely to cover over-allotments, if any. See "Underwriting." If such
option is exercised in full, the total Price to Public, Underwriting
Discounts and Commissions and Proceeds to Company will be $ ,
$ and $ , respectively.
------------------
The shares of Common Stock are being offered by the several Underwriters
named herein, subject to prior sale, when, as and if accepted by them and
subject to certain conditions. It is expected that certificates for the shares
of Common Stock offered hereby will be available for delivery on or about
, 1997 at the offices of Smith Barney Inc., 333 West 34th Street, New
York, New York 10001.
SMITH BARNEY INC. GEORGE K. BAUM & COMPANY
, 1997
<PAGE>
ATCHISON CASTING CORPORATION'S GROWING NETWORK OF FOUNDRIES
[PICTURE]
Atchison Casting Corporation has established itself as a leading consolidator in
the foundry
industry. ACC's growing network of foundries enables the Company to produce
castings in a
wide variety of sizes and metals for diverse applications. ACC believes that the
breadth of its
capabilities provide it with a distinct competitive advantage.
[PICTURE]
High pressure cast iron
cylinder head for a
gas compressor.
[PICTURE] [PICTURE]
12 ton stainless steel Pelton Wheel Aluminum and zinc die
produced by Canadian Steel Foundries castings (weighing several ounces
for a hydroelectric power generation to 15 pounds) made by Los Angeles
facility. Die Casting.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVERALLOTMENT, ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS AND IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND CONSOLIDATED FINANCIAL STATEMENTS APPEARING ELSEWHERE IN THIS
PROSPECTUS. ATCHISON CASTING CORPORATION, TOGETHER WITH ITS PREDECESSORS AND
SUBSIDIARIES, IS REFERRED TO HEREIN AS THE "COMPANY" OR "ACC." UNLESS OTHERWISE
INDICATED, THE INFORMATION IN THIS PROSPECTUS ASSUMES THE UNDERWRITERS'
OVER-ALLOTMENT OPTION WILL NOT BE EXERCISED. SEE "CAPITALIZATION," "DESCRIPTION
OF CAPITAL STOCK" AND "UNDERWRITING." REFERENCES IN THIS PROSPECTUS TO FISCAL
YEARS ARE TO THE YEAR ENDED JUNE 30 IN SUCH YEAR.
THE COMPANY
ACC manufactures highly engineered metal castings that are utilized in a
wide variety of products, such as tractor-crawlers, excavators, wheel-loaders,
gas, steam and hydroelectric turbines, pumps, valves, locomotives, subway cars,
automobiles, army tanks, navy ships, computer peripherals and consumer goods.
Having completed thirteen acquisitions since its inception in 1991, the Company
has established itself as a leading consolidator in the casting industry. As a
result of these acquisitions, the Company has the ability to produce castings
from a wide selection of materials, including carbon, low-alloy and stainless
steel, gray and ductile iron, aluminum and zinc, as well as the ability to
manufacture parts in a variety of sizes, ranging from small die cast components
for the computer industry that weigh a few ounces to large hydroelectric turbine
housings that weigh over sixty tons. Moreover, ACC has extensive tooling and
machining operations. The Company believes that its broad range of capabilities,
which addresses the needs of many different markets, provides a distinct
competitive advantage in the casting industry.
The Company was founded to pursue a strategy of growth and diversification
through acquisitions in the highly fragmented foundry industry. Following the
initial acquisition of the steel casting operations of Rockwell International in
1991, the Company has continued to acquire foundries in the U.S. and Canada. As
a result of these acquisitions, as well as internal growth, ACC's net sales have
increased from approximately $54.7 million in its first fiscal year ended June
30, 1992, to $185.1 million for the fiscal year ended June 30, 1996, resulting
in a compound annual growth rate of 36%.
Since 1991, the number of customers served by the Company has increased from
12 to more than 400, including companies such as Caterpillar, Gardner Denver,
General Motors, General Electric, Westinghouse, General Dynamics,
Ingersoll-Dresser, John Deere and Rockwell International. The Company has
received supplier excellence awards for quality from, or has been certified by,
substantially all of its principal customers. In addition to its presence in the
domestic market, a substantial amount of ACC's castings enter the international
marketplace as components in its customers' exported products.
The Company's favorable industry position is attributable to several
factors, including: (i) its use of new and advanced casting technologies; (ii)
its ability to cast substantially all types of iron and steel, as well as
aluminum and zinc; (iii) the Company's emphasis on customer service and
marketing; (iv) the limited number of foundries capable of producing steel
castings of the size and complexity produced by the Company; and (v) the
Company's position as a long-term supplier to many of its major customers.
The principal executive offices of the Company are located at 400 South
Fourth Street, Atchison, Kansas 66002-0188, and the Company's telephone number
is (913) 367-2121.
COMPANY STRATEGY
ACC is pursuing growth and diversification through a two-pronged approach
of: (i) making strategic acquisitions within the widely fragmented and
consolidating foundry industry and (ii) integrating the acquired foundries by
applying ACC's management, operational and technical expertise.
STRATEGIC ACQUISITIONS
ACQUIRE LEADERS AND BUILD CRITICAL MASS. The Company initially seeks to
acquire foundries that are considered leaders in their respective sectors. After
acquiring a leader in a new market, ACC strives to
3
<PAGE>
make subsequent acquisitions that further penetrate that market and take
advantage of the leader's technical expertise. For example, Prospect Foundry was
acquired in 1994 due to its leading position in gray and ductile iron casting
production. The subsequent acquisition of La Grange Foundry in 1995 further
enhanced ACC's position in this market.
BROADEN PRODUCT OFFERINGS AND CAPABILITIES. The Company also seeks to
acquire foundries that add a new product line or customer base that can be
leveraged throughout ACC's network of foundries. For example, the Company's
recent acquisition of LA Die Casting, a leading die caster of aluminum and zinc
components for the computer and recreation markets, provided ACC with an entry
into the aluminum and zinc die casting markets.
DIVERSIFY END MARKETS. The Company attempts to lessen the cyclical exposure
at individual foundries by creating a diversified network of foundries that
serve a variety of end markets. For example, Kramer, a supplier of pump
impellers, was acquired in 1995, expanding ACC's sales to the energy and utility
sectors. The Company believes ACC's presence in these markets somewhat offsets
its exposure to the railroad and mining and construction cycles.
INTEGRATION OF ACQUIRED FOUNDRIES
STRENGTHEN MARKETING FUNCTIONS. The Company places great emphasis on
maximizing new business opportunities by strengthening marketing functions and
cross-selling across its network of foundries. Many foundries, particularly
those that operate as captive foundries or only rely on a small number of
customers, do not have strong marketing capabilities. ACC views the
industry-wide marketing weakness as an opportunity to establish a competitive
advantage. In recognizing this opportunity, the Company has strengthened the
marketing capabilities of its individual foundries, added sales people and
introduced cross-selling between foundries.
INTRODUCE ADVANCED TECHNOLOGY. The Company is systematically introducing
advanced new technologies into each of its acquired foundries to enhance their
competitive position. For example, the Company's capabilities in finite element
analysis and three dimensional solid modeling are having a beneficial impact on
casting sales and production by helping customers to design lighter and stronger
castings, shortening design cycles, lowering casting costs and, in some cases,
creating new applications. These new technologies have enhanced the Company's
ability to assist customers in the component design and engineering stages.
INCREASE CAPACITY UTILIZATION. A principal objective of the Company in
integrating and operating its foundries is to increase capacity utilization at
both its existing and newly acquired facilities. Many of the Company's foundries
at the time of their acquisition have been operating with underutilized
capacity. The Company seeks to improve capacity utilization by introducing more
effective marketing programs and applying advanced technologies as described
above.
ACHIEVE PURCHASING ECONOMIES. Once an acquisition has been completed, ACC
makes its volume purchasing programs available to the newly acquired foundry. By
jointly coordinating the purchase of raw materials, negotiation of insurance
premiums and procurement of freight services, ACC's individual foundries have,
in some cases, realized savings of 10% to 30% of these costs.
LEVERAGE MANAGEMENT EXPERTISE. The Company believes that improvements often
can be made in the way acquired foundries are managed, including the
implementation of new technologies, advanced employee training programs,
standardized budgeting processes and profit sharing programs and providing
access to capital. For example, ACC was able to significantly improve the
profitability of Canadian Steel by adding new management, entering new markets,
installing finite element solidification modeling and providing capital.
4
<PAGE>
RECENT DEVELOPMENTS
JAHN FOUNDRY ACQUISITION
ACC acquired Jahn Foundry Corp. ("Jahn Foundry") on February 14, 1997 for
approximately $6.2 million in cash. Jahn Foundry, located in Springfield,
Massachusetts, produces gray iron castings for the automotive, air conditioning
and agricultural markets. Jahn Foundry produces cast iron cylinder liners used
by General Motors in cast aluminum engine blocks for Saturn automobiles. This
represents ACC's first entry into the market for automotive castings.
BELOIT CASTING DIVISION LETTER OF INTENT
ACC signed a letter of intent on March 13, 1997 to purchase the Beloit
Castings Division ("BCD") from Beloit Corporation for a price estimated to be
approximately $9 million. Beloit Corporation, a world leader in paper-making
machinery operates BCD to make iron, steel and non-ferrous castings for use in
its paper-making machines. BCD is a group of four foundries in Beloit, Wisconsin
and South Beloit, Illinois, including two iron foundries, a steel foundry and a
non-ferrous foundry. In addition to supplying castings for Beloit Corporation,
BCD also makes castings for third parties and is well regarded for the quality
of its castings.
BCD's available capacity is approximately 17,200 tons per year of iron
castings, including both gray and ductile cast iron; 2,500 tons per year of
stainless steel castings; and 200 tons per year of non-ferrous castings.
RECENT OPERATING RESULTS
The Company has announced net sales of $66.3 million, net income of $2.9
million and earnings per common share of $0.51 for the three months ended March
31, 1997. This compares to net sales of $52.3 million, net income of $1.5
million and earnings per common share of $0.27 for the same period in 1996. For
the nine months ended March 31, 1997, the Company announced net sales of $176.9
million, net income of $6.2 million and earnings per common share of $1.11. This
compares to net sales of $130.0 million, net income of $8.6 million and earnings
per common share of $1.57 for the nine months ended March 31, 1996. Without
other income from flood insurance payments, net income was $2.3 million and
earnings per common share was $0.42 for the nine months ended March 31, 1996.
Results for the first nine months are not necessarily indicative of the expected
financial performance for the fiscal year.
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by the
Company......................... 2,029,024 shares
Common Stock Offered by the
Selling Stockholder............. 1,770,976 shares
Common Stock to be Outstanding
after the Offering.............. 7,572,246 shares(1)
Use of Proceeds by the Company.... To reduce indebtedness incurred for industry-related
acquisitions and to fund future acquisitions. See "Use
of Proceeds."
New York Stock Exchange Symbol.... FDY
</TABLE>
- ------------
(1) Does not include 281,599 shares subject to outstanding options, of which
approximately 153,200 shares are subject to exercisable options at a
weighted average exercise price per share of $13.51.
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEAR ENDED JUNE 30, MARCH 31,
---------------------------------------------------------- ---------------------
1992 1993 1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net Sales............................. $ 54,729 $ 66,591 $ 82,519 $ 141,579 $ 185,081 $ 130,000 $ 176,933
Gross Profit.......................... 6,967 12,270 16,215 26,121 28,469 18,453 28,728
Other Income(1)....................... -- -- -- 6,370 26,957 10,282 --
Operating Income...................... 980 5,141 8,425 18,041 38,459 16,693 12,995
Interest Expense...................... 3,513 3,926 1,223 2,326 2,845 2,056 2,400
Income (Loss) Before Taxes and
Extraordinary Item.................. (2,533) 1,215 7,140 15,435 35,389 14,500 10,484
Income (Loss) Before Extraordinary
Item................................ (2,533) 1,215 4,646 9,464 21,326 8,640 6,174
Extraordinary Item, net of tax(2)..... -- -- 1,230 -- -- -- --
Net Income (Loss)..................... $ (2,533) $ 1,215 $ 3,416 $ 9,464 $ 21,326 $ 8,640 $ 6,174
---------- ---------- ---------- ---------- ---------- --------- ---------
---------- ---------- ---------- ---------- ---------- --------- ---------
Net Income (Loss) Per Share........... $ (0.86) $ 0.40 $ 0.72 $ 1.73 $ 3.87 $ 1.57 $ 1.11
---------- ---------- ---------- ---------- ---------- --------- ---------
---------- ---------- ---------- ---------- ---------- --------- ---------
Net Income (Loss) Per Share Excluding
Extraordinary Item and Other
Income(1)(2)........................ $ (0.86) $ 0.40 $ 0.98 $ 1.02 $ 0.92 $ 0.42 $ 1.11
---------- ---------- ---------- ---------- ---------- --------- ---------
---------- ---------- ---------- ---------- ---------- --------- ---------
Weighted Average Common Shares
Outstanding......................... 2,958,398 3,026,866 4,757,607 5,477,881 5,516,597 5,512,547 5,562,822
SUPPLEMENTAL DATA:
Depreciation and Amortization......... $ 6,521 $ 5,130 $ 4,541 $ 6,067 $ 7,411 $ 5,283 $ 6,376
Capital Expenditures(3)............... 1,920 4,841 7,524 12,837 12,740 8,892 9,594
Number of Foundries at Period End..... 1 1 3 7 9 9 13
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1997
----------------------------
ACTUAL AS ADJUSTED(4)
-------- ------------------
<S> <C> <C>
BALANCE SHEET DATA:
Working Capital.................................................. $ 40,516 $ 51,972
Total Assets..................................................... 195,532 206,988
Long-Term Obligations............................................ 53,269 28,469
Total Stockholders' Equity....................................... 80,822 117,078
</TABLE>
- ---------------
(1) Other income consists of $6.4 million, $27.0 million and $10.3 million ($3.9
million, $16.2 million and $6.3 million net of tax or $0.71, $2.95 and $1.15
per share), for fiscal 1995, fiscal 1996 and the nine months ended March 31,
1996, respectively, consisting primarily of insurance proceeds related to
the July 1993 Missouri River flood. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--General."
(2) In connection with the repayment in October 1993 of substantially all of the
Company's interest-bearing indebtedness with the net proceeds of the
Company's initial public offering of Common Stock, the Company recorded an
extraordinary charge to income in the amount of approximately $1.2 million
(net of related income tax benefit of $787,000), relating to the early
retirement of debt and the write-off of deferred financing charges.
(3) During fiscal 1994, fiscal 1995 and fiscal 1996, the Company made capital
expenditures of $4.7 million, $8.1 million and $1.8 million, respectively,
in connection with the refurbishment of The Amite Foundry and Machine Shop
("Amite"). This 282,000 square foot facility was acquired in February 1993
and had been inactive for several years.
(4) As adjusted to give effect to the sale of 2,029,024 shares of Common Stock
offered by the Company hereby, assuming a public offering price of $19.00
per share, after deducting underwriting discounts, commissions and estimated
offering expenses and the application of the net proceeds therefrom, as
described in "Use of Proceeds."
6
<PAGE>
RISK FACTORS
Prospective investors should consider carefully the following risk factors,
in addition to the other information set forth or incorporated by reference in
this Prospectus, in connection with an investment in the Common Stock offered
hereby.
This Prospectus contains forward-looking statements. These statements are
subject to certain risks and uncertainties that could cause actual results to
differ materially from those anticipated in the forward-looking statements.
Factors that might cause such a difference include, but are not limited to,
those discussed in the following risk factors.
Readers should not place undue reliance on forward-looking statements, which
reflect management's view only as of the date hereof. The Company undertakes no
obligation to publicly revise these forward-looking statements to reflect
subsequent events or circumstances. Readers should also carefully review the
information described in other documents the Company has filed with the
Commission incorporated by reference herein.
CYCLICALITY
The Company's business is subject to cyclical fluctuations based on general
economic conditions and the economic conditions of the capital goods industry in
particular. Future recessions in the market for capital goods could have a
material adverse effect on the Company's financial condition and results of
operations.
FLUCTUATIONS IN QUARTERLY RESULTS; SEASONALITY
Due to the large size of certain orders, the timing for deliveries of orders
and the number and types of castings produced, the Company's net sales and net
income may fluctuate materially from quarter to quarter. The Company's operating
results may be adversely affected in fiscal quarters immediately following the
consummation of an acquisition while the operations of the acquired business are
integrated into the operations of the Company. Successful assimilation of
acquired businesses will be dependent upon integration of the acquired
companies' operations and customers. Generally, the first fiscal quarter is
seasonally weaker than the other quarters as a result of plant shutdowns for
maintenance at most of the Company's foundries as well as at many customers'
plants.
COMPETITION
The Company faces strong competitors in most of its markets. Competitive
factors include price, delivery and quality; however, breadth of capabilities
and customer service have become increasingly important. Some of the Company's
competitors may have greater financial resources than the Company; others may
have lower costs than the Company. There can be no assurance that existing or
potential competitors will not substantially increase their resources devoted to
the development and marketing of products competitive with those of the Company.
Competitors in regions such as China, India, Mexico and Eastern Europe may have
lower costs, including labor costs, than the Company. See "Business--
Competition."
CUSTOMER CONCENTRATION
Historically, a small number of customers accounted for a substantial
percentage of the Company's net sales. In fiscal 1996, Caterpillar accounted for
13.4% of net sales. While the next nine largest customers accounted for 32.2% of
net sales in fiscal 1996, no single customer accounted for more than 7.2% of net
sales. A significant reduction of purchases by any one of these customers could
have a material adverse effect on the Company's financial condition and results
of operations.
7
<PAGE>
ACQUISITIONS
The Company's ability to significantly increase revenue and operating cash
flow over time depends in large part upon its success in acquiring foundries
upon satisfactory terms. There can be no assurance that suitable foundry
opportunities will be available or that, because of competition from other
purchasers or other reasons, the Company will be able to consummate acquisitions
on satisfactory terms or to obtain necessary acquisition financing. In addition,
acquisitions may be dilutive and may initially have an adverse effect on the
Company's operating results and financial condition while the operations of the
acquired businesses are being integrated into the Company's operations. To
successfully implement its acquisition strategy, the Company must integrate
acquired foundries with its existing operations. As the Company grows, there can
be no assurance that a large number of additional foundries can be readily
assimilated into the Company's operating structure. Inability to efficiently
integrate foundries could have a material adverse effect on the Company's
financial condition and results of operations. See "Business--Corporate
Strategy."
ENVIRONMENTAL AND REGULATORY CONCERNS
The Company is subject to numerous laws and regulations that govern
environmental issues, workplace safety, equal employment opportunities and other
aspects of the Company's business. Furthermore, many of the Company's facilities
are located in or near residential areas. The Company believes that it is in
material compliance with applicable environmental laws and regulations and is
not aware of any outstanding violations or citations with respect thereto at any
of its facilities. Nonetheless, as the Company evaluates and updates the
environmental compliance programs at foundry facilities recently acquired, the
Company may become aware of matters of non-compliance that may need to be
addressed or corrected. The Company's operations entail the risk of future
noncompliance with environmental and other government regulations. The cost of
complying with various environmental regulations is likely to increase over
time, and there can be no assurance that the cost of compliance will not have a
material adverse effect on the Company's financial condition and results of
operations. See "Business--Environmental Regulations."
DEPENDENCE ON KEY PERSONNEL
The Company has been dependent on certain key management personnel in the
past, and has relied upon a relatively small corporate staff, comprised of the
chief executive officer, the chief financial officer and other executives. The
Company's ability to implement its acquisition strategy and maintain its
competitive position will depend to some degree upon its ability to retain these
key managers and to continue to attract and retain highly qualified managerial,
manufacturing and sales and marketing personnel. There can be no assurance that
the loss of key personnel would not have a material adverse effect on the
Company's financial condition and results of operations or that the Company will
be able to recruit and retain such personnel. See "Management."
LABOR RELATIONS
Labor unions represent employees at a majority of the Company's foundries.
Although the Company believes that its labor relations are satisfactory, there
can be no assurance that a work stoppage will not occur in the future in
connection with contract negotiations or otherwise, which could have a material
adverse effect on the Company's financial condition and results of operations.
There can also be no assurance that a work stoppage at one of the Company's
major customers would not have a material adverse effect on the Company's
financial condition and results of operations. See "Business--Employee and Labor
Relations."
8
<PAGE>
PRODUCT WARRANTY AND LIABILITY CLAIMS
The Company's standard warranty and back-charge policy is to replace or
repair defective castings or to authorize the customer to perform the repair at
the Company's expense (in order to minimize freight costs and the time
associated therewith). New products are more likely to generate warranty claims
during start-up than long-established products. Historically, the costs
associated with the Company's warranty policy have not had a material effect on
its results of operations. However, the incidence of product warranty claims and
the costs associated therewith could increase as the Company expands its
customer base and introduces new products. See "Business--Product Warranty." In
addition, the Company's castings are used as components in locomotives, mass
transit systems, gas and steam turbines and other equipment. Although the
Company has not experienced any significant product liability claims, the
Company has a risk of exposure to product liability claims. Product liability
insurance is maintained, but there can be no assurance that insurance coverage
will continue to be available on terms acceptable to the Company or that such
coverage will be adequate for any liabilities that might be incurred.
CURRENCY EXCHANGE RATES
Although the Company sells its products primarily to customers in the United
States and Canada, a stronger U.S. dollar could result in greater competition
from foreign competitors and a loss of demand from the Company's customers which
export a portion of their products.
ANTI-TAKEOVER PROVISIONS
The Company's Articles of Incorporation, among other things: (i) classify
the Board of Directors into three classes, with directors of each class serving
for succeeding three-year terms; (ii) require a supermajority vote to remove
directors; (iii) require a supermajority vote to approve certain extraordinary
corporate transactions, including a merger, consolidation and sale of
substantially all of the Company's assets; and (iv) eliminate the right of the
stockholders to act by written consent without a meeting. Such provisions would
make the removal of incumbent directors more difficult and time consuming and
may have the effect of discouraging a tender offer or other takeover attempt by
a third party. See "Description of Capital Stock--Kansas Anti-Takeover Law and
Certain Charter Provisions."
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the
2,029,024 shares of Common Stock offered by the Company hereby, based on an
assumed offering price of $19.00 per share and, after deducting underwriting
discounts and estimated offering expenses payable by the Company, are estimated
to be approximately $36.3 million ($46.5 million if the Underwriters'
over-allotment option granted by the Company is exercised in full).
The Company intends to use the net proceeds to reduce the Company's
outstanding bank indebtedness previously incurred for acquisitions and the
balance, if any, will be used to fund future acquisitions. At March 31, 1997,
the Company had outstanding borrowings under its revolving bank credit facility
of approximately $24.8 million bearing interest at a weighted average annual
rate of 6.9%, all of which indebtedness matures on July 29, 2000. All of the
loan proceeds received during the last twelve months were used for acquisitions
of foundries. The repayment of such sums will not reduce the availability of
borrowings under this bank credit facility.
As an important part of the Company's growth strategy, the Company evaluates
on an ongoing basis potential industry-related acquisitions. While the Company
has not at the present time entered into any definitive agreement contemplating
any such acquisition, the Company is currently in various stages of negotiations
with potential acquisition candidates, including the letter of intent to
purchase BCD. See "Prospectus Summary--Recent Developments." There can be no
assurance as to whether or when any such negotiations will ultimately culminate
in a definitive agreement or, if a definitive agreement is
9
<PAGE>
reached, whether any such acquisition will ultimately be consummated. To
complete any such acquisition, the Company may be required to obtain additional
debt financing. The terms and amount of any such additional financing will
depend, among other things, upon market conditions at the time of such
financing.
The Company will not receive any proceeds from the sale of Common Stock by
the Selling Stockholder. See "Selling Stockholder." Pending application of the
net proceeds as described above, the Company intends to invest the net proceeds
in short-term, investment grade securities.
PRICE RANGE OF COMMON STOCK
The Common Stock was traded in the Nasdaq National Market under the symbol
"ACCX" from October 4, 1993 until December 11, 1996 when it began trading on the
New York Stock Exchange under the symbol "FDY." Prior to October 4, 1993 there
was no trading market for the Common Stock. The following table sets forth the
high and low sales prices for the shares of Common Stock on the Nasdaq National
Market and New York Stock Exchange for the periods indicated.
<TABLE>
<CAPTION>
HIGH LOW
----- ---
<S> <C> <C>
Fiscal Year ending June 30, 1995:
First Quarter.......................................................................... 171/4 131/2
Second Quarter......................................................................... 171/4 1411/16
Third Quarter.......................................................................... 177/8 143/4
Fourth Quarter......................................................................... 175/8 137/8
Fiscal Year ending June 30, 1996:
First Quarter.......................................................................... 181/4 141/8
Second Quarter......................................................................... 17 11
Third Quarter.......................................................................... 131/4 103/4
Fourth Quarter......................................................................... 153/4 127/16
Fiscal Year Ending June 30, 1997:
First Quarter.......................................................................... 161/4 13
Second Quarter......................................................................... 181/8 151/4
Third Quarter.......................................................................... 201/2 163/4
Fourth Quarter (through April 18, 1997).............................................. . 193/8 187/8
</TABLE>
On April 18, 1997, the last reported sales price for the Common Stock on the
New York Stock Exchange was $19.00 per share. As of April 18, 1997, there were
over 2,200 holders of the Common Stock, including shares held in nominee or
street name by brokers.
DIVIDEND POLICY
The Company has not declared or paid cash dividends on shares of its Common
Stock. The Company does not anticipate paying any cash dividends or other
distributions on its Common Stock in the foreseeable future. The current policy
of the Company's Board of Directors is to reinvest all earnings to finance the
expansion of the Company's business. The agreements governing the Company's
credit facility and $20 million senior notes contain limitations on the
Company's ability to pay dividends. See Note 8 of Notes to Consolidated
Financial Statements.
10
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at March
31, 1997 and as adjusted to give effect to the sale of the 2,029,024 shares of
Common Stock offered by the Company hereby (at an assumed offering price of
$19.00 per share and after deducting underwriting discounts and commissions and
estimated offering expenses payable by the Company) and the proposed application
of the estimated net proceeds therefrom. See "Use of Proceeds." This table
should be reviewed in conjunction with the Consolidated Financial Statements and
Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1997
-----------------------
ACTUAL AS ADJUSTED
---------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-Term Debt:
Bank Credit Agreement(1)............................................................... $ 24,800 $ --
8.44% Senior Notes..................................................................... 20,000 20,000
Other Long Term Debt................................................................... 8,469 8,469
---------- -----------
Total Long Term Debt................................................................. 53,269 28,469
Stockholders' Equity:
Common Stock, $.01 par value; 19,300,000 shares authorized; 5,540,422 shares issued and
outstanding; 7,569,446 shares issued and outstanding, as adjusted(2)................. 56 76
Additional paid-in capital............................................................. 42,325 78,561
Retained Earnings...................................................................... 38,886 38,886
Minimum Pension Liability Adjustment(3)................................................ (293) (293)
Accumulated Foreign Currency Translation Adjustments................................... (152) (152)
---------- -----------
Total Stockholders' Equity........................................................... 80,822 117,078
---------- -----------
Total Capitalization................................................................. $ 134,091 $ 145,547
---------- -----------
---------- -----------
</TABLE>
- ------------
(1) The Company has amended its revolving credit facility to increase the amount
of available borrowings from $40 million to $60 million for general
corporate purposes, acquisitions and approved investments and to extend the
date of maturity from July 29, 1998 to July 29, 2000.
(2) Does not include 284,399 shares subject to outstanding options at March 31,
1997, of which approximately 156,000 shares were subject to exercisable
options at a weighted average exercise price per share of $13.51.
(3) See Note 12 of Notes to Consolidated Financial Statements.
11
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following table contains certain selected historical consolidated
financial information and is qualified by the more detailed Consolidated
Financial Statements and Notes thereto included and incorporated by reference
elsewhere in this Prospectus. The selected consolidated financial information
for fiscal years ended June 30, 1992, 1993, 1994, 1995 and 1996 has been derived
from audited consolidated financial statements. The selected financial
information for the nine months ended March 31, 1996 and 1997 are derived from
unaudited financial statements and, in the opinion of management, include all
adjustments consisting solely of normal recurring adjustments necessary for a
fair presentation for such periods. The information below should be read in
conjunction with Consolidated Financial Statements and Notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEAR ENDED JUNE 30, MARCH 31,
----------------------------------------------------- --------------------
1992 1993 1994 1995 1996 1996 1997
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net Sales................................. $ 54,729 $ 66,591 $ 82,519 $ 141,579 $ 185,081 $ 130,000 $ 176,933
Cost of Sales............................. 47,762 54,321 66,304 115,458 156,612 111,547 148,205
--------- --------- --------- --------- --------- --------- ---------
Gross Profit.......................... 6,967 12,270 16,215 26,121 28,469 18,453 28,728
Operating Expenses:
Selling, General & Administrative....... 4,844 5,986 6,581 13,058 15,459 10,911 15,230
Amortization of Intangibles............. 1,143 1,143 1,209 1,392 1,508 1,131 503
Other Income(1)......................... -- -- -- 6,370 26,957 10,282 --
--------- --------- --------- --------- --------- --------- ---------
Operating Income...................... 980 5,141 8,425 18,041 38,459 16,693 12,995
Interest Expense.......................... 3,513 3,926 1,223 2,326 2,845 2,056 2,400
Minority Interest in Net Income of
Subsidiary.............................. -- -- 62 280 225 137 111
--------- --------- --------- --------- --------- --------- ---------
Income (Loss) Before Taxes and
Extraordinary Item.................... (2,533) 1,215 7,140 15,435 35,389 14,500 10,484
Income Taxes.............................. -- -- 2,494 5,971 14,063 5,860 4,310
--------- --------- --------- --------- --------- --------- ---------
Income (Loss) Before Extraordinary
Item.................................. (2,533) 1,215 4,646 9,464 21,326 8,640 6,174
Extraordinary Item, net of tax(2)......... -- -- 1,230 -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Net Income (Loss)....................... $ (2,533) $ 1,215 $ 3,416 $ 9,464 $ 21,326 $ 8,640 $ 6,174
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Net Income (Loss) Per Share............... $ (0.86) $ 0.40 $ 0.72 $ 1.73 $ 3.87 $ 1.57 $ 1.11
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Net Income (Loss) Per Share Excluding
Extraordinary Item and
Other Income(1)(2)...................... $ (0.86) $ 0.40 $ 0.98 $ 1.02 $ 0.92 $ 0.42 $ 1.11
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Weighted Average Common Shares
Outstanding............................. 2,958,398 3,026,866 4,757,607 5,477,881 5,516,597 5,512,547 5,562,822
SUPPLEMENTAL DATA:
Depreciation and Amortization............. $ 6,521 $ 5,130 $ 4,541 $ 6,067 $ 7,411 $ 5,283 $ 6,376
Capital Expenditures(3)................... 1,920 4,841 7,524 12,837 12,740 8,892 9,594
Number of Foundries at Period End......... 1 1 3 7 9 9 13
BALANCE SHEET DATA (AT PERIOD END):
Working Capital........................... $ 1,337 $ 2,074 $ 19,240 $ 27,727 $ 36,419 $ 37,280 $ 40,516
Total Assets.............................. 50,022 52,004 87,217 130,287 162,184 158,805 195,532
Long-Term Obligations..................... 22,836 19,934 22,549 34,920 34,655 51,209 53,269
Total Stockholders' Equity................ 6,796 13,851 42,683 52,698 74,654 61,802 80,822
</TABLE>
- ---------------
(1) Other income consists of $6.4 million, $27.0 million and $10.3 million
($3.9 million $16.2 million and $6.3 million net of tax or $0.71, $2.95 and
$1.15 per share), for fiscal 1995, fiscal 1996 and the nine months ended
March 31, 1996, respectively, consisting primarily of insurance proceeds
related to the July 1993 Missouri River flood. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--General."
12
<PAGE>
(2) In connection with the repayment in October 1993 of substantially all of the
Company's interest-bearing indebtedness with the net proceeds of the
Company's initial public offering of Common Stock, the Company recorded an
extraordinary charge to income in the amount of approximately $1.2 million
(net of related income tax benefit of $787,000), relating to the early
retirement of debt and the write-off of deferred financing charges.
(3) During fiscal 1994, fiscal 1995 and fiscal 1996, the Company made capital
expenditures of $4.7 million, $8.1 million and $1.8 million, respectively,
in connection with the refurbishment of Amite. This 282,000 square foot
facility was acquired in February 1993 and had been inactive for several
years.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company has pursued an active acquisition program designed to take
advantage of consolidation opportunities in the widely-fragmented foundry
industry. The Company has acquired thirteen foundries since its inception. As a
result of these completed transactions as well as internal growth, the Company's
net sales have increased from approximately $54.7 million for its fiscal year
ended June 30, 1992 to $185.1 million for the fiscal year ended June 30, 1996.
Due to the large size of certain orders, the timing for deliveries of orders
and the number and types of castings produced, the Company's net sales and net
income may fluctuate materially from quarter to quarter. Generally, the first
fiscal quarter is seasonally weaker than the other quarters as a result of plant
shutdowns for maintenance at most of the Company's foundries as well as at many
customers' plants. See "--Supplemental Quarterly Information."
During July 1993, flooding of the Missouri River halted production of the
Company's Atchison, Kansas foundry for four weeks, negatively impacting
operating results. Although the Company was able to resume production at the
Atchison facility without a significant loss of existing orders, the 1993 flood
has had a continuing negative effect on productivity and sales due to increased
equipment maintenance, production downtime and employee overtime. The Company
constructed a flood wall surrounding the Atchison facility that the Company
believes has significantly reduced the risk of future flood damage.
On April 11, 1996, the Company and its insurance carrier reached final
settlement of the Company's claim filed as a result of the flood. During fiscal
1995 and fiscal 1996, the Company recorded payments on the business interruption
portion of its insurance claim in the amount of $6.6 million and $11.1 million,
respectively, which amounts have been included in "Other Income" in the
Company's Statement of Operations. The Company also recorded, in fiscal 1996,
payments on the casualty portion of its insurance claim in the amount of $18.2
million, of which $16.2 million has been recorded as "Other Income" in the
Company's Statement of Operations. The Company also recorded $5.5 million and
$2.0 million in advances during fiscal 1995 and fiscal 1996, respectively,
against future repair expenses, which amounts have been classified as accrued
expenses on the Company's Balance Sheet. Following the flood, the Company was
unable to renew its flood insurance coverage at reasonable rates for this
facility.
RESULTS OF OPERATIONS
The following discussion of the Company's financial condition and results of
operations should be read in conjunction with the Consolidated Financial
Statements and Notes thereto and other financial information included elsewhere
in this Prospectus.
NINE MONTHS ENDED MARCH 31, 1997 COMPARED TO NINE MONTHS ENDED MARCH 31, 1996
Net sales for the first nine months of fiscal 1997 were $176.9 million,
representing an increase of $46.9 million, or 36.1%, over net sales of $130.0
million in the first nine months of fiscal 1996. The operations acquired by the
Company since the beginning of fiscal 1996 generated net sales of $6.4 million
and $47.6 million in the first nine months of fiscal 1996 and fiscal 1997,
respectively, as follows:
<TABLE>
<CAPTION>
FY 1996 FY 1997
FIRST NINE FIRST NINE
MONTHS MONTHS
OPERATION DATE ACQUIRED NET SALES NET SALES
- --------------------------------------------------------------- ------------- --------------- ---------------
<S> <C> <C> <C>
La Grange Foundry Inc.......................................... 12/14/95 $ 5.6 million $17.5 million
The G&C Foundry Company........................................ 03/11/96 0.8 million 10.2 million
Los Angeles Die Casting Inc.................................... 10/01/96 -- 4.5 million
Canada Alloy Castings, Ltd..................................... 10/26/96 -- 4.4 million
Pennsylvania Steel Foundry & Machine Company................... 10/31/96 -- 9.3 million
Jahn Foundry Corp.............................................. 02/14/97 -- 1.7 million
</TABLE>
14
<PAGE>
Excluding net sales generated by the operations acquired in fiscal 1996 and
fiscal 1997, net sales for the first nine months of fiscal 1997 were $129.3
million, representing an increase of $5.7 million, or 4.6%, over net sales of
$123.6 million in the first nine months of fiscal 1996. This 4.6% increase in
net sales was due primarily to increases in net sales to the mining and
construction and energy markets, partially offset by decreases in net sales to
the utility, military and locomotive markets.
Gross profit for the first nine months of fiscal 1997 increased by $10.2
million, or 55.1%, to $28.7 million, or 16.2% of net sales, compared to $18.5
million, or 14.2% of net sales, for the first nine months of fiscal 1996. The
increase in gross profit is primarily attributable to the increase in net sales.
The increase in gross profit as a percentage of net sales is primarily
attributable to the inclusion in the prior year period of: (i) the completion,
at Canadian Steel Foundries, Ltd. ("Canadian Steel"), of several negative margin
orders which were accepted prior to the acquisition of Canadian Steel by the
Company; (ii) costs associated with the start-up of the Company's Amite facility
in Louisiana and non-recurring costs associated with the transfer to that
facility of production from a foundry purchased in May 1995; and (iii) above
average training expenses associated with the start-up of new products.
Partially offsetting these factors were lost production and expenses associated
with the conversion from cupola to electric melting at The G&C Foundry Company
("G&C") and costs associated with the addition of iron casting capability at
Empire Steel Castings, Inc. ("Empire"). The increase in gross profit as a
percentage of net sales is also attributable to higher maintenance costs in the
first nine months of fiscal 1996 associated with deferred maintenance expense on
two newly acquired foundries and increased maintenance costs related to
regularly scheduled July shut-downs at the Company's other facilities.
For the first nine months of fiscal 1997, selling, general and
administrative expenses were $15.2 million, or 8.6% of net sales, compared to
$10.9 million or 8.4% of net sales, for the first nine months of fiscal 1996.
The increase in selling, general and administrative expense was primarily
attributable to expenses associated with the operations acquired by the Company
in fiscal 1996 and fiscal 1997. The increase in selling, general and
administrative expense as a percentage of net sales was primarily attributable
to increased expenses related to the Company's management incentive bonus plans
and increased expenses related to identifying and completing the Company's
acquisitions.
Amortization of certain intangibles for the first nine months of fiscal 1997
was $503,000, or 0.3% of net sales, as compared to $1.1 million, or 0.9% of net
sales, for the first nine months of fiscal 1996. The intangible assets consist
of goodwill recorded in connection with the acquisitions of Prospect Foundry,
Inc. ("Prospect Foundry"), Kramer International, Inc. ("Kramer"), Empire, G&C
and Los Angeles Die Casting Inc. ("LA Die Casting"). During fiscal 1996, the
intangible assets included the capitalized value of a non-compete agreement with
Rockwell International, which became fully amortized in June 1996. Partially
offsetting the expense relating to the amortization of these assets is the
amortization of the excess of acquired net assets over cost (negative goodwill)
recorded by the Company in connection with the acquisition of Canadian Steel.
Other income in the first nine months of fiscal 1996 was $10.3 million ($6.3
million, net of related income tax expense of $4.0 million), consisting
primarily of partial payments by the Company's insurance carrier. The payments
by the Company's insurance carrier resulted from the business interruption
portion of the Company's insurance claim filed as a result of the July 1993
Missouri River flood.
For the first nine months of fiscal 1997, interest expense increased to $2.4
million, or 1.4% of net sales, from $2.1 million, or 1.6% of net sales, in the
first nine months of fiscal 1996. The increase in interest expense is primarily
the result of an increase in the average amount of indebtedness outstanding. The
increase in the average amount of outstanding indebtedness is primarily a result
of the Company's acquisitions.
Income tax expense for the first nine months of fiscal 1997 has been
provided at the combined federal and state statutory rate of approximately 41%.
Income tax expense for the first nine months of fiscal 1996 has been provided at
the combined federal and state statutory rate of approximately 40%.
15
<PAGE>
As a result of the foregoing factors, net income for the first nine months
of fiscal 1997 was $6.2 million, compared to net income of $8.6 million for the
first nine months of fiscal 1996. Without other income resulting from flood
insurance payments, net income was $6.2 million for the first nine months of
fiscal 1997 compared to $2.3 million for the prior year period.
FISCAL YEAR ENDED JUNE 30, 1996 COMPARED TO FISCAL YEAR ENDED JUNE 30, 1995
Net sales for fiscal 1996 were $185.1 million, representing an increase of
$43.5 million, or 30.7%, over net sales of $141.6 million in fiscal 1995. The
operations acquired by the Company in fiscal 1995 and fiscal 1996 generated net
sales of $16.5 million and $59.3 million, respectively, as follows:
<TABLE>
<CAPTION>
FY 1995 FY 1996
OPERATION DATE ACQUIRED NET SALES NET SALES
- ------------------------------------------------------------------ ------------- ------------- ---------------
<S> <C> <C> <C>
Canadian Steel.................................................... 11/30/94 $ 7.2 million $ 18.3 million
Kramer............................................................ 01/03/95 5.3 million 12.8 million
Empire............................................................ 02/01/95 4.0 million 13.4 million
La Grange Foundry Inc............................................. 12/14/95 -- 10.9 million
G&C............................................................... 03/11/96 -- 3.9 million
</TABLE>
Excluding net sales attributable to the operations acquired in fiscal 1995
and fiscal 1996, net sales for fiscal 1996 were $125.8 million, representing an
increase of $700,000, or 0.6%, over net sales of $125.1 million in fiscal 1995.
This 0.6% increase in net sales was due primarily to increases in net sales to
the mining and construction, energy and utility markets, offset by decreases in
net sales to the locomotive, mass transit and trucking markets. In addition, the
Company recorded, in the first quarter of fiscal 1995, a non-recurring sale of
casting technology to Indian Railways of $746,000.
Gross profit for fiscal 1996 increased by $2.3 million, or 9.0%, to $28.4
million, or 15.4% of net sales, compared to $26.1 million, or 18.4% of net sales
for fiscal 1995. The increase in gross profit was primarily due to the increase
in net sales. The decrease in gross profit as a percentage of net sales was
attributable to: (i) the continuing start-up of the Company's Amite facility in
Louisiana and non-recurring costs associated with the transfer to that facility
of production from another foundry in May 1995; (ii) the completion, at Canadian
Steel, of several negative margin orders which were accepted prior to the
acquisition of Canadian Steel by the Company; (iii) a change in product mix
toward products which have a lower gross profit as a percentage of net sales;
(iv) higher maintenance costs associated with deferred maintenance expense on
two newly acquired foundries and increased maintenance costs related to
regularly scheduled July shutdowns at the Company's other foundries; (v) above
average training expenses associated with the start-up of new products; and (vi)
a non-recurring sale in the first quarter of fiscal 1995 to Indian Railways of
$746,000, which sale had a much higher gross profit as a percentage of net sales
than the Company's average.
Selling, general and administrative expenses for fiscal 1996 were $15.5
million, or 8.4% of net sales, as compared to $13.1 million, or 9.2% of net
sales, in fiscal 1995. The increase in selling, general and administrative
expenses was primarily attributable to expenses associated with the operations
acquired by the Company in fiscal 1995 and fiscal 1996. The decrease in selling,
general and administrative expense as a percentage of net sales was primarily
attributable to decreased expenditures for outside professional services.
Amortization of certain intangibles for fiscal 1996 was $1.5 million, or
0.8% of net sales, as compared to $1.4 million, or 1.0% of net sales, in fiscal
1995. The intangible assets consisted of the capitalized value of a non-compete
agreement with Rockwell International, which became fully amortized in June
1996, and goodwill recorded in connection with the acquisitions of Prospect
Foundry, Kramer, Empire and G&C. Partially offsetting the expense relating to
the amortization of these assets is the amortization of the excess
16
<PAGE>
of acquired net assets over cost (negative goodwill) recorded by the Company in
connection with the acquisition of Canadian Steel.
Other income for fiscal 1996 was $27.0 million ($16.2 million, net of
related income tax expense of $10.8 million), consisting primarily of insurance
payments for business interruption and property damage. The Company's insurance
claim was filed as a result of the July 1993 Missouri River flood.
Interest expense for fiscal 1996 increased to $2.8 million, or 1.5% of net
sales, from $2.3 million, or 1.6% of net sales, in fiscal 1995. The increase in
interest expense is the result of an increase in the average amount of
indebtedness outstanding. The increase in the average amount of outstanding
indebtedness is primarily a result of the Company's acquisitions.
Income tax expense for fiscal 1996 reflected the combined federal and state
statutory rate of approximately 40%. Income tax expense for fiscal 1995
reflected the combined federal and state statutory rate of approximately 39%.
As a result of the foregoing factors, net income increased by $11.8 million,
from net income of $9.5 million in fiscal 1995 to net income of $21.3 million in
fiscal 1996. Excluding other income, net income decreased from $5.6 million in
fiscal 1995 to $5.1 million in fiscal 1996.
FISCAL YEAR ENDED JUNE 30, 1995 COMPARED TO FISCAL YEAR ENDED JUNE 30, 1994
Net sales for fiscal 1995 were $141.6 million, representing an increase of
$59.1 million, or 71.6%, over net sales of $82.5 million in fiscal 1994. The
operations acquired by the Company in fiscal 1994 and fiscal 1995 generated net
sales of $8.3 million and $59.7 million, respectively, as follows:
<TABLE>
<CAPTION>
FY 1994 FY 1995
OPERATION DATE ACQUIRED NET SALES NET SALES
- ------------------------------------------------------------------ ------------- ------------- ---------------
<S> <C> <C> <C>
Prospect Foundry.................................................. 04/01/94 $ 7.0 million $ 28.8 million
Quaker Alloy, Inc................................................. 06/01/94 1.3 million 14.4 million
Canadian Steel.................................................... 11/30/94 -- 7.2 million
Kramer............................................................ 01/03/95 -- 5.3 million
Empire............................................................ 02/01/95 -- 4.0 million
</TABLE>
Excluding net sales attributable to the operations acquired in fiscal 1994
and fiscal 1995, net sales for fiscal 1995 were $81.9 million, representing an
increase of $7.7 million, or 10.4%, over net sales of $74.2 million in fiscal
1994. This 10.4% increase in net sales was due primarily to increases in net
sales to the locomotive, mass transit and mining and construction markets,
partially offset by decreases in net sales to the military markets. In addition,
the Company recorded, in the first quarter of fiscal 1995, a non-recurring sale
of casting technology to Indian Railways of $746,000.
Gross profit for fiscal 1995 increased by $9.9 million, or 61.1%, to $26.1
million, or 18.4% of net sales, compared to $16.2 million, or 19.7% of net
sales. The increase in gross profit was primarily due to the increase in net
sales. The decrease in gross profit as a percentage of net sales was
attributable to: (i) a change in product mix toward product segments which have
a lower gross profit as a percentage of net sales; (ii) expenses associated with
the start-up of the Company's Amite subsidiary; and (iii) higher than normal
training expenses associated with employees hired in response to the increased
production volume levels. Partially offsetting these factors was a non-recurring
sale in the first quarter of fiscal 1995 to Indian Railways of $746,000, which
sale had a much higher gross profit as a percentage of net sales than the
Company's average.
Selling, general and administrative expenses for fiscal 1995 were $13.1
million, or 9.2% of net sales, as compared to $6.6 million, or 8.0% of net
sales, in fiscal 1994. The increase in selling, general and administrative
expenses was primarily attributable to expenses associated with the operations
acquired by the Company since April 1, 1994. The increase in selling, general
and administrative expense as a
17
<PAGE>
percentage of net sales was primarily attributable to: (i) increased overall
expenditure levels at Amite in response to the start-up of the Amite facility;
(ii) increased expenditures for outside professional services and (iii)
increased compensation under the Company's incentive bonus plans. Selling,
general and administrative expenses as a percentage of net sales also increased
due to four weeks of the Company's first quarter of fiscal 1994 expenditures
being covered by the Company's flood insurance policies.
Amortization of certain intangibles for fiscal 1995 was $1.4 million, or
1.0% of net sales, as compared to $1.2 million, or 1.5% of net sales, in fiscal
1994. The intangible assets consist of the capitalized value of a non-compete
agreement with Rockwell International recorded in connection with the
acquisition of the Atchison/St. Joe Division and goodwill recorded in connection
with the acquisitions of Prospect Foundry, Kramer and Empire. Partially
offsetting the expense relating to the amortization of these assets is the
amortization of the excess of acquired net assets over cost (negative goodwill)
recorded by the Company in connection with the acquisition of Canadian Steel.
Other income for fiscal 1995 was $6.4 million ($3.9 million, net of related
income tax expenses of $2.5 million), consisting primarily of partial payments
by the Company's insurance carrier against the business interruption portion of
the Company's insurance claim filed as a result of the July 1993 Missouri River
flood.
Interest expense for fiscal 1995 increased to $2.3 million, or 1.6% of net
sales, from $1.2 million, or 1.5% of net sales, in fiscal 1994. The increase in
interest expense is the result of an increase in the average amount of
indebtedness outstanding, partially offset by lower average interest rates on
the Company's outstanding indebtedness. The increase in the average amount of
outstanding indebtedness is primarily a result of the Company's acquisitions and
the start-up of Amite.
Income tax expense for fiscal 1995 has been provided at the combined federal
and state statutory rate of approximately 39.0%. Income tax expense for fiscal
1994 was provided at approximately a 34.9% rate based upon the taxable income of
the Company, the usage of net operating loss carryforwards and the elimination
of the valuation allowance previously established by the Company.
There were no extraordinary charges in fiscal 1995. In connection with the
repayment of indebtedness with the proceeds of the Company's initial public
offering of Common Stock, the Company recorded in fiscal 1994 an extraordinary
charge to income in the amount of approximately $1.2 million (net of related
income tax benefit of $787,000), relating to the early retirement of debt and
the write-off of deferred financing charges.
As a result of the foregoing factors, net income increased by $6.1 million,
from net income of $3.4 million in fiscal 1994 to net income of $9.5 million in
fiscal 1995. Excluding other income and extraordinary items, net income
increased from $4.6 million in fiscal 1994 to $5.6 million in fiscal 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically financed operations with internally generated
funds, proceeds from the sale of senior notes and available borrowings under its
bank credit facilities. Cash provided by operating activities for the first nine
months of fiscal 1997 was $14.4 million, an increase of $3.2 million from the
first nine months of fiscal 1996. This increase was primarily attributable to
decreased working capital requirements primarily relating to reduced trade
receivable and inventory balances. Cash provided by operating activities for
fiscal 1996 was $36.6 million, an increase of $21.0 million from fiscal 1995.
This increase was primarily attributable to increases in net income and net
deferred income tax payable balances. The Company's results for fiscal 1996
included $27.3 million ($16.3 million, net of related income tax expense of
$11.0 million) of insurance payments, as described above.
Working capital was $40.5 million at March 31, 1997, as compared to $36.4
million at June 30, 1996. The increase primarily resulted from net additional
working capital of $11.1 million associated with the Company's acquisitions,
partially offset by the application of existing cash balances to outstanding
long-
18
<PAGE>
term indebtedness balances. Working capital was $36.4 million at June 30, 1996,
as compared to $27.7 million at June 30, 1995. The increase primarily resulted
from net additional working capital of $1.2 million and $2.2 million associated
with the newly acquired La Grange Foundry Inc. ("La Grange Foundry") and G&C
operations, respectively, and an increase in cash balances resulting from
insurance payments.
The Company expects to incur approximately $13.5 million of capital
expenditures during fiscal 1997 primarily related to productivity enhancing
equipment, such as new mold lines, CNC pattern-cutting machines, machine tools,
sand reclamation systems and computer hardware and software modeling systems.
During the first nine months of fiscal 1997, the Company made capital
expenditures of $9.6 million, as compared to $8.9 million for the first nine
months of fiscal 1996. Included in the first nine months of fiscal 1997 were
capital expenditures of $2.0 million at G&C, primarily relating to the
conversion from cupola to electric melting. The balance of capital expenditures
was used for routine projects at each of the Company's facilities. During fiscal
1996, the Company made capital expenditures of $12.7 million, as compared to
$12.8 million in fiscal 1995. In fiscal 1996, the Company made capital
expenditures for routine projects at each of the Company's facilities. In fiscal
1995, the Company made capital expenditures of $8.1 million at the Amite
foundry, which became operational in late October 1994. The balance of capital
expenditures during fiscal 1995 was used primarily for routine projects at the
Atchison, Kansas foundry, the St. Joseph, Missouri machine shop, Prospect
Foundry and Quaker Alloy, Inc. ("Quaker Alloy").
The Company's revolving credit facility provides for unsecured loans of up
to $40 million and matures on July 29, 1998. Loans under this revolving credit
facility will bear interest at fluctuating rates of either: (i) the bank's
corporate base rate or (ii) LIBOR plus 1.50% subject, in the case of the LIBOR
rate option, to a reduction of up to 0.50% (50 basis points) if certain
financial ratios are met. At March 31, 1997, $6.0 million was available for
borrowing under this facility. The Company recently amended its revolving credit
facility to increase the amount of the facility to $60 million and to extend the
maturity date to July 29, 2000. Loans under this revolving credit facility may
be used for general corporate purposes, acquisitions and approved investments.
The recent amendment to the revolving credit facility provides that the Company
may not make acquisitions of foundries or related businesses without the prior
written consent of the banks holding two-thirds of the loan commitments unless
either (i) after giving effect to the acquisition, the Company's ratio of
consolidated total debt to total capitalization does not exceed 40% or (ii) once
the 40% threshold has been met in that fiscal year, the total aggregate
principal amount expended for all acquisitions thereafter in that fiscal year
does not exceed 25% of stockholders' equity as of the end of the preceding
fiscal year plus 25% of net proceeds received from the issuance of additional
equity during that fiscal year.
The Company believes that its operating cash flow and amounts available for
borrowing under its bank revolving credit facility will be adequate to fund its
capital expenditure and working capital requirements for the next two years.
However, the level of capital expenditure and working capital requirements may
be greater than currently anticipated as a result of the size and timing of
future acquisitions, or as a result of unforeseen expenditures relating to
compliance with environmental laws. Acquisitions have been financed with
borrowings under the Company's bank credit facilities and occasionally with
common stock. During the first nine months of fiscal 1997, the Company purchased
LA Die Casting, Canada Alloy Castings, Ltd. ("Canada Alloy"), Pennsylvania Steel
Foundry & Machine Company ("Pennsylvania Steel") and Jahn Foundry for $8.8
million, $4.4 million, $9.0 million and $6.2 million, respectively, in each case
with funds available under ACC's revolving credit facility. The Company has
executed a letter of intent to purchase BCD. See "Prospectus Summary--Recent
Developments."
This section entitled "Liquidity and Capital Resources" contains
forward-looking statements that involve a number of risks and uncertainties.
Such forward-looking statements include statements pertaining to the adequacy of
funding for capital expenditure and working capital requirements for the next
two years. In addition to the factors discussed in "Risk Factors" above, among
the factors that could cause actual results to differ materially from such
forward-looking statements are the following: business
19
<PAGE>
conditions and the state of the general economy, particularly the capital goods
industry, the strength of the dollar, the fluctuation of interest rates and the
competitive environment in the castings industry.
INFLATION
Management believes that the Company's operations have not been adversely
affected by inflation or changing prices.
NEW ACCOUNTING STANDARDS
For a discussion of new accounting standards, see Note 1 of the Company's
Notes to Consolidated Financial Statements.
SUPPLEMENTAL QUARTERLY INFORMATION
The Company's business is characterized by large unit and dollar volume
customer orders. As a result, the Company has experienced and may continue to
experience fluctuations in its net sales and net income from quarter to quarter.
Generally, the first fiscal quarter is seasonally weaker than the other quarters
as a result of plant shutdowns for maintenance at most of the Company's
foundries as well as at many customers' plants. In addition, the Company's
operating results may be adversely affected in fiscal quarters immediately
following the consummation of an acquisition while the operations of the
acquired business are integrated into the operations of the Company.
The following table presents selected unaudited supplemental quarterly
results for fiscal 1995, fiscal 1996 and the first nine months of fiscal 1997.
<TABLE>
<CAPTION>
FISCAL 1995 FISCAL 1996
QUARTERS ENDED QUARTERS ENDED
---------------------------------- ----------------------------------
SEPT. DEC. MAR. JUN. SEPT. DEC. MAR. JUN.
------- ------- ------- ------- ------- ------- ------- -------
(UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales........................................... $29,345 $32,424 $41,433 $38,377 $36,987 $40,683 $52,330 $55,081
Gross Profit........................................ 5,092 5,448 7,610 7,971 5,755 4,846 7,852 10,016
Other Income (Expense)(1)........................... 2,382 3,113 (220) 1,095 9,768 513 1 16,675
Operating Income.................................... 4,341 5,311 3,551 4,838 11,811 1,264 3,618 21,766
Net Income.......................................... $ 2,314 $ 2,870 $ 1,648 $ 2,632 $ 6,845 $ 332 $ 1,463 $12,686
------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- -------
Net Income Per Share................................ $ 0.42 $ 0.52 $ 0.30 $ 0.48 $ 1.24 $ 0.06 $ 0.27 $ 2.29
------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- -------
Net Income Per Share Excluding Other Income(1)...... $ 0.16 $ 0.18 $ 0.32 $ 0.36 $ 0.15 $ 0.00 $ 0.27 $ 0.50
------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- -------
<CAPTION>
FISCAL 1997
QUARTERS ENDED
-------------------------
SEPT. DEC. MAR.
------- ------- -------
(UNAUDITED)
<S> <C> <C> <C>
Net Sales........................................... $48,998 $61,622 $66,313
Gross Profit........................................ 6,641 10,111 11,976
Other Income (Expense)(1)........................... -- -- --
Operating Income.................................... 2,238 4,963 5,794
Net Income.......................................... $ 941 $ 2,371 $ 2,862
------- ------- -------
------- ------- -------
Net Income Per Share................................ $ 0.17 $ 0.43 $ 0.51
------- ------- -------
------- ------- -------
Net Income Per Share Excluding Other Income(1)...... $ 0.17 $ 0.43 $ 0.51
------- ------- -------
------- ------- -------
</TABLE>
- -------------
(1) Other Income (Expense) consists primarily of gains recorded by the Company
from settlement of the business interruption and casualty and property
damage resulting from the July 1993 Missouri River flood. The Company's
fiscal 1995 quarters ended September, December, March and June include gains
from the these recoveries of $2.4, $3.1, $0.0 and $1.1 million,
respectively. The Company's fiscal 1996 quarters ended September, December,
March and June include gains from these recoveries of $9.9, $0.7, $0.0 and
$16.7 million, respectively.
20
<PAGE>
BUSINESS
GENERAL
ACC manufactures highly engineered metal castings that are utilized in a
wide variety of products, such as tractor-crawlers, excavators, wheel-loaders,
gas, steam and hydroelectric turbines, pumps, valves, locomotives, subway cars,
automobiles, army tanks, navy ships, computer peripherals and consumer goods.
Having completed thirteen acquisitions since its inception in 1991, the Company
has established itself as a leading consolidator in the casting industry. As a
result of these acquisitions, the Company has the ability to produce castings
from a wide selection of materials, including carbon, low-alloy and stainless
steel, gray and ductile iron, aluminum and zinc, as well as the ability to
manufacture parts in a variety of sizes, ranging from small die cast components
for the computer industry that weigh a few ounces to large hydroelectric turbine
housings that weigh over sixty tons. Moreover, ACC has extensive tooling and
machining operations. The Company believes that its broad range of capabilities,
which addresses the needs of many different markets, provides a distinct
competitive advantage in the casting industry.
The Company was founded to pursue a strategy of growth and diversification
through acquisitions in the highly fragmented foundry industry. Following the
initial acquisition of the steel casting operations of Rockwell International in
1991, the Company has continued to acquire foundries in the U.S. and Canada. As
a result of these acquisitions, as well as internal growth, ACC's net sales have
increased from approximately $54.7 million in its first fiscal year ended June
30, 1992 to $185.1 million for the fiscal year ended June 30, 1996, resulting in
a compound annual growth rate of 36%.
Since 1991, the number of customers served by the Company has increased from
12 to more than 400, including companies such as Caterpillar, Gardner Denver,
General Motors, General Electric, Westinghouse, General Dynamics,
Ingersoll-Dresser, John Deere and Rockwell International. The Company has
received supplier excellence awards for quality from, or has been certified by,
substantially all of its principal customers. In addition to its presence in the
domestic market, a substantial amount of ACC's castings enter the international
marketplace as components in its customers' exported products.
The Company's favorable industry position is attributable to several
factors, including: (i) its use of new and advanced casting technologies; (ii)
its ability to cast substantially all types of iron and steel, as well as
aluminum and zinc; (iii) the Company's emphasis on customer service and
marketing; (iv) the limited number of foundries capable of producing steel
castings of the size and complexity produced by the Company; and (v) the
Company's position as a long-term supplier to many of its major customers.
INDUSTRY TRENDS
The American Foundryman's Society estimates that the U.S. casting industry
had shipments of approximately $22.6 billion in 1996, of which steel castings
accounted for approximately $3.3 billion, iron castings for approximately $10.3
billion and non-ferrous castings for approximately $9.0 billion. Approximately
14.5 and 14.0 million tons of castings were shipped in 1995 and 1996,
respectively. Recent estimates forecast approximately 3% growth in shipments in
each of 1997 and 1998. The Company has been able to grow at a rate substantially
in excess of the overall industry principally as a result of its position to
benefit from key trends affecting the casting industry, including the following:
INDUSTRY CONSOLIDATION.
Although still highly fragmented, the foundry industry has consolidated from
approximately 465 steel foundries and 1,400 iron foundries in 1982 to
approximately 290 and 700 foundries, respectively, in 1995. As the industry has
consolidated, capacity utilization has increased from approximately 45% in 1982
to more than 79% in 1996. This consolidation trend has been accompanied by
increased outsourcing of casting production and OEM supplier rationalization.
21
<PAGE>
OUTSOURCING. Many OEMs are outsourcing the manufacture of cast components
to independent foundries in an effort to reduce their capital and labor
requirements and to focus on their core businesses. Management believes that
captive foundries are often underutilized, inefficiently operated and lack the
latest technology. Several of ACC's OEM customers, such as Caterpillar, General
Motors, General Electric, Rockwell International, Ingersoll-Dresser and Gardner
Denver, have closed or sold one or more of their captive foundries during the
past ten years and have outsourced the castings which they once made to
independent suppliers such as the Company. As described above, the closure of
these facilities has contributed to increased capacity utilization at the
remaining foundries.
OEM SUPPLIER RATIONALIZATION. OEMs are rationalizing their supplier base to
fewer foundries that are capable of meeting increasingly complex requirements.
For example, OEMs are asking foundries to play a larger role in the design,
engineering and development of castings. In addition, some customers have
demanded that suppliers implement new technologies, adopt quality (ISO 9000 and
QS 9000) standards and make continuous productivity improvements. As a result,
many small, privately-owned businesses have chosen to sell their foundries
because they are unwilling or unable to make investments necessary to remain
competitive. Moreover, the EPA and OSHA require compliance with increasingly
stringent environmental and governmental regulations.
NEW CASTING TECHNOLOGY
Recent advances in casting technology and pattern-making have created new
opportunities for reducing costs while increasing efficiency and product
quality. The combination of powerful, low cost computer workstations with finite
element modeling software for stress analysis and metal solidification
simulation is helping foundries and customers to design castings that are
lighter, stronger and more easily manufactured at a competitive cost.
The Company believes new casting technologies have led to growth in casting
applications by replacing forgings and fabrications. In the past, despite
lighter, stronger and more stress and corrosion resistant features of castings,
fabricated (welded) components have been used in order to reduce tooling costs
and product development lead-time. New casting technology has helped to reduce
costs and shorten lead-times and has therefore increased the relative
attractiveness of cast components. For example, these improvements allowed an
ACC customer to replace a fabricated steel boom that is used in a typical mining
vehicle with one that is cast. The cast steel boom weighs 20% less than the
fabricated component that it replaced, allowing an increase in payload, as well
as product life. Another customer replaced the combination cast/fabricated body
of a rock crusher with a one-piece casting, reducing labor for machining,
cutting and welding as a result. An example of an application in which castings
have replaced forged products is the blow-out preventer that is used to control
a well "blow-out" during drilling. These products are required to comply with
stringent safety standards because blow-out preventers must be able to contain
pressures of 15,000 pounds per-square-inch. Due to lower costs and equally
stringent safety features made possible by new casting technologies, castings
have substantially replaced forgings for blow-out preventer bodies.
COMPANY STRATEGY
ACC is pursuing growth and diversification through a two-pronged approach
of: (i) making strategic acquisitions within the widely fragmented and
consolidating foundry industry; and (ii) integrating the acquired foundries by
applying ACC's management, operational and technical expertise.
STRATEGIC ACQUISITIONS
ACQUIRE LEADERS AND BUILD CRITICAL MASS. The Company initially seeks to
acquire foundries that are considered leaders in their respective sectors. After
acquiring a leader in a new market, ACC strives to make subsequent acquisitions
that further penetrate that market and take advantage of the leader's
22
<PAGE>
technical expertise. The Atchison/St. Joe Division is a leader in the field of
large, complex steel castings. This acquisition in 1991 provided credibility for
ACC's presence in the industry and established a base for add-on acquisitions.
Following the Atchison/St. Joe Division acquisition, the Company added capacity
and strengthened its base through the add-on acquisitions of Amite in 1993 and
Canadian Steel in 1994. As an additional example, Prospect Foundry was acquired
in 1994 due to its leading position in gray and ductile iron casting production.
The subsequent acquisition of La Grange Foundry in 1995 further enhanced ACC's
position in this market.
BROADEN PRODUCT OFFERINGS AND CAPABILITIES. The Company also seeks to
acquire foundries that add a new product line or customer base that can be
leveraged throughout ACC's network of foundries. For example, prior to the
acquisition of Prospect Foundry in 1994, which expanded ACC's capabilities to
include gray and ductile iron, the Company only produced carbon and low alloy
steel castings. The acquisition of Quaker Alloy expanded ACC's stainless and
high alloy steel capabilities to include a wider range of casting sizes. The
Company also recently acquired LA Die Casting, a leading die caster of aluminum
and zinc components for the computer and recreation markets, which provides ACC
with an entry into the aluminum and zinc die casting markets.
DIVERSIFY END MARKETS. The Company attempts to lessen the cyclical exposure
at individual foundries by creating a diversified network of foundries that
serve a variety of end markets. Kramer, a supplier of pump impellers, was
acquired in 1995, expanding ACC's sales to the energy and utility sectors. The
Company believes ACC's presence in these markets somewhat offsets its exposure
to the railroad and mining and construction markets, as energy and utility
cycles do not necessarily coincide with railroad investment or mining and
construction cycles. The acquisition of Prospect Foundry diversified the end
markets served by the Company by providing access to both the agricultural
equipment and trucking industries. Two of Prospect's largest customers are John
Deere, a manufacturer of farming equipment, and Horton Industries, a producer of
fan clutches and suspension components for the trucking market. ACC recently
acquired Jahn Foundry, providing ACC with its first entry into the automotive
market.
In its pursuit of new markets, the Company conducts market studies,
evaluates the casting skills of its various foundries, selects the foundries
most capable of efficiently producing targeted new products and invites
potential customers to visit the designated foundries with the goal of being
certified and placed on the customers' approved bidder's lists. The Company has
successfully entered several new markets through this practice. For example, ACC
entered the turbine casting market in 1991 after conducting a worldwide market
study, hosting quality certification visits, quoting prices on new projects and
providing customers with prototype castings.
As part of its acquisition strategy, the Company has also purchased
non-controlling interests in other foundries, with the option to acquire control
following the initial acquisition. These foundries represent potential
opportunities for the Company to add capacity and increase market share.
23
<PAGE>
The following table presents the Company's thirteen acquisitions and their
primary strategic purpose.
<TABLE>
<CAPTION>
DATE
MANUFACTURING UNIT ACQUIRED STRATEGIC PURPOSE
- ---------------------------- --------- ------------------------------------------------------------------------
<S> <C> <C>
Atchison/St. Joe Division 06/14/91 Leader in carbon and low alloy, large, complex steel castings. Initial
platform for Company strategy.
Amite 02/19/93 Increase capacity to take on new projects with customers. Add-on to
Atchison/St. Joe.
Prospect Foundry 04/01/94 Leader in gray and ductile iron castings.
Quaker Alloy 06/01/94 Develop position in stainless and high alloy steel castings.
Canadian Steel 11/30/94 Access to hydroelectric and steel mill markets. Develop position in
large castings.
Kramer 01/03/95 Leader in castings for pump industry.
Empire 02/01/95 Build position in pump and valve markets. Add-on to Quaker Alloy.
La Grange Foundry 12/14/95 Build position in gray and ductile iron casting markets.
G&C 03/11/96 Highly regarded in fluid power market. Build position in gray and
ductile iron casting markets.
LA Die Casting 10/01/96 Leader in aluminum and zinc die casting.
Canada Alloy 10/26/96 Build position in existing markets. Smaller castings than Canadian
Steel, but similar markets and materials.
Pennsylvania Steel 10/31/96 Well regarded in turbine industry. Build position in power generation,
pump and valve markets. Add-on to Quaker Alloy and Empire.
Jahn Foundry 02/14/97 Develop position in market for automotive castings. Add-on iron foundry.
</TABLE>
INTEGRATION OF ACQUIRED FOUNDRIES
STRENGTHEN MARKETING FUNCTIONS. The Company places great emphasis on
maximizing new business opportunities by strengthening marketing functions and
cross-selling across its network of foundries. Many foundries, particularly
those that operate as captive foundries or only rely on a small number of
customers, do not have strong marketing capabilities. ACC views this
industry-wide marketing weakness as an opportunity to establish a competitive
advantage. In recognizing this opportunity, the Company has strengthened the
marketing capabilities of its individual foundries and introduced cross-selling
between foundries.
One way in which ACC builds the marketing efforts of its foundries is to
increase the number of sales personnel at both existing and acquired foundries.
In addition to sales people added through acquisitions, the Company has
incrementally increased the sales force by 40%. Another element of the Company's
marketing effort is to jointly develop castings with its customers. Joint
development projects using new technology, and the resulting increased service
and flexibility provided to customers, is an important marketing tool and has
been instrumental in receiving several new orders. For example, a joint
development project between Caterpillar and ACC led to the production of the
boom tip casting for one of Caterpillar's new hydraulic excavators.
24
<PAGE>
An increasingly important aspect of the Company's marketing strategy has
been to develop its ability to cross-sell among its foundries. In acquiring new
foundries and expanding into new markets, the Company has gained a significant
advantage over smaller competitors since its sales force is able to direct its
customers to foundries with different capabilities. This benefits ACC in that it
enables foundries to use the Atchison name and relationships to gain new
customers as well as helping customers to reduce their supplier base by
providing "one-stop" shopping. The Company facilitates cross-selling by
reinforcing the sales force's knowledge of Company-wide capabilities through
visits to individual facilities. For example, a sales person from the Atchison
foundry, which makes steel castings, recently referred a customer that needed a
mid-size iron casting for a motor housing to La Grange Foundry, which had the
necessary capabilities, subsequently resulting in a large order. Management
believes that as ACC continues to grow through acquisitions, its marketing
competitive advantage through cross-selling will also continue to grow.
INTRODUCE ADVANCED TECHNOLOGY. As part of its acquisition strategy, the
Company is systematically introducing advanced new technologies into each of its
acquired foundries to enhance their competitive position. For example, the
Company's capabilities in finite element analysis and three dimensional solid
modeling are having a beneficial impact on sales and casting production by
helping customers to design lighter and stronger castings, shortening design
cycles, lowering casting costs and in some cases creating new applications.
These new technologies have enhanced the Company's ability to assist customers
in the component design and engineering stages. New techniques involve
computerized solid models that are used to simulate the casting process, to make
patterns and auxiliary tooling and to machine the finished castings. The Company
intends to implement this new technology in all of its foundries and, to date,
seven of ACC's foundries have implemented or are in the process of implementing
this technology.
Investments by the Company in technology improvements include: (i)
Argon-Oxygen-Decarburization ("AOD") refining, which is used to make
high-quality stainless steel; (ii) computer-controlled sand binder pumps to
improve mold quality and reduce cost; (iii) new solidification software and
hardware for better casting design and process improvement; (iv) Computer
Numerical Control ("CNC") machine tools, computer-assisted, laser measurement
devices and new cutting head designs for machine tools to improve productivity
and quality in the machining of castings; and (v) equipment for measuring the
nitrogen content of steel, which helps in casting quality improvement. ACC is
one of the few foundry companies that uses its own scanning electron microscope
to analyze inclusions in cast metal. The Company also participates in technical
projects led by the Steel Founder's Society of America and the American
Foundryman's Society, which are exploring ways to melt and cast cleaner iron and
steel, as well as U.S. government/industry specific projects to shorten and
improve the casting design cycle.
INCREASE CAPACITY UTILIZATION. A principal objective of the Company in
integrating and operating its foundries is to increase capacity utilization at
both its existing and newly acquired facilities. Many of the Company's foundries
at the time of their acquisition have been operating with underutilized
capacity. The Company seeks to improve capacity utilization by introducing more
effective marketing programs and applying advanced technologies as described
above.
ACHIEVE PURCHASING ECONOMIES. Once an acquisition has been completed, ACC
makes its volume purchasing programs available to the newly acquired foundry.
ACC has realized meaningful cost savings by achieving purchasing efficiencies
with acquired foundries. By jointly coordinating the purchase of raw materials,
negotiation of insurance premiums and procurement of freight services, ACC's
individual foundries have, in some cases, realized savings of 10% to 30% of
these costs.
LEVERAGE MANAGEMENT EXPERTISE. The Company believes that improvements can
often be made in the way acquired foundries are managed, including the
implementation of new technologies, advanced employee training programs,
standardized budgeting processes and profit sharing programs and providing
access to capital. To this effect, ACC often enhances management teams to add
technical, marketing or production experience. For example, ACC was able to
significantly improve the profitability of Canadian Steel by adding new
management, entering new markets, installing finite element solidification
modeling
25
<PAGE>
and providing capital. As another example, under ACC ownership, La Grange
Foundry was able to negotiate a new labor agreement, create profit sharing for
all employees, broaden its customer base and install solidification modeling.
MARKETS AND PRODUCTS
MINING AND CONSTRUCTION. ACC's castings are used in tractor-crawlers,
mining trucks, excavators, drag lines, wheel-loaders, rock crushers, diesel
engines, slurry pumps, coal mining machines and ore-processing equipment. Mining
and construction equipment customers include Caterpillar, Nordberg, Rockwell
International, Gardner Denver, John Deere and Komatsu, among others.
All of the Company's major customers sell their end products to worldwide
markets, which allows ACC to participate indirectly in the growth in
construction in Asia, and in large mining projects in Indonesia, Africa and
South America. This helps reduce the Company's dependence on the domestic
capital goods spending cycle.
UTILITIES. Many of ACC's castings are used in products for the utility
industry, such as pumps, valves and gas compressors. ACC also makes steam, gas
and hydroelectric turbine castings, nuclear plant components, sewage treatment
parts and other castings for the utility industry. In addition, the Company
manufactures replacement products that are used when customers perform
refurbishments. Customers include Westinghouse, General Electric, Siemens,
Kvaerner, Goulds Pumps, and Neles-Jamesbury.
ENERGY. The Company's products for energy market include pumps, valves and
compressors for transmission and refining of petrochemicals, blow-out preventers
and mud pumps for drilling and workover of wells, lifting hooks and shackles for
offshore installation of equipment, winch components for rig positioning,
sub-sea components and other oil field castings. Shaffer, Cooper Energy, Hydril,
Solar, Nordstrom, Ingersoll-Dresser Pumps and Amclyde are among the Company's
many energy-related customers.
RAILROAD. The Company supplies cast steel undercarriages for locomotives,
among other parts, for this market. GM is the largest customer, and has
purchased locomotive castings from the Atchison/St. Joe division for over 50
years.
MILITARY. Weapons and equipment for the Army, Navy, and Coast Guard employ
many different types of castings. The Company makes components for ships, battle
tanks, howitzers and other heavy weapons. The military casting market has
declined sharply, but ACC has been able to replace this volume by targeting new
products such as turbines, compressors, pumps and valves. Customers in this
market include General Dynamics, Litton, Bath Iron Works, McDonnell Douglas, the
U.S. Army and Avondale Shipyards.
MASS TRANSIT. ACC began making undercarriages for passenger rail cars in
1992 and is now one of the main casting suppliers to the mass transit market.
The Company's castings are used on the BART system in San Francisco, METRA in
Chicago, NCTD in San Diego, MARTA in Atlanta, and in Miami and Vancouver. ACC's
La Grange Foundry recently began casting iron housings for traction motors to be
used in the refurbishment of subway cars for New York City, which is the largest
user of subway cars in North America.
FARM EQUIPMENT. ACC makes a variety of castings for farm tractors, baling
equipment, harvesters, sugar cane processors and other agricultural equipment
for customers such as John Deere, Caterpillar and New Holland.
AUTOMOTIVE. The automotive industry uses both iron and aluminum castings,
as well as aluminum die castings. ACC recently entered this market through the
purchase of Jahn Foundry in Springfield,
26
<PAGE>
Massachusetts. Jahn Foundry produces cast iron cylinder liners used by General
Motors in cast aluminum engine blocks for Saturn automobiles.
TRUCKING. The Company manufactures components used primarily on truck
engines and suspension systems, such as fan clutch components, manifolds, roll
pins and gears. Many of ACC's castings are used in aftermarket products to
achieve better fuel economy or to enhance ride characteristics. Customers
include Horton Industries, Detroit Diesel and others.
OTHER. Other markets include process equipment such as paper making
machinery, rubber mixers, plastic extruders, dough mixers, steel mill rolls,
machine tools and a variety of general industrial applications. With the
acquisition of LA Die Casting, the Company entered several new markets,
including the consumer market. LA Die Casting supplies components used to make
recreational vehicles, computer peripherals, direct satellite receivers, pool
tables and golf equipment. Customers include California Amplifier, RC Design,
Care Free of Colorado, Callaway and Printronix.
SALES AND MARKETING
New foundry technologies and the new applications resulting therefrom
require a more focused and knowledgeable sales force. The Company pursues an
integrated sales and marketing approach that includes senior management,
engineering and technical professionals, production managers and others, all of
whom work closely with customers to better understand their specific
requirements and improve casting designs and manufacturing processes. The
Company supplements its direct sales effort with participation in trade shows,
marketing videos, brochures, technical papers and customer seminars on new
casting designs.
The Company's engineering and technical professionals are actively involved
in marketing and customer service, often working with customers to improve
existing products and develop new casting products and applications. They
typically remain involved throughout the product development process, working
directly with the customer to design casting patterns, build the tooling needed
to manufacture the castings and sample the castings to ensure they meet
customers' specifications. The Company believes that the technical assistance in
product development, design, manufacturing and testing that it provides to its
customers gives it an advantage over its competition.
Customers tend to develop long-term relationships with foundries that can
provide high quality, machined castings delivered on a just-in-time basis that
do not require on-site inspection. Frequently, the Company is the only current
source for the castings that it produces. Maintaining duplicate tooling in
multiple locations is costly, so customers prefer to rely on one supplier for
each part number. Moving the tooling to another foundry is possible, however,
such a move entails considerable time and expense on the customer's part. In
addition, ACC is forming product development partnerships with a number of
customers to develop new applications for castings.
BACKLOG
The Company's backlog is based upon customer purchase orders that the
Company believes are firm and does not include purchase orders anticipated but
not yet placed. At March 31, 1997, the Company has approximately $84.0 million
of backlog, compared to backlog of approximately $71.2 million at March 31,
1996. The backlog is scheduled for delivery in fiscal 1997 except for
approximately $32.1 million, of which $31.8 million is scheduled for delivery in
fiscal 1998. The level of backlog at any particular time is not necessarily
indicative of the future operating performance of the Company. The Company
historically has not experienced cancellation of any significant portion of
customer orders.
27
<PAGE>
MANUFACTURING
CASTINGS. Casting is one of several methods, along with forging and
fabricating, which shape metal into desired forms. Castings are made by pouring
or introducing molten metal into a mold and allowing the metal to cool until it
solidifies, creating a monolithic component. Some castings, such as die
castings, are made with a permanent metal mold which can be used repeatedly.
Others, such as sand castings, are made in a sand mold which is used only once.
Forgings are made by shaping solid metal with pressure, usually in a die or with
hammers. Fabrications are made by welding together separate pieces of metal.
Castings can offer significant advantages over forgings and fabrications. A
well-designed casting can be lighter, stronger and more stress and corrosion
resistant than a fabricated part. Although castings and forgings are similar in
several respects, castings are generally less expensive than forgings.
CASTING PROCESS. The steel casting manufacturing process involves melting
steel scrap in electric arc or induction furnaces, adding alloys, pouring the
molten metal into molds made primarily of sand and removing the solidified
casting for cleaning, heat treating and quenching prior to machining the casting
to final specifications. The manufacture of a steel casting begins with the
molding process. Initially, a pattern constructed of wood, aluminum or plastic
is created to duplicate the shape of the desired casting. The pattern, which has
similar exterior dimensions to the final casting, is positioned in a flask and
foundry sand is packed tightly around it. After the sand mold hardens, the
pattern is removed. When the sand mold is closed, a cavity remains within it
shaped to the contours of the removed pattern. Before the mold is closed, sand
cores are inserted into the cavity to create internal passages within the
casting. For example, a core would be used to create the hollow interior of a
valve casing. With the cores in place, the mold is closed for pouring.
Steel scrap and alloys are melted in an electric arc furnace at
approximately 2,900 degrees Fahrenheit, and the molten metal is poured from a
ladle into molds. After pouring and cooling, the flask undergoes a "shake-out"
procedure in which the casting is removed from the flask and vibrated to remove
sand. The casting is then moved to a blasting chamber for removal of any
remaining foundry sand and scale. Next, the casting is sent to the cleaning
room, where an extensive process removes all excess metal. Cleaned castings are
put through a heat treating process, which improves properties such as hardness
and tensile strength through controlled increases and decreases in temperature.
A quench tank to reduce temperatures rapidly is also available for use in heat
treatment. The castings are shot blasted again and checked for dimensional
accuracy. Each casting undergoes a multi-stage quality control procedure before
being transported to one of the Company's or the customer's machine shops for
any required machining.
Iron castings are processed similarly in many respects to steel castings.
Melting and pouring temperatures for molten iron are approximately 2,400 degrees
Fahrenheit, and less cleaning and finishing is required for iron castings than
is typically required for steel castings. Iron and steel scrap may both be used
in making cast iron.
Die casting, as contrasted to sand casting, uses a permanent metal mold that
is reused. Melting and pouring temperatures for aluminum are less than half that
used for steel, and die castings normally require less cleaning than iron or
steel castings.
MATERIALS. Steel is more difficult to cast than iron, copper or aluminum
because it melts at higher temperatures, undergoes greater shrinkage as it
solidifies, causing the casting to crack or tear if the mold is not properly
designed, and is highly reactive with oxygen, causing chemical impurities to
form as it is poured through air into the mold. Despite these challenges, cast
steel has become a vital material due to its superior strength compared to other
ferrous metals. In addition, most of the beneficial properties of steel match or
exceed those of competing ferrous metals. The Company's first foundry, which
today forms the Atchison/St. Joe Division, produced carbon and low alloy steel
castings when it was acquired from Rockwell International in 1991. ACC added an
AOD vessel for making stainless steel in order to better supply the pump and
valve markets, which sometimes require stainless steel castings to be made from
the same patterns used for carbon steel castings. Also in 1994, ACC purchased
Quaker Alloy, which
28
<PAGE>
specialized in casting high alloy and stainless steels for valves, pumps and
other equipment. Canadian Steel and Canada Alloy also make high alloy and
stainless castings, further reinforcing ACC's market position and skill base
concerning the casting of stainless and specialty, high alloy steels.
In applications that do not require the strength, ductility and/or
weldability of steel, iron castings are generally preferred due to their lower
cost, shorter lead-times and somewhat simpler manufacturing processes. Ductile
iron is especially popular because it exhibits a good combination of the
qualities of both iron and steel. Ductile iron is stronger and more flexible
than traditional cast iron--known as gray iron-- but is easier and less
expensive to cast than steel. In 1994 ACC began making gray and ductile iron
castings when it acquired Prospect Foundry. Ductile iron is a popular new
material, whose utilization is increasing faster than either traditional gray
cast iron or cast steel. ACC's position in ductile iron increased through the
subsequent purchases of La Grange Foundry and G&C.
Aluminum castings (including die castings) generally offer lighter weight
than iron or steel, and are usually easier to cast because aluminum melts at a
lower temperature. These advantages, coupled with low prices for aluminum during
the last decade, have led to a substantial increase in the use of aluminum
castings, especially in motor vehicles. Aluminum's relative softness, lower
tensile strength and poor weldability limit its use in many applications where
iron and steel castings are currently employed. In 1996, ACC entered the
non-ferrous market with the purchase of LA Die Casting, which die casts aluminum
and zinc.
The ability to provide cast components in a broad range of materials allows
ACC to present itself as a "one-stop shop" for some customers and simplifies
purchasing for others. Since customers in general have a goal of reducing their
total number of suppliers, a broader range of materials and casting skills gives
ACC an advantage over many other foundry operations.
MACHINING. The Company machines many of its steel castings, typically to
tolerances within 30 thousandths of an inch. Some castings are machined to
tolerances of five thousandths of an inch. Machining includes drilling,
threading or cutting operations. The Company's St. Joe and Amite machine shops
have a wide variety of machine tools, including ten CNC machine tools. The
Company also machines some of its castings at Canadian Steel, Quaker Alloy,
Empire and Kramer. The ability to machine castings provides a higher value-added
product to the customer and improved quality. Casting imperfections, which are
typically located near the surface of the casting, are usually discovered during
machining and corrected before the casting is shipped to the customer.
NON-DESTRUCTIVE TESTING. Customers typically specify the physical
properties, such as hardness and strength, which their castings are to possess.
The Company determines how best to meet those specifications. Constant testing
and monitoring of the manufacturing process are necessary to maintain high
quality and to ensure the consistency of the castings. Electronic testing and
monitoring equipment for tensile, impact, radiography, ultrasonic, magnetic
particle, dye penetrant and spectrographic testing are used extensively to
analyze molten metal and test castings.
ENGINEERING AND DESIGN. The Company's process engineering department
assists the customer in designing the product and works with manufacturing
departments to determine the most cost effective way to produce the casting.
Among other computer-aided design techniques, the Company uses three-dimensional
solid modeling and solidification software. This equipment reduces the time
required to produce sample castings for customers by several weeks and improves
the casting design.
CAPACITY UTILIZATION. The following table shows the type and the
approximate amount of available capacity, in tons, for each foundry and die
caster. The actual number of tons that a foundry can produce annually is
dependent on product mix. Complicated castings, such as those used for military
applications or in steam turbines, require more time, effort and use of
facilities, than do simpler castings such as those for mining and construction
markets. Also, high alloy and stainless steel castings generally require more
processing time and use of facilities than do carbon and low alloy steel
castings.
29
<PAGE>
<TABLE>
<CAPTION>
TONS SHIPPED
ESTIMATED* ANNUAL 12 MONTHS ESTIMATED*
CAPACITY IN NET ENDED CAPACITY
MANUFACTURING UNIT METALS CAST MAJOR APPLICATIONS TONS FEB. 28, 1997 UTILIZATION
- ------------------ --------------- ------------------------------- ----------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Atchison/St. Joe Carbon, low Mining and construction, rail, 29,000 25,628 88%
Division alloy and military, valve, turbine and
stainless steel compressor
Amite Carbon and low Marine, mining and construction 14,000 5,086 36%
alloy steel
Prospect Foundry Gray and Construction, agricultural, 12,500 9,862 79%
ductile iron trucking, hydraulic, power
transmission and machine tool
Quaker Alloy Carbon, low Pump and valve 6,000 2,393 40%
alloy and
stainless steel
Canadian Steel Carbon, low Hydroelectric and steel mill 6,000 3,013 50%
alloy and
stainless steel
Kramer Carbon, low Pump impellers and casings 1,000 1,101 110%
alloy and
stainless
steel, gray and
ductile iron
Empire Carbon and low Pump and valve 4,800 2,052 43%
alloy steel and
gray, ductile
and nickel
resistant iron
La Grange Foundry Gray, ductile Mining and construction and 14,800 11,022 74%
and compacted transportation
graphite iron
G&C Gray and Fluid power (hydraulic control 10,500 7,217 69%
ductile iron valves)
LA Die Casting Aluminum and Communications, recreation and 2,400 1,673 70%
zinc computer
Canada Alloy Carbon, low Power generation, pulp and 2,500 1,997 80%
alloy and paper machinery, pump and valve
stainless steel
Pennsylvania Carbon and Power generation, pump and 3,700 3,195 86%
Steel stainless steel valve
Jahn Foundry Gray iron Automotive, air conditioning 11,000 6,946 63%
and agricultural
------- ------ ---
Totals 118,200 81,185 69%
------- ------ ---
------- ------ ---
</TABLE>
- ---------------
* Estimated annual capacity is based upon management's estimate of the
applicable manufacturing unit's theoretical capacity assuming a certain
product mix and assuming such unit operated five days a week, three shifts
per day and assuming normal shutdown periods for maintenance. Actual
capacities will vary, and such variances may be material, based upon a
number of factors, including product mix and maintenance requirements.
30
<PAGE>
COMPETITION
The Company competes with a number of foundries in one or more product
lines, although none of the Company's competitors compete with it across all
product lines. The principal competitive factors in the castings market are
quality, delivery and price; however, breadth of capabilities and customer
service have become increasingly important. The Company believes that it is able
to compete successfully in its markets by: (i) offering high quality, machined
castings; (ii) working with customers to develop and design new castings; (iii)
providing reliable delivery and short lead-times; (iv) containing its
manufacturing costs, thereby pricing competitively; and (v) offering a broad
range of cast materials.
The Company believes that the market for iron and steel castings is
attractive because of a relatively favorable competitive environment, high
barriers to entry and the opportunity to form strong relationships with
customers. New domestic competitors are unlikely to enter the foundry industry
because of the high cost of new foundry construction, the need to secure
environmental approvals at a new foundry location, the technical expertise
required and the difficulty of convincing customers to switch to a new, unproven
supplier.
ACC, and the foundry industry in general, competes with manufacturers of
forgings and fabrications in some application areas. The Company believes that
the relative advantages of castings compared to forgings and fabrications,
particularly in light of new casting design technology, which reduces cost and
lead-time while improving casting quality, will lead to increased replacement of
forgings and fabrications by iron and steel castings.
RAW MATERIALS
The principal raw materials used by the Company include scrap iron and
steel, aluminum, zinc, molding sand, chemical binders and alloys, such as
manganese, nickel and chrome. The raw materials utilized by the Company are
available in adequate quantities from a variety of domestic sources. From time
to time the Company has experienced fluctuations in the price of scrap steel,
which accounts for 4% of net sales, and alloys, which account for less than 2%
of net sales. The Company has generally been able to pass on the increased costs
of raw materials and has escalation clauses for scrap with certain of its
customers. As part of its commitment to quality, the Company issues rigid
specifications for its raw materials and performs extensive inspections of
incoming raw materials.
QUALITY ASSURANCE
The Company has adopted sophisticated quality assurance techniques and
policies which govern every aspect of its operations to ensure high quality.
During and after the casting process, the Company performs many tests, including
tensile, impact, radiography, ultrasonic, magnetic particle, dye penetrant and
spectrographic tests. The Company has long utilized statistical process control
to measure and control dimensions and other process variables. Analytical
techniques such as Design of Experiments and the Taguchi Method are employed for
trouble-shooting and process optimization.
As a reflection of its commitment to quality, the Company has been certified
by, or won supplier excellence awards from, substantially all of its principal
customers. Of 600 suppliers to General Motors' Electromotive Division, the
Company was the first supplier to receive the prestigious Targets of Excellence
award. Reflecting its emphasis on quality, the Atchison/St. Joe Division was
certified to ISO 9001 in August 1995, which represents compliance with
international standards for quality assurance. Quaker Alloy, La Grange Foundry,
Canada Alloy, Pennsylvania Steel and Canadian Steel have each been certified to
ISO 9002. Other ACC foundries are preparing for ISO certification.
31
<PAGE>
EMPLOYEE AND LABOR RELATIONS
As of February 28, 1997, the Company had approximately 2,750 full-time
employees. In the last five years, the Company has had one work stoppage, which
occurred in May 1993 at the Atchison/St. Joe Division and lasted for nine days.
The Company's hourly employees are covered by collective bargaining agreements
with several unions at eleven of its locations. These agreements expire at
varying times over the next several years. The following table sets forth a
summary of the principal unions and term of each collective bargaining agreement
at the respective locations.
<TABLE>
<CAPTION>
APPROXIMATE
NUMBER OF
EFFECTIVE DATE OF MEMBERS (AS
MANUFACTURING UNIT NAME OF PRINCIPAL UNION DATE EXPIRATION OF 02/28/97)
- ---------------------- ---------------------------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Atchison/St. Joe United Steelworkers of 03/04/96 05/09/99 370
America, Local 6943
Prospect Foundry Glass, Molders, Pottery, 03/18/95 06/01/99 185
Plastics & Allied Workers
International, Local 63B
Quaker Alloy United Steelworkers of 07/15/95 07/15/99 185
America, Local 7274
Canadian Steel Metallurgistes Unis 02/12/96 02/12/01 120
d'Amerique, Local 6859
Empire United Steelworkers of 03/01/97 02/28/02 120
America, Local 3178
La Grange Foundry Glass, Molders, Pottery, 12/14/95 12/16/00 245
Plastics & Allied Workers
Union, Local 143
G&C United Electrical, Radio and 03/01/97 06/30/01 115
Machine Workers of America,
Local 714
LA Die Casting United Automobile, Aircraft, 12/10/94 12/12/97 56
Agricultural Implement
Workers of America,
Local 509
Canada Alloy United Steelworkers of 04/04/97 04/03/02 75
America, Local 5699
Pennsylvania Steel United Steelworkers of 10/23/95 10/24/98 251
America, Local 6541
Jahn Foundry Glass, Molders, Pottery, 04/24/95 04/26/98 104
Plastics and Allied Workers
International, Local 97
</TABLE>
32
<PAGE>
PROPERTIES
The Company's principal facilities are listed in the accompanying table,
together with information regarding their location, size and primary function.
The foundries that are located in Atchison, Kansas, Montreal, Quebec and Amite,
Louisiana include on-site pattern shops that construct patterns used for mold
making. The two landfills are used solely by the Company and contain
non-hazardous materials only, principally foundry sand. All of the Company's
principal facilities are owned.
The following table sets forth certain information with respect to the
Company's principal facilities.
<TABLE>
<CAPTION>
FLOOR SPACE
NAME LOCATION PRINCIPAL USE IN SQ. FEET
- ------------------------------------- --------------------- ---------------------- -----------
<S> <C> <C> <C>
Corporate Office Atchison, KS Offices 3,000
Atchison Foundry Atchison, KS Steel foundry 449,703
Atchison Pattern Storage Atchison, KS Pattern storage 159,711
St. Joe Machine Shop St. Joseph, MO Machine shop 142,676
Atchison Casting Landfill Atchison, KS Landfill for foundry N/A
sand
Amite Foundry & Machine Shop Amite, LA Steel foundry and 282,000
machine shop
Prospect Foundry Minneapolis, MN Iron foundry 133,000
Quaker Alloy Myerstown, PA Steel foundry & 301,000
landfill for foundry
sand
Canadian Steel Montreal, Quebec Steel foundry 455,335
Kramer Milwaukee, WI Steel foundry 23,000
Empire Reading, PA Iron and steel foundry 177,000
La Grange Foundry La Grange, MO Iron foundry 189,000
G & C Sandusky, OH Iron foundry 80,000
LA Die Casting Los Angeles, CA Aluminum and zinc die 35,000
casting
Canada Alloy Kitchener, Ontario Steel foundry 83,000
Pennsylvania Steel Hamburg, PA Steel foundry 158,618
Jahn Foundry Springfield, MA Iron foundry 207,689
</TABLE>
33
<PAGE>
PRODUCT WARRANTY
The Company warrants that every product will meet a set of specifications,
which is mutually agreed upon with each customer. The Company's written warranty
provides for the repair or replacement of its products and excludes contingency
costs. Often, the customer is authorized to make the repair within a dollar
limit, in order to minimize freight costs and the time associated therewith.
Although the warranty period is 90 days, this time limit is not strictly
enforced if there is a defect in the casting. In fiscal 1996, warranty costs
amounted to less than one percent of the Company's net sales.
ENVIRONMENTAL REGULATIONS
Companies in the foundry industry must comply with numerous federal, state
and local (and, with respect to Canadian operations, provincial and local)
environmental laws and regulations relating to air emissions, solid waste
disposal, stormwater run-off, landfill operations, workplace safety and other
matters. The Clean Air Act, as amended, the Clean Water Act, as amended, and
similar provincial, state and local counterparts of these federal laws regulate
air and water emissions and discharges into the environment. The Resource
Conservation and Recovery Act, as amended, and the Comprehensive Environmental
Response, Compensation and Liability Act, as amended ("CERCLA"), among other
laws, address the generation, storage, treatment, transportation and disposal of
solid and hazardous waste and releases of hazardous substances into the
environment, respectively. The Company believes that it is in material
compliance with applicable environmental laws and regulations and is not aware
of any outstanding violations or citations with respect thereto at any of its
facilities.
A Phase I environmental assessment of each of the Company's facilities has
been performed, and no significant or widespread contamination has been
identified at any Company facility. A Phase I assessment includes an historical
review, a public records review, a preliminary investigation of the site and
surrounding properties and the preparation and issuance of a written report, but
it does not include soil sampling or subsurface investigations. There can be no
assurance that these Phase I assessments have identified, or could be expected
to identify, all areas of contamination. As the Company evaluates and updates
the environmental compliance programs at foundry facilities recently acquired,
the Company may become aware of matters of non-compliance that need to be
addressed or corrected. In addition, there is a risk that material adverse
conditions could have developed at the Company's facilities since such
assessments.
The chief environmental issues for the Company's foundries are air emissions
and solid waste disposal. Air emissions, primarily dust particles, are handled
by dust collection systems. The Company anticipates that it will incur
additional capital and operating costs to comply with the Clean Air Act
Amendments of 1990 and the regulations thereunder. Because the final standards
implementing the Clean Air Act Amendments have not yet been established, the
Company cannot at this time reasonably estimate the cost of compliance with
these requirements (or the timing of such costs). Such compliance costs,
however, could have a material adverse effect on the Company's results of
operations and financial condition.
The solid waste generated by the Company's foundries generally consists of
non-hazardous foundry sand that is reclaimed for reuse in the foundries until it
becomes dust. The non-hazardous foundry dust waste is then disposed of in
landfills, two of which are owned by the Company (one in Atchison County,
Kansas, and one in Myerstown, Pennsylvania). No other parties are permitted to
use the Company's landfills, which are both in material compliance with all
applicable regulations to the Company's knowledge. The Company believes that its
landfills have a remaining useful life of approximately 10 years before closure
may be required due to capacity constraints. There can be no assurance that
closure of the landfills will not be required at an earlier date due to changes
in regulatory requirements, and the costs associated with closing the Company's
landfills could be material.
While under prior ownership, Kramer was identified as a potentially
responsible party ("PRP") with respect to clean-up of a waste disposal site
located in Franklin, Wisconsin, which was used by one of
34
<PAGE>
Kramer's former subcontractors. The $6 million clean-up of this site has been
completed. Kramer's insurance carriers paid $300,000 toward clean-up. The
performing PRP has sued a group of nonperforming PRPs, including Kramer, for
contribution. ACME PRINTING INK COMPANY V. MENARD, ET AL., Case No 89-C-834
(E.D. Wis.). Because of alleged unexpected clean-up costs, the performing PRP is
demanding additional contribution from Kramer beyond the $300,000 already paid.
Management believes that the resolution of this matter will not result in a
material adverse effect on the Company's results of operations or financial
condition. To date, all litigation costs related to this matter, including
attorneys' fees, have been paid by Kramer's insurance carriers.
The Company also operates pursuant to regulations governing workplace
safety. The Company samples its interior air quality to ensure compliance with
OSHA requirements. To the Company's knowledge, it currently operates in material
compliance with all OSHA and other regulatory requirements governing workplace
safety.
The Company continues to evaluate its manufacturing processes and equipment
(including its recently acquired facilities) to ensure compliance with the
complex and constantly changing environmental laws and regulations. Although the
Company believes it is currently in material compliance with such laws and
regulations, the operation of casting manufacturing facilities entails
environmental risks, and there can be no assurance that the Company will not be
required to make substantial additional expenditures to remain in or achieve
compliance in the future.
LEGAL PROCEEDINGS
Except as otherwise provided herein, the Company is not a party to any
material legal proceedings involving claims against the Company.
35
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to the
directors and executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ------------------------------------ --- ----------------------------------------------------------------
<S> <C> <C>
Hugh H. Aiken....................... 53 Chairman of the Board, President, Chief Executive Officer and
Director
Charles T. Carroll.................. 46 Vice President
Edward J. Crowley................... 59 Vice President
John R. Kujawa...................... 43 Group Vice President
Donald J. Marlborough............... 61 Group Vice President
Kevin T. McDermed................... 37 Vice President, Chief Financial Officer, Treasurer and Secretary
Richard J. Sitarz................... 56 Vice President
James Stott......................... 55 Group Vice President
David L. Belluck(1)................. 35 Director
Paul C. Craig(1).................... 40 Director
John O. Whitney(2).................. 69 Director
Ray H. Witt(2)...................... 68 Director
</TABLE>
- ------------
(1) Compensation Committee Member
(2) Audit Committee Member
HUGH H. AIKEN has been the Chairman of the Board, President, Chief Executive
Officer and a Director since June 1991. From 1989 to 1991, Mr. Aiken served as
an Associate of Riverside Partners, Inc., an investment firm located in
Cambridge, Massachusetts, and from 1985 to 1989, Mr. Aiken served as General
Manager for AMP Keyboard Technologies, Inc., a manufacturer of electromechanical
assemblies located in Milford, New Hampshire. Mr. Aiken previously served as a
Director and Chief Operating Officer of COMNET Incorporated and as a Director
and Chief Executive Officer of General Computer Systems, Inc., both public
companies.
CHARLES T. CARROLL has been Vice President--G&C since September 1996 and has
additionally served as President of G&C since June 1980. He was Plant Manager of
G&C from June 1978 to June 1980. Mr. Carroll has been with G&C since 1973.
EDWARD J. CROWLEY has been Vice President--Empire since February 1995. Prior
thereto, he had served as President and Chief Executive Officer of Empire Steel
Castings, Inc. (the predecessor of Empire) since 1985.
JOHN R. KUJAWA has been Group Vice President--Atchison/St. Joe and Amite
since November 1996 and Vice President--Atchison/St. Joe from August 1994 to
November 1996. He served as Executive Vice President--Operations of the Company
from July 1993 to August 1994, Vice President--Foundry of the Company from June
1991 to July 1993, Assistant Foundry Manager of the Company from 1990 to 1991
and as Senior Process Engineer of the Company from 1989 to 1990. He served as
Operations Manager for Omaha Steel Castings, a foundry in Omaha, Nebraska from
1984 to 1989.
36
<PAGE>
DONALD J. MARLBOROUGH has been Group Vice President--Canadian Steel, La
Grange Foundry and Canada Alloy since November 1996, Vice President--Corporate
Development and Canadian Steel from December 1994 to November 1996 and Vice
President--La Grange Foundry from December 1995 to November 1996. From May 1991
to October 1994, Mr. Marlborough served as Vice President--Manufacturing and
Plant Manager for American Steel Foundries, a foundry in Chicago, Illinois, and
served as President and Director of Manufacturing for Racine Steel Castings, a
foundry in Racine, Wisconsin, from 1985 to June 1990.
KEVIN T. MCDERMED has been Vice President, Chief Financial Officer and
Treasurer of the Company since June 1991 and has served as Secretary of the
Company since May 1992. He served as the Controller of the Company from 1990 to
June 1991 and as its Finance Manager from 1986 to 1990. Mr. McDermed has been
with the Company since 1981.
RICHARD J. SITARZ has been Vice President--Prospect since September 1994 and
has served as President of Prospect Foundry since July 1992. He served as
Executive Vice President of Prospect Foundry since 1985. Mr. Sitarz has been
with Prospect Foundry since 1967.
JAMES STOTT has been Group Vice President--Empire, Kramer, Pennsylvania
Steel and Quaker Alloy since November 1996 and Vice President--Kramer from
January 1995 to November 1996. He served as President, Chief Executive Officer
and Chief Operating Officer of Kramer International, Inc. (the predecessor of
Kramer) since 1980.
DAVID L. BELLUCK has been a Director of the Company since June 1991. Since
1989, Mr. Belluck has been a Vice President of Riverside Partners, Inc. Mr.
Belluck intends to remain on the Board of Directors after this Offering.
PAUL C. CRAIG has been a Director of the Company since June 1991. Since
1988, Mr. Craig has been the President of Riverside Partners, Inc.
JOHN O. WHITNEY has been a Director of the Company since June 1994. Since
1986, Mr. Whitney has been Professor and Director, Deming Center for Quality
Management at Columbia Business School. Mr. Whitney has also written a number of
books and articles on management and business strategy, and lectures on those
subjects in the United States and abroad. Mr. Whitney previously served as
President and Director of the Pathmark Division of Supermarkets General
Corporation engaged in food distribution and retailing. Mr. Whitney currently
serves as a director of The Turner Corporation and Church and Dwight.
RAY H. WITT has been a Director of the Company since August 1993. Since
1957, Mr. Witt has been the Chief Executive Officer and Chairman of the Board of
CMI International, Inc., which owns and operates eight foundries in North
America. Mr. Witt was President of the American Foundryman's Society from 1992
to 1993.
The Company has entered into an employment agreement with Mr. Aiken that
expires in June 1998. As of December 31, 1996, the minimum annual compensation
payable to Mr. Aiken pursuant to this agreement was $200,000. At the discretion
of the Board of Directors, the minimum annual compensation may be increased
during the term of this agreement. This agreement provides for a severance
payment in the amount of one year of base salary in the event of his death or
disability and up to three years of base salary in the event he is terminated
other than for cause, disability or death. This agreement also prohibits Mr.
Aiken from competing with the Company for a period of two years following the
termination of his employment with the Company.
The Board of Directors is divided into three classes, each of whose members
serve for a staggered three-year term. The Board is comprised of one Class I
Director consisting of Mr. Aiken, two Class II Directors consisting of Messrs.
Belluck and Whitney, and two Class III Directors consisting of Messrs. Craig and
Witt. At each annual meeting of stockholders, directors will be elected for a
three-year term to succeed the directors of the same class whose terms are then
to expire. The terms of the Class I
37
<PAGE>
Directors, Class II Directors and the Class III Directors will expire upon the
election and qualification of successor directors at the annual meeting of
stockholders held following the end of fiscal years 1997, 1998 and 1999,
respectively. Officers serve at the discretion of the Board of Directors.
SELLING STOCKHOLDER
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of March 31, 1997 and as adjusted after giving
effect to the sale of the shares offered hereby. The Selling Stockholder has
sole voting and investment power over the shares listed.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
------------------------------------------------------------
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO THE OWNED AFTER THE
OFFERING OFFERING
----------------------- SHARES TO -----------------------
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES PERCENT BE SOLD SHARES PERCENT
- -------------------------------------------------------- ---------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Riverside Fund I, L.P................................... 1,770,976 32.0% 1,770,976 -- --
One Exeter Plaza
699 Boylston Street
Boston, MA 02116
</TABLE>
DESCRIPTION OF CAPITAL STOCK
The total number of shares of all classes of stock which the Company has the
authority to issue is: (i) 19,300,000 shares of Common Stock, par value $.01 per
share (the "Common Stock"); (ii) 700,000 shares of Class A Non-Voting Common
Stock, par value $.01 per share (the "Class A Common Stock"); and (iii)
2,000,000 shares of Preferred Stock, par value $.01 per share (the "Preferred
Stock"), all of which Preferred Stock is issuable in one or more series. As of
March 31, 1997, 5,540,422 shares of Common Stock were issued and outstanding
held by over 2,200 holders, including shares held in nominee or street name by
banks and brokers.
COMMON STOCK
Subject to the rights of any holders of Preferred Stock, the holders of
shares of Common Stock are entitled to share ratably with the holders of the
Class A Common Stock in such dividends as may be declared by the Board of
Directors and paid by the Company out of funds legally available therefor. The
declaration and payment of dividends on the Common Stock are subject to
restrictions by the terms of the Company's outstanding indebtedness. Holders of
Common Stock have no conversion rights, participate ratably with the holders of
Class A Common Stock in any distribution of assets to stockholders in
liquidation, after the payment in full of all preferential amounts to which
holders of preferred stock are or may be entitled, and have no redemption,
preemptive or other subscription rights. Except as may be provided by law, each
outstanding share of Common Stock is entitled to one vote on each matter on
which the stockholders of ACC are entitled to vote. All of the outstanding
shares of Common Stock are, and the shares to be sold by the Company hereunder
will be upon issuance and payment therefor, fully paid and non-assessable.
CLASS A COMMON STOCK
Except for certain limited voting rights, the shares of Class A Common Stock
are virtually identical to the shares of Common Stock. Subject to and upon
compliance with certain notice and procedural provisions of the Articles of
Incorporation, the shares of Class A Common Stock will be entitled at any time
to be converted into the same number of shares of Common Stock. As of March 31,
1997, no shares of Class A Common Stock were issued and outstanding.
38
<PAGE>
PREFERRED STOCK
The Articles of Incorporation of the Company provide that the Board of
Directors may authorize the issuance of one or more classes or series of
preferred stock having such relative rights, voting power, preferences and
restrictions as may be fixed by the Board of Directors of the Company without
further action by the stockholders of the Company, unless required by applicable
law or deemed advisable by the Board of Directors of the Company. The Preferred
Stock and the authorized but unissued shares of Common Stock could be used to
dilute the stock ownership of persons seeking to obtain control of the Company,
and thereby defeat a possible takeover attempt which, if stockholders were
offered a premium over the market value of their shares, might be viewed as
beneficial to the stockholders of the Company. As of March 31, 1997 no shares of
Preferred Stock were issued and outstanding.
KANSAS ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS
The Company is subject to the provisions of Sections 17-12,100 to 12,104 of
the Kansas General Corporation Code. In general, Section 17-12,101 prevents an
"interested stockholder" from engaging in a "business combination" with a Kansas
corporation for three years following the date such person became an interested
stockholder, unless: (i) prior to the date such person became an interested
stockholder, the board of directors of the corporation approved the transaction
in which the interested stockholder became an interested stockholder or approved
the business combination; (ii) upon consummation of the transaction that
resulted in the interested stockholder's becoming an interested stockholder, the
interested stockholder owns at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, excluding stock held by
directors who are also officers of the corporation and stock held by certain
employee stock plans; or (iii) on or subsequent to the date of the transaction
in which such person became an interested stockholder, the business combination
is approved by the board of directors of the corporation and authorized at a
meeting of stockholders by the affirmative vote of the holders of two-thirds of
the outstanding voting stock of the corporation not owned by the interested
stockholder.
Section 17-12,100 defines a "business combination" to include: (i) any
merger or consolidation involving the corporation and an interested stockholder;
(ii) any sale, transfer, pledge or other disposition of 10% or more of the
assets of the corporation involving an interested stockholder; (iii) subject to
certain exceptions, any transaction which results in the issuance or transfer by
the corporation of any stock of the corporation to an interested stockholder;
(iv) any transaction involving the corporation which has the effect of
increasing the proportionate share of the stock of any class or series of the
corporation beneficially owned by the interested stockholder; or (v) the receipt
by an interested stockholder of any loans, guarantees, pledges or other
financial benefits provided by or through the corporation. In addition, Section
17-12,100 defines an "interested stockholder" as an entity or person
beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by such entity or person.
The Articles of Incorporation include certain provisions which could be
described as anti-takeover protections. The following is a summary of these
provisions.
The Articles of Incorporation provide that the Company's Board of Directors
be divided into three classes as nearly equal in number as possible with
directors in each class serving succeeding three-year terms. Classification of
the Board of Directors may have the effect of making the removal of incumbent
directors more time-consuming and difficult, and, therefore, may have the effect
of discouraging an unsolicited takeover attempt to gain control of the Board
through a proxy solicitation.
The Articles of Incorporation provide that directors may be removed only for
cause and only by the affirmative vote of either: (i) the holders of 75% or more
of the outstanding shares of capital stock of the Company entitled to vote
generally in the election of directors, voting together as a single class, cast
at a meeting of stockholders expressly called for that purpose; or (ii) 75% of
the entire Board of Directors at a
39
<PAGE>
meeting of the Board of Directors expressly called for that purpose. The
increased vote required to remove directors precludes a third party, owning less
than 75% of the voting power, from gaining control by unilaterally removing
incumbent directors and substituting its own nominees. The provision also
reduces the power of the stockholders, even those with a majority interest in
the Company, to remove incumbent directors.
The Articles of Incorporation provide that the affirmative vote of the
holders of at least 75% of the shares entitled to vote in an election of
directors would be required to amend, repeal or adopt any provision inconsistent
with the provisions of the Articles classifying the Board of Directors or
requiring an increased vote for the removal of directors.
The Articles of Incorporation provide that certain extraordinary corporate
transactions, including a merger, consolidation or transfer of substantially all
of the assets of the Company, must be approved by the affirmative vote of the
holders of 75% of the outstanding voting power of the capital stock. The
Articles of Incorporation also provide that the affirmative vote of at least 75%
of the shares entitled to vote in an election of directors would be required to
amend, repeal or adopt any provision inconsistent with this provision. This
provision may have the effect of making it more difficult for a third party to
acquire control of the Company even though such an event may be viewed as
beneficial to the stockholders. In effect, a smaller minority of stockholders
than would otherwise be the case would have the ability to veto certain
corporate transactions. To the extent that the provision would discourage tender
offers or accumulations of the Company's stock, stockholders may be deprived of
higher market prices for their stock which often prevail as a result of such
events.
The Articles of Incorporation also contain a provision specifically denying
the stockholders the right to act by written consent in lieu of a meeting of the
stockholders. The Articles also provide that the affirmative vote of at least
75% of the shares entitled to vote in an election of directors would be required
to amend, repeal or adopt any provision inconsistent with this provision. This
provision has the effect of requiring stockholder meetings to be held at which
all stockholders would have the opportunity to participate in any action
requiring a stockholder vote.
The Company expects that the Board of Directors may in the future review the
advisability of adopting other measures which may affect takeovers in the
context of applicable law and judicial decisions. The Company has no current
plans to adopt any such other measures.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Common Stock is Harris
Trust and Savings Bank, Chicago, Illinois.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 7,572,246 shares of
Common Stock outstanding. Of these shares, all of the 3,800,000 shares sold in
this offering (and any of the up to 570,000 shares sold by the Company upon
exercise of the Underwriters' over-allotment option) will be freely tradeable by
persons other than "affiliates" of the Company without restriction under the
Securities Act. Of the 5,540,442 shares of Common Stock outstanding as of March
31, 1997, 4,992,336 shares are freely tradeable by persons other than affiliates
(which number includes the 1,770,976 shares being sold in this offering by the
Selling Stockholder) and 548,086 shares are "restricted securities" (the
"Restricted Shares") within the meaning of Rule 144 under the Securities Act and
may not be sold in the absence of registration under the Securities Act unless
an exemption from registration is available. Subject to their agreement with the
Underwriters described below, the holders of the Restricted Shares may, in
certain circumstances, be eligible to sell such shares in the public market
pursuant to Rule 144 promulgated under the Securities Act.
40
<PAGE>
In general, under Rule 144, as currently in effect, any holder of Restricted
Shares, including an affiliate of the Company (as such term is defined under
Rule 144), as to which at least one year has elapsed since the later of the date
of their acquisition from the Company or an affiliate of the Company, is
entitled to sell, within any three-month period, a number of Restricted Shares
that does not exceed the greater of: (i) 1% of the then outstanding shares, of
Common Stock (approximately 75,722 shares immediately after the completion of
this offering); or (ii) the average weekly trading volume in the Common Stock on
the New York Stock Exchange during the four calendar weeks preceding the date on
which notice of the sale is filed with the Securities and Exchange Commission.
Sales under Rule 144 are also subject to certain manner of sale provisions,
notice requirements and the availability of current public information about the
Company. Further, a person who is not, and has not been, an affiliate of the
Company at any time during the three months preceding a sale and who holds
Restricted Shares as to which at least two years have elapsed since the later of
their acquisition from the Company or an affiliate of the Company is entitled to
sell such Restricted Shares under Rule 144(k) without regard to volume
limitations, manner of sale provisions, notice requirements or the availability
of current public information concerning the Company. Rule 144 also provides
that affiliates who are selling shares that are not Restricted Shares must
nonetheless comply with the same restrictions applicable to Restricted Shares
with the exception of the holding period requirement.
The Company and officers and directors of the Company designated by the
Representative have agreed that, for a period of 90 days from the date of this
Prospectus, they will not, without the prior written consent of Smith Barney
Inc., offer, sell, contract to sell, or otherwise dispose of, any shares of
Common Stock of the Company or any securities convertible into, or exercisable
or exchangeable for, Common Stock of the Company (other than shares of Common
Stock issuable pursuant to Company employee and director plans).
The Company has registered under the Securities Act 300,000 shares and
400,000 shares of Common Stock reserved for issuance under the Atchison Casting
Corporation 1993 Incentive Stock Plan and 1993 Atchison Casting Corporation
Employee Stock Purchase Plan, respectively. Shares of Common Stock issued under
these plans, other than shares held by affiliates of the Company, will be
eligible for resale in the public market without restriction.
The Company has registered under the Securities Act 100,000 shares of Common
Stock reserved for issuance under the Non-Employee Director Option Plan. Shares
of Common Stock issued under this plan will be eligible for sale, subject,
generally, to compliance with Rule 144 with respect to sales while the holder is
a director.
No prediction can be made as to the effect, if any, that market sales of
shares or the availability of shares for sale will have on the market price for
the Common Stock prevailing from time to time. Nevertheless, sales of
substantial amounts of the Common Stock of the Company in the public market
after the restrictions described above lapse could adversely affect the
prevailing market price and the ability of the Company to raise equity capital
in the future.
41
<PAGE>
UNDERWRITING
Upon the terms and subject to the conditions stated in the Underwriting
Agreement dated the date hereof, each Underwriter named below has severally
agreed to purchase, and the Company and the Selling Stockholder have agreed to
sell to such Underwriter, the number of shares of Common Stock set forth
opposite the name of such Underwriter.
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
- ------------------------------------------------------------------------------------- -----------------
<S> <C>
Smith Barney Inc.....................................................................
George K. Baum & Company.............................................................
-----------------
Total............................................................................ 3,800,000
-----------------
-----------------
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares are subject to
approval of certain legal matters by Cahill Gordon & Reindel, their counsel, and
to certain other conditions. The Underwriters are obligated to take and pay for
all shares of Common Stock offered hereby (other than those covered by the
over-allotment option described below) if any such shares are taken.
The Underwriters, for whom Smith Barney Inc. and George K. Baum & Company
are acting as the Representatives, propose to offer part of the shares directly
to the public at the public offering price set forth on the cover page of this
Prospectus and part of the shares to certain dealers at a price which represents
a concession not in excess of $ per share under the public offering
price. The Underwriters may allow, and such dealers may reallow, a concession
not in excess of $ per share to certain other dealers. After the initial
offering of the shares to the public, the public offering price and such
concessions may be changed by the Representatives.
The Company has granted to the Underwriters an option, exercisable for
thirty days from the date of this Prospectus, to purchase up to 570,000
additional shares of Common Stock at the price to public set forth on the cover
page of this Prospectus minus the underwriting discounts and commissions. The
Underwriters may exercise such option solely for the purpose of covering
over-allotments, if any, in connection with the offering of the shares offered
hereby. To the extent such option is exercised, each Underwriter will be
obligated, subject to certain conditions, to purchase approximately the same
percentage of such additional shares as the number of shares set forth opposite
each Underwriter's name in the preceding table bears to the total number of
shares listed in such table.
The Company and officers and directors of the Company designated by the
Representative have agreed that, for a period of 90 days from the date of this
Prospectus, they will not, without the prior written consent of Smith Barney
Inc., offer, sell, contract to sell, or otherwise dispose of, any shares of
Common Stock of the Company or any securities convertible into, or exercisable
or exchangeable for, Common Stock of the Company (other than shares of Common
Stock issuable pursuant to Company employee and director plans).
The Company, the Selling Stockholder, and the Underwriters have agreed to
indemnify each other against certain liabilities, including liabilities under
the Securities Act of 1933.
In connection with this offering and in compliance with applicable law, the
Underwriters may overallot (i.e., sell more shares of Common Stock than the
total amount shown on the list of Underwriters and participations which appears
above) and may effect transactions which stabilize, maintain or otherwise affect
the market price of the Common Stock at levels above those which might otherwise
prevail in the open market. Such transactions may include placing bids for the
Common Stock or effecting purchases of the Common Stock for the purpose of
pegging, fixing or maintaining the price of the Common Stock or for the purpose
of reducing a syndicate short position created in connection with the offering.
A syndicate short position may be covered by exercise of the option described
above rather than by open market purchases. In addition, the contractual
arrangements among the Underwriters include a provision whereby,
42
<PAGE>
if, prior to termination of price and trading restrictions, the Representatives
purchase Common Stock in the open market for the account of the underwriting
syndicate and the securities purchased can be traced to a particular Underwriter
or member of the selling group, the underwriting syndicate may require the
Underwriter or selling group member in question to purchase the Common Stock in
question at the cost price to the syndicate or may recover from (or decline to
pay to) the Underwriter or selling group member in question the selling
concession applicable to the securities in question. The Underwriters are not
required to engage in any of these activities and any such activities, if
commenced, may be discontinued at any time.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Blackwell Sanders Matheny Weary & Lombardi L.C. of
Kansas City, Missouri. Cahill Gordon & Reindel, a partnership including a
professional corporation, New York, New York, is acting as counsel to the
Underwriters in connection with this offering.
EXPERTS
The consolidated financial statements of the Company as of June 30, 1995 and
1996 and for each of the three fiscal years in the period ended June 30, 1996
included in this Prospectus have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report appearing herein, and is
included in reliance upon the report of such firm given upon their authority as
experts in accounting and auditing.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "1934 Act"), and, in accordance therewith,
files reports, proxy statements and other information with the Securities and
Exchange Commission (the "Commission"). Such reports, proxy statements and other
information filed by the Company can be inspected and copies can be made at the
public reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the following Regional offices of
the Commission: Seven World Trade Center, Suite 1300, New York, New York 10048;
and Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of such material may be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. Such reports, proxy statements and other information
can also be inspected at the offices of the New York Stock Exchange, 20 Broad
Street, New York, New York 10005. Such material may also be accessed
electronically by means of the Commission's home page on the Internet at
http://www.sec.gov.
This Prospectus constitutes a part of a Registration Statement filed by the
Company with the Commission under the Securities Act with respect to the Common
Stock offered hereby. This Prospectus omits certain of the information contained
in the Registration Statement, and reference is hereby made to the Registration
Statement and related exhibits and schedules for further information with
respect to the Company and the Common Stock offered hereby. Any statements
contained herein concerning the provisions of any document are not necessarily
complete, and in each such instance reference is made to the copy of such
document filed as an exhibit to the Registration Statement. Each such statement
is qualified in its entirety by such reference.
43
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission pursuant to
the 1934 Act are incorporated in this Prospectus by reference:
(a) The Company's Annual Report on Form 10-K for the fiscal year ended June
30, 1996;
(b) The Company's Quarterly Reports on Form 10-Q for the quarters ended
September 30, 1996, December 31, 1996 and March 31, 1997.
The Company hereby undertakes to provide without charge to each person to
whom a copy of this Prospectus has been delivered, on the written or oral
request of any such person, a copy of any or all of the documents referred to
above which have been incorporated in this Prospectus by reference, other than
exhibits to such documents unless such exhibits are specifically incorporated by
reference into such documents. Such requests should be directed to Mr. Kevin
McDermed, Vice President, Atchison Casting Corporation, 400 South Fourth Street,
Atchison, Kansas 66002, telephone number (913) 367-2121.
Any statement contained in a document incorporated by reference herein shall
be deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
44
<PAGE>
ATCHISON CASTING CORPORATION
AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Independent Auditors' Report............................................................................... F-2
Consolidated Balance Sheets--June 30, 1995 and 1996 and March 31, 1997 (unaudited)......................... F-3
Consolidated Statements of Income--Years Ended June 30, 1994, 1995 and 1996 and Nine Months Ended March 31,
1996 and 1997 (unaudited)................................................................................ F-4
Consolidated Statements of Stockholders' Equity--Years Ended June 30, 1994, 1995 and 1996 and Nine Months
Ended March 31, 1997 (unaudited)......................................................................... F-5
Consolidated Statements of Cash Flows--Years Ended June 30, 1994, 1995 and 1996 and Nine Months Ended March
31, 1996 and 1997 (unaudited)............................................................................ F-6
Notes to Consolidated Financial Statements................................................................. F-8
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors of
Atchison Casting Corporation
Atchison, Kansas
We have audited the accompanying consolidated balance sheets of Atchison
Casting Corporation and subsidiaries (the "Company") as of June 30, 1995 and
1996 and the related consolidated statements of income, stockholders' equity and
cash flows for each of the three years in the period ended June 30, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of June 30, 1995
and 1996, and the results of its operations and its cash flows for each of the
three years in the period ended June 30, 1996 in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
Kansas City, Missouri
August 16, 1996
F-2
<PAGE>
ATCHISON CASTING CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1995 AND 1996 AND MARCH 31, 1997 (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
------------------
1995 1996 1997
-------- -------- --------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................... $ 759 $ 7,731 $ 2,444
Customer accounts receivable, net of
allowance for doubtful accounts of $794 and
$295 at June 30, 1995 and 1996, $331 at
March 31, 1997 (unaudited)................. 22,148 32,224 40,366
Insurance receivable......................... 6,137
Inventories.................................. 23,382 24,357 31,347
Deferred income taxes........................ 2,813 1,985 1,555
Other current assets......................... 1,357 1,968 2,251
-------- -------- --------------
Total current assets..................... 56,596 68,265 77,963
PROPERTY, PLANT AND EQUIPMENT, Net............. 56,152 72,160 91,023
INTANGIBLE ASSETS, Net......................... 15,245 18,441 22,108
DEFERRED CHARGES, Net.......................... 315 440 347
OTHER ASSETS................................... 1,979 2,878 4,091
-------- -------- --------------
TOTAL.......................................... $130,287 $162,184 $195,532
-------- -------- --------------
-------- -------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable............................. $ 9,502 $ 8,483 $ 11,322
Accrued expenses............................. 19,367 22,583 25,179
Current maturities of long-term
obligations................................ 780 946
-------- -------- --------------
Total current liabilities................ 28,869 31,846 37,447
LONG-TERM OBLIGATIONS.......................... 34,920 34,655 53,269
DEFERRED INCOME TAXES.......................... 5,784 12,686 14,723
OTHER LONG-TERM OBLIGATIONS.................... 1,193 1,207 1,680
EXCESS OF ACQUIRED NET ASSETS OVER COST, Net... 1,267 922 741
POSTRETIREMENT OBLIGATION OTHER THAN PENSION... 5,044 5,414 5,756
MINORITY INTEREST IN SUBSIDIARIES.............. 512 800 1,094
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 2,000,000
authorized shares; no shares issued and
outstanding................................
Common stock, $.01 par value, 19,300,000
authorized shares; 5,489,758 and 5,528,912
shares issued and outstanding in 1995 and
1996, respectively, 5,540,422 at March 31,
1997 (unaudited)........................... 55 56 56
Class A common stock (non-voting), $.01 par
value, 700,000 authorized shares; no shares
issued and outstanding.....................
Additional paid-in capital................... 41,623 42,159 42,325
Retained earnings............................ 11,386 32,712 38,886
Minimum pension liability adjustment......... (375) (293) (293)
Accumulated foreign currency translation
adjustment................................. 9 20 (152)
Common stock held in treasury, 30,823 and
36,002 shares in 1995 and 1996,
respectively, at cost, 36,002 at March 31,
1997 (unaudited)...........................
-------- -------- --------------
Total stockholders' equity............... 52,698 74,654 80,822
-------- -------- --------------
TOTAL.......................................... $130,287 $162,184 $195,532
-------- -------- --------------
-------- -------- --------------
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
ATCHISON CASTING CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED JUNE 30, 1994, 1995 AND 1996 AND
NINE MONTHS ENDED MARCH 31, 1996 AND 1997 (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED JUNE 30, MARCH 31,
---------------------------------- -------------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET SALES.................................... $ 82,519 $ 141,579 $ 185,081 $ 130,000 $ 176,933
COST OF GOODS SOLD........................... 66,304 115,458 156,612 111,547 148,205
---------- ---------- ---------- ----------- -----------
GROSS PROFIT................................. 16,215 26,121 28,469 18,453 28,728
OPERATING EXPENSES:
Selling, general and administrative........ 6,581 13,058 15,459 10,911 15,230
Amortization of intangibles................ 1,209 1,392 1,508 1,131 503
Other income............................... (6,370) (26,957) (10,282)
---------- ---------- ---------- ----------- -----------
Total operating expenses............... 7,790 8,080 (9,990) 1,760 15,733
---------- ---------- ---------- ----------- -----------
OPERATING INCOME............................. 8,425 18,041 38,459 16,693 12,995
INTEREST EXPENSE............................. 1,223 2,326 2,845 2,056 2,400
MINORITY INTEREST IN NET INCOME OF
SUBSIDIARIES............................... 62 280 225 137 111
---------- ---------- ---------- ----------- -----------
INCOME BEFORE TAXES AND EXTRAORDINARY ITEM... 7,140 15,435 35,389 14,500 10,484
INCOME TAXES................................. 2,494 5,971 14,063 5,860 4,310
---------- ---------- ---------- ----------- -----------
INCOME BEFORE EXTRAORDINARY ITEM............. 4,646 9,464 21,326 8,640 6,174
EXTRAORDINARY ITEM--
Early extinguishment of debt, net of income
tax benefit of $787...................... 1,230
---------- ---------- ---------- ----------- -----------
NET INCOME................................... $ 3,416 $ 9,464 $ 21,326 $ 8,640 $ 6,174
---------- ---------- ---------- ----------- -----------
---------- ---------- ---------- ----------- -----------
INCOME BEFORE EXTRAORDINARY ITEM PER COMMON
AND EQUIVALENT SHARES...................... $ 0.98 $ 1.73 $ 3.87 $ 1.57 $ 1.11
EXTRAORDINARY ITEM--
Early extinguishment of debt, per common
and equivalent shares.................... 0.26
---------- ---------- ---------- ----------- -----------
NET INCOME PER COMMON AND EQUIVALENT
SHARES..................................... $ 0.72 $ 1.73 $ 3.87 $ 1.57 $ 1.11
---------- ---------- ---------- ----------- -----------
---------- ---------- ---------- ----------- -----------
WEIGHTED AVERAGE NUMBER OF COMMON AND
EQUIVALENT SHARES OUTSTANDING.............. 4,757,607 5,477,881 5,516,597 5,512,547 5,562,822
---------- ---------- ---------- ----------- -----------
---------- ---------- ---------- ----------- -----------
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
ATCHISON CASTING CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1994, 1995 AND 1996 AND
NINE MONTHS ENDED MARCH 31, 1997 (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
CLASS RETAINED MINIMUM FOREIGN
A ADDITIONAL EARNINGS PENSION CURRENCY
COMMON COMMON PAID-IN (ACCUMULATED LIABILITY TRANSLATION
STOCK STOCK CAPITAL DEFICIT) ADJUSTMENT ADJUSTMENT TOTAL
------ ------ ---------- ------------ ---------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, July 1, 1993................... $25 $ 7 $15,313 $(1,494) $13,851
Issuance of 6,349 shares.............. 71 71
Issuance of 2,150,000 shares for
initial public stock offering....... 21 23,237 23,258
Issuance of 175,583 shares for
purchase of subsidiary.............. 2 2,398 2,400
Conversion of 673,653 shares of Class
A common stock to common stock...... 7 (7)
Minimum pension liability adjustment,
net of income tax benefit of $200... $(313) (313)
Net income............................ 3,416 3,416
--
------ ---------- ------------ ----- ----- -------
Balance, June 30, 1994.................. 55 41,019 1,922 (313) 42,683
Issuance of 11,754 shares............. 154 154
Issuance of 26,895 shares for purchase
of subsidiary....................... 450 450
Conversion of 19,629 shares of Class A
common stock to common stock........
Minimum pension liability adjustment,
net of income tax benefit of $38.... (62) (62)
Purchase of 30,823 nonvested shares
under Stock Restriction Agreement...
Foreign currency translation
adjustment of investment in
subsidiary.......................... $ 9 9
Net income............................ 9,464 9,464
--
------ ---------- ------------ ----- ----- -------
Balance, June 30, 1995.................. 55 41,623 11,386 (375) 9 52,698
Issuance of 34,333 shares............. 1 402 403
Exercise of stock options (10,000
shares)............................. 134 134
Minimum pension liability adjustment,
net of income tax expense of $59.... 82 82
Purchase of 5,179 nonvested shares
under Stock Restriction Agreement...
Foreign currency translation
adjustment of investment in
subsidiary.......................... 11 11
Net income............................ 21,326 21,326
--
------ ---------- ------------ ----- ----- -------
Balance June 30, 1996................... 56 42,159 32,712 (293) 20 74,654
Issuance of 7,777 shares
(unaudited)......................... 115 115
Exercise of stock options (3,733
shares) (unaudited)................. 51 51
Foreign currency translation
adjustment (unaudited).............. (172) (172)
Net income (unaudited)................ 6,174 6,174
--
------ ---------- ------------ ----- ----- -------
Balance, March 31, 1997 (unaudited)..... $56 $ $42,325 $38,886 $(293) $(152) $80,822
--
--
------ ---------- ------------ ----- ----- -------
------ ---------- ------------ ----- ----- -------
</TABLE>
See notes to financial statements.
F-5
<PAGE>
ATCHISON CASTING CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1994, 1995 AND 1996 AND
NINE MONTHS ENDED MARCH 31, 1996 AND 1997 (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED JUNE 30, MARCH 31,
---------------------------- -------------------------
1994 1995 1996 1996 1997
-------- -------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................ $ 3,416 $ 9,464 $ 21,326 $ 8,640 $ 6,174
Extraordinary item--early
extinguishment of debt.............. 1,230
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation and amortization....... 4,541 6,067 7,411 5,283 6,376
Minority interest in net income of
subsidiaries.................... 62 280 225 136 111
(Gain) loss on disposal of capital
assets............................ (8) (50) 8 (2) (5)
Accretion of long-term obligation
discount.......................... 156 160 161 131
Deferred income taxes............... 407 1,551 7,918 1,565 1,020
Changes in assets and liabilities:
Receivables....................... (6,472) 2,350 (8,286) (1,935) (417)
Insurance receivable.............. (6,137) 6,137
Inventories....................... (1,878) (7,168) 1,614 (1,789) 740
Other current assets.............. (261) (177) (715) (841) (53)
Accounts payable.................. 816 1,697 (1,480) 1,611 (44)
Accrued expenses.................. 473 7,344 2,073 (1,709) 148
Postretirement obligation other
than pension.................... 171 162 209 101 342
Other............................. 31 9 3 42
-------- -------- -------- ----------- -----------
Cash provided by operating
activities.................... 2,653 15,574 36,610 11,194 14,434
-------- -------- -------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.................. (7,524) (12,837) (12,740) (8,892) (9,594)
Proceeds from sale of capital
assets.............................. 13 57 8 7 15
Payment for purchase of net assets of
subsidiaries, net of cash acquired
of $2, $49 and $1,778 for the years
ended June 30, 1994, 1995 and 1996,
respectively, $1,778 and $142 for
the nine months ended March 31, 1996
and 1997, respectively.............. (15,136) (13,327) (13,251) (13,251) (28,498)
Assets held for resale................ (1,566) (274) (319) 1
Other................................. (330) (730)
-------- -------- -------- ----------- -----------
Cash used in investing
activities.................... (22,647) (27,673) (26,587) (22,455) (38,806)
-------- -------- -------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Costs paid to raise capital........... (736)
Proceeds from issuance of common
stock............................... 24,065 154 537 461 166
Proceeds from sale of minority
interest in subsidiary.............. 86 84 63 183
Proceeds from issuance of long-term
obligations......................... 21,020 33,231 5,309 1,293
Payments on long-term obligations..... (22,974) (21,026) (2,646) (122) (613)
Capitalized financing costs paid...... (68) (221) (283) (150)
Net borrowings (repayments) under
revolving loan note................. (921) (6,031) 14,460 18,073
-------- -------- -------- ----------- -----------
Cash provided by (used in)
financing activities.......... 20,472 12,222 (3,051) 14,649 19,102
-------- -------- -------- ----------- -----------
</TABLE>
(Continued)
F-6
<PAGE>
ATCHISON CASTING CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED JUNE 30, 1994, 1995 AND 1996 AND
NINE MONTHS ENDED MARCH 31, 1996 AND 1997 (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED JUNE 30, MARCH 31,
---------------------------- -------------------------
1994 1995 1996 1996 1997
-------- -------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
EFFECT OF EXCHANGE RATE ON CASH......... $ $ (2) $ $ (2) $ (17)
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS........................... 478 121 6,972 3,386 (5,287)
CASH AND CASH EQUIVALENTS, Beginning of
period................................ 160 638 759 759 7,731
-------- -------- -------- ----------- -----------
CASH AND CASH EQUIVALENTS, End of
period................................ $ 638 $ 759 $ 7,731 $ 4,145 $ 2,444
-------- -------- -------- ----------- -----------
-------- -------- -------- ----------- -----------
CASH PAID DURING THE YEAR FOR:
Interest.............................. $ 1,009 $ 1,611 $ 2,728 $ 2,386 $ 2,817
-------- -------- -------- ----------- -----------
-------- -------- -------- ----------- -----------
Income taxes.......................... $ 457 $ 5,224 $ 6,883 $ 6,661 $ 2,794
-------- -------- -------- ----------- -----------
-------- -------- -------- ----------- -----------
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Minimum pension liability adjustment,
net of income tax benefit (expense)
of $200, $38 and $(59),
respectively, recorded to
stockholders' equity................ $ 313 $ 62 $ (82)
-------- -------- --------
-------- -------- --------
Recording of other asset related to
pension liability................... $ 198 $ (15) $ (24)
-------- -------- --------
-------- -------- --------
Unexpended bond funds................. $ 1,198 $ (473)
-------- -----------
-------- -----------
Recording of additional pension
liability........................... $ (711) $ (85) $ 175
-------- -------- --------
-------- -------- --------
Issuance of common stock in purchase
of
subsidiary.......................... $ 2,400 $ 450
-------- --------
-------- --------
(Concluded)
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE>
ATCHISON CASTING CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1994, 1995 AND 1996 AND NINE MONTHS
ENDED MARCH 31, 1996 AND 1997 (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS--Atchison Casting Corporation ("ACC") was organized in
1991 for the purpose of becoming a broad based foundry company producing iron
and steel castings ranging from one pound to 120,000 pounds. A majority of the
Company's sales are to U.S. customers, however, the Company also has sales to
Canadian and other foreign customers.
PERVASIVENESS OF ESTIMATES--The preparation of the financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
BASIS OF PRESENTATION--The consolidated financial statements present the
financial position of the Company ("ACC") and its subsidiaries, Amite Foundry
and Machine, Inc. ("AFM"), Prospect Foundry, Inc. ("Prospect"), Quaker Alloy,
Inc. ("Quaker"), Canadian Steel Foundries, Ltd. ("CSF"), Kramer International,
Inc. ("Kramer"), Empire Steel Castings, Inc. ("Empire"), La Grange Foundry Inc.
("La Grange") and The G&C Foundry Company ("G&C"). AFM, Kramer, Empire and La
Grange are wholly owned subsidiaries. The Company owns 90.9%, 94.9%, 90.2% and
92.0% of the outstanding capital stock of Prospect, Quaker, CSF and G&C,
respectively. All significant intercompany accounts and balances have been
eliminated. Additionally, the consolidated financial statements as of and for
the nine months ended March 31, 1997 include consolidation of Los Angeles Die
Casting Inc. ("LA Die Casting"), Canada Alloy Castings, Ltd. ("Canada Alloy"),
Pennsylvania Steel Foundry & Machine Company ("Pennsylvania Steel") and Jahn
Foundry Corp. ("Jahn Foundry"). The Company owns 90.7% of the outstanding
capital stock of Los Angeles Die Casting Inc.
STATEMENT OF CASH FLOWS--For purposes of cash flow reporting, cash and cash
equivalents include cash on hand, amounts due from banks and temporary
investments with original maturities of 90 days or less at the date of purchase.
REVENUE RECOGNITION--Sales and related cost of sales are recognized upon
shipment of products. Sales and related cost of sales under long-term contracts
to commercial customers are recognized as units are delivered.
RECEIVABLES--Approximately 60%, 41% and 28% of the Company's business in
1994, 1995 and 1996, respectively, was with four major customers in the
locomotive, military and general industrial markets. As of June 30, 1995 and
1996, 31% and 24%, respectively, of accounts receivable were with these four
major customers. The Company generally does not require collateral or other
security on accounts receivable. Credit risk is controlled through credit
approvals, limits and monitoring procedures.
INVENTORY--Approximately 29% of the Company's inventory is valued at the
lower of cost, determined on the last-in, first-out ("LIFO") method, or market.
The remaining inventory is valued at the lower of cost, determined on the
first-in, first-out ("FIFO") method, or market.
PROPERTY, PLANT AND EQUIPMENT--Major renewals and betterments are
capitalized while replacements, maintenance and repairs which do not improve or
extend the life of the respective assets are charged to expense as incurred.
Upon sale or retirement of assets, the cost and related accumulated depreciation
F-8
<PAGE>
ATCHISON CASTING CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1994, 1995 AND 1996 AND NINE MONTHS
ENDED MARCH 31, 1996 AND 1997 (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
applicable to such assets are removed from the accounts and any resulting gain
or loss is reflected in operations.
Property, plant and equipment is carried at cost less accumulated
depreciation. Plant and equipment is depreciated over the estimated useful lives
of the assets using the straight-line method.
INTANGIBLE ASSETS--Intangible assets acquired are being amortized over their
estimated lives using the straight-line method. The Company periodically reviews
the continuing value of intangibles to determine if there has been an
impairment. The basis of this valuation includes the continuing profitability of
the acquired operations, their expected future undiscounted cash flows, the
maintenance of a significant customer base and similar factors.
INCOME TAXES--Deferred income taxes are provided on temporary differences
between the financial statements and tax basis of the Company's assets and
liabilities in accordance with the liability method.
EARNINGS PER SHARE--Earnings per common share are based upon the weighted
average number of common and common equivalent shares outstanding.
NEW ACCOUNTING STANDARD--Effective for fiscal years beginning after December
15, 1995, Statement of Financial Accounting Standards ("SFAS") No. 121,
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO
BE DISPOSED OF, establishes accounting standards for the impairment of
long-lived assets, certain intangibles and goodwill related to those assets. The
Company does not expect the implementation of this Statement to have a material
effect on its consolidated financial statements.
Effective for fiscal years beginning after December 15, 1995, SFAS No. 123,
ACCOUNTING FOR STOCK-BASED COMPENSATION, will require increased disclosure of
compensation expense arising from stock compensations plans. The statement
encourages, rather than requires, companies to adopt a new method that accounts
for stock compensation awards based on their estimated fair value at the date
they are granted. Companies will be permitted, however, to continue accounting
for stock compensation under APB Opinion No. 25 which requires compensation cost
to be recognized based on the difference, if any, between the quoted market
price of the stock and the amount an employee must pay to acquire the stock. The
Company will continue to apply APB Opinion No. 25 in its consolidated financial
statements and will disclose pro forma net income and earnings per share in a
footnote to its consolidated financial statements, determined as if the new
method were applied. The impact of this Statement has not yet been completely
evaluated.
ACCRUED INSURANCE EXPENSE--Costs estimated to be incurred in the future for
employee medical benefits and casualty insurance programs resulting from claims
which have occurred are accrued currently.
In order to support claims for workman's compensation benefits, at June 30,
1996 the Company has letters of credit aggregating $3,644 and a certificate of
deposit of $175. As of March 31, 1997 the Company has letters of credit
aggregating $3,495 (unaudited) and a certificate of deposit of $200 (unaudited).
UNAUDITED INTERIM FINANCIAL INFORMATION--The unaudited interim financial
information as of March 31, 1997 and for the nine months ended March 31, 1996
and 1997 has been prepared on the same basis as the audited financial
statements. In the opinion of management, such unaudited information includes
all adjustments (consisting only of normal recurring accruals) necessary for a
fair presentation of
F-9
<PAGE>
ATCHISON CASTING CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1994, 1995 AND 1996 AND NINE MONTHS
ENDED MARCH 31, 1996 AND 1997 (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
the interim information. Operating results for the nine months ended March 31,
1997 are not necessarily indicative of the results that may be expected for the
entire year ending June 30, 1997.
2. ACQUISITIONS
On April 1, 1994, ACC acquired all of the capital stock of Prospect for
$14,000 in cash and $140 of related expenses. ACC subsequently issued 9.1% of
the acquired Prospect stock to Prospect management. The difference between the
fair market value of the minority interest, as estimated by the Company's
management, and the consideration paid by Prospect's management was not
material. Prospect, located in Minneapolis, Minnesota, produces ductile and gray
iron castings used in construction, agricultural equipment, transportation,
hydraulic and other related markets.
On June 1, 1994, ACC acquired the inventory and certain property, plant and
equipment of Quaker for $950 in cash, 175,583 shares of ACC stock, which had a
market value of $2,400, and $48 of related expenses. ACC subsequently issued
10.3% of Quaker stock to Quaker management. The difference between the fair
market value of the minority interest, as estimated by the Company's management,
and the consideration paid by Quaker's management was not material. Quaker,
located in Myerstown, Pennsylvania, serves the pump and valve industries, among
others.
On November 30, 1994, the Company purchased the assets of the Canadian Steel
Foundries Division of Hawker Siddeley Canada Inc., a publicly-traded Canadian
company, for $2,179 and $221 of related expenses, in addition to the assumption
of approximately $4,023 of liabilities. ACC subsequently issued 9.8% of CSF
stock to CSF management (unaudited). The difference between the fair market
value of the minority interest, as estimated by the Company's management, and
the consideration paid by CSF's management was not material. As the current
assets acquired exceeded the purchase price, the Company recorded negative
goodwill in the amount of $1,432 in connection with the transaction which is
being amortized over 5 years. CSF, located in Montreal, Quebec, makes steel
castings ranging in size up to 60 tons for the utility, mining and construction,
pulp and paper, energy and steel industries. The Company financed this
acquisition with internally generated funds.
On January 3, 1995, the Company purchased all of the outstanding capital
stock of Kramer for $6,754 in cash and $20 of related expenses. Contemporaneous
with the consummation of this acquisition, the Company retired $298 of Kramer's
outstanding indebtedness. Kramer, located in Milwaukee, Wisconsin, is a foundry
specializing in the casting of iron, steel and non-ferrous pump impellers,
ranging in size from one pound to 2,500 pounds. The Company financed this
transaction with funds available under its revolving credit facility.
On October 11, 1994, the Company purchased approximately 41.6% of the
outstanding shares of capital stock of Empire for $350 in cash. On February 1,
1995, the Company purchased the balance of Empire's outstanding capital stock
for $596 in cash and issued 26,895 shares of the Company's Common Stock, which
had a fair market value of $450 and $110 of related expenses. Contemporaneous
with the consummation of this acquisition, the Company retired $2,848 of
Empire's outstanding indebtedness. Empire, located in Reading, Pennsylvania, is
a foundry that produces steel castings ranging in size from one pound to five
tons for the pump and valve industries, among others. The Company financed this
transaction with funds available under its revolving credit facility.
F-10
<PAGE>
ATCHISON CASTING CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1994, 1995 AND 1996 AND NINE MONTHS
ENDED MARCH 31, 1996 AND 1997 (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
2. ACQUISITIONS (CONTINUED)
On December 14, 1995, the Company purchased certain assets of the La Grange,
Missouri foundry operations of Gardner Denver Machinery, Incorporated for $5,187
in cash and $103 of related expenses. La Grange produces gray and ductile iron
castings for the industrial compressor and pump markets, among others. The
Company financed this transaction with funds available under its revolving
credit facility.
On March 11, 1996, the Company purchased all of the outstanding capital
stock of G&C for $9,620 in cash, the assumption of $2,000 of change of control
benefits, the assumption of $524 of outstanding indebtedness and $119 of related
expenses. ACC subsequently issued 8% of the acquired G&C stock to G&C
management. The difference between the fair market value of the minority
interest, as estimated by the Company's management, and the consideration paid
by G&C's management was not material. G&C, located in Sandusky, Ohio, is a
foundry that produces gray and ductile iron castings, principally used in
hydraulic applications. The Company financed this transaction with funds
available under its revolving credit facility.
On October 1, 1996 (unaudited), the Company purchased all of the outstanding
capital stock of LA Die Casting, a California corporation, for $8.8 million in
cash. LA Die Casting, located in Los Angeles, California, produces precision
aluminum and zinc die castings for the computer, communications and recreation
industries. ACC subsequently issued 9.3% of the acquired LA Die Casting stock to
LA Die Casting Management. The Company financed this transaction with funds
available under its revolving credit facility.
On October 26, 1996 (unaudited), the Company purchased all of the
outstanding capital stock of Canada Alloy for $4.4 million (U.S.) in cash.
Canada Alloy, located in Kitchener, Ontario, produces stainless, carbon and
alloy steel castings for a variety of markets, including power generation
equipment, pulp and paper machinery, pumps and valves. The Company financed this
transaction with funds available under its revolving credit facility.
On October 31, 1996 (unaudited), the Company purchased all of the
outstanding capital stock of Pennsylvania Steel, a Pennsylvania corporation, for
$9.0 million cash, subject to adjustment. Pennsylvania Steel, located in
Hamburg, Pennsylvania, produces carbon and stainless steel castings for the
power generation, valve, pump and other industrial equipment markets. The
Company financed this transaction with funds available under its revolving
credit facility.
On February 14, 1997, the Company purchased all of the outstanding capital
stock of Jahn Foundry, a Massachusetts corporation, for $6.2 million in cash.
Jahn Foundry, located in Springfield, Massachusetts, produces gray iron castings
for the automotive, air conditioning and agricultural markets. The Company
financed this transaction with funds available under its revolving credit
facility.
The acquisitions prior to June 30, 1996 have been accounted for by the
purchase method of accounting, and accordingly, the purchase price including the
related acquisition expenses have been allocated to the assets acquired based on
the estimated fair values at the date of the acquisitions. For the Prospect,
Kramer, Empire and G&C acquisitions, the excess of purchase price over estimated
fair values of the net assets acquired has been included in "Intangible Assets,
net" on the Consolidated Balance Sheet. For the Quaker, CSF and La Grange
acquisitions, the fair value of the net assets acquired exceeded the purchase
price. Accordingly, the excess fair value was subtracted from identifiable
long-term assets ratably based on their relative fair values as a percentage of
total long-term assets with any remaining excess
F-11
<PAGE>
ATCHISON CASTING CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1994, 1995 AND 1996 AND NINE MONTHS
ENDED MARCH 31, 1996 AND 1997 (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
2. ACQUISITIONS (CONTINUED)
recorded as negative goodwill and included in "Excess of Acquired Net Assets
Over Cost, net" on the Consolidated Balance Sheet.
The estimated fair values of assets and liabilities acquired in the 1994,
1995 and 1996 acquisitions, (excluding those acquired subsequent to June 30,
1996) are summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Cash.................................... $ 2 $ 49 $ 1,778
Accounts receivable..................... 3,663 6,421 1,791
Inventories............................. 2,403 5,699 2,557
Property, plant and equipment........... 9,296 2,623 7,825
Intangible assets, primarily goodwill... 6,763 6,444 4,779
Other assets............................ 53 338 206
Accounts payable and accrued expenses... (2,462) (6,543) (1,529)
Deferred income taxes................... (2,180) 389 247
Other liabilities....................... (1,594) (101)
Long-term obligations................... (2,524)
------- ------- -------
17,538 13,826 15,029
Stock issued............................ (2,400) (450)
Cash acquired........................... (2) (49) (1,778)
------- ------- -------
Cash used in acquisitions............... $15,136 $13,327 $13,251
------- ------- -------
------- ------- -------
</TABLE>
The operating results of these acquisitions are included in ACC's
consolidated statements of income from the dates of acquisition (except for
those acquired subsequent to June 30, 1996). The following unaudited pro forma
summary presents the consolidated results of operations as if the acquisitions
made prior to June 30, 1996 had occurred at July 1, 1994, after giving effect to
certain adjustments, including amortization of goodwill, interest expense on the
acquisition debt and related income tax effects. These pro forma results have
been prepared for comparative purposes only and do not purport to be indicative
of what would have occurred had the acquisitions been made as of that date or of
results which may occur in the future.
<TABLE>
<CAPTION>
YEAR ENDED JUNE
30,
------------------
1995 1996
-------- --------
THOUSANDS OF
DOLLARS, EXCEPT
PER SHARE DATA
(UNAUDITED)
<S> <C> <C>
Net sales............................... $190,108 $202,250
Net income.............................. 9,540 20,781
Net income per common and equivalent
shares................................ 1.74 3.77
</TABLE>
F-12
<PAGE>
ATCHISON CASTING CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1994, 1995 AND 1996 AND NINE MONTHS
ENDED MARCH 31, 1996 AND 1997 (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
3. INVENTORIES
<TABLE>
<CAPTION>
JUNE 30,
-------------------- MARCH 31,
1995 1996 1997
--------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials.................................. $ 2,690 $ 3,589 $ 5,629
Work-in-process................................ 16,249 16,677 18,607
Finished goods................................. 2,322 1,455 3,671
Deferred supplies.............................. 2,121 2,636 3,440
--------- --------- -----------
$ 23,382 $ 24,357 $ 31,347
--------- --------- -----------
--------- --------- -----------
</TABLE>
Inventories as of June 30, 1995 and 1996 would have been higher by $293 and
$642, respectively, and $792 (unaudited) at March 31, 1997, had the Company used
the first-in, first-out method of valuing those inventories that are valued
using the last-in, first-out method.
4. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
LIVES JUNE 30,
(IN -------------------- MARCH 31,
YEARS) 1995 1996 1997
--------- --------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Land.................................. $ 1,394 $ 1,822 $ 3,336
Improvements to land.................. 12-15 1,931 2,109 2,600
Buildings and improvements............ 35 7,897 14,088 21,751
Machinery and equipment............... 5-14 47,596 59,541 72,241
Automobiles and trucks................ 3 311 428 1,299
Office furniture, fixtures and
equipment........................... 5-10 1,019 1,798 2,842
Tooling and patterns.................. 1.5-6 2,046 3,186 3,372
--------- --------- -----------
62,194 82,972 107,441
Less accumulated depreciation......... 11,435 17,179 22,927
--------- --------- -----------
50,759 65,793 84,514
Construction in progress.............. 2,203 5,169 5,784
Plant under renovation................ 3,190
Unexpended bond funds................. 1,198 725
--------- --------- -----------
$ 56,152 $ 72,160 $ 91,023
--------- --------- -----------
--------- --------- -----------
</TABLE>
Depreciation expense was $2,934, $4,304 and $5,745 for the years ended June
30, 1994, 1995 and 1996, respectively, and $4,043 (unaudited) and $5,782
(unaudited) for the nine months ended March 31, 1996 and 1997, respectively.
F-13
<PAGE>
ATCHISON CASTING CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1994, 1995 AND 1996 AND NINE MONTHS
ENDED MARCH 31, 1996 AND 1997 (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
5. INTANGIBLE ASSETS
<TABLE>
<CAPTION>
JUNE 30,
LIVES (IN --------------------
YEARS) 1995 1996
--------- --------- --------- MARCH 31,
1997
-----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Goodwill....................................... 25 $ 14,639 $ 19,578 $ 23,914
Noncompete agreement........................... 5 5,716
--------- --------- -----------
20,355 19,578 23,914
Less accumulated amortization.................. 5,110 1,137 1,806
--------- --------- -----------
$ 15,245 $ 18,441 $ 22,108
--------- --------- -----------
--------- --------- -----------
</TABLE>
Amortization expense was $1,448, $1,790 and $1,744 for the years ended June
30, 1994, 1995 and 1996, respectively, and $1,308 (unaudited) and $669
(unaudited) for the nine months ended March 31, 1996 and 1997, respectively.
6. DEFERRED CHARGES
<TABLE>
<CAPTION>
JUNE 30,
LIVES (IN --------------------
YEARS) 1995 1996
--------- --------- --------- MARCH 31,
1997
-------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Capitalized financing costs.......................... 3 to 10 $ 289 $ 572 $ 572
Organizational costs................................. 5 465
--------- --------- -----
754 572 572
Less accumulated amortization........................ 439 132 225
--------- --------- -----
$ 315 $ 440 $ 347
--------- --------- -----
--------- --------- -----
</TABLE>
Amortization of such costs was $159, $139 and $158 for the years ended June
30, 1994, 1995 and 1996, respectively, and $111 (unaudited) and $93 (unaudited)
for the nine months ended March 31, 1996 and 1997, respectively, of which $66,
$46 and $69, respectively, and $41 (unaudited) and $93 (unaudited) is included
in interest expense.
On July 29, 1994, the Company issued to an insurance company $20,000
aggregate principal of unsecured, senior notes. The notes have an average
maturity of seven years and bear interest at a fixed rate of 8.44% per year. In
conjunction with this note purchase agreement, $180 of financing costs were
capitalized and are being amortized over ten years.
Concurrently, with the sale of the senior notes the Company entered into a
credit agreement with Harris Trust and Savings Bank ("Harris") providing for
unsecured loans of up to $20,000 in a three year revolving credit facility. In
connection with this credit agreement, $41 of financing costs were capitalized
and are being amortized over three years.
On March 8, 1996, the Company and Harris entered into the First Amendment to
the Credit Agreement providing for an increase in unsecured loans from $20,000
to $40,000 and an increase in permitted subsidiary indebtedness from $2,500 to
$5,500. In connection with this amendment, $150 of
F-14
<PAGE>
ATCHISON CASTING CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1994, 1995 AND 1996 AND NINE MONTHS
ENDED MARCH 31, 1996 AND 1997 (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
6. DEFERRED CHARGES (CONTINUED)
financing costs were capitalized and are being amortized over the remaining two
and one-half year term of the credit agreement.
On May 1, 1996, the Company's La Grange subsidiary entered into a Loan
Agreement with the Missouri Development Finance Board (the "Board"), providing
for a loan of $5,100 to La Grange using the proceeds of the Board's Industrial
Development Revenue Bonds, Series 1996 (La Grange Foundry Inc. Project). The
Loan Agreement terminates on November 1, 2011. In connection with this loan
agreement, $133 of financing costs were capitalized and are being amortized over
ten years.
7. ACCRUED EXPENSES
<TABLE>
<CAPTION>
JUNE 30,
--------------------
1995 1996
--------- --------- MARCH 31,
1997
-----------
(UNAUDITED)
<S> <C> <C> <C>
Payroll, vacation and other compensation................... $ 4,132 $ 5,560 $ 5,889
Accrued pension liability.................................. 2,080 2,131 2,349
Advances from customers.................................... 7,051 1,194 1,148
Reserve for flood repairs.................................. 6,946 6,816
Reserve for workers' compensation and employee health
care..................................................... 3,142 3,128 3,879
Income taxes payable....................................... 882 535 1,000
Taxes other than income.................................... 232 385 595
Interest payable........................................... 814 800 370
Other...................................................... 1,034 1,904 3,133
--------- --------- -----------
$ 19,367 $ 22,583 $ 25,179
--------- --------- -----------
--------- --------- -----------
</TABLE>
8. LONG-TERM OBLIGATIONS
On July 29, 1994, the Company issued to an insurance company $20 million
aggregate principal amount of unsecured, senior notes. The notes have an average
maturity of seven years and bear interest at a fixed rate of 8.44% per year.
Concurrently, with the sale of the senior notes, the Company entered into a
credit agreement with Harris (the "Credit Agreement") providing for unsecured
loans of up to $20 million in a three year revolving credit facility. Loans
under the revolving credit facility will bear interest at fluctuating rates of
either (i) the bank's corporate base rate or (ii) LIBOR plus 1.75% subject, in
the case of the LIBOR rate option, to reduction of up to 0.50% (50 basis points)
if certain financial ratios are met. Loans under this revolving credit facility
may be used for general corporate purposes and approved investments. At June 30,
1995, $3.7 million was available for borrowing under this facility after
consideration of outstanding advances of $13.2 million and letters of credit of
$3.1 million.
F-15
<PAGE>
ATCHISON CASTING CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1994, 1995 AND 1996 AND NINE MONTHS
ENDED MARCH 31, 1996 AND 1997 (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
8. LONG-TERM OBLIGATIONS (CONTINUED)
On March 8, 1996, the Company and Harris entered into the First Amendment to
the Credit Agreement providing for an increase in unsecured loans from $20
million to $40 million and an increase in permitted subsidiary indebtedness from
$2,500 to $5,500.
On May 1, 1996, the Company's La Grange subsidiary entered into a Loan
Agreement with the Board, providing for a loan of $5,100 to La Grange using the
proceeds of the Board's Industrial Development Revenue Bonds, Series 1996 (La
Grange Foundry Inc. Project). Loans under the Loan Agreement will bear interest
at rates that fluctuate weekly based upon the then-prevailing market rates for
such securities. Loans under this Loan Agreement were used to finance the costs
of acquiring, and will be used to finance the costs of reconstructing, improving
and equipping certain additions and improvements to the Company's La Grange
manufacturing facilities. The Loan Agreement terminates on November 1, 2011.
On May 24, 1996, the Company entered into a new credit agreement with Harris
providing for unsecured loans of up to $40 million in a revolving credit
facility terminating on July 29, 1998. Loans under this revolving credit
facility will bear interest at fluctuating rates of either (i) the bank's
corporate base rate or (ii) LIBOR plus 1.50% subject, in the case of the LIBOR
rate option, to a reduction of up to 0.50% (50 basis points) if certain
financial ratios are met. Loans under this revolving credit facility may be used
for general corporate purposes and approved investments. At June 30, 1996, $23.7
million was available for borrowing under this facility after consideration of
outstanding advances of $7.2 million and letters of credit of $9.1 million. At
March 31, 1997, $6.0 million (unaudited) was available for borrowing under this
F-16
<PAGE>
ATCHISON CASTING CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1994, 1995 AND 1996 AND NINE MONTHS
ENDED MARCH 31, 1996 AND 1997 (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
8. LONG-TERM OBLIGATIONS (CONTINUED)
facility after consideration of outstanding advances of $24.8 million
(unaudited) and letters of credit of $9.2 million (unaudited). Amounts are
outstanding as follows:
<TABLE>
<CAPTION>
JUNE 30,
--------------------
1995 1996
--------- --------- MARCH 31,
1997
-----------
(UNAUDITED)
<S> <C> <C> <C>
Unsecured, senior notes with an insurance company, maturing
on July 30, 2004 and bearing interest at a fixed rate of
8.44% per year........................................... $ 20,000 $ 20,000 $ 20,000
Unsecured, revolving credit facility with Harris, maturing
on July 29, 1998, bearing interest at 9% and 8.25%,
respectively, (Prime), at March 31, 1997 $2,800 at 8.50%
(unaudited) and $22,000 at 6.6875% (unaudited)........... 13,231 7,200 24,800
Term loan between G&C and the Ohio Department of
Development, secured by certain assets of G&C, maturing
on June 1, 1999, bearing interest at 5.0%................ 95 72
Term loan between G&C and OES Capital, Incorporated
(assignee of loan agreement with Ohio Air Quality
Development Authority), secured by certain assets of G&C,
maturing on December 31, 2006, bearing interest at
6.5%..................................................... 1,707 2,910
Change of Control Benefits to be paid by G&C pursuant to
certain Employment Agreements and a Change of Control
Agreement, maturing on June 11, 1998, non interest
bearing.................................................. 1,333 1,333
Term loan between La Grange and the Missouri Development
Finance Board, secured by a letter of credit, maturing on
November 1, 2011 bearing interest at 3.69% (3.51% at
March 31, 1997 (unaudited)).............................. 5,100 5,100
Subordinated promissory note payable to Rockwell, repaid
during fiscal year 1996.................................. 1,689
--------- --------- -----------
34,920 35,435 54,215
Less current maturities.................................... 780 946
--------- --------- -----------
Total long-term obligations................................ $ 34,920 $ 34,655 $ 53,269
--------- --------- -----------
--------- --------- -----------
</TABLE>
The subordinated promissory note payable to Rockwell was discounted at 10%
from its original face of $1,850 as such note was interest free from the date of
acquisition (June 14, 1991) for five years. After
F-17
<PAGE>
ATCHISON CASTING CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1994, 1995 AND 1996 AND NINE MONTHS
ENDED MARCH 31, 1996 AND 1997 (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
8. LONG-TERM OBLIGATIONS (CONTINUED)
such date, the note was to accrue interest at 10%. The discount amortization was
$145, $160 and $161 for the years ended June 30, 1994, 1995 and 1996,
respectively, and is included in interest expense.
The credit agreement with Harris and a note purchase agreement with an
insurance company limit the Company's ability to pay dividends in any fiscal
year to an amount not more than 25% of net earnings in the preceding fiscal
year.
The amounts of long-term obligations outstanding as of June 30, 1996 mature
as follows:
<TABLE>
<S> <C>
1997............................................................... $ 780
1998............................................................... 870
1999............................................................... 10,262
2000............................................................... 3,028
2001............................................................... 3,028
Thereafter......................................................... 17,467
---------
$ 35,435
---------
---------
</TABLE>
The amounts of interest expense for the years ended June 30, 1994, 1995 and
1996 consisted of the following:
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Senior notes with an insurance company........................... $ 1,544 $ 1,688
Credit facility with Harris...................................... $ 311 576 902
Revolving loan note, including fees.............................. 46
Term loans with Heller........................................... 655
Subordinated promissory note payable to Rockwell................. 145 160 161
Amortization of deferred charges................................. 66 46 69
Other............................................................ 25
--------- --------- ---------
$ 1,223 $ 2,326 $ 2,845
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-18
<PAGE>
ATCHISON CASTING CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1994, 1995 AND 1996 AND NINE MONTHS
ENDED MARCH 31, 1996 AND 1997 (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
9. INCOME TAXES
Income taxes for the years ended June 30, 1994, 1995 and 1996 and the nine
months ended March 31, 1996 and 1997 (unaudited) are comprised of the following:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------
1994 1995 1996
--------- --------- --------- NINE MONTHS ENDED MARCH
31,
------------------------
1996 1997
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current:
Federal............................ $ 1,300 $ 3,169 $ 4,972 $ 3,516 $ 2,140
State and local.................... 943 1,376 1,047 657
Foreign............................ 308 (203) (268) 493
--------- --------- --------- ----------- -----------
1,300 4,420 6,145 4,295 3,290
Deferred............................. 407 1,551 7,918 1,565 1,020
--------- --------- --------- ----------- -----------
$ 1,707 $ 5,971 $ 14,063 $ 5,860 $ 4,310
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
</TABLE>
Income tax expense (benefit) has been allocated as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Income before taxes and extraordinary item...................... $ 2,494 $ 5,971 $ 14,063
Extraordinary item.............................................. (787)
--------- --------- ---------
$ 1,707 $ 5,971 $ 14,063
--------- --------- ---------
--------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Items giving rise to the provision for deferred income taxes:
Postretirement benefits....................................... $ (67) $ (187) $ (145)
Accrued liabilities........................................... 663 (56) 160
Net operating loss carryforwards.............................. 1,171 577
Pension costs................................................. (742) (20) 16
Alternative minimum tax credit carryforward................... (1,105) 1,264 724
Flood wall capitalization..................................... (465) 36
Deferred gain on flood proceeds............................... 5,898
Depreciation and amortization................................. 738 753 1,003
Inventory..................................................... (12) (231) 56
Minimum pension liability..................................... 277 33 (70)
Capital start-up costs........................................ (35)
Capital appreciation right obligation......................... 455
Valuation allowance........................................... (556)
All other..................................................... 85 (582) 240
--------- --------- ---------
$ 407 $ 1,551 $ 7,918
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-19
<PAGE>
ATCHISON CASTING CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1994, 1995 AND 1996 AND NINE MONTHS
ENDED MARCH 31, 1996 AND 1997 (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
9. INCOME TAXES (CONTINUED)
Following is a reconciliation between the total income taxes and the amount
computed by multiplying income before income taxes by the statutory federal
income tax rate:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------------------------------
1994 1995 1996
-------------------- -------------------- --------------------
AMOUNT % AMOUNT % AMOUNT %
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Computed expected federal income tax
expense................................ $ 2,427 34.0 $ 5,248 34.0 $ 12,465 35.0
State income taxes, net of federal
benefit................................ 357 5.0 624 4.1 1,498 4.2
Change in valuation allowance............ (556) (7.8)
Adjustment to prior year taxes........... 200 2.8
Permanent differences.................... 30 0.4 182 1.1 337 0.9
Other.................................... 36 0.5 (83) (0.5) (237) (0.6)
--------- --- --------- --- --------- ---
$ 2,494 34.9 $ 5,971 38.7 $ 14,063 39.5
--------- --- --------- --- --------- ---
--------- --- --------- --- --------- ---
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED MARCH 31,
------------------------------------------
1996 1997
(UNAUDITED) (UNAUDITED)
-------------------- --------------------
AMOUNT % AMOUNT %
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Computed expected federal income tax expense................ $ 5,076 35.0 $ 3,670 35.0
State income taxes, net of federal benefit.................. 696 4.8 608 5.8
Permanent differences....................................... 160 1.1 94 0.9
Other....................................................... (72) (0.5) (62) (0.6)
--------- --- --------- ---
$ 5,860 40.4 $ 4,310 41.1
--------- --- --------- ---
--------- --- --------- ---
</TABLE>
F-20
<PAGE>
ATCHISON CASTING CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1994, 1995 AND 1996 AND NINE MONTHS
ENDED MARCH 31, 1996 AND 1997 (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
9. INCOME TAXES (CONTINUED)
Deferred income taxes reflect the impact of temporary differences between
the amount of assets and liabilities for financial reporting purposes and such
amounts as measured by tax laws and regulations. Deferred income taxes as of
June 30, 1995 and 1996 are comprised of the following:
<TABLE>
<CAPTION>
1995 1996
--------- ----------
<S> <C> <C>
Deferred tax assets:
Postretirement benefits............................................... $ 1,967 $ 1,988
Accrued liabilities................................................... 1,416 1,900
Net operating loss carryforwards......................................
Pension costs......................................................... 762 882
Alternative minimum tax credit carryforwards.......................... 452
Flood wall capitalization............................................. 465 429
Other................................................................. 389 520
--------- ----------
5,451 5,719
Deferred tax liabilities:
Depreciation and amortization......................................... 7,901 9,108
Deferred gain on flood proceeds....................................... 6,257
Inventory............................................................. 335 808
Minimum pension liability............................................. 310 240
Capital start-up costs................................................ 68 66
Discounted note....................................................... 46 39
Other................................................................. 81
--------- ----------
8,660 16,599
--------- ----------
(3,209) (10,880)
Allocation to minimum pension liability adjustment...................... 238 179
--------- ----------
Total................................................................... $ (2,971) $ (10,701)
--------- ----------
--------- ----------
</TABLE>
SFAS 109 requires a valuation allowance against deferred tax assets if,
based on the weight of available evidence, it is more likely than not that some
or all of the deferred tax assets will not be realized. As of June 30, 1996, no
allowance has been recorded.
United States income taxes have not been provided on $307 of cumulative
undistributed earnings of CSF because of the Company's intentions to reinvest
these earnings. It is not practical to determine the unrecognized deferred tax
liability that would be payable upon remittance of assets that represent those
earnings. Such taxes, if ultimately paid, may be recoverable as foreign tax
credits in the United States.
F-21
<PAGE>
ATCHISON CASTING CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1994, 1995 AND 1996 AND NINE MONTHS
ENDED MARCH 31, 1996 AND 1997 (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS No. 107,
DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS. The estimated fair value
amounts have been determined by the Company using available market information
and appropriate valuation methodologies. However, considerable judgment is
necessarily required in interpreting market data to develop estimates of fair
value. Accordingly, the estimates presented herein are not necessarily
indicative of the amounts that the Company could realize in a current market
exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value amounts.
CASH, ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE--The carrying amounts of
these items are a reasonable estimate of their fair value.
LONG-TERM OBLIGATIONS AND CURRENT MATURITIES OF LONG-TERM OBLIGATIONS--Based
on the borrowing rates currently available to the Company for loans with similar
terms and maturities, the fair value approximates carrying value.
11. STOCKHOLDERS' EQUITY
In connection with the acquisition of the steel castings business from
Rockwell on June 14, 1991, the Company issued common stock or conveyed purchase
rights for common stock to certain employees in accordance with various stock
restriction agreements representing 476,173 shares. All such shares became fully
vested as of June 30, 1996.
The Atchison Casting 1993 Incentive Stock Plan (the "Incentive Plan") was
adopted by the Board of Directors on August 10, 1993 and approved by the
Company's stockholders on September 27, 1993. The Incentive Plan allows the
Company to grant stock options to employees to purchase up to 300,000 shares of
common stock at prices that are not less than the fair market value at the date
of grant. The options become exercisable with respect to one-third of the shares
subject to the options each year from the date of grant and remain exercisable
for a term of not more than 10 years after the date of grant. The Incentive
F-22
<PAGE>
ATCHISON CASTING CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1994, 1995 AND 1996 AND NINE MONTHS
ENDED MARCH 31, 1996 AND 1997 (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
11. STOCKHOLDERS' EQUITY (CONTINUED)
Plan provides that no options may be granted more than 10 years after the date
of approval by the stockholders. The changes in outstanding options were as
follows:
<TABLE>
<CAPTION>
SHARES PRICE RANGE
UNDER OPTION PER SHARE
------------- ------------------
<S> <C> <C>
Issued................................................... 145,300 $ 13.375
Balance, June 30, 1994..................................... 145,300 13.375
Issued................................................... 31,000 14.500 - 14.75
Surrendered.............................................. (5,900) 13.375
------------- ------------------
Balance, June 30, 1995..................................... 170,400 13.375 - 14.75
Issued................................................... 45,800 14.125
Surrendered.............................................. (4,000) 13.375
------------- ------------------
Balance, June 30, 1996..................................... 212,200 $ 13.375 - 14.75
Issued (unaudited)....................................... 33,533 15.75 - 19.125
Surrendered (unaudited).................................. (7,601) 13.375 - 14.50
Exercised (unaudited).................................... (3,733) 13.375 - 14.50
------------- ------------------
Balance, March 31, 1997 (unaudited)........................ 234,399 $ 13.375 - 19.125
------------- ------------------
------------- ------------------
Exercisable
June 30, 1996............................................ 100,600 $ 13.375 - 14.75
------------- ------------------
------------- ------------------
Exercisable
March 31, 1997 (unaudited)............................... 106,000 $ 13.375 - 14.75
------------- ------------------
------------- ------------------
</TABLE>
At June 30, 1996, options to purchase 87,800 shares were authorized but not
granted. At March 31, 1997, options to purchase 61,868 (unaudited) shares were
authorized but not granted.
The 1993 Atchison Casting Corporation Employee Stock Purchase Plan (the
"Purchase Plan") was adopted by the Board of Directors on August 10, 1993 and
approved by the Company's stockholders on September 27, 1993. An aggregate of
400,000 shares of common stock were initially made available for purchase by
employees upon the exercise of options under the Purchase Plan. On the first day
of every option period (option periods are three-month periods beginning on
January 1, April 1, July 1 or October 1 and ending on the next March 31, June
30, September 30 or December 31, respectively), each eligible employee is
granted a nontransferable option to purchase common stock from the Company on
the last day of the option period. As of the last day of an option period,
employee contributions (authorized payroll deductions and lump sum
contributions) during such option period will be used to purchase full and
partial shares of common stock. The price for stock purchased under each option
is 90% of the stock's fair market value on the first day or the last day of the
option period, whichever is lower. During the years ended June 30, 1994, 1995
and 1996, 3,868, 11,754 and 34,333 common shares, respectively, and 7,777
(unaudited) for the nine months ended March 31, 1997 were purchased by employees
under the Purchase Plan. At June 30, 1996, 350,045 shares remained available for
grant. At March 31, 1997, 342,268 (unaudited) shares remained available for
grant.
F-23
<PAGE>
ATCHISON CASTING CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1994, 1995 AND 1996 AND NINE MONTHS
ENDED MARCH 31, 1996 AND 1997 (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
11. STOCKHOLDERS' EQUITY (CONTINUED)
On November 18, 1994, the Company's stockholders approved the Atchison
Casting Non-Employee Director Option Plan (the "Director Option Plan"). The
Director Option Plan provides that each non-employee director of the Company who
served in such capacity on April 15, 1994 and each non-employee director upon
election or appointment to the Board of Directors thereafter shall automatically
be granted an option to purchase 10,000 shares of the Company's common stock. No
person shall be granted more than one such option pursuant to the Director
Option Plan. An aggregate of 100,000 shares were reserved for purchase under the
plan. The price for stock purchased under the plan is the fair market value at
the date of grant. The changes in outstanding options were as follows:
<TABLE>
<CAPTION>
SHARES UNDER PRICE PER
OPTION SHARE
------------- -----------
<S> <C> <C>
Issued.............................................................. 50,000 13.375
-------------
Balance, June 30, 1995.............................................. 50,000 13.375
Exercised........................................................... (10,000) 13.375
-------------
Balance, June 30, 1996.............................................. 40,000 13.375
Balance, March 31, 1997 (unaudited)................................. 40,000 13.375
-------------
-------------
</TABLE>
Because the options granted on April 15, 1994, were subject to approval by
the stockholders, they are reflected as 1995 grants. At June 30, 1996, options
to purchase 50,000 shares were authorized but not granted.
12. PENSION PLANS
The Company sponsors separate defined benefit pension plans for certain of
its salaried and hourly employees. Employees are eligible to participate on the
date of employment with vesting after five years of service. Benefits for hourly
employees are determined based on years of credited service multiplied by a
benefit formula or unit. Benefits for salaried employees are determined based on
credited service and employee earnings.
Pension expense for the defined benefit plans is presented below.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Service costs.................................................. $ 438 $ 594 $ 717
Interest costs................................................. 1,266 1,579 1,961
Actual return on net assets.................................... (659) (1,267) (4,302)
Net deferral items............................................. (538) 20 2,559
--------- --------- ---------
$ 507 $ 926 $ 935
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-24
<PAGE>
ATCHISON CASTING CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1994, 1995 AND 1996 AND NINE MONTHS
ENDED MARCH 31, 1996 AND 1997 (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
12. PENSION PLANS (CONTINUED)
The pension plans assets (primarily U. S. Government securities, common
stock and corporate bonds) are deposited with a bank. A comparison of projected
benefit obligation and plan assets at fair value as of June 30, 1995 and 1996 is
presented below:
<TABLE>
<CAPTION>
1995 1996
------------------------------ ------------------------------
ASSETS EXCEED ACCUMULATED ASSETS EXCEED ACCUMULATED
ACCUMULATED BENEFITS ACCUMULATED BENEFITS
BENEFITS EXCEED ASSETS BENEFITS EXCEED ASSETS
--------------- ------------- --------------- -------------
<S> <C> <C> <C> <C>
Actuarial present value of:
Vested benefit obligation....................... $ (6,177) $ (12,858) $ (8,653) $ (15,102)
--------------- ------------- --------------- -------------
--------------- ------------- --------------- -------------
Accumulated benefit obligation.................. $ (6,769) $ (13,245) $ (9,371) $ (15,564)
--------------- ------------- --------------- -------------
--------------- ------------- --------------- -------------
Projected benefit obligation.................... $ (10,304) $ (13,245) $ (13,520) $ (15,564)
Plan assets at fair value....................... 8,246 11,992 10,829 14,506
--------------- ------------- --------------- -------------
Projected benefit obligation in excess of plan
assets........................................ (2,058) (1,253) (2,691) (1,058)
Unrecognized prior service costs................ (39) 183 129 189
Unrecognized net obligation..................... (346) 389 (384) 417
Unrecognized net loss........................... 1,709 22 2,272 (44)
Additional liability............................ (796) (732)
--------------- ------------- --------------- -------------
Accrued pension liability....................... $ (734) $ (1,455) $ (674) $ (1,228)
--------------- ------------- --------------- -------------
--------------- ------------- --------------- -------------
The actuarial valuation was prepared assuming:
Discount rate................................... 8.25% 7.25%
Expected long term rate of return on plan
assets........................................ 9.00% 9.00%
Salary increases per year....................... 5.00% 5.00%
</TABLE>
In accordance with SFAS No. 87, the Company has recorded an additional
minimum pension liability for underfunded plans of $796 and $732 at June 30,
1995 and 1996, respectively, representing the excess of unfunded accumulated
benefit obligations over previously recorded pension cost liabilities. A
corresponding amount is recognized as an intangible asset except to the extent
that these additional liabilities exceed related unrecognized prior service cost
and net transition obligation, in which case the increase in liabilities is
charged directly to stockholders' equity. For 1995, $62 of the excess minimum
pension liability resulted in a charge to equity, net of income taxes of $38.
For 1996, $82 of the excess minimum pension liability resulted in a credit to
equity, net of income taxes of $59.
In addition, the Company sponsors a defined contribution 401(k) benefit plan
covering certain of its salaried employees who have attained age 21 and have
completed one year of service. The Company matches 75% of employee contributions
up to 8% of an employee's salary. Employees vest in the Company
F-25
<PAGE>
ATCHISON CASTING CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1994, 1995 AND 1996 AND NINE MONTHS
ENDED MARCH 31, 1996 AND 1997 (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
12. PENSION PLANS (CONTINUED)
matching contributions after five years. The cost of the Company's contribution
was $194, $330 and $429 for the years ended June 30, 1994, 1995 and 1996,
respectively.
The Company's subsidiary, Prospect, contributed $55, $206 and $189 for the
period April 1, 1994 (date of acquisition) to June 30, 1994, fiscal year ended
June 30, 1995 and fiscal year ended June 30, 1996, respectively, to a
multiemployer pension plan for employees covered by a collective bargaining
agreement. This plan is not administered by the Company and contributions are
determined in accordance with provisions of negotiated labor contracts.
Information with respect to the Company's proportionate share of the excess of
the actuarially computed value of vested benefits over the total of the pension
plan's net assets is not available from the plan's administrators. The
Multiemployer Pension Plan Amendments Act of 1980 (the "Act") significantly
increased the pension responsibilities of participating employers. Under the
provisions of the Act, if the plans terminate or the Company withdraws, the
Company may be subject to a substantial "withdrawal liability." As of the date
of the most current unaudited information submitted by the plan's administrators
(December 31, 1995), no withdrawal liabilities exist.
The Company also has various other profit sharing plans. Costs of such plans
charged against earnings were $403 and $878 for the years ended June 30, 1995
and 1996, respectively.
13. POSTRETIREMENT OBLIGATION OTHER THAN PENSION
The Company provides certain health care and life insurance benefits to
certain of its retired employees. SFAS No. 106, EMPLOYER'S ACCOUNTING FOR
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS, requires the Company to accrue the
estimated cost of retiree benefit payments during the years the employee
provides services. The accumulated postretirement benefit obligation and the
accrued postretirement benefit cost as of June 30, 1995 and 1996 is as follows:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees................................................................ $ 664 $ 874
Fully eligible active plan participants................................. 641 864
Other active plan participants.......................................... 2,897 4,069
--------- ---------
4,202 5,807
Plan assets at fair value.................................................
--------- ---------
Accumulated postretirement benefit obligation in excess of plan assets.... 4,202 5,807
Unrecognized net loss..................................................... (399) (1,503)
Unrecognized prior service cost........................................... 1,241 1,110
--------- ---------
Accrued postretirement benefit cost....................................... $ 5,044 $ 5,414
--------- ---------
--------- ---------
</TABLE>
F-26
<PAGE>
ATCHISON CASTING CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1994, 1995 AND 1996 AND NINE MONTHS
ENDED MARCH 31, 1996 AND 1997 (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
13. POSTRETIREMENT OBLIGATION OTHER THAN PENSION (CONTINUED)
Net postretirement benefit cost for the years ended June 30, 1994, 1995 and
1996 consisted of the following components:
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Service cost benefits earned during the year........................ $ 170 $ 180 $ 223
Interest cost on accumulated postretirement benefit obligation 231 281 328
Amortization of prior service cost.................................. (131) (132) (132)
Amortization of loss................................................ 7
--------- --------- ---------
$ 270 $ 329 $ 426
--------- --------- ---------
--------- --------- ---------
</TABLE>
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation for pre-age 65 benefits as of June 30, 1996
was 8.9% decreasing each successive year until it reaches 5.5% in 2016, after
which it remains constant. The assumed rate used for post-age 65 benefits was
8.4% decreasing each successive year until it reaches 5.5% in 2021. A
one-percentage-point increase in the assumed health care cost trend rate for
each year would increase the accumulated postretirement benefit obligation as of
June 30, 1996 by approximately $843 (15.9%) and the aggregate of the service and
interest cost components of the net periodic postretirement benefit cost for the
year then ended by approximately $118 (17.9%). The assumed discount rate used in
determining the accumulated postretirement obligation as of June 30, 1996 was
7.5%, and the assumed discount rate in determining the service cost and interest
cost for the year ended June 30, 1996 was 7.5%.
SFAS No. 112, EMPLOYERS' POSTEMPLOYMENT BENEFITS, requires employers who
provide benefits to former or inactive employees after employment but before
retirement to recognize an obligation for such benefits over the period ending
on the date an employee is fully eligible to receive benefits. The Company
adopted SFAS No. 112 in the first fiscal quarter of 1995, which did not have a
material effect on the Company's financial condition or results of operations.
14. OPERATING LEASES
The Company leases certain buildings, equipment, automobiles and trucks, all
accounted for as operating leases, on an as needed basis to fulfill general
purposes. Total rental expense was $648, $957 and $544 for the years ended June
30, 1994, 1995 and 1996, respectively, and $507 (unaudited) and $614
(unaudited), for the nine months ended March 31, 1996 and 1997, respectively.
Long-term, noncancellable
F-27
<PAGE>
ATCHISON CASTING CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1994, 1995 AND 1996 AND NINE MONTHS
ENDED MARCH 31, 1996 AND 1997 (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
14. OPERATING LEASES (CONTINUED)
operating leases having an initial or remaining term in excess of one year
require minimum rental payments as follows:
<TABLE>
<S> <C>
1997................................................................. $ 520
1998................................................................. 346
1999................................................................. 84
2000................................................................. 42
2001................................................................. 23
</TABLE>
15. MAJOR CUSTOMERS
The Company's operations are conducted within one business segment and
revenues attributable to foreign customers are not material. Net sales to and
customer accounts receivable from major customers are as follows:
<TABLE>
<CAPTION>
AMOUNT OF NET SALES
-------------------------------
YEAR ENDED JUNE 30,
-------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Customer A................................................... $ 13,114 $ 8,224 $ 6,500
Customer B................................................... 13,439 11,312 7,030
Customer C................................................... 12,292 18,611 24,822
Customer D................................................... 10,602 20,606 13,396
--------- --------- ---------
$ 49,447 $ 58,753 $ 51,748
--------- --------- ---------
--------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
CUSTOMER ACCOUNTS
RECEIVABLE
--------------------
JUNE 30,
--------------------
1995 1996
--------- ---------
<S> <C> <C>
Customer A................................................................. $ 269 $ 891
Customer B................................................................. 793 501
Customer C................................................................. 1,901 3,765
Customer D................................................................. 3,769 2,481
--------- ---------
$ 6,732 $ 7,638
--------- ---------
--------- ---------
</TABLE>
16. OTHER INCOME
Other income in fiscal 1996 includes $11,087 of payments received by the
Company from its insurance carrier in final settlement of the business
interruption portion of the Company's insurance claim. Other income also
includes $16,231 of payments received in the fourth quarter from the Company's
insurance carrier in final settlement of the casualty and property damage
portion of the Company's insurance claim.
F-28
<PAGE>
ATCHISON CASTING CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1994, 1995 AND 1996 AND NINE MONTHS
ENDED MARCH 31, 1996 AND 1997 (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
16. OTHER INCOME (CONTINUED)
The Company's claim was a result of the July 1993 Missouri River flood. As of
June 30, 1996, the Company has recorded $6,946 in reserves against future repair
expenses which have been classified as accrued expenses.
The Company's fiscal 1996 results for the first nine months included $10.6
million (unaudited) ($11.8 million (unaudited) before deduction of fees paid to
consultants who assisted in the development of the claim and amounts recovered
for the repair and replacement of property) of partial insurance payments
recorded by the Company covering the period of July 1, 1994 through December 31,
1995. These payments, by the Company's insurance carrier, resulted from the
business interruption portion of the Company's insurance claim filed as a result
of the July 1993 Missouri River flood.
Other income in fiscal 1995 includes $6,639 in partial payments by the
Company's insurance carrier against the business interruption portion of the
Company's insurance claim, which was filed as a result of the July 1993 Missouri
River flood. Of this amount, $1,137 along with $5,000 recoverable under the
Company's casualty/damage coverage is included in insurance receivable at June
30, 1995 and was received on July 6, 1995.
During fiscal 1994, the Company was advanced $4.0 million under the casualty
portion of its insurance coverages, which was used to offset the direct expenses
of fighting the flood itself, the cost of repair and replacement of property and
equipment damaged in the flood and the construction of a flood wall. The
recovery of direct and indirect costs (primarily labor and repairs) of $2.5
million was used to reduce the incurred costs in the 1994 statement of income.
F-29
<PAGE>
TECHNOLOGY IS RESHAPING THE CASTING INDUSTRY
[PICTURE] ACC uses new technologies to produce [PICTURE]
lighter, stronger and less expensive
castings with higher quality and
shortened lead times. For example,
computer modeling enables ACC's
engineers to simulate the solidification
process to ensure internal strength,
structural soundness and efficient
utilization of materials.
ACC has strengthened customer relationships by using computerized design
technologies to assist in the development of castings, such as this boom tip
casting shown above, which is used in a hydraulic mining shovel.
[PICTURE] [PICTURE]
Solid model of a 350 megawatt steam Actual casting shown in the Pro
turbine casting shown in Engineer model, ready for shipment
Pro Engineer software. by ACC to Westinghouse.
[PICTURE] [PICTURE]
New technologies have resulted in new applications for castings. As castings
have become lighter,
stronger and less expensive, they are being used for components that were
previously fabricated
or forged. The one-piece, cast-steel, box-section boom (shown above right) is
stronger and lighter than the fabricated double steel plate arms (shown above
left) that it replaced.
<PAGE>
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
NO DEALER, SALESPERSON, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, THE SELLING STOCKHOLDER OR ANY OF THE UNDERWRITERS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF ANY
OFFER TO BUY ANY SECURITY OTHER THAN THE SHARES OF COMMON STOCK OFFERED BY THIS
PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY
OFFER TO BUY THE SHARES OF COMMON STOCK BY ANYONE IN ANY JURISDICTION IN WHICH
SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT INFORMATION CONTAINED THEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 7
Use of Proceeds................................ 9
Price Range of Common Stock.................... 10
Dividend Policy................................ 10
Capitalization................................. 11
Selected Consolidated Financial Information.... 12
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 14
Business....................................... 21
Management..................................... 36
Selling Stockholder............................ 38
Description of Capital Stock................... 38
Shares Eligible for Future Sale................ 40
Underwriting................................... 42
Legal Matters.................................. 43
Experts........................................ 43
Available Information.......................... 43
Incorporation of Certain Documents by
Reference.................................... 44
Index to Consolidated Financial Statements..... F-1
</TABLE>
3,800,000 SHARES
[LOGO]
ATCHISON CASTING
CORPORATION
COMMON STOCK
------
PROSPECTUS
, 1997
---------
SMITH BARNEY INC.
GEORGE K. BAUM & COMPANY
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14 OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is a list of the estimated expenses to be paid by the
Registrant in connection with the initial issuance and distribution of the
securities being registered, other than underwriting discounts and commissions:
<TABLE>
<S> <C>
SEC Registration Fee.............................................. $ 25,161*
NASD Fees......................................................... 8,803*
NYSE Listing Fees................................................. 33,933
Printing and Engraving Expenses................................... 30,000
Legal Fees and Expenses........................................... 25,000
Accounting Fees and Expenses...................................... 25,000
Transfer Agent and Registrar's Fees............................... 1,000
Blue Sky Fees and Expenses........................................ 10,000
Miscellaneous..................................................... 16,103
---------
Total........................................................... $ 175,000
---------
---------
</TABLE>
- ------------
* Actual
Pursuant to the Registration Rights Agreement, the Registrant is required to
pay all expenses incurred in connection with the registration of the shares
offered hereby by the Selling Stockholder (the "Selling Stockholder Shares"),
except for: (i) any discounts or commissions to any underwriter attributable to
the Selling Stockholder Shares; (ii) any stock transfer taxes incurred in
respect of the Selling Stockholder Shares; and (iii) the legal fees of any
holder of Selling Stockholder Shares, which amounts (other than underwriting
discounts and commissions) are estimated to be $5,000 and will be paid by the
Selling Stockholder.
ITEM 15 INDEMNIFICATION OF DIRECTORS AND OFFICERS
Pursuant to the Registrant's Articles of Incorporation and By-laws, the
Registrant must, to the maximum extent permitted from time to time under the
laws of Kansas, indemnify and upon request must advance expenses to any person
who is or was a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he or she is or was
a director, officer, employee or agent of the Registrant, or is or was serving
at the request of the Registrant as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees and expenses), judgments, fines,
penalties, and amounts paid in settlement actually and reasonably incurred by
him or her in connection with such action, suit or proceeding if he or she acted
in good faith and in a manner he or she reasonably believed to be in or not
opposed to the best interests of the Registrant, and, with respect to any
criminal action or proceeding, had no reasonable basis to believe his or her
conduct was unlawful. Such indemnification is not exclusive of other
indemnification rights arising under any by-law, agreement, vote of directors or
stockholders or otherwise and shall inure to the benefit of the heirs and legal
representatives of such person. Article VIII of the Registrant's By-laws further
describes the indemnification rights of such persons.
The Registrant's Articles of Incorporation also provide that a director of
the Registrant will not be personally liable to the Registrant or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability: (i) for any breach of the director's duty of loyalty to
the Registrant or its stockholders; (ii) for acts or omissions not taken in good
faith or which involve intentional misconduct or a
II-1
<PAGE>
knowing violation of law; (iii) under Section 17-6424 of the Kansas General
Corporation Code (the "KGCC"); or (iv) for any transaction from which the
director derived an improper personal benefit. If the KGCC is amended to
authorize the further elimination or limitation of the liability of a director,
then the liability of the director will be eliminated or limited to the fullest
extent permitted by the KGCC, as so amended. The effect of this provision in the
Articles of Incorporation is to eliminate the rights of the Registrant and its
stockholders (through stockholders' derivative suits on behalf of the
Registrant) to recover monetary damages against a director's breach of the
fiduciary duty of care as a director (including breaches resulting from
negligent or grossly negligent behavior), except in the situations described
above.
There is in effect for the Registrant an insurance policy providing
directors and officers with indemnification, subject to certain exclusions and
to the extent not otherwise indemnified by the Registrant, against loss
(including expenses incurred in the defense of claims in connection therewith)
arising from any negligent act, error, omission, misstatement, misleading
statement or breach of duty while acting in their capacity as directors and
officers of the Registrant. The policy also provides for the reimbursement of
the Registrant for liability incurred in the indemnification of its directors
and officers. The Registrant has purchased coverage for liability under the
Securities Act of 1933 (the "Securities Act") in connection with the purchase,
sale, offer or solicitation of an offer to purchase or sell any securities of
the Registrant or an affiliate of the Registrant.
The Underwriting Agreement, filed as Exhibit 1.1 to this Registration
Statement, provides for indemnification by the Underwriters of the Registrant's
directors, its officers who sign the Registration Statement and its controlling
persons and by the Registrant of the Underwriters' directors and their
controlling persons against certain liabilities, including liabilities under the
Securities Act, under certain circumstances.
ITEM 16 EXHIBITS
A list of exhibits filed as part of this Registration Statement appears at
the end of this Registration Statement.
ITEM 17 UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new Registration
II-2
<PAGE>
Statement relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof.
ITEM 18 FINANCIAL STATEMENTS AND SCHEDULES
Not applicable.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-2 and has duly caused this Amendment No. 2 to
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized in the City of Atchison, State of Kansas, on this 19th
day of May, 1997.
ATCHISON CASTING CORPORATION
By: /s/ HUGH H. AIKEN
-----------------------------------------
Hugh H. Aiken
CHAIRMAN OF THE BOARD,
PRESIDENT AND CHIEF
EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to this Registration Statement has been signed by the following persons in
the capacities and on the dates indicated:
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
Chairman of the Board,
/s/ HUGH H. AIKEN President, Chief
- ------------------------------ Executive Officer and May 19, 1997
Hugh H. Aiken Director (Principal
Executive Officer)
Vice President, Chief
/s/ KEVIN T. MCDERMED Financial Officer,
- ------------------------------ Treasurer and Secretary May 19, 1997
Kevin T. McDermed (Principal Financial
Officer)
*
- ------------------------------ Director May 19, 1997
Paul C. Craig
*
- ------------------------------ Director May 19, 1997
David L. Belluck
*
- ------------------------------ Director May 19, 1997
John O. Whitney
*
- ------------------------------ Director May 19, 1997
Ray H. Witt
By: /s/ KEVIN T. MCDERMED
------------------------- as attorney-in-fact
(Kevin T. McDermed, for the above directors May 19, 1997
ATTORNEY-IN-FACT) marked by an asterisk
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------------ -----------------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement
2.1 Stock Purchase Agreement dated February 28, 1996 by and among the stockholders of G&C, the
Stockholders' Representative and the Company (incorporated by reference to Exhibit 2 of the
Company's Current Report on Form 8-K dated March 25, 1996)
4.0 Long-term debt instruments of the Company in amounts not exceeding ten percent (10%) of the total
assets of the Company and its subsidiaries on a consolidated basis will be furnished to the
Commission upon request.
4.1 Articles of Incorporation (incorporated by reference to Exhibit 4.1 of the Company's Form 10-Q for
the quarter ended December 31, 1994)
4.2 By-Laws (incorporated by reference to Exhibit 4.2 of the Company's Form 10-Q for the quarter ended
December 31, 1994)
*4.3 Specimen Stock Certificate
4.4(a) Credit Agreement dated as of May 24, 1996 by and among the Company, the banks party thereto and
Harris Trust and Savings Bank, as Agent (incorporated by reference to Exhibit 4.1 of the Company's
Form 10-K for the fiscal year ended June 30, 1996)
4.4(b) First Amendment dated as of May 12, 1997 to Credit Agreement dated as of May 24, 1996, between the
Company, the banks party thereto and Harris Trust and Savings Bank, as Agent
4.5(a) Note Purchase Agreement dated as of July 29, 1994 by and between the Company and Teachers Insurance
and Annuity Association of America pursuant to which the Company's 8.44% Senior Notes due 2004 were
issued (incorporated by reference to Exhibit 4.3 of the Company's Form 10-K for the fiscal year
ended June 30, 1994)
4.5(b) First Amendment dated as of March 8, 1996 to the Note Purchase Agreement dated July 29, 1994, between
the Company and Teachers Insurance and Annuity Association of America (incorporated by reference to
Exhibit 4.2 of the Company's Current Report on Form 8-K dated March 25, 1996)
4.5(c) Second Amendment dated as of May 24, 1996 to the Note Purchase Agreement dated July 29, 1994, between
the Company and Teachers Insurance and Annuity Association of America (incorporated by reference to
Exhibit 4.2(c) of the Company's Form 10-K for the fiscal year ended June 30, 1996)
*5.1 Opinion of Blackwell Sanders Matheny Weary & Lombardi L.C.
10.1(a) Employment Agreement between the Company and Hugh H. Aiken dated as of June 14, 1991 (incorporated by
reference to Exhibit 10.1 of Form S-1 Registration Statement No. 33-67774 filed August 23, 1993)
10.1(b) Amendment No. 1 dated as of September 27, 1993 to Employment Agreement between the Company and Hugh
H. Aiken (incorporated by reference to Exhibit 10.1(b) of Amendment No. 1 to Form S-1 Registration
Statement No. 33-67774 filed September 27, 1993)
10.2(a) Registration Rights Agreement dated June 14, 1991 by and among the Company, Creditanstalt-Bankverein
("Creditanstalt"), CBC Capital Partners, Inc. ("CBCCP"), Chemical Equity Associates, L.P. ("CEA")
and Riverside Partners (the "Registration Rights Agreement") (incorporated by reference to Exhibit
10.5 of Form S-1 Registration Statement No. 33-67774 filed August 23, 1993)
</TABLE>
1
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------------ -----------------------------------------------------------------------------------------------------
10.2(b) Amendment No. 1 dated as of August 23, 1993 to the Registration Rights Agreement (incorporated by
reference to Exhibit 10.5(c) of Amendment No. 2 to Form S-1 Registration Statement No. 33-67774
filed September 30, 1993)
<C> <S>
10.3(a) Stock Restriction Agreements by and among the Company, Riverside Partners and executive officers of
the Company (the "Stock Restriction Agreements") (incorporated by reference to Exhibit 10.6 of Form
S-1 Registration Statement No. 33-67774 filed August 23, 1993)
10.3(b) Amendment No. 1 dated as of August 23, 1993 to the Stock Restriction Agreements (incorporated by
reference to Exhibit 10.6(b) of Amendment No. 1 to Form S-1 Registration Statement No. 33-67774
filed September 27, 1993)
10.4 Atchison Casting 1993 Incentive Stock Plan (incorporated by reference to Exhibit 10.7 of Form S-1
Registration Statement No. 33-67774 filed August 23, 1993)
10.5 Confidentiality and Noncompetition Agreements by and among the Company and executive officers of the
Company (incorporated by reference to Exhibit 10.8 of Form S-1 Registration Statement No. 33-67774
filed August 23, 1993)
10.6 Stockholders' Agreement dated as of August 23, 1993 by and among the Company, Riverside Partners,
CBCCP, CEA and Creditanstalt (incorporated by reference to Exhibit 10.9 of Amendment No. 1 to Form
S-1 Registration Statement No. 33-67774 filed September 27, 1993)
10.7 Atchison Casting Non-Employee Director Option Plan (incorporated by reference to Exhibit 10.7 of the
Company's Form 10-K for the fiscal year ended June 30, 1994)
10.8 Letter Agreement dated January 3, 1995 by and between James Stott and the Company (incorporated by
reference to Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1994)
10.9 Stock Option Agreement dated February 1, 1995 by and between Edward J. Crowley, Rhoda, Stoudt &
Bradley Law Offices and the Company (incorporated by reference to Exhibit 10.2 of the Company's
Quarterly Report on Form 10-Q for the quarter ended December 31, 1994)
10.10 Employment Agreement dated February 1, 1995 by and between Edward J. Crowley, Empire and the Company
(incorporated by reference to Exhibit 10.3 of the Company's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1994)
10.11 Employee Incentive Stock Agreement dated as of April 1, 1994 by and between Prospect Foundry, Richard
J. Sitarz and the Company (incorporated by reference to Exhibit 10.1 of the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1994)
10.12 Plan for conversion of Prospect Foundry stock to Company common stock (incorporated by reference to
Exhibit 10.3 of the Company's Quarterly Report on Form 10-Q for the quarter ended September 30,
1994)
10.13 Letter Agreement dated November 2, 1994 between Riverside Partners and the Company regarding a
finder's fee in connection with the acquisition of Canadian Steel (incorporated by reference to
Exhibit 10.15 of the Company's Form 8-B Registration Statement dated April 24, 1995)
</TABLE>
2
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------------ -----------------------------------------------------------------------------------------------------
10.14 Purchase and Sale Agreement dated as of December 30, 1996 by and among Kramer, James Stott and David
Jungen (incorporated by reference to Exhibit 10 of the Company's Quarterly Report on Form 10-Q for
the quarter ended December 31, 1996)
<C> <S>
10.15 Hugh H. Aiken Supplemental Retirement Benefit Plan (incorporated by reference to Exhibit 10.2 of the
Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996)
*10.16 Intermediary Fee Agreement between Riverside Partners, Inc. and the Company dated February 17, 1997
10.17 Employment Agreement dated as of February 23, 1996 by and between G&C and Charles T. Carroll
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of Blackwell Sanders Matheny Weary & Lombardi L.C. (included in Exhibit 5.1)
*24.1 Powers of Attorney
</TABLE>
- ------------
* Previously filed.
3
<PAGE>
3,800,000 Shares
ATCHISON CASTING CORPORATION
Common Stock
UNDERWRITING AGREEMENT
[ ], 1997
SMITH BARNEY INC
GEORGE K. BAUM & COMPANY
As Representatives of the Several Underwriters
c/o SMITH BARNEY INC.
388 Greenwich Street
New York, New York 10013
Dear Sirs:
Atchison Casting Corporation, a Kansas corporation (the "Company"),
proposes to issue and sell an aggregate of 2,029,024 shares of its common
stock, $0.01 par value per share, to the several Underwriters named in
Schedule I hereto (the "Underwriters") and Riverside Fund I, L.P., a Delaware
limited partnership (the "Selling Stockholder"), proposes to sell to the
several Underwriters an aggregate of 1,770,976 shares of common stock of the
Company. The Company and the Selling Stockholder are hereinafter sometimes
referred to as the "Sellers". The Company's common stock, $0.01 par value,
is hereinafter referred to as the "Common Stock" and the 2,029,024 shares of
Common Stock to be issued and sold to the Underwriters by the Company and the
1,770,976 shares of Common Stock to be sold to the Underwriters by the
Selling Stockholder are hereinafter referred to as the "Firm Shares". The
Company also proposes to sell to the Underwriters, upon the terms and
conditions set forth in Section 2 hereof, up to an additional 570,000 shares
(the "Additional Shares") of Common Stock. The Firm Shares and the
Additional Shares are hereinafter collectively referred to as the "Shares".
<PAGE>
-2-
The Company and the Selling Stockholder wish to confirm as follows
their respective agreements with you (the "Representatives") and the other
several Underwriters on whose behalf you are acting, in connection with the
several purchases of the Shares by the Underwriters.
1. REGISTRATION STATEMENT AND PROSPECTUS. The Company has
prepared and filed with the Securities and Exchange Commission (the
"Commission") in accordance with the provisions of the Securities Act of
1933, as amended, and the rules and regulations of the Commission thereunder
(collectively, the "Act"), a registration statement on Form S-2 under the Act
(the "registration statement"), including a prospectus subject to completion
relating to the Shares. The term "Registration Statement" as used in this
Agreement means the registration statement (including all financial schedules
and exhibits), as amended at the time it becomes effective, or, if the
registration statement became effective prior to the execution of this
Agreement, as supplemented or amended prior to the execution of this
Agreement. If it is contemplated, at the time this Agreement is executed,
that a post-effective amendment to the registration statement will be filed
and must be declared effective before the offering of the Shares may
commence, the term "Registration Statement" as used in this Agreement means
the registration statement as amended by said post-effective amendment. The
term "Prospectus" as used in this Agreement means the prospectus in the form
included in the Registration Statement, or, if the prospectus included in the
Registration Statement omits information in reliance on Rule 430A under the
Act and such information is included in a prospectus filed with the
Commission pursuant to Rule 424(b) under the Act, the term "Prospectus" as
used in this Agreement means the prospectus in the form included in the
Registration Statement as supplemented by the addition of the Rule 430A
information contained in the prospectus filed with the Commission pursuant to
Rule 424(b). The term "Prepricing Prospectus" as used in this Agreement
means the prospectus subject to completion in the form included in the
registration statement at the time of the initial filing of the registration
statement with the Commission, and as such prospectus shall have been amended
from time to time prior to the date of the Prospectus. Any reference in this
Agreement to the registration statement, the Registration Statement, any
Prepricing Prospectus or the Prospectus shall be deemed to refer to and
include the documents incorporated by reference therein pursuant to Item 12
of Form S-2 under the Act. As used herein, the term "Incorporated Documents"
means the documents which are incorporated by reference into the registration
<PAGE>
-3-
statement, the Registration Statement, any Prepricing Prospectus, the
Prospectus, or any amendment or supplement thereto.
2. AGREEMENTS TO SELL AND PURCHASE. Subject to such adjustments
as you may determine in order to avoid fractional shares, the Company hereby
agrees, subject to all the terms and conditions set forth herein, to issue
and sell to each Underwriter and, upon the basis of the representations,
warranties and agreements of the Company and the Selling Stockholder herein
contained and subject to all the terms and conditions set forth herein, each
Underwriter agrees, severally and not jointly, to purchase from the Company,
at a purchase price of $[ ] per Share (the "purchase price per share"),
the number of Firm Shares which bears the same proportion to the aggregate
number of Firm Shares to be issued and sold by the Company as the number of
Firm Shares set forth opposite the name of such Underwriter in Schedule I
hereto (or such number of Firm Shares increased as set forth in Section 12
hereof) bears to the aggregate number of Firm Shares to be sold by the
Company and the Selling Stockholder.
Subject to such adjustments as you may determine in order to avoid
fractional shares, the Selling Stockholder agrees, subject to all the terms
and conditions set forth herein, to sell to each Underwriter and, upon the
basis of the representations, warranties and agreements of the Company and
the Selling Stockholder herein contained and subject to all the terms and
conditions set forth herein, each Underwriter, severally and not jointly,
agrees to purchase from the Selling Stockholder at the purchase price per
share that number of Firm Shares which bears the same proportion to the
number of Firm Shares to be sold by the Selling Stockholder as the number of
Firm Shares set forth opposite the name of such Underwriter in Schedule I
hereto (or such number of Firm Shares increased as set forth in Section 12
hereof) bears to the aggregate number of Firm Shares to be sold by the
Company and the Selling Stockholder.
The Company also agrees, subject to all the terms and conditions set
forth herein, to sell to the Underwriters, and, upon the basis of the
representations, warranties and agreements of the Company and the Selling
Stockholder herein contained and subject to all the terms and conditions set
forth herein, the Underwriters shall have the right to purchase from the
Company, at the purchase price per share, pursuant to an option (the
"over-allotment option") which may be exercised at any time and from time to
time prior to 9:00 P.M., New York City time, on the 30th day after the date
of the Prospectus
<PAGE>
-4-
(or, if such 30th day shall be a Saturday or Sunday or a holiday, on the next
business day thereafter when the New York Stock Exchange is open for
trading), up to an aggregate of 570,000 Additional Shares from the Company.
Additional Shares may be purchased only for the purpose of covering
over-allotments made in connection with the offering of the Firm Shares.
Upon any exercise of the over-allotment option, each Underwriter, severally
and not jointly, agrees to purchase from the Company the number of Additional
Shares (subject to such adjustments as you may determine in order to avoid
fractional shares) which bears the same proportion to the number of
Additional Shares to be sold by the Company as the number of Firm Shares set
forth opposite the name of such Underwriter in Schedule I hereto (or such
number of Firm Shares increased as set forth in Section 12 hereof) bears to
the aggregate number of Firm Shares to be sold by the Company and the Selling
Stockholder.
3. TERMS OF PUBLIC OFFERING. The Sellers have been advised by you
that the Underwriters propose to make a public offering of their respective
portions of the Shares as soon after the Registration Statement and this
Agreement have become effective as in your judgment is advisable and
initially to offer the Shares upon the terms set forth in the Prospectus.
4. DELIVERY OF THE SHARES AND PAYMENT THEREFOR. Delivery to the
Underwriters of and payment for the Firm Shares shall be made at the office
of Smith Barney Inc., 388 Greenwich Street, New York, NY 10013, at 10:00
A.M., New York City time, on [ ], 1997 (the "Closing Date"). The place
of closing for the Firm Shares and the Closing Date may be varied by
agreement among you, the Company and the Selling Stockholder.
Delivery to the Underwriters of and payment for any Additional
Shares to be purchased by the Underwriters shall be made at the
aforementioned office of Smith Barney Inc. at such time on such date (the
"Option Closing Date"), which may be the same as the Closing Date but shall
in no event be earlier than the Closing Date nor earlier than two nor later
than ten business days after the giving of the notice hereinafter referred
to, as shall be specified in a written notice from you on behalf of the
Underwriters to the Company of the Underwriters' determination to purchase a
number, specified in such notice, of Additional Shares. The place of closing
for any Additional Shares and the Option Closing Date for such Shares may be
varied by agreement among you and the Company.
<PAGE>
-5-
Certificates for the Firm Shares and for any Additional Shares to be
purchased hereunder shall be registered in such names and in such
denominations as you shall request prior to 9:30 A.M., New York City time, on
the second business day preceding the Closing Date or any Option Closing
Date, as the case may be. Such certificates shall be made available to you
in New York City for inspection and packaging not later than 9:30 A.M., New
York City time, on the business day next preceding the Closing Date or the
Option Closing Date, as the case may be. The certificates evidencing the
Firm Shares and any Additional Shares to be purchased hereunder shall be
delivered to you on the Closing Date or the Option Closing Date, as the case
may be, against payment of the purchase price therefor in immediately
available funds.
5. AGREEMENTS OF THE COMPANY. The Company agrees with the several
Underwriters as follows:
(a) If, at the time this Agreement is executed and delivered, it is
necessary for the Registration Statement or a post-effective amendment
thereto to be declared effective before the offering of the Shares may
commence, the Company will endeavor to cause the Registration Statement or
such post-effective amendment to become effective as soon as reasonably
practicable and will advise you promptly and, if requested by you, will
confirm such advice in writing, when it receives notice that the
Registration Statement or such post-effective amendment has become
effective.
(b) The Company will advise you promptly and, if requested by you,
will confirm such advice in writing: (i) of its receipt of notice of any
request by the Commission for amendment of or a supplement to the
Registration Statement, any Prepricing Prospectus or the Prospectus or
for additional information; (ii) of its receipt of notice of the issuance
by the Commission of any stop order suspending the effectiveness of the
Registration Statement or of the suspension of qualification of the
Shares for offering or sale in any jurisdiction or the initiation of any
proceeding for such purpose; and (iii) within the period of time referred
to in paragraph (f) below, of its becoming aware of any change in the
Company's condition (financial or other), business, prospects,
properties, net worth or results of operations, or of the happening of
any event, which makes any statement of a material fact made in the
Registration Statement or the Prospectus (as then amended or
supplemented) untrue or which requires the mak-
<PAGE>
-6-
ing of any additions to or changes in the Registration Statement or the
Prospectus (as then amended or supplemented) in order to state a material
fact required by the Act or the regulations thereunder to be stated therein
or necessary in order to make the statements therein not misleading, or of
the necessity to amend or supplement the Prospectus (as then amended or
supplemented) to comply with the Act or any other law. If at any time the
Commission shall issue any stop order suspending the effectiveness of the
Registration Statement, the Company will make every reasonable effort to
obtain the withdrawal of such order at the earliest possible time.
(c) The Company will furnish to you, without charge, (i) such number
of signed copies of the registration statement as originally filed with the
Commission and of each amendment thereto, including financial statements
and all exhibits to the registration statement as you may reasonably
request, (ii) such number of conformed copies of the registration statement
as originally filed and of each amendment thereto, but without exhibits, as
you may request, (iii) such number of copies of the Incorporated Documents,
without exhibits, as you may request, and (iv) three copies of the exhibits
to the Incorporated Documents.
(d) The Company will not (i) file any amendment to the Registration
Statement or make any amendment or supplement to the Prospectus of which
you shall not previously have been advised or to which you shall object
after being so advised or (ii) so long as, in the opinion of counsel for
the Underwriters, a Prospectus is required to be delivered in connection
with sales by any Underwriter or dealer, file any information, documents or
reports pursuant to the Securities Exchange Act of 1934, as amended (the
"Exchange Act") without delivering a copy of such information, documents or
reports to you, as representatives of the Underwriters, prior to or
concurrently with such filing.
(e) Prior to the execution and delivery of this Agreement, the
Company has delivered to you, without charge, in such quantities as you
have requested, copies of each form of the Prepricing Prospectus. The
Company consents to the use, in accordance with the provisions of the Act
and with the securities or Blue Sky laws of the jurisdictions in which the
Shares are offered by the several Underwriters and by dealers, prior to the
date of the
<PAGE>
-7-
Prospectus, of each Prepricing Prospectus so furnished by the
Company.
(f) As soon after the execution and delivery of this Agreement as
possible and thereafter from time to time for such period as in the opinion
of counsel for the Underwriters a prospectus is required by the Act to be
delivered in connection with sales by any Underwriter or dealer, the
Company will expeditiously deliver to each Underwriter and each dealer,
without charge, as many copies of the Prospectus (and of any amendment or
supplement thereto) as you may request. The Company consents to the use
of the Prospectus (and of any amendment or supplement thereto) in
accordance with the provisions of the Act and with the securities or Blue
Sky laws of the jurisdictions in which the Shares are offered by the
several Underwriters and by all dealers to whom Shares may be sold, both
in connection with the offering and sale of the Shares and for such
period of time thereafter as the Prospectus is required by the Act to be
delivered in connection with sales by any Underwriter or dealer. If
during such period of time any event shall occur that in the judgment of
the Company or in the opinion of counsel for the Underwriters is required
to be set forth in the Prospectus (as then amended or supplemented) or
should be set forth therein in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading, or if
it is necessary to supplement or amend the Prospectus to comply with the
Act or any other law, the Company will forthwith prepare and, subject to
the provisions of paragraph (d) above, file with the Commission an
appropriate supplement or amendment thereto, and will expeditiously
furnish to the Underwriters and dealers a reasonable number of copies
thereof. In the event that the Company and you, as Representatives of
the several Underwriters, agree that the Prospectus should be amended or
supplemented, the Company, if requested by you, will promptly issue a
press release announcing or disclosing the matters to be covered by the
proposed amendment or supplement.
(g) The Company will cooperate with you and with counsel for the
Underwriters in connection with the notice of the offering and sale of the
Shares by the several Underwriters and by dealers under the securities or
Blue Sky laws of such jurisdictions as you may designate; provided that in
no event shall the Company be obligated to qualify to do business in any
jurisdiction where it is not now so qualified or to take any action which
would subject it to
<PAGE>
-8-
service of process in suits, other than those arising
out of the offering or sale of the Shares, in any jurisdiction where it is
not now so subject.
(h) The Company will make generally available to its security
holders a consolidated earnings statement, which need not be audited,
covering a twelve-month period commencing after the effective date of the
Registration Statement and ending not later than 15 months thereafter, as
soon as practicable after the end of such period, which consolidated
earnings statement shall satisfy the provisions of Section ll(a) of the
Act.
(i) During the period of five years hereafter, the Company will
furnish to you (i) as soon as available, a copy of each report of the
Company mailed to stockholders or filed with the Commission, and (ii) from
time to time such other information concerning the Company as you may
request.
(j) If this Agreement shall terminate or shall be terminated after
execution pursuant to any provisions hereof (otherwise than pursuant to the
second paragraph of Section 12 hereof or by notice given by you terminating
this Agreement pursuant to Section 12 or Section 13 hereof) or if this
Agreement shall be terminated by the Underwriters because of any failure or
refusal on the part of the Company or the Selling Stockholder to comply
with the terms or fulfill any of the conditions of this Agreement, the
Company agrees to reimburse the Representatives for all out-of-pocket
expenses (including fees and expenses of counsel for the Underwriters)
incurred by you in connection herewith.
(k) The Company will apply the net proceeds from the sale of the
Shares to be sold by it hereunder substantially in accordance with the
description set forth in the Prospectus.
(l) If Rule 430A of the Act is employed, the Company will timely file
the Prospectus pursuant to Rule 424(b) under the Act and will advise you of
the time and manner of such filing.
(m) Except as provided in this Agreement, the Company will not sell,
contract to sell or otherwise dispose of any Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock, or grant
any
<PAGE>
-9-
options or warrants to purchase Common Stock, for a period of 90 days after
the date of the Prospectus, without the prior written consent of Smith
Barney Inc.; PROVIDED that the Company shall be permitted to (i) grant
options pursuant to the Atchison Casting Corporation 1993 Incentive Stock
Plan and the Atchison Casting Corporation Non-Employee Director Option
Plan and to issue Common Stock upon the exercise of any option granted
under either such plan, (ii) issue Common Stock pursuant to the 1993
Atchison Casting Corporation Employee Stock Purchase Plan and (iii) issue
Common Stock pursuant to the Employee Stock Incentive Agreements to which
the Company is a party on the date of this Agreement.
(n) The Company has furnished or will furnish to you "lock-up"
letters, in form and substance satisfactory to you, signed by each of the
current officers and directors of the Company set forth on Schedule II
hereto.
(o) Except as stated in this Agreement and in the Prepricing
Prospectus and Prospectus, the Company has not taken, nor will it take,
directly or indirectly, any action designed to or that might reasonably
be expected to cause or result in stabilization or manipulation of the
price of the Common Stock to facilitate the sale or resale of the Shares.
(p) The Company will use its best efforts to have the shares of
Common Stock which it agrees to sell under this Agreement listed, subject
to notice of issuance, on the New York Stock Exchange on or before the
Closing Date.
6. AGREEMENTS OF THE SELLING STOCKHOLDER. The Selling Stockholder
agrees with the several Underwriters as follows:
(a) The Selling Stockholder will cooperate to the extent necessary
to cause the registration statement or any post-effective amendment
thereto to become effective at the earliest possible time.
(b) The Selling Stockholder will pay all Federal and other taxes, if
any on the transfer or sale of the Shares being sold by the Selling
Stockholder to the Underwriters.
(c) The Selling Stockholder will do or perform all things required to
be done or performed by the Selling Stockholder prior to the Closing Date
to satisfy all con-
<PAGE>
-10-
ditions precedent to the delivery of the Shares pursuant
to this Agreement.
(d) Except as stated in this Agreement and in the Prepricing
Prospectus and the Prospectus, the Selling Stockholder will not take,
directly or indirectly, any action designed to or that might reasonably
be expected to cause or result in stabilization or manipulation of the
price of the Common Stock to facilitate the sale or resale of the Shares.
(e) The Selling Stockholder will advise you promptly, and if
requested by you, will confirm such advice in writing, within the period
of time referred to in Section 5(f) hereof, of any change in the
Company's condition (financial or other), business, prospects,
properties, net worth or results of operations or of any change in
information relating to the Selling Stockholder or the Company or any new
information relating to the Company or relating to any matter stated in
the Prospectus or any amendment or supplement thereto which comes to the
attention of the Selling Stockholder that suggests that any statement
made in the Registration Statement or the Prospectus (as then amended or
supplemented, if amended or supplemented) is or may be untrue in any
material respect or that the Registration Statement or Prospectus (as
then amended or supplemented, if amended or supplemented) omits or may
omit to state a material fact or a fact necessary to be stated therein in
order to make the statements therein not misleading in any material
respect, or of the necessity to amend or supplement the Prospectus (as
then amended or supplemented, if amended or supplemented) in order to
comply with the Act or any other law.
7. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to each Underwriter and the Selling Stockholder that:
(a) Each Prepricing Prospectus included as part of the registration
statement as originally filed or as part of any amendment or supplement
thereto, or filed pursuant to Rule 424 under the Act, complied when so
filed in all material respects with the provisions of the Act except that
this representation and warranty does not apply to statements in or
omissions from such Prepricing Prospectus (or for any amendment or
supplement thereto) made in reliance upon and in conformity with
information relating to any Underwriter furnished to the Company in
writing by or
<PAGE>
-11-
on behalf of any Underwriter through you expressly for use
therein. The Commission has not issued any order preventing or suspending
the use of any Prepricing Prospectus.
(b) The Company meets the requirements for the use of Form S-2 under
the Act. The registration statement in the form in which it became or
becomes effective and also in such form as it may be when any
post-effective amendment thereto shall become effective and the prospectus
and any supplement or amendment thereto when filed with the Commission
under Rule 424(b) under the Act, complied or will comply in all material
respects with the provisions of the Act and did not or will not at any such
times contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein (in the case of the Prospectus, in the light of the
circumstances under which they made) not misleading, except that this
representation and warranty does not apply to statements in or omissions
from the registration statement or the prospectus made in reliance upon and
in conformity with information relating to any Underwriter furnished to the
Company in writing by or on behalf of any Underwriter through you expressly
for use therein.
(c) The Incorporated Documents, when they were filed (or, if any
amendment with respect to any such document was filed, when such amendment
was filed), complied in all material respects with the requirements of the
Exchange Act and the rules and regulations thereunder, and did not contain
an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein not misleading.
(d) All the outstanding shares of Common Stock of the Company have
been duly authorized and validly issued, are fully paid and nonassessable
and are free of any preemptive or similar rights; the Shares to be issued
and sold by the Company have been duly authorized and, when issued and
delivered to the Underwriters against payment therefor in accordance with
the terms hereof, will be validly issued, fully paid and nonassessable and
free of any preemptive or similar rights; and the capital stock of the
Company conforms to the description thereof in the Registration Statement
and the Prospectus.
<PAGE> -12-
(e) The Company is a corporation duly organized and validly
existing in good standing under the laws of the State of Kansas with full
corporate power and authority to own, lease and operate its properties
and to conduct its business as described in the Registration Statement
and the Prospectus, and is duly registered and qualified to conduct its
business and is in good standing in each jurisdiction or place where the
nature of its properties or the conduct of its business requires such
registration or qualification, except where the failure so to register or
qualify does not have a material adverse effect on the condition (financial
or other), business, properties, net worth or results of operations of the
Company and the Subsidiaries (as hereinafter defined) taken as a whole.
(f) All the Company's subsidiaries (collectively, the "Subsidiaries")
are set forth on Schedule III hereto. Each Subsidiary is a corporation
duly organized, validly existing and in good standing in the jurisdiction
of its incorporation, with full corporate power and authority to own, lease
and operate its properties and to conduct its business as described in the
Registration Statement and the Prospectus, and is duly registered and
qualified to conduct its business and is in good standing in each
jurisdiction or place where the nature of its properties or the conduct of
its business requires such registration or qualification, except where the
failure so to register or qualify does not have a material adverse effect
on the condition (financial or other), business, properties, net worth or
results of operations of such Subsidiary; all the outstanding shares of
capital stock of each of the Subsidiaries have been duly authorized and
validly issued, are fully paid and, except as noted on Schedule III hereto,
nonassessable, and, except as set forth on the Schedule III hereto, are
owned by the Company directly, or indirectly through one of the other
Subsidiaries, free and clear of any lien, adverse claim, security interest,
equity or other encumbrance.
(g) Except as described in the Registration Statement, Prepricing
Prospectus and the Prospectus, there are no legal or governmental
proceedings pending or, to the knowledge of the Company, threatened,
against the Company or any of the Subsidiaries, or to which the Company or
any of the Subsidiaries, or to which any of their respective properties is
subject, that are required under the Act or the Exchange Act to be
described in the Registration Statement or the Prospectus, and there are no
agreements,
<PAGE>
-13-
contracts, indentures, leases or other instruments that are
required to be described in the Registration Statement or the Prospectus or
to be filed as an exhibit to the Registration Statement or any Incorporated
Document that are not described or filed as required by the Act or the
Exchange Act.
(h) Neither the Company nor any of the Subsidiaries is in violation
of its certificate or articles of incorporation or by-laws, or other
organizational documents, or of any law, ordinance, administrative or
governmental rule or regulation applicable to the Company or any of the
Subsidiaries or of any decree of any court or governmental agency or body
having jurisdiction over the Company or any of the Subsidiaries, or in
default in the performance of any obligation, agreement or condition
contained in any bond, debenture, note or any other evidence of
indebtedness or in any material agreement, indenture, lease or other
instrument to which the Company or any of the Subsidiaries is a party or by
which any of them or any of their respective properties may be bound,
except for such violations and defaults which, individually and in the
aggregate, could not reasonably be expected to have a material adverse
effect on the condition (financial or other), business, properties, net
worth or results of operations of the Company and the Subsidiaries, taken
as a whole.
(i) Neither the issuance and sale of the Shares, the execution,
delivery or performance of this Agreement by the Company nor the
consummation by the Company of the transactions contemplated hereby (i)
requires any consent, approval, authorization or other order of or
registration or filing with, any court, regulatory body, administrative
agency or other governmental body, agency or official (except such as may
be required for the registration of the Shares under the Act and the
Exchange Act and compliance with the securities or Blue Sky laws of various
jurisdictions, all of which have been or will be effected in accordance
with this Agreement) or conflicts or will conflict with or constitutes or
will constitute a breach of, or a default under, the certificate or
articles of incorporation or bylaws, or other organizational documents, of
the Company or any of the Subsidiaries or (ii) conflicts or will conflict
with or constitutes or will constitute a breach of, or a default under, any
agreement, indenture, lease or other instrument to which the Company or any
of the Subsidiaries is a party or by which any of them or any of their
respective properties may be bound, or violates
<PAGE>
-14-
or will violate any statute, law, regulation or filing or judgment,
injunction, order or decree applicable to the Company or any of the
Subsidiaries or any of their respective properties, or will result in the
creation or imposition of any lien, charge or encumbrance upon any
property or assets of the Company or any of the Subsidiaries pursuant to
the terms of any agreement or instrument to which any of them is a party
or by which any of them may be bound or to which any of the property or
assets of any of them is subject, except for such conflicts, breaches,
defaults, violations and liens, charges and encumbrances which,
individually and in the aggregate, could not reasonably be expected to
have a material adverse effect on the condition (financial or other),
business, properties, net worth or results of operations of the Company
and the Subsidiaries, taken as a whole.
(j) The accountants, Deloitte & Touche LLP, who have certified or
shall certify the financial statements included or incorporated by
reference in the Registration Statement and the Prospectus (or any
amendment or supplement thereto) are independent public accountants as
required by the Act.
(k) The financial statements, together with related schedules and
notes, included or incorporated by reference in the Registration Statement
and the Prospectus (and any amendment or supplement thereto), present
fairly the consolidated financial position, results of operations and
changes in financial position of the Company and the Subsidiaries on the
basis stated in the Registration Statement at the respective dates or for
the respective periods to which they apply; such statements and related
schedules and notes have been prepared in accordance with generally
accepted accounting principles consistently applied throughout the periods
involved, except as disclosed therein; and the other financial and
statistical information and data included or incorporated by reference in
the Registration Statement and the Prospectus (and any amendment or
supplement thereto) are accurately presented and prepared on a basis
consistent with such financial statements and the books and records of the
Company and the Subsidiaries.
(l) The execution and delivery of, and the performance by the Company
of its obligations under, this Agreement have been duly and validly
authorized by the Company,
<PAGE>
-15-
and this Agreement has been duly executed and
delivered by the Company.
(m) Except as disclosed in the Registration Statement and the
Prospectus (or any amendment or supplement thereto), subsequent to the
respective dates as of which such information is given in the Registration
Statement and the Prospectus (or any amendment or supplement thereto),
neither the Company nor any of the Subsidiaries has incurred any liability
or obligation, direct or contingent, or entered into any transaction, not
in the ordinary course of business, that is material to the Company and the
Subsidiaries taken as a whole, and there has not been any change in the
capital stock, or material increase in the short-term debt or long-term
debt, of the Company or any of the Subsidiaries, or any material adverse
change, or any development involving or which may reasonably be expected to
involve, a prospective material adverse change, in the condition (financial
or other), business, net worth or results of operations of the Company and
the Subsidiaries taken as a whole.
(n) Each of the Company and the Subsidiaries has good and marketable
title to all property (real and personal) described in the Prospectus as
being owned by it, free and clear of all liens, claims, security interests
or other encumbrances except such as are described in the Registration
Statement and the Prospectus or in a document filed as an exhibit to the
Registration Statement and all the property described in the Prospectus as
being held under lease by each of the Company and the Subsidiaries is held
by it under valid, subsisting and enforceable leases.
(o) The Company has not distributed and, prior to the later to occur
of (i) the Closing Date and (ii) completion of the distribution of the
Shares, will not distribute any offering material in connection with the
offering and sale of the Shares other than the Registration Statement, the
Prepricing Prospectus, the Prospectus or other materials, if any, permitted
by the Act.
(p) The Company and each of the Subsidiaries has such permits,
licenses, franchises and authorizations of governmental or regulatory
authorities ("permits") as are necessary to own its respective properties
and to conduct its business in the manner described in the Prospectus,
subject to such qualifications as may be set forth in the Prospectus and
except where the failure to have any such
<PAGE>
-16-
permit could not reasonably be expected to have a material adverse effect
on the condition (financial or other), business, properties, net worth or
results of operations of the Company and the Subsidiaries, taken as a
whole; the Company and each of the Subsidiaries has fulfilled and
performed all its material obligations with respect to such permits,
except where the failure to so fulfill or perform could not reasonably be
expected to have a material adverse effect on the condition (financial or
other), business, properties, net worth or results of operations of the
Company and the Subsidiaries, taken as a whole; and no event has occurred
which allows, or after notice or lapse of time would allow, revocation or
termination thereof or results in any other impairment of the rights of
the holder of any such permit, subject in each case to such qualification
as may be set forth in the Prospectus and except where any such
revocation, termination or impairment could not reasonably be expected to
have a material adverse effect on the condition (financial or other),
business, properties, net worth or results of operations of the Company
and the Subsidiaries, taken as a whole; and, except as described in the
Prospectus, none of such permits contains any restriction that could
reasonably be expected to have a material adverse effect on the condition
(financial or other), business, properties, net worth or results of
operations of the Company and the Subsidiaries, taken as a whole.
(q) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are
executed in accordance with management's general or specific authorization;
(ii) transactions are recorded as necessary to permit preparation of
financial statements in conformity with generally accepted accounting
principles and to maintain accountability for assets; (iii) access to
assets is permitted only in accordance with management's general or
specific authorization; and (iv) the recorded accountability for assets is
compared with existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
(r) To the Company's knowledge, neither the Company nor any of its
Subsidiaries nor any employee or agent of the Company or any Subsidiary has
made any payment of funds of the Company or any Subsidiary or received or
retained any funds in violation of any law, rule or regula-
<PAGE>
-17-
tion, which payment, receipt or retention of funds is of a character
required to be disclosed in the Prospectus.
(s) The Company and each of the Subsidiaries have filed all tax
returns required to be filed, which returns are complete and correct, and
neither the Company nor any Subsidiary is in default in the payment of any
taxes which were payable pursuant to said returns or any assessments with
respect thereto, except where the failure to have filed such returns, the
failure of such returns to be complete and correct and the failure to pay
such taxes or assessments, individually and in the aggregate, could not
reasonably be expected to have a material adverse effect on the condition
(financial or other), business, properties, net worth or results of
operations of the Company and the Subsidiaries, taken as a whole.
(t) No holder of any security of the Company (other than the Selling
Stockholder) has any right (other than holders who have agreed in writing
to waive such rights) to require registration of shares of Common Stock or
any other security of the Company because of the filing of the registration
statement or consummation of the transactions contemplated by this
Agreement.
(u) The Company is not now, and after sale of the Shares to be sold
by it hereunder and application of the net proceeds from such sale as
described in the Prospectus under the caption "Use of Proceeds" will not
be, an "investment company" within the meaning of the Investment Company
Act of 1940, as amended.
(v) The Company has complied with all provisions of Florida Statutes,
517.075, relating to issuers doing business with Cuba.
8. REPRESENTATIONS AND WARRANTIES OF THE SELLING STOCKHOLDER. The
Selling Stockholder represents and warrants to each Underwriter that:
(a) The Selling Stockholder now has, and on the Closing Date will
have, valid and marketable title to the Shares to be sold by such Selling
Stockholder, free and clear of any lien, claim, security interest or other
encumbrance, including, without limitation, any restriction on transfer.
<PAGE>
-18-
(b) The Selling Stockholder now has, and on the Closing Date will have,
full legal right, power and authorization, and any approval required by
law, to sell, assign transfer and deliver such Shares in the manner
provided in this Agreement, and upon delivery of and payment for such
Shares hereunder, the several Underwriters will acquire valid and
marketable title to such Shares free and clear of any lien, claim, security
interest, or other encumbrance (assuming the Underwriters are without
notice of any adverse claim, as defined in the Uniform Commercial Code and
are otherwise bona fide purchasers for purposes of the Uniform Commercial
Code).
(c) This Agreement has been duly authorized, executed and delivered
by the Selling Stockholder and is the valid and binding agreement of the
Selling Stockholder enforceable against the Selling Stockholder in
accordance with its terms.
(d) Neither the execution and delivery of this Agreement by the
Selling Stockholder nor the consummation of the transactions herein
contemplated by the Selling Stockholder requires any consent, approval,
authorization or order of, or filing or registration with, any court,
regulatory body, administrative agency or other governmental body, agency
or official (except such as may be required under the Act or such as may be
required under state securities or Blue Sky laws governing the purchase and
distribution of the Shares) or conflicts or will conflict with or
constitutes or will constitute a breach of, or default under, or violates
or will violate, any agreement, indenture or other instrument to which the
Selling Stockholder is a party or by which the Selling Stockholder is or
may be bound or to which any of the Selling Stockholder's property or
assets is subject, or any statute, law, rule, regulation, ruling, judgment,
injunction, order or decree applicable to the Selling Stockholder or to any
property or assets of the Selling Stockholder.
(e) The Registration Statement and the Prospectus, insofar as they
relate to the Selling Stockholder, do not and will not contain an untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein not
misleading.
(f) The Selling Stockholder does not have any knowledge or any reason
to believe that the Registration State-
<PAGE>
-19-
ment or the Prospectus (or any amendment or supplement thereto) contains
any untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary to make the statements
therein not misleading.
(g) The Selling Stockholder has not taken, directly or indirectly,
any action designed to or that might reasonably be expected to cause or
result in stabilization or manipulation of the price of the Common Stock to
facilitate the sale or resale of the Shares.
9. INDEMNIFICATION AND CONTRIBUTION. (a) The Company agrees to
indemnify and hold harmless each of you, each other Underwriter, each person, if
any, who controls any Underwriter within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act and the Selling Stockholder and each person,
if any, who controls the Selling Stockholder within the meaning of Section 15 of
the Act or Section 20(a) of the Exchange Act from and against any and all
losses, claims, damages, liabilities and expenses (including reasonable costs of
investigation) arising out of or based upon any untrue statement or alleged
untrue statement of a material fact contained in any Prepricing Prospectus or in
the Registration Statement or the Prospectus or in any amendment or supplement
thereto, or arising out of or based upon any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, except insofar as such losses, claims,
damages, liabilities or expenses arise out of or are based upon any untrue
statement or omission or alleged untrue statement or omission which has been
made therein or omitted therefrom in reliance upon and in conformity with the
information (x) in the case of the Underwriters and their controlling persons,
relating to such Underwriter furnished in writing to the Company by or on behalf
of any Underwriter through you expressly for use in connection therewith or
(y) in the case of the Selling Stockholder, relating to the Selling Stockholder
furnished in writing to the Company by or on behalf of the Selling Stockholder
for use in connection therewith; provided, however, that the indemnification
contained in this paragraph (a) with respect to any Prepricing Prospectus shall
not inure to the benefit of any Underwriter (or to the benefit of any person
controlling such Underwriter) on account of any such loss, claim, damage,
liability or expense arising from the sale of the Shares by such Underwriter to
any person if a copy of the Prospectus shall not have been delivered or sent to
such person within the time required by the Act and the regulations thereunder,
and the untrue state-
<PAGE>
-20-
ment or alleged untrue statement or omission or alleged omission of a
material fact contained in such Prepricing Prospectus was corrected in the
Prospectus, provided that the Company has delivered the Prospectus to the
several Underwriters in requisite quantity on a timely basis to permit such
delivery or sending. The foregoing indemnity agreement shall be in addition
to any liability which the Company may otherwise have.
(b) The Selling Stockholder agrees to indemnify and hold harmless
each Underwriter and person, if any, who controls any Underwriter within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act from and
against any and all losses, claims, damages, liabilities and expenses (including
reasonable costs of investigation) arising out of or based upon any untrue
statement or alleged untrue statement of a material fact contained in any
Prepricing Prospectus or in the Registration Statement or the Prospectus or in
any amendment or supplement thereto or arising out of or based upon any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, except
insofar as such losses, claims, damages, liabilities or expenses arise out of or
are based upon any untrue statement or omission or alleged untrue statement or
omission which has been made therein or omitted therefrom in reliance upon and
in conformity with the information relating to such Underwriter furnished in
writing to the Company or by or on behalf of any Underwriter through you
expressly for the use in connection therewith; provided, however, that the
indemnification contained in this paragraph (b) with respect to any Prepricing
Prospectus shall not inure to the benefit of any Underwriter (or to the benefit
of any person controlling such Underwriter) on account of any such loss, claim,
damage, liability or expense arising from the sale of the Shares by such
Underwriter to any person if a copy of the Prospectus shall not have been
delivered or sent to such person within the time required by the Act and the
regulations thereunder, and the untrue statement or alleged untrue statement or
omission or alleged omission of a material fact contained in such Prepricing
Prospectus was corrected in the Prospectus, provided that the Company has
delivered the Prospectus to the several Underwriters in requisite quantity on a
timely basis to permit such delivery or sending. Notwithstanding anything to
the contrary contained in this paragraph (b), each Underwriter and each person
controlling such Underwriter agrees not to assert its rights to indemnity under
this paragraph (b) against the Selling Stockholder until (i) such Underwriter or
controlling person has requested indemnification and reimbursement from the
Company for such losses, claims, damages, liabilities or expenses and
<PAGE>
-21-
(ii) the Company does not within 60 days of such request (A) agree to
indemnify such Underwriter or controlling person and (B) reimburse in full
such Underwriter or controlling person for any such losses, claims, damages,
liabilities or expenses incurred. In the event that litigation between the
parties with respect to this Section 9 results in joint or joint and several
judgment against the Company and the Selling Stockholder, each Underwriter
and each controlling person of an Underwriter agrees that it will not attempt
to enforce such judgment against the Selling Stockholder unless and until any
part of such judgment shall remain unsatisfied by the Company for more than
60 days. The liability of the Selling Stockholder under this paragraph (b)
shall not exceed an amount equal to the net proceeds received by the Selling
Stockholder from the sale hereunder of the Shares sold by the Selling
Stockholder to the Underwriters hereunder. The foregoing indemnity agreement
shall be in addition to any liability which the Selling Stockholder may
otherwise have.
(c) The Selling Stockholder agrees to indemnify and hold harmless,
the Company, its directors, its officers who sign the Registration Statement,
and any person who controls the Company within the meaning of Section 15 of the
Act or Section 20(a) of the Exchange Act from and against any and all losses,
claims, damages, liabilities and expenses (including reasonable costs of
investigation) arising out of or based upon any untrue statement or alleged
untrue statement of a material fact contained in any Prepricing Prospectus or in
the Registration Statement or the Prospectus or in any amendment or supplement
thereto, or arising out of or based upon any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, but only with respect to information
relating to the Selling Stockholder furnished in writing by or on behalf of such
Selling Stockholder expressly for use in the Registration Statement, the
Prospectus, or any Prepricing Prospectus, or any amendment or supplement
thereto. The liability of the Selling Stockholder under this paragraph (c)
shall not exceed an amount equal to the net proceeds received by the Selling
Stockholder from the sale hereunder of the Shares sold by the Selling
Stockholder to the Underwriters hereunder. The foregoing indemnity agreement
shall be in addition to any liability which the Selling Stockholder may
otherwise have.
(d) Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless the Company, its directors, its officers who sign the
Registration Statement, the Selling Stockholder, and any person who controls the
Company or
<PAGE>
-22-
the Selling Stockholder within the meaning of Section 15 of the Act
or Section 20(a) of the Exchange Act, insofar as such losses, claims, damages,
liabilities or expenses arise out of or are based upon an untrue statement or
alleged untrue statement of a material fact contained in any Prepricing
Prospectus or in the Registration Statement or the Prospectus or in any
amendment or supplement thereto, or arise out of or are based upon any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each case
to the extent, but only with respect to information relating to such Underwriter
furnished in writing by or on behalf of such Underwriter through you expressly
for use in the Registration Statement, the Prospectus or any Prepricing
Prospectus, or any amendment or supplement thereto. The foregoing indemnity
agreement shall be in addition to any liability which any Underwriter may
otherwise have.
(e) If any action, suit or proceeding shall be brought against any
person (an "Indemnified Person") in respect of which indemnity may be sought
against the Company, the Selling Stockholder or an Underwriter (an "Indemnifying
Party"), such Indemnified Person shall promptly notify in writing the
Indemnifying Parties against whom indemnification is being sought, and such
Indemnifying Parties shall assume the defense thereof, including the employment
of counsel and payment of all fees and expenses. No indemnification under
paragraph (a), (b), (c) or (d) above shall be available to any party who shall
so fail to give such notice if the party to whom such notice was not given was
unaware of the action to which the notice would have related and was materially
prejudiced by the failure to give notice. Such Indemnified Person shall have
the right to employ separate counsel in any such action, suit or proceeding and
to participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of such Indemnified Person unless (i) the Indemnifying
Parties have agreed in writing to pay such fees and expenses, (ii) the
Indemnifying Parties have failed to assume the defense and employ counsel, or
(iii) the named parties to any such action, suit or proceeding (including any
impleaded parties) include both such Indemnified Person and an Indemnifying
Party and such Indemnified Person shall have been advised by its counsel that
representation of such Indemnified Person and such Indemnifying Party by the
same counsel would be inappropriate under applicable standards of professional
conduct (whether or not such representation by the same counsel has been
proposed) due to actual or potential differing interests between them (in which
case the Indemnifying Parties shall not have the right to assume the de-
<PAGE>
-23-
fense of such action, suit or proceeding on behalf of such Indemnified
Person). It is understood, however, that the Indemnifying Parties shall, in
connection with any one such action, suit or proceeding or separate but
substantially similar or related actions, suits or proceedings in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of only one separate firm of
attorneys (in addition to any local counsel) at any time for all Indemnified
Persons not having actual or potential differing interests with you or among
themselves, which firm shall be designated in writing (i) by Smith Barney
Inc., in the case of the Underwriters and their controlling persons, (ii) by
the Company in the case of the Company, its directors, its officers who
signed the Registration Statement and its controlling persons and (iii) the
Selling Stockholder in the case of the Selling Stockholder and its
controlling persons and, in each case, that all such fees and expenses shall
be reimbursed as they are incurred. The Indemnifying Parties shall not be
liable for any settlement of any such action, suit or proceeding effected
without their written consent, but if settled with such written consent, or
if there be a final judgment for the plaintiff in any such action, suit or
proceeding, the Indemnifying Parties agree to indemnify and hold harmless any
Indemnified Persons, to the extent provided in the preceding paragraphs, from
and against any loss, claim, damage, liability or expense by reason of such
settlement or judgment. The Company will not without the prior written
consent of the Selling Stockholder or controlling person of the Selling
Stockholder, settle or compromise or consent to the entry of judgment in any
pending or threatened claim, action, suit or proceeding to which the Selling
Stockholder or such controlling person is a party and in respect of which
indemnification may be sought against the Selling Stockholder hereunder.
(f) If the indemnification provided for in this Section 9 is
unavailable to an Indemnified Person under paragraph (a), (b), (c) or (d) hereof
in respect of any losses, claims, damages, liabilities or expenses referred to
therein, then an Indemnifying Party, in lieu of indemnifying such Indemnified
Person, shall contribute to the amount paid or payable by such Indemnified
Person as a result of such losses, claims, damages, liabilities or expenses (i)
in such proportion as is appropriate to reflect the relative benefits received
by the Company, the Selling Stockholder and the Underwriters from the offering
of the Shares, or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of
<PAGE>
-24-
the Company, the Selling Stockholder and the Underwriters in connection with
the statements or omissions that resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one
hand, and the Underwriters, on the other, shall be deemed to be in the same
proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company bear to the underwriting discounts and
commissions received by the Underwriters from the offering of the Shares sold
by the Company hereunder, in each case as set forth in the table on the cover
page of the Prospectus; provided that, in the event that the Underwriters
shall have purchased any Additional Shares hereunder, any determination
pursuant to this sentence of the relative benefits received by the Company or
the Underwriters from the offering of the Shares shall include the net
proceeds (before deducting expenses) received by the Company, and the
underwriting discounts and commissions received by the Underwriters, from the
sale of such Additional Shares, in each case computed on the basis of the
respective amounts set forth in the notes to the table on the cover page of
the Prospectus. The relative benefits received by the Selling Stockholder,
on the one hand, and the Underwriters, on the other, shall be deemed to be in
the same proportion as the total net proceeds from the offering (before
deducting expenses) received by the Selling Stockholder bear to the
underwriting discounts and commissions received by the Underwriters from the
offering of the Shares sold by the Selling Stockholder hereunder, in each
case as set forth in the table on the cover page of the Prospectus. The
relative benefits received by the Selling Stockholder, on the one hand, and the
Selling Stockholder, on the other, shall be deemed to be in the same proportion
as the total net proceeds from the offering (before deducting expenses)
received by the Company bear to the total net proceeds from the offering
(before deducting expenses) received by the Company, in each case as set forth
on the cover page of the Prospectus; provided that, in the event the
Underwriters shall have purchased any Additional Shares hereunder, any
determination pursuant to this sentence of the relative benefits received by
the Company from the offering of the Shares shall include the net proceeds
(before deducting expenses) received by the Company from the sale of such
Additional Shares, as computed on the basis of the amount set forth in the
notes to the table on the cover page of the Prospectus. The relative fault of
the Company, the Selling Stockholder and the Underwriters shall be determined
by reference to whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Company, the Selling
<PAGE>
-25-
Stockholder or by the Underwriters, respectively, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission as well as any other equitable considerations
appropriate under the circumstances.
(g) The Company, the Selling Stockholder and the Underwriters agree
that it would not be just and equitable if contribution pursuant to this Section
9 were determined by a pro rata allocation (even if the Underwriters were
treated as one entity for such purpose) or by any other method of allocation
that does not take account of the equitable considerations referred to in
paragraph (f) above. The amount paid or payable by an Indemnified Person as a
result of the losses, claims, damages, liabilities and expenses referred to in
paragraph (f) above shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating any claim or defending any such action,
suit or proceeding. Notwithstanding the provisions of this Section 9, no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price of the Shares underwritten by it and distributed to the
public exceeds the amount of any damages which such Underwriter has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. Notwithstanding anything to the contrary
contained in this Section 9, each Underwriter and each person controlling such
Underwriter agrees not to assert its rights to contribution under paragraph (f)
above against the Selling Stockholder until (i) such Underwriter or controlling
person has requested contribution from the Company for such losses, claims,
damages, liabilities or expenses and (ii) the Company does not within 60 days of
such request (A) agree to so indemnify such Underwriter or controlling person
and (B) reimburse in full such Underwriter or controlling person for any such
losses, claims, damages, liabilities or expenses incurred. Notwithstanding
anything to the contrary contained in this Section 9, the Selling Stockholder
shall not be required to contribute any amount in excess of an amount equal to
the net proceeds received by the Selling Stockholder from the sale hereunder of
the Shares sold by the Selling Stockholder to the Underwriters hereunder. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations to
contribute pursuant to this Section 9 are several in proportion to the
respective numbers of Firm Shares set forth opposite their names in Schedule I
hereto (or
<PAGE>
-26-
such numbers of Firm Shares increased as set forth in Section 12 hereof) and
not joint.
(h) No Indemnifying Party shall, without the prior written consent
of the Indemnified Person, effect any settlement of any pending or threatened
action, suit or proceeding in respect of which any Indemnified Person is or
could have been a party and indemnity could have been sought hereunder by
such Indemnified Person, unless such settlement includes an unconditional
release of such Indemnified Person from all liability on claims that are the
subject matter of such action, suit or proceeding.
(i) Any losses, claims, damages, liabilities or expenses for which
an Indemnified Person is entitled to indemnification or contribution under
this Section 9 shall be paid by the Indemnifying Party to the Indemnified
Person as such losses, claims, damages, liabilities or expenses are incurred.
The indemnity and contribution agreements contained in this Section 9 and
the representations and warranties of the Company and the Selling Stockholder
set forth in this Agreement shall remain operative and in full force and
effect, regardless of (i) any investigation made by or on behalf of any
Underwriter or any person controlling any Underwriter, the Company, its
directors or officers or the Selling Stockholder, its partners or officers,
or any person controlling the Company or the Selling Stockholder, (ii)
acceptance of any Shares and payment therefor hereunder, and (iii) any
termination of this Agreement. A successor to any Underwriter or any person
controlling any Underwriter, or to the Company, its directors or officers, or
any person controlling the Company, or the Selling Stockholder, its partners
or officers or any person controlling the Selling Stockholder, shall be
entitled to the benefits of the indemnity, contribution and reimbursement
agreements contained in this Section 9.
10. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The several obligations
of the Underwriters to purchase the Firm Shares hereunder are subject to the
following conditions:
(a) If, at the time this Agreement is executed and delivered, it is
necessary for the registration statement or a post-effective amendment
thereto to be declared effective before the offering of the Shares may
commence, the registration statement or such post-effective amendment shall
have become effective not later than 5:30 P.M., New York City time, on the
date hereof, or at such later date and time as shall be consented to in
writing by you,
<PAGE>
-27-
and all filings, if any, required by Rules 424 and 430A
under the Act shall have been timely made; no stop order suspending the
effectiveness of the registration statement shall have been issued and no
proceeding for that purpose shall have been instituted or, to the knowledge
of the Company or any Underwriter, threatened by the Commission, and any
request of the Commission for additional information (to be included in the
registration statement or the prospectus or otherwise) shall have been
complied with to your satisfaction.
(b) Subsequent to the effective date of this Agreement, there shall
not have occurred (i) any change, or any development involving a
prospective change, in or affecting the condition (financial or other),
business, properties, net worth, or results of operations of the Company or
the Subsidiaries not contemplated by the Prospectus, which in your opinion,
as Representatives of the several Underwriters, would materially adversely
affect the market for the Shares, or (ii) any event or development relating
to or involving the Company or any officer or director of the Company or
the Selling Stockholder which makes any statement made in the Prospectus
untrue or which, in the opinion of the Company and its counsel or the
Underwriters and their counsel, requires the making of any addition to or
change in the Prospectus in order to state a material fact required by the
Act or any other law to be stated therein or necessary in order to make the
statements therein not misleading, if amending or supplementing the
Prospectus to reflect such event or development would, in your opinion, as
Representatives of the several Underwriters, materially adversely affect
the market for the Shares.
(c) You shall have received on the Closing Date, an opinion of
Blackwell Sanders Matheny Weary & Lombardi LLP, counsel for the Company,
dated the Closing Date and addressed to you, as Representatives of the
several Underwriters, to the effect that:
(i) The Company is a corporation duly incorporated and
validly existing in good standing under the laws of the State of
Kansas with full corporate power and authority to own, lease and
operate its properties and to conduct its business as described in
the Registration Statement and the Prospectus (and any amendment or
supplement thereto), and is duly qualified to conduct its business
and is in good standing
<PAGE>
-28-
in each jurisdiction set forth on a schedule to such opinion (which
opinion shall be accompanied by a certificate of an officer of the
Company stating that such jurisdictions are the only jurisdictions
where the nature of the Company's properties or the conduct of its
business requires such registration or qualification, except where
the failure so to register or qualify does not have a material
adverse effect on the condition (financial or other), business,
properties, net worth or results of operations of the Company and
the Subsidiaries taken as a whole);
(ii) Each of the Subsidiaries is a corporation duly organized
and validly existing in good standing under the laws of the
jurisdiction of its organization, with full corporate power and
authority to own, lease, and operate its properties and to conduct
its business as described in the Registration Statement and the
Prospectus (and any amendment or supplement thereto); and all the
outstanding shares of capital stock of each of the Subsidiaries have
been duly authorized and validly issued, are fully paid and, except
as noted on Schedule III hereto, nonassessable;
(iii) The outstanding capital stock of the Company is as set
forth under the caption "Capitalization" in the Prospectus and the
authorized capital stock of the Company conforms in all material
respects as to legal matters to the description thereof contained in
the Prospectus under the caption "Description of Capital Stock";
(iv) All the shares of capital stock of the Company
outstanding prior to the issuance of the Shares to be issued and
sold by the Company hereunder, have been duly authorized and validly
issued, and are fully paid and nonassessable;
(v) The Shares to be issued and sold to the Underwriters by
the Company hereunder have been duly authorized and, when issued and
delivered to the Underwriters against payment therefor in accordance
with the terms hereof, will be validly issued, fully paid and
nonassessable and free of any preemptive rights arising under any
statute or any contract or agreement that is an exhibit to the
Registration
<PAGE>
-29-
Statement to which the Company is a party or by which
it is bound;
(vi) The form of certificates for the Shares conforms to the
requirements of the Kansas General Corporation Code;
(vii) The Registration Statement and all post-effective
amendments, if any, have become effective under the Act and, to the
best knowledge of such counsel, no stop order suspending the
effectiveness of the Registration Statement has been issued and no
proceedings for that purpose are pending before or contemplated by
the Commission; and any required filing of the Prospectus pursuant
to Rule 424(b) has been made in accordance with Rule 424(b);
(viii) The Company has corporate power and authority to enter
into this Agreement and to issue, sell and deliver the Shares to be
sold by it to the Underwriters as provided herein, and this
Agreement has been duly authorized, executed and delivered by the
Company;
(ix) Neither the offer, sale or delivery of the Shares, the
execution, delivery or performance of this Agreement, compliance by
the Company with the provisions hereof nor consummation by the
Company of the transactions contemplated hereby violates or
constitutes or will constitute a breach of, or a default under, the
certificate or articles of incorporation or bylaws of the Company or
any of the Subsidiaries or any agreement, indenture, lease or other
instrument that is an exhibit to the Registration Statement to which
the Company or any of the Subsidiaries is a party or by which any of
them or any of their respective properties is bound, will result in
the creation or imposition of any lien, charge or encumbrance upon
any property or assets of the Company or any of the Subsidiaries
under any such agreement, indenture, lease or instrument, nor will
any such action result in any violation of any existing law,
regulation, ruling (assuming compliance with all applicable state
securities and Blue Sky laws), judgment, injunction, order or decree
known to such counsel, applicable to the Company, the Subsidiaries
or any of their respective properties;
<PAGE>
-30-
(x) No consent, approval, authorization or other
order of, or registration or filing with, any court,
regulatory body, administrative agency or other
governmental body, agency, or official is required on
the part of the Company (except as have been obtained
under the Act and the Exchange Act or such as may be
required under state securities or Blue Sky laws (as
to which such counsel need not express any opinion)
governing the purchase and distribution of the
Shares) for the valid issuance and sale of the Shares
to the Underwriters as contemplated by this
Agreement;
(xi) The Registration Statement and the
Prospectus and any supplements or amendments thereto
(except for the financial statements and the notes
thereto and the schedules and other financial and
statistical data included therein, as to which such
counsel need not express any opinion) comply as to
form in all material respects with the requirements
of the Act; and each of the Incorporated Documents
(except for the financial statements and the notes
thereto and the schedules and other financial and
statistical data included therein, as to which such
counsel need not express any opinion) complies as to
form in all material respects with the Exchange Act
and the rules and regulations of the Commission
thereunder;
(xii) To the knowledge of such counsel,
(A) other than as described or contemplated in the
Prospectus (or any supplement thereto), there are no
legal or governmental proceedings pending or
threatened against the Company or any of the
Subsidiaries, or to which the Company or any of the
Subsidiaries, or any of their property, is subject,
which are required to be described in the
Registration Statement or Prospectus (or any
amendment or supplement thereto) and (B) there are no
agreements, contracts, indentures, leases or other
instruments, that are required to be described in the
Registration Statement or the Prospectus (or any
amendment or supplement thereto) or to be filed as an
exhibit to the Registration Statement or any
Incorporated Document that are not described or filed
as required, as the case may be;
(xiii) The statements in the Registration
Statement and Prospectus, insofar as they are
descriptions of contracts, agreements or other legal
documents, or
<PAGE>
-31-
refer to statements of law or legal conclusions, are
accurate and present fairly the information required to
be shown;
Such opinion shall also state that, although counsel
has not undertaken, except as otherwise indicated in their
opinion, to determine independently, and does not assume
any responsibility for, the accuracy or completeness of
the statements in the Registration Statement, such counsel
has participated in the preparation of the Registration
Statement and the Prospectus, including review and
discussion of the contents thereof (including review and
discussion of the contents of all Incorporated Documents),
and nothing has come to the attention of such counsel that
has caused them to believe that the Registration Statement
(including the Incorporated Documents) at the time the
Registration Statement became effective, or the
Prospectus, as of its date and as of the Closing Date or
the Option Closing Date, as the case may be, contained an
untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary
to make the statements therein not misleading or that any
amendment or supplement to the Prospectus, as of its
respective date, and as of the Closing Date or the Option
Closing Date, as the case may be, contained any untrue
statement of a material fact or omitted to state a
material fact necessary in order to make the statements
therein, in the light of the circumstances under which
they were made, not misleading (it being understood that
such counsel need express no opinion with respect to the
financial statements and the notes thereto and the
schedules and other financial and statistical data
included in the Registration Statement or the Prospectus
or any Incorporated Document).
<PAGE>
-32-
In rendering their opinion as aforesaid, counsel may
rely upon an opinion or opinions, each dated the Closing
Date, of other counsel retained by them or the Company as
to laws of any jurisdiction other than the United States
or the State of Kansas, provided that (1) each such local
counsel is acceptable to the Representatives, (2) such
reliance is expressly authorized by each opinion so relied
upon and a copy of each such opinion is delivered to the
Representatives and is, in form and substance satisfactory
to them and their counsel, and (3) counsel shall state in
their opinion that they believe that they and the
Underwriters are justified in relying thereon.
(d) You shall receive on the Closing Date an opinion
of Choate, Hall & Stewart, counsel for the Selling
Stockholder, dated the Closing Date and addressed to you,
as Representatives of the several Underwriters, to the
effect that:
(i) This Agreement has been duly authorized,
executed and delivered by the Selling Stockholder;
(ii) To such counsel's knowledge, the
Selling Stockholder has full legal right, power and
authority, and has obtained any approval required by
law, to sell, assign, transfer and deliver good and
marketable title to the Shares which the Selling
Stockholder has agreed to sell pursuant to this
Agreement;
(iii) The execution and delivery of this
Agreement by the Selling Stockholder and the
consummation of the transactions contemplated hereby
will not conflict with, violate, result in a breach
of or constitute a default under the terms or
provisions of any agreement, indenture, mortgage or
other instrument known to such counsel to which the
Selling Stockholder is a party or by which it or any
of its assets or property is bound, or any court
order or decree or any law, rule, or regulation
applicable to the Selling Stockholder or to any of
the property or assets of the Selling Stockholder;
and
(iv) Upon delivery of the Shares to be sold
by the Selling Stockholder pursuant to this Agreement
and payment therefor as contemplated herein and
registration of such Shares in the names of the
Underwriters in the stock records of the Company, the
Underwriters will acquire good and marketable title
to
<PAGE>
-33-
such Shares free and clear of any lien, claim,
security interest, or other encumbrance, restriction
on transfer or other defect in title (assuming that
the Underwriters are without notice of any adverse
claim, as defined in the Uniform Commercial Code, and
are otherwise bona fide purchasers for the purposes
of the Uniform Commercial Code).
(e) You shall have received on the Closing Date an
opinion of Cahill Gordon & Reindel, counsel for the
Underwriters, dated the Closing Date and addressed to you,
as Representatives of the several Underwriters, with
respect to the matters referred to in clauses (v), (vii),
(viii), (xi) and the penultimate paragraph of the
foregoing paragraph (c) and such other related matters as
you may request.
(f) You shall have received letters addressed to
you, as Representatives of the several Underwriters, and
dated the date hereof and the Closing Date from Deloitte &
Touche LLP, independent certified public accountants,
substantially in the forms heretofore approved by you.
(g) (i) No stop order suspending the effectiveness
of the Registration Statement shall have been issued and
no proceedings for that purpose shall have been taken or,
to the knowledge of the Company, shall be contemplated by
the Commission at or prior to the Closing Date; (ii) there
shall not have been any change in the capital stock of the
Company nor any material increase in the short-term or
long-term debt of the Company (other than in the ordinary
course of business) from that set forth or contemplated in
the Registration Statement or the Prospectus (or any
amendment or Supplement thereto); (iii) there shall not
have been, since the respective dates as of which
information is given in the Registration Statement and the
Prospectus (or any amendment or supplement thereto),
except as may otherwise be stated in the Registration
Statement and Prospectus (or any amendment or supplement
thereto), any material adverse change in the condition
(financial or other), business, prospects, properties, net
worth or results of operations of the Company and the
Subsidiaries taken as a whole; (iv) the Company and the
Subsidiaries shall not have any liabilities or
obligations, direct or contingent (whether or not in the
ordinary course of business), that are material to the
Company and the Subsidiaries, taken as a whole, other than
those reflected in the Registration Statement or the
Prospectus (or any amendment
<PAGE>
-34-
or supplement thereto); and (v) all the representations and warranties
of the Company contained in this Agreement shall be true and correct on
and as of the date hereof and on and as of the Closing Date as if made
on and as of the Closing Date, and you shall have received a
certificate, dated the Closing Date and signed by the chief executive
officer and the chief financial officer of the Company (or such other
officers as are acceptable to you), to the effect set forth in this
Section 10(g) and in Section 10(h) hereof.
(h) The Company shall not have failed at or prior to
the Closing Date to have performed or complied with any of
its agreements herein contained and required to be
performed or complied with by it hereunder at or prior to
the Closing Date.
(i) All the representations and warranties of the
Selling Stockholder contained in this Agreement shall be
true and correct on and as of the date hereof and on and
as of the Closing Date as if made on and as of the Closing
Date, and you shall have received a certificate, dated the
Closing Date and signed by the Selling Stockholder to the
effect set forth in this Section 10(i) and in Section
10(j) hereof.
(j) The Selling Stockholder shall not have failed at
or prior to the Closing Date to have performed or complied
with any of its agreements herein contained and required
to be performed or complied with by them hereunder at or
prior to the Closing Date.
(k) Prior to the Closing Date the Shares of Common
Stock which the Company agrees to sell pursuant to this
Agreement shall have been listed, subject to notice of
issuance, on the New York Stock Exchange.
(l) The Sellers shall have furnished or caused to be
furnished to you such further certificates and documents
as you shall have requested.
All such opinions, certificates, letters and other
documents will be in compliance with the provisions hereof only
if they are satisfactory in form and substance to you and your
counsel.
Any certificate or document signed by any officer of
the Company or the Selling Stockholder and delivered to you, as
<PAGE>
-35-
Representatives of the Underwriters, or to counsel for the
Underwriters, shall be deemed a representation and warranty by
the Company or the Selling Stockholder, as the case may be, to
each Underwriter as to the statements made therein.
The several obligations of the Underwriters to
purchase Additional Shares hereunder are subject to the
satisfaction on and as of any Option Closing Date of the
conditions set forth in this Section 10, except that, if any
Option Closing Date is other than the Closing Date, the
certificates, opinions and letters referred to in paragraphs
(c) through (i) shall be dated the Option Closing Date in
question and the opinions called for by paragraphs (c), (d) and
(e) shall be revised to reflect the sale of Additional Shares.
11. EXPENSES. The Company agrees to pay the
following costs and expenses and all other costs and expenses
incident to the performance by them of their obligations
hereunder: (i) the preparation, printing or reproduction, and
filing with the Commission of the registration statement
(including financial statements and exhibits thereto), each
Prepricing Prospectus, the Prospectus, and each amendment or
supplement to any of them; (ii) the printing (or reproduction)
and delivery (including postage, air freight charges and
charges for counting and packaging) of such copies of the
registration statement, each Prepricing Prospectus, the
Prospectus, the Incorporated Documents, and all amendments or
supplements to any of them, as may be reasonably requested for
use in connection with the offering and sale of the Shares;
(iii) the preparation, printing, authentication, issuance and
delivery of certificates for the Shares, including any stamp
taxes in connection with the original issuance and sale of the
Shares; (iv) the printing (or reproduction) and delivery of
this Agreement, the preliminary and supplemental Blue Sky
Memoranda and all other agreements or documents printed (or
reproduced) and delivered in connection with the offering of
the Shares; (v) the listing of the Shares on the New York Stock
Exchange; (vi) notice of the offer and sale of the Shares under
the securities or Blue Sky laws of the several states as
provided in Section 5(j) hereof (including the reasonable fees,
expenses and disbursements of counsel for the Underwriters
relating to the preparation, printing or reproduction, and
delivery of the preliminary and supplemental Blue Sky Memoranda
and such notice filings); (vii) the filing fees and the fees
and expenses of counsel for the Underwriters in connection with
any filings required to be made with the National Association
of Securities Dealers, Inc.; (viii) the transportation and
other expenses incurred by or on behalf of Company
representatives in connection with presenta-
<PAGE>
-36-
tions to prospective purchasers of the Shares; and (ix) the fees and expenses of
the Company's accountants and the fees and expenses of counsel (including
local and special counsel) for the Company and the Selling Stockholder. It
is understood, however, that, except as provided in this Section, Section
5(j) and Section 9 hereof, (x) the Underwriters shall pay all of their own
costs and expenses, including the fees of their counsel, transfer tax on
resale of any of the Shares by them and any "tombstone" advertising expense
incurred by them in connection with the offering of the Shares and (y) the
Selling Stockholder shall pay all the fees and expenses of its counsel.
The provisions of this Section 11 shall not affect, as between the
Sellers, any agreement between them regarding allocation of expenses to be
paid by them hereunder.
12. EFFECTIVE DATE OF AGREEMENT. This Agreement shall become
effective: (i) upon the execution and delivery hereof by the parties hereto;
or (ii) if, at the time this Agreement is executed and delivered, it is
necessary for the registration statement or a post-effective amendment
thereto to be declared effective before the offering of the Shares may
commence, when notification of the effectiveness of the registration
statement or such post-effective amendment has been released by the
Commission. Until such time as this Agreement shall have become effective, it
may be terminated by the Company, by notifying you, or by you, as
Representatives of the several Underwriters, by notifying the Company and the
Selling Stockholder.
If any one or more of the Underwriters shall fail or refuse to
purchase Shares which it or they are obligated to purchase hereunder on the
Closing Date, and the aggregate number of Shares which such defaulting
Underwriter or Underwriters are obligated but fail or refuse to purchase is
not more than one-tenth of the aggregate number of Shares which the
Underwriters are obligated to purchase on the Closing Date, each
non-defaulting Underwriter shall be obligated, severally, in the proportion
which the number of Firm Shares set forth opposite its name in Schedule I
hereto bears to the aggregate number of Firm Shares set forth opposite the
names of all non-defaulting Underwriters or in such other proportion as you
may specify in accordance with Section 20 of the Master Agreement Among
Underwriters of Smith Barney Inc., to purchase the Shares which such
defaulting Underwriter or Underwriters are obligated, but fail or refuse, to
purchase. If any one or more of the Underwriters shall fail or refuse to
purchase Shares which it or they are obligated to purchase on the Closing
Date
<PAGE>
-37-
and the aggregate number of Shares with respect to which such default occurs
is more than one-tenth of the aggregate number of Shares which the
Underwriters are obligated to purchase on the Closing Date and arrangements
satisfactory to you, the Selling Stockholder and the Company for the purchase
of such Shares by one or more non-defaulting Underwriters or other party or
parties approved by you, the Selling Stockholder and the Company are not made
within 36 hours after such default, this Agreement will terminate without
liability on the part of any non-defaulting Underwriter, the Selling
Stockholder or the Company. In any such case which does not result in
termination of this Agreement, either you the Selling Shareholder or the
Company shall have the right to postpone the Closing Date, but in no event
for longer than seven days, in order that the required changes, if any, in
the Registration Statement and the Prospectus or any other documents or
arrangements may be effected. Any action taken under this paragraph shall
not relieve any defaulting Underwriter from liability in respect of any such
default of any such Underwriter under this Agreement. The term "Underwriter"
as used in this Agreement includes, for all purposes of this Agreement, any
party not listed in Schedule I hereto who, with your approval and the
approval of the Company and the Selling Stockholder, purchases Shares which
a defaulting Underwriter is obligated, but fails or refuses, to purchase.
Any notice under this Section 12 may be given by telegram, telecopy or
telephone but shall be subsequently confirmed by letter.
13. TERMINATION OF AGREEMENT. This Agreement shall be subject to
termination in your absolute discretion, without liability on the part of any
Underwriter to the Company or the Selling Stockholder, by notice to the
Company, if prior to the Closing Date or any Option Closing Date (if
different from the Closing Date and then only as to the Additional Shares),
as the case may be, (i) trading in securities generally on the New York Stock
Exchange, the American Stock Exchange or the Nasdaq National Market shall
have been suspended or materially limited, (ii) a general moratorium on
commercial banking activities in New York or Kansas shall have been declared
by either federal or state authorities, or (iii) there shall have occurred
any outbreak or escalation of hostilities or other international or domestic
calamity, crisis or change in political, financial or economic conditions,
the effect of which on the financial markets of the United States is such as
to make it, in your judgment, impracticable or inadvisable to commence or
continue the offering of the Shares at the offering price to
<PAGE>
-38-
the public set forth on the cover page of the Prospectus or to enforce
contracts for the resale of the Shares by the Underwriters. Notice of such
termination may be given to the Company by telegram, telecopy or telephone
and shall be subsequently confirmed by letter.
14. INFORMATION FURNISHED BY THE UNDERWRITERS. The
statements set forth in the last paragraph on the cover page,
the stabilization legend on the inside cover page, and the
statements in the first, third and seventh paragraphs under the
caption "Underwriting" in any Prepricing Prospectus and in the
Prospectus, constitute the only information furnished by or on
behalf of the Underwriters through you as such information is
referred to in Sections 7(b) and 9 hereof.
15. MISCELLANEOUS. Except as otherwise provided in Sections 5, 12
and 13 hereof, notice given pursuant to any provision of this Agreement shall
be in writing and shall be delivered (i) if to the Company, at the office of
the Company at 400 South Fourth Street, Atchison, Kansas 66002-0188,
Attention: President; or (ii) if to the Selling Stockholder, at the office of
the Selling Stockholder at One Exeter Plaza, 699 Boylston Street, Boston,
Massachusetts 02116, Attention: Paul C. Craig, or (iii) if to you, as
Representatives of the several Underwriters, care of Smith Barney Inc., 388
Greenwich Street, New York, New York 10013, Attention: Manager, Investment
Banking Division.
This Agreement has been and is made solely for the benefit of the
several Underwriters, the Selling Stockholder, the Company, its directors and
officers, and the other controlling persons referred to in Section 9 hereof
and their respective successors and assigns, to the extent provided herein,
and no other person shall acquire or have any right under or by virtue of
this Agreement. Neither the term "successor" nor the term "successors and
assigns" as used in this Agreement shall include a purchaser from any
Underwriter of any of the Shares in his status as such purchaser.
16. APPLICABLE LAW; COUNTERPARTS. This Agreement shall be governed
by and construed in accordance with the laws of the State of New York
applicable to contracts made and to be performed within the State of New
York.
This Agreement may be signed in various counterparts
which together constitute one and the same instrument. If
signed in counterparts, this Agreement shall not become
effec-
<PAGE>
-39-
tive unless at least one counterpart hereof shall have been executed and
delivered on behalf of each party hereto.
<PAGE>
-40-
Please confirm that the foregoing correctly sets forth the agreement
among the Company, the Selling Stockholder and the several Underwriters.
Very truly yours,
ATCHISON CASTING CORPORATION
By:
---------------------------------
Name: Hugh H. Aiken
Title: President and Chief
Executive Officer
RIVERSIDE FUND I, L.P.
By: RPI Limited Partnership I,
its managing General Partner
By:
---------------------------------
Name: Paul C. Craig
Title: General Partner
<PAGE>
Confirmed as of the date first
above mentioned on behalf of
themselves and the other several
Underwriters named in Schedule I
hereto.
SMITH BARNEY INC.
GEORGE K. BAUM & COMPANY
As Representatives of the
Several Underwriters
By SMITH BARNEY INC.
By:
---------------------------------
Managing Director
<PAGE>
SCHEDULE I
ATCHISON CASTING CORPORATION
Number of
Underwriter Firm Shares
- ----------- -----------
Smith Barney Inc.....................
George K. Baum & Company.............
------------
Total.......... 3,800,000
------------
<PAGE>
SCHEDULE II
PERSONS TO EXECUTE LOCK-UP AGREEMENTS
Hugh H. Aiken
Charles T. Carroll
Edward J. Crowley
John R. Kujawa
Donald J. Marlborough
Kevin T. McDermed
Richard J. Sitarz
James Stott
David L. Belluck
Paul C. Craig
John O. Whitney
Ray H. Witt
<PAGE>
SCHEDULE III
SUBSIDIARIES
<TABLE>
<CAPTION>
JURISDICTION OF PERCENTAGE
NAME INCORPORATION OWNERSHIP
<S> <C> <C>
Amite Foundry and Machine, Inc. Louisiana 100%
Prospect Foundry, Inc. Minnesota Approximately 98.58%
of Class A Common Stock
(approximately 90.90% of
outstanding Common Stock)
Quaker Alloy, Inc. Pennsylvania Approximately 97.0%
of Class A Common Stock
(approximately 91.9% of
outstanding Common Stock)
Canadian Steel Foundries Ltd. Canada Approximately 98.0% of
Class A Common Stock
(approximately 92.2% of
outstanding Common Stock)
9012-0411 Quebec Inc. Canada Approximately 98.0% of
Class A Common Stock
(approximately 92.2% of
outstanding Common Stock)
177153 Canada Inc. Canada 100%
(a subsidiary of 9012-0411 Quebec Inc.)
3210863 Canada Inc. Canada 100%
Kramer International, Inc. Wisconsin 100%(a)
Empire Steel Castings, Inc. Pennsylvania 100%
La Grange Foundry Inc. Missouri 100%
The G&C Foundry Company Ohio Approximately 98.92% of
Class A Common Stock
(approximately 92.0% of
outstanding Common Stock)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
JURISDICTION OF PERCENTAGE
NAME INCORPORATION OWNERSHIP
<S> <C> <C>
Atchison Casting Foreign Sales Barbados 100%
Corporation
Los Angeles Die Casting Inc. California Approximately 95.4% of
Class A Common Stock
(approximately 90.65% of
outstanding Common Stock)
CASTCAN Steel Ltd. Canada 100%
Canada Alloy Castings, Ltd. Canada 100%
(a subsidiary of CASTCAN Steel Ltd.)
Pennsylvania Steel Foundry & Ma Pennsylvania 100%
chine Company
Jahn Foundry Corp. Massachusetts 100%
</TABLE>
(a) Except for certain statutory liabilities which may be
imposed by Section 180.0622(2)(b) of the Wisconsin Business
Corporation Law for unpaid employee wages.
<PAGE>
FIRST AMENDMENT TO CREDIT AGREEMENT
This First Amendment to Credit Agreement (the "AMENDMENT") dated as of
May 12, 1997 among Atchison Casting Corporation (the "BORROWER"), the Banks
party hereto, and Harris Trust and Saving Bank, as Agent;
W I T N E S S E T H:
WHEREAS, the Borrower, Banks and Harris Trust and Savings Bank, as Agent,
have heretofore executed and delivered a Credit Agreement dated as of May 24,
1996 (the "CREDIT AGREEMENT"); and
WHEREAS, the Borrower has requested that the Banks increase the aggregate
amount of the Commitments from $40,000,000 to $60,000,000, to add Mercantile
Bank (the "NEW BANK") as a Bank thereunder, and to make certain other changes to
the Credit Agreement;
WHEREAS, the parties hereto desire to amend the Credit Agreement as
provided herein;
NOW, THEREFORE, for good and valuable consideration the receipt of which is
hereby acknowledged, the parties hereto agree that the Credit Agreement shall be
and hereby is amended as follows:
1. Section 1.1 of the Credit Agreement is hereby amended in its entirety
and as so amended shall read as follows:
SECTION 1.1. (a) THE COMMITMENTS. Subject to the
terms and conditions hereof, each Bank, by its acceptance hereof,
severally agrees to make a loan or loans (individually a
"REVOLVING LOAN" and collectively "REVOLVING LOANS") to the
Borrower from time to time on a revolving basis up to the amount
of its commitment set forth on the applicable signature page
hereof or pursuant to Section 11.12 hereof (its "COMMITMENT" and,
cumulatively for all the Banks, the "COMMITMENTS"), subject to
any reductions thereof pursuant to the terms hereof, before the
Termination Date. The sum of the aggregate principal amount of
Revolving Loans, the aggregate undrawn face amount of Letters of
Credit (which, in the case of Letters of Credit payable in an
Alternative Currency, means the U.S. Dollar Equivalent thereof as
determined pursuant to Section 1.2(f) hereof) and the aggregate
unpaid Reimbursement Obligations at any time outstanding shall
not exceed the Commitments in effect at such time. Each
Borrowing of Revolving Loans shall be made ratably from the Banks
in proportion to their respective Percentages. As provided in
Section 1.5(a) hereof, the Borrower may elect that each Borrowing
of Revolving Loans be made available by means of either Domestic
Rate Loans or Eurodollar Loans, which Revolving Loans may be
repaid and the principal amount thereof reborrowed before the
Termination Date, subject to all the terms and conditions hereof.
<PAGE>
(b) TERM CREDIT CONVERSION. If the Borrower does not
receive at least $18,000,000 of net proceeds from its sale of
equity (net proceeds for such purposes to mean gross proceeds
less reasonable underwriting discounts and commissions and other
reasonable costs directly incurred and payable as a result
thereof) on or prior to December 31, 1997, then the Borrower
shall on December 31, 1997 convert $10,000,000 of the outstanding
Revolving Loans (or, if less than $10,000,000 in aggregate
principal amount of Revolving Loans are then outstanding, all
Revolving Loans then outstanding) to term loans (such conversion
of Revolving Loans to be made ratably as among the Banks in
accordance with their Commitments) such that each Bank shall be
deemed to have made a term loan to the Borrower (individually,
for each Bank, its "TERM LOAN" and collectively the "TERM LOANS")
in the amount of such Bank's pro rata share of the amount of
Revolving Loans so converted. Concurrently with such conversion
into Term Loans, (i) the proceeds of such Term Loan shall be
applied to reduce the outstanding principal amount of Revolving
Loans and (ii) the Commitments shall be reduced, in each case by
an amount equal to the amount of the Revolving Loans so
converted. Each Term Loan deemed made by a Bank shall be
evidenced by a Term Note of the Borrower (individually a "TERM
NOTE" and collectively the "TERM NOTES") payable to the order of
such Bank in the form (with appropriate insertions) attached
hereto as Exhibit F. Each Term Loan shall mature as to principal
in consecutive quarterly installments equal (except for the final
installment) to one twenty-eighth (1/28th) of the original
principal amount of such Term Loan, commencing on July 30, 1998
and continuing on the last of each and every calendar quarter
thereafter, with the final installment to be in the amount of all
principal not sooner paid and due on July 30, 2004. No amount
repaid or prepaid on any Term Loan may be borrowed again. As
provided in Section 1.5(a) hereof, the Borrower may elect that
each Borrowing of Term Loans be made available by means of either
Domestic Rate Loans or Eurodollar Loans.
2. Section 1.2(a) of the Credit Agreement is hereby amended by deleting
the amount "$15,000,000" appearing in the third line thereof and inserting in
its place the phrase "THE COMMITMENTS AS IN EFFECT FROM TIME TO TIME."
3. Section 1.10(a) of the Credit Agreement is hereby amended in its
entirety and as so amended shall read as follows:
(a) All Revolving Loans made to the Borrower by a Bank
shall be evidenced by a single promissory note of the Borrower
payable to the order of such Bank in the form of Exhibit A hereto
(each a "REVOLVING NOTE" and collectively the "REVOLVING NOTES").
<PAGE>
4. Section 2.1 of the Credit Agreement is hereby amended by inserting a
new subsection (c) immediately after subsection (b) as follows:
(c) TERM CREDIT CONVERSION FEE. On the date the Term
Loans are made, if any, the Borrower shall pay to the Agent for
the ratable account of the Banks in accordance with their
Percentages a fee of $75,000.
5. Section 2.3 of the Credit Agreement is hereby amended by (a) deleting
the word "SECOND" appearing in the second line thereof and inserting in its
place the word "THIRD" and (b) inserting at the end thereof the following: "THE
BORROWER MAY ONLY REQUEST TWO EXTENSIONS OF THE TERMINATION DATE PURSUANT TO
THIS SECTION 2.3."
6. Section 4.1 of the Credit Agreement is hereby amended by inserting the
following new definitions in proper alphabetical order:
"CONSOLIDATED EBITA" means, as applied to any Person for any
period, Net Income of such Person, plus all amounts deducted in
arriving at such Net Income in respect of (a) provisions for
taxes imposed on or measured by income or excess profit,
(b) Interest Expense, and (c) amortization of intangibles, all
consolidated in accordance with GAAP, after eliminating any
intercompany items.
"CONSOLIDATED TOTAL LIABILITIES" means, at any time the same
is to be determined, the aggregate of all indebtedness,
obligations, liabilities, reserves and any other items which
would be listed as a liability on a balance sheet of the Borrower
and its Subsidiaries determined on a consolidated basis in
accordance with GAAP but excluding reserves for deferred income
taxes.
"TANGIBLE STOCKHOLDERS' EQUITY" means Stockholders' Equity
minus the aggregate book value of all assets which would be
classified as intangible assets under GAAP.
7. The definitions of "CURRENT MATURITIES", "FIXED CHARGE COVERAGE
RATIO", "FIXED CHARGES", "LOANS", "NOTES", and "TOTAL DEBT" contained in
Section 4.1 of the Credit Agreement are each hereby amended in their entirety
and as so amended shall each read as follows:
"CURRENT MATURITIES" means, as applied to any Person as of any date of
determination, all payments in respect of Funded Debt of such Person and
any other debt for borrowed money of such Person which, as of its date of
issuance, was Funded Debt, that are required to be made within one year.
"FIXED CHARGE COVERAGE RATIO" means, as of any date, the number
obtained by dividing (a) Consolidated EBITA for the period of four
consecutive fiscal quarters of the Borrower ended on or most recently prior
to such date by (b) Consolidated Fixed Charges for such period of four
consecutive fiscal quarters.
<PAGE>
"FIXED CHARGES" means, as applied to any Person for any
period, the sum of (a) Interest Expense of such Person for such
period, PLUS (b) the aggregate amount of Current Maturities
required to be made by the Borrower and its Subsidiaries PLUS (c)
15% of the aggregate principal amount of Revolving Loans
outstanding on the last day of such period.
"LOANS" means and includes the Revolving Loans and the Term
Loans, as the context may require, and includes a Domestic Rate
Loan or Eurodollar Loan, each of which is a "type" of Loan
hereunder.
"NOTES" means and includes the Revolving Notes and the Term
Notes, as the context may require.
"TOTAL DEBT" means, as applied to any Person of any date of
determination, the sum of (i) Current Debt of such Person at such
date, (ii) Funded Debt of such Person at such date, (iii) Capital
Lease Obligations of such Person at such date, (iv) all
obligations of such Person contingent or otherwise, in respect of
letters of credit (but only to the extent the same does not
support another obligation of such Person which either is
included in Total Debt or consists of current accounts payable
incurred in the ordinary course of business) and (v) all
Guaranties by such Person of or with respect to obligations of
the character referred to in the definition of Debt.
8. The definition of "TOTAL CAPITALIZATION" contained in Section 4.1 of
the Credit Agreement is hereby amended by deleting the phrase "Consolidated
Funded Debt" appearing in clause (a) thereof and inserting in its place the
phrase "Consolidated Total Debt".
9. Section 7.15 of the Credit Agreement is hereby amended in its entirety
and as so amended shall read as follows:
SECTION 7.15. MAINTENANCE OF CERTAIN FINANCIAL CONDITIONS.
(a) CURRENT RATIO. The Borrower will not on any date
permit the Current Ratio to be less than 1.50.
(b) STOCKHOLDERS' EQUITY. The Borrower will not on
any date permit Stockholders' Equity to be less than the sum of
$70,000,000 PLUS 50% (or 0% in the case of a deficit) of
Consolidated Net Income for each fiscal year ending after
June 30, 1996 PLUS 85% of the proceeds (net of underwriting
discounts and commissions and other reasonable costs associated
therewith) from any sale of equity by the Borrower or any of its
Subsidiaries (other than sales of equity by any Subsidiary to the
Borrower or to a Wholly Owned Subsidiary.
(c) RATIO OF CONSOLIDATED TOTAL DEBT TO TOTAL
CAPITALIZATION. The Borrower will not on any date permit
Consolidated Total Debt to exceed 50% of Total Capitalization.
<PAGE>
(d) RATIO OF CONSOLIDATED TOTAL LIABILITIES TO
TANGIBLE STOCKHOLDERS' EQUITY. The Borrower will not on any date
permit Consolidated Total Liabilities to exceed 225% of Tangible
Stockholders' Equity.
(e) FIXED CHARGE COVERAGE RATIO. The Borrower will
not, as of the last day of any fiscal quarter of the Borrower,
permit the Fixed Charge Coverage Ratio to be less than 1.75.
10. Section 7.16 of the Credit Agreement is hereby amended in its entirety
and as so amended shall read as follows:
Section 7.16. [INTENTIONALLY OMITTED].
11. Section 7.18(d) of the Credit Agreement is hereby amended in its
entirety and as so amended shall read as follows:
(d) the Borrower and its Subsidiaries may make and own
Investments in any Subsidiary of the Borrower or in any Person
which simultaneously therewith becomes a Subsidiary provided that
such Person is engaged primarily in the foundry business or in
businesses reasonably related thereto and either (i) at the time
of such acquisition and after giving effect thereto the
Borrower's ratio of Consolidated Total Debt to Total
Capitalization does not exceed 40% (the "40% THRESHOLD") or
(ii) once the 40% Threshold has been exceeded in that fiscal
year, the total aggregate principal amount expended for all
acquisitions thereafter in such fiscal year does not exceed 25%
of the Stockholder's Equity of the Borrower as of the last day of
the immediately preceding fiscal year of the Borrower PLUS 25% of
the net proceeds (net proceeds for such purposes to mean gross
proceeds less reasonable underwriting discounts and commissions
and other reasonable costs directly incurred and payable as a
result thereof) received by the Borrower from the issuance of
additional equity during the fiscal year of the proposed
acquisition; and
12. A new Section 7.24 to the Credit Agreement is hereby added to the
Credit Agreement immediately after Section 7.23 as follows:
Section 7.24. INDEBTEDNESS. The Borrower shall not issue,
incur, assume, create or have outstanding any indebtedness for
borrowed money; PROVIDED, HOWEVER, that the forgoing shall not
restrict nor operate to prevent:
(a) the obligations of the Borrower owing to the Banks
hereunder; and
(b) the obligations of the Borrower under the Note
Agreement dated as of July 29, 1994 between the Borrower and the
purchasers identified therein in an aggregate principal amount
not to exceed $20,000,000.
<PAGE>
13. Section 11.11 of the Credit Agreement is hereby amended by inserting
immediately after the word "ASSIGNED" appearing in the thirteenth line thereof
the phrase ", AND PROVIDED, FURTHER, THAT NO SUCH CONSENT OF THE BORROWER SHALL
BE REQUIRED IF SUCH TRANSFER IS MADE TO AN AFFILIATE OF SUCH BANK."
14. The Commitment of each Bank is hereby amended in its entirety to be as
set forth below opposite such Bank's name:
Harris Trust and Savings Bank: $30,000,000
Commerce Bank: $15,000,000
Mercantile Bank: $15,000,000
15. Notwithstanding the provisions of Section 2.3 of the Credit Agreement,
the Borrower and Banks hereby agree that the Termination Date is hereby extended
to July 29, 2000.
16. Schedule 1 to Exhibit C to the Credit Agreement is hereby amended in
its entirety to read as set forth as Exhibit A to this Amendment.
17. A new EXHIBIT F is hereby added to the Credit Agreement immediately
following EXHIBIT E to the Credit Agreement in the form of EXHIBIT B to this
First Amendment.
18. Schedules 5.2 and 5.13 of the Credit Agreement are hereby amended in
their entirety to read as set forth as Schedules 5.2 and 5.13, respectively,
attached to this Amendment.
19. Upon satisfaction of the conditions precedent contained in Section 19
hereof and the effectiveness of this Amendment, the New Bank shall be a "BANK"
party to the Credit Agreement and shall be entitled to all rights, benefits and
privileges afforded a Bank thereunder and subject to the obligations of a Bank
thereunder to the extent of its Commitment. Concurrently therewith, the New
Bank shall fund its PRO RATA share of outstanding Loans to the Agent in
accordance with Section 1.5 of the Credit Agreement (which amount shall
thereafter be distributed to the other Banks originally making such Loans) so
that after giving effect thereto each Bank, including the New Bank, holds a PRO
RATA share of the outstanding Loans based on the amount of its respective
Commitment. The New Bank hereby acknowledges that it assumes and agrees to be
bound by the terms of the Intercreditor Agreement as if it were an original
signatory thereto. The New Bank specifies as its lending office for Domestic
Rate Loans and Eurodollar Loans, and its address for notices, the offices set
forth beneath its name on the signature page hereof.
20. The Borrower represents and warrants to each Bank and the Agent that
(a) each of the representations and warranties set forth in Section 5 of the
Credit Agreement is true and correct on and as of the date of this Amendment as
if made on and as of the date hereof and as if each reference therein to the
Credit Agreement referred to the Credit Agreement as
<PAGE>
amended hereby; (b) no Default and no Event of Default has occurred and is
continuing; and (c) without limiting the effect of the foregoing, the
Borrower's execution, delivery and performance of this Amendment have been
duly authorized, and this Amendment has been executed and delivered by a duly
authorized officer of the Borrower.
21. This Amendment shall become effective on May 14, 1997 upon the
satisfaction of all of the following conditions precedent:
(a) The Borrower, the Banks and the Agent shall have executed and
delivered this Amendment and each Guarantor shall have executed the consent
attached hereto;
(b) The Banks shall have received the written opinion of counsel to
the Borrower in form and substance acceptable to the Banks; and
(c) The Agent shall have received (i) for each Bank such Bank's duly
executed Term Note of the Borrower dated the date hereof and otherwise in
compliance with the terms of the Credit Agreement and (ii) for each Bank a
new Note in the amount of its Commitment as amended hereby.
This Amendment may be executed in any number of counterparts and by
different parties hereto on separate counterpart signature pages, each of which
when so executed shall be an original but all of which shall constitute one and
the same instrument. Except as specifically amended and modified hereby, all of
the terms and conditions of the Credit Agreement and the other Credit Documents
shall remain unchanged and in full force and effect. All references to the
Credit Agreement in any document shall be deemed to be references to the Credit
Agreement as amended hereby. All capitalized terms used herein without
definition shall have the same meaning herein as they have in the Credit
Agreement. This Amendment shall become effective upon execution by the parties
hereto. This Amendment shall be construed and governed by and in accordance
with the internal laws of the State of Illinois.
<PAGE>
Dated as of the date first above written.
ATCHISON CASTING CORPORATION
By /s/ Kevin T. McDermed
---------------------------------------------
Its Vice President and Treasurer
------------------------------------------
HARRIS TRUST AND SAVINGS BANK, in its individual
capacity as a Bank and as Agent
By /s/ Len E. Meyer
---------------------------------------------
Its Vice President
------------------------------------------
COMMERCE BANK, N.A.
By /s/ Jeffrey R. Gray
---------------------------------------------
Its Vice President
------------------------------------------
MERCANTILE BANK
By /s/ Roger A. Lumley
---------------------------------------------
Its Senior Vice President
------------------------------------------
Address:
1101 Walnut Street
Kansas City, Missouri 64106
Attn: Roger Lumley
Telecopy: (816) 871-2226
Telephone: (816) 871-2281
Lending Offices:
Domestic Rate Loans:
1101 Walnut Street
Kansas City, Missouri 64106
Eurodollar Loans:
1101 Walnut Street
Kansas City, Missouri 64106
<PAGE>
EXECUTION COPY
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement"), made as of the 23rd day of
February, 1996, is entered into by and between The G & C Foundry Company, an
Ohio corporation with its principal place of business at 2806 West Monroe
Street, Sandusky, Ohio 44870 (the "Company"), and Charles T. Carroll, 411
46th Street, Sandusky, Ohio 44870 (the "Employee").
In consideration of the mutual covenants and promises contained herein,
and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged by the parties hereto, the parties agree as
follows:
1. TERM OF EMPLOYMENT.
The Company hereby agrees to employ the Employee, and the Employee
hereby accepts employment with the Company, upon the terms set forth in this
Agreement, for the period commencing on February 23, 1996 (the "Commencement
Date") and ending on February 23, 2001 (the "Employment Period"), unless
sooner terminated in accordance with the provisions of Section 4 of this
Agreement.
2. TITLE; CAPACITY.
The Employee shall serve as President of the Company or in such
other position, and shall have such other responsibilities, as the Company
may determine from time to time. The Employee shall be based at the
Company's headquarters in Sandusky, Ohio. The Employee shall be subject to
the supervision of, and shall have such authority as is delegated to him by,
the Board of Directors of the Company.
The Employee hereby accepts such employment and agrees to undertake
the duties and responsibilities inherent in such position and such other duties
and responsibilities as the Company shall from time to time reasonably assign to
him. The Employee agrees to devote his entire business time, attention and
energies to the business and interests of the Company during the Employment
Period; PROVIDED that Employee may belong to or participate in industry and
trade associations, community service organizations and any other
<PAGE>
not-for-profit organizations, so long as such activities do not unreasonably
interfere with Employee's duties under this Agreement. The Employee agrees to
abide by the rules, regulations, instructions, personnel practices and
policies of the Company and any changes therein which may be adopted from
time to time by the Company.
3. COMPENSATION AND BENEFITS.
3.1 SALARY. The Company shall pay the Employee, in bi-monthly
installments, an annual base salary of $105,000 commencing on the
Commencement Date. Such salary shall be subject to adjustment thereafter as
determined by the Board of Directors of the Company; provided, however, that
in no event shall such salary be less than $100,000 per one-year period.
3.2 BONUS. Employee shall be entitled to an annual bonus of
between 15% and 30% of Employee's annual base salary for that fiscal year
based on earnings before interest, taxes and amortization of intangibles
("EBITA") set by the Company's Board of Directors annually. If the EBITA
target for the fiscal year is reached, Employee shall receive 100% of his
annual bonus. A minimum level of EBITA shall also be set by the Company's
Board of Directors, below which no annual bonus will be paid. If EBITA is
above the minimum threshold and below the EBITA target, the bonus shall be
pro-rated based on the relation of actual EBITA to the EBITA target and
minimum threshold. The bonus for each fiscal year during the Employment
Period shall be calculated after the completion of the audit of the Company
and shall be paid by the Company to Employee no later than one month after
the completion of the audit of the Company; provided, however, that the bonus
otherwise payable with respect to Employee's period of employment ending June
30, 1996 shall be prorated for the period from inception of this Agreement
until the fiscal year-end. Each audit will be performed by the Company's
independent auditors and will be completed within 90 days of the Company's
fiscal year-end.
3.3 FRINGE BENEFITS. The Employee shall be entitled to participate
in all benefit programs (other than bonuses) that the Company establishes and
makes generally available to its employees, if any, to the extent that
Employee's position, tenure, salary, age, health and other qualifications
make him eligible to participate. In addition, the Company shall provide:
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<PAGE>
(a) Salary continuation during the time the Employee is unable to
perform the essential functions of his position, with or without a reasonable
accommodation, due to a mental or physical condition or illness, for up to
twenty-six (26) weeks; and provided, however, that such salary continuation
shall not affect the Company's right to terminate this Agreement or offer the
Employee another position, in accordance with Section 4 of this Agreement;
and
(b) The insurance policy for any permanent "disability" of Employee
(as defined by such policy), covering Employee immediately prior to the
execution of this Agreement.
3.4 REIMBURSEMENT OF EXPENSES. The Company shall reimburse the
Employee for all reasonable travel, entertainment and other expenses incurred
or paid by the Employee in connection with, or related to, the performance of
his duties, responsibilities or services under this Agreement, upon
presentation by the Employee of documentation, expense statements, vouchers
and/or such other supporting information as the Company may request.
3.5 VACATION. Employee shall be entitled to vacation each year in
accordance with the Company's vacation policy, during which time Employee's
compensation shall continue to be paid and accrue according to the provisions
of Section 3 of this Agreement.
4. EMPLOYMENT TERMINATION.
Unless otherwise prohibited by law, the employment of the Employee
by the Company pursuant to this Agreement shall terminate upon the occurrence
of any of the following:
4.1 At the election of any party, for cause; or
4.2 Immediately upon the death or disability of the Employee. As
used in this Agreement, the term "disability" shall mean the permanent inability
of the Employee, due to a permanent physical or mental illness or condition, to
perform the services contemplated under this Agreement. A determination of
"disability" shall be made by a physician satisfactory to the Company. A
physical or mental illness or condition that is not permanent shall not be cause
for termination; provided, HOWEVER, if the Employee is unable to perform the
services contemplated under this Agreement due to an illness or condition, the
Company, in its sole
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<PAGE>
discretion, may offer to the Employee another position (such position may be
a position with reduced status, compensation and benefits than the position
currently held by Employee) with the Company. Employee may either accept
such a position or terminate this Agreement in accordance with Section 5.2
hereof.
4.3 As used in this Agreement with respect to termination by the
Company, the term "cause" shall mean:
(a) the willful and unreasonable failure or refusal or the continued
and unreasonable failure or refusal (which need not be willful) by the
Employee to perform his duties hereunder or carry out reasonable
instructions of the Company not inconsistent with the provisions of this
Agreement (other than any such failure or refusal resulting from the
Employee's death or disability), which failure or refusal is not cured by
the Employee within 30 days after written notice thereof by the Company;
PROVIDED, that the parties do not intend mere personality differences or
trivial matters to constitute "cause" for purposes of this paragraph;
(b) the Employee's conviction of a felony by a court of competent
jurisdiction. At the Company's option, the Company may cease paying any
compensation or benefits under this Agreement rather than terminate this
Agreement pending any appeal;
(c) the theft, embezzlement or willful destruction or misappropriation
of property or funds of the Company by the Employee;
(d) the Employee engages in gross malfeasance; or
(e) the breach by the Employee of any provision of this Agreement,
which breach is not cured by the Employee within 30 days after written
notice thereof by the Company.
5. EFFECT OF TERMINATION.
5.1 TERMINATION FOR CAUSE. In the event the Employee's employment is
terminated for cause pursuant to Section 4.1, the Company shall pay to the
Employee the compensation and benefits otherwise payable to him under Section 3
through the last day of his actual employment by the Company; provided, however,
that any
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<PAGE>
such termination shall not waive any legal or equitable remedy that otherwise
may be available to the party that so terminates this Agreement against the
other party hereto.
5.2 TERMINATION FOR DEATH OR DISABILITY. If the Employee's
employment is terminated by death or because of disability pursuant to
Section 4.2, the Company shall pay to the estate of the Employee or to the
Employee, as the case may be, the compensation which would otherwise be
payable to the Employee up to the end of the month in which the termination
of his employment because of death or disability occurs.
5.3 TERMINATION OTHER THAN FOR CAUSE. In the event that the
Employee's employment is terminated by the Company other than for cause,
death or disability or the expiration of this Agreement, the Company shall
pay to the Employee the compensation and benefits otherwise payable to him
under Section 3 through the last day of his actual employment with the
Company plus the equivalent of six (6) months base salary as severance pay.
Such severance pay shall be payable on the first day of the month following
the date that Employee's employment is so terminated. Payments under this
section shall not be a bar to any other claims or rights the Employee may
have or pursue by virtue of this termination.
6. NON-COMPETE.
(a) For a period beginning on the Commencement Date and ending one
year after Employee's termination of employment with the Company or any
parent corporation of the Company or any majority-owned subsidiary of the
Company, the Employee will not directly or indirectly, in the State of Ohio.
(i) as an individual proprietor, partner, trustee,
stockholder, officer, employee, director, joint venturer, investor, lender,
or in any other capacity whatsoever (other than as the holder of not more
than five percent (5%) of the total outstanding stock of a publicly held
company), engage in the business of developing, producing, marketing or
selling products of the kind or type developed or being developed, produced,
marketed or sold by the Company while the Employee was employed by the
Company; or
(ii) recruit, solicit or induce, or attempt to induce, any
employee or employees of the Company to terminate their
-5-
<PAGE>
employment with, or otherwise cease their relationship with, the Company; or
(iii) solicit, divert or take away, or attempt to divert or to
take away, the business or patronage of any of the clients, customers or
accounts, or prospective clients, customers or accounts, of the Company which
were contacted, solicited or served by the Employee while employed by the
Company.
(iv) This Section 6 is not intended to, and will not, prevent
Employee from seeking other employment in the foundry industry as long as his
activities in such employment do not breach the restrictions of subsections
(i)-(iii) herein above.
(b) If any restriction set forth in this Section 6 is found by any
court of competent jurisdiction to be unenforceable because it extends for
too long a period of time or over too great a range of activities or in too
broad a geographic area, it shall be interpreted to extend only over the
maximum period of time, range of activities or geographic area as to which it
may be enforceable.
(c) The restrictions contained in this Section 6 are necessary for
the protection of the business and goodwill of the Company and are considered
by the Employee to be reasonable for such purpose. The Employee agrees that
any breach of this Section 6 will cause the Company substantial and
irrevocable damage and therefore, in the event of any such breach, in
addition to such other remedies which may be available, the Company shall
have the right to seek specific performance and injunctive relief, and if the
Company shall prevail in a legal proceeding to remedy a breach under this
Section 6, the Company shall be entitled to receive its reasonable attorney's
fees, expert witness fees, and out-of-pocket costs incurred in connection
with such proceeding, in addition to any other relief it may be granted.
7. PROPRIETARY INFORMATION AND DEVELOPMENTS.
7.1 PROPRIETARY INFORMATION.
(a) Employee agrees that all information and know-how, whether
or not in writing, of a private, secret or confidential nature concerning
the Company's business or financial affairs (collectively, "Proprietary
Information") is
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<PAGE>
and shall be the exclusive property of the Company. By way of illustration,
but not limitation, Proprietary Information may include inventions,
products, processes, methods, techniques, formulas, compositions, compounds,
projects, developments, plans, research data, clinical data, financial data,
personnel data, computer programs, and customer and supplier lists.
Employee will not disclose any Proprietary Information to others outside the
Company or use the same for any unauthorized purposes without written
approval by an officer of the Company, either during or after his
employment, unless and until such Proprietary Information has become public
knowledge without fault by the Employee.
(b) Employee agrees that all files, letters, memoranda, reports,
records, data, sketches, drawings, laboratory notebooks, program listings,
or other written, photographic, or other tangible material containing
Proprietary Information, whether created by the Employee or others, which
shall come into his custody or possession, shall be and are the exclusive
property of the Company to be used by the Employee only in the performance
of his duties for the Company. Employee agrees to return to the Company
all of the Company's property containing any Proprietary Information upon
the termination of Employee's employment with the Company for any reason.
(c) Employee agrees that his obligation not to disclose or use
information, know-how and records of the types set forth in Paragraphs (a)
and (b) above, also extends to such type of information, know-how, records
and tangible property of customers of the Company or suppliers to the
Company or other third parties who may have disclosed or entrusted the same
to the Company or to the Employee in the course of the Company's business.
7.2 DEVELOPMENTS.
(a) Employee will make full and prompt disclosure to the Company
of all inventions, improvements, discoveries, methods, developments,
software, and works of authorship, whether patentable or not, which are
created, made, conceived or reduced to practice by the Employee or under
his direction or jointly with others during his employment by the Company,
whether or not during normal working hours or on the premises
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of the Company (all of which are collectively referred to in this Agreement
as "Developments"). The Company shall be solely responsible for all
expenses associated with registration of its rights to the Developments,
except as otherwise required by law.
(b) Employee agrees to assign and does hereby assign to the
Company (or any person or entity designated by the Company) all his right,
title and interest in and to all Developments and all related patents,
patent applications, copyrights and copyright applications. However, this
Section 7.2(b) shall not apply to Developments which do not relate to the
present or planned business or research and development of the Company and
which are made and conceived by the Employee not during normal working
hours, not on the Company's premises and not using the Company's tools,
devices, equipment or Proprietary Information.
(c) Employee agrees to cooperate fully with the Company, both
during and after his employment with the Company, with respect to the
procurement, maintenance and enforcement of copyrights and patents (both in
the United States and foreign countries) relating to Developments.
Employee shall sign all papers, including, without limitation, copyright
applications, patent applications, declarations, oaths, formal assignments,
assignment of proprietary rights, and powers of attorney, which the Company
may deem necessary or desirable in order to protect its rights and
interests in any Development.
7.3 COMPANY'S RIGHT TO NOTIFY SUBSEQUENT EMPLOYERS. The Company may
do all permissible things, and take all permissible action, necessary or
advisable, in the Company's discretion, to protect its rights under this Section
7, including without limitation notifying any subsequent employer of the
Employee of the existence of (and furnishing to any such employer) the
provisions of this Agreement.
8. CHANGE OF CONTROL BENEFITS.
(a) In the event that a Change of Control (defined below) occurs
during the term of this Agreement, the Company shall pay to the Employee,
or to the Estate of the Employee, as the case may be, Six Hundred Thousand
Dollars ($600,000) in
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three equal annual payments of Two Hundred Thousand Dollars ($200,000)
commencing on the date 90 days after the consummation of the Change of
Control whether or not the Employee shall continue in the employment of
the Company after such Change of Control. Employee agrees that this
provision provides for payments pursuant to this section for the first
Change of Control to occur after the execution of this Agreement and not
for any subsequent Change of Control during the term of this Agreement.
In the event the Employee is not employed by the Company immediately prior
to the Change of Control, the payments pursuant to this Section 8 shall not
be due and owing.
(b) A "Change of Control" shall be deemed to have occurred at any of
the following times:
(i) Upon the acquisition (other than from the Company) by any
person, entity or "group," within the meaning of Section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934 (the "Exchange Act")
(excluding, for this purpose, the Company or its affiliates, or any
employee benefit plan of the Company or its affiliates which acquires
beneficial ownership of voting securities of the Company) of
beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of 50% or more of either the then outstanding
shares of common stock of the Company or the Combined Voting Power of
the Company's then outstanding voting securities. "Combined Voting
Power" means the combined voting power of the Company's then
outstanding voting securities generally entitled to vote in the
election of directors; or
(ii) Upon the approval by the shareholders of the Company of a
reorganization, merger, consolidation (in each case, with respect to
which persons who were the shareholders of the Company immediately
prior to such reorganization, merger or consolidation do not,
immediately thereafter, own more than 50% of the Combined Voting Power
of the reorganized, merged or consolidated company's then outstanding
voting securities).
(c) WITHHOLDING. Salary, bonus, payments made pursuant to this
Section 8 and any other items of income shall be
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subject to withholding as required by Federal, State, and local laws.
(d) SUCCESSOR TO COMPANY. The Company shall require any successor
pursuant to a Change of Control, expressly and unconditionally to assume
and agree to perform the Company's obligations under this Agreement, in the
same manner and to the same extent that the Company would be required to
perform if no such succession had taken place. In such event, the term
"Company," as used in this Agreement, shall mean the Company as hereinafter
defined and any successor pursuant to a Change of Control, which by reason
hereof becomes bound by the terms and provisions of this Agreement.
(e) It is specifically understood and agreed that payments in
accordance with this Section 8 shall be totally independent of any other
payments or benefits in this Agreement; that such payments shall be made
whether or not Employee continues in the employment of the Company once the
obligation arises; and that any such payments will not be considered or
calculated in determining any bonus or benefits which the Employee may
otherwise be entitled.
9. NOTICES. All notices required or permitted under this Agreement
shall be in writing and shall be deemed effective upon personal delivery or
upon deposit in the United States Post Office, by registered or certified
mail, postage prepaid, addressed to the other party at the address shown
above, or at such other address or addresses as either party shall designate
to the other in accordance with this Section 9.
10. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties and supersedes all prior agreements and understandings,
whether written or oral, relating to the subject matter of this Agreement.
11. AMENDMENT. This Agreement may be amended or modified only by a
written instrument executed by the Company and the Employee.
12. NO ASSIGNMENT. This Agreement is not assignable by the Employee.
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13. GOVERNING LAW. This Agreement shall be construed, interpreted and
enforced in accordance with the laws of the State of Ohio.
14. SEVERABILITY. In case any provision of this Agreement shall be
invalid, illegal or otherwise unenforceable, the validity, legality and
enforceability of the remaining provisions shall in no way be affected or
impaired thereby.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year set forth above.
THE G & C FOUNDRY COMPANY
By: /s/ Howard G. Carroll
------------------------------
Name: Howard G. Carroll
Title: Vice President-Sales
EMPLOYEE
/s/ Charles T. Carroll
------------------------------
Charles T. Carroll
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EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Amendment No. 2 to
Registration Statement No. 333-25157 of Atchison Casting Corporation of our
report dated August 16, 1996, included in the Annual Report on Form 10-K of
Atchison Casting Corporation for the year ended June 30, 1996, and to the use
of our report dated August 16, 1996 appearing in the Prospectus, which is
part of this Registration Statement. We also consent to the reference to us
under the heading "Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
Kansas City, Missouri
May 16, 1997
