<PAGE>
Filed Pursuant to Rule No. 424(b)(3)
Registration No. 333-16241
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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. 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. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED DECEMBER 12, 1997
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED DECEMBER 12, 1997)
$25,000,000
LOGO
ABC RAIL PRODUCTS CORPORATION
% SENIOR SUBORDINATED NOTES, SERIES B, DUE 2004
-----------
ABC Rail Products Corporation (the "Company") is offering (the "Offering")
$25,000,000 in principal amount of % Senior Subordinated Notes, Series B,
Due 2004 (the "Notes"). The Notes will rank pari passu in right of payment with
the Company's existing $50,000,000 principal amount of 9 1/8% Senior
Subordinated Notes Due 2004 (the "9 1/8% Notes"). The Notes will mature on
December 31, 2004 and will bear interest at the rate of per annum until
maturity or earlier redemption or repurchase. Interest on the Notes will be
payable monthly on the first day of each month, commencing February 1, 1998.
The Notes are not redeemable prior to December 31, 1999. However, the Notes are
redeemable on or after December 31, 1999 and through December 30, 2000 in whole
or in part at the option of the Company at 102% of the principal amount, plus
accrued and unpaid interest thereon. On or after December 31, 2000, the Notes
are redeemable in whole or in part at the option of the Company at 100% of the
principal amount, plus accrued and unpaid interest thereon. There is no sinking
fund. The Notes will be issued only in fully registered form and in
denominations of $1,000 and multiples thereof. The Notes will be unsecured
general obligations of the Company and will be subordinated to all Senior
Indebtedness (defined herein). See "Description of the Notes--Subordination."
The Company does not intend to list the Notes on any securities exchange or
include the Notes for quotation on any quotation system, and no active trading
market for the Notes is expected to develop. The Underwriters each have
indicated an intention to make a market in the Notes; however, no Underwriter
is obligated to make a market in the Notes and any market making may be
discontinued at any time.
PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY THE INFORMATION DISCUSSED
UNDER THE CAPTION "RISK FACTORS" AT PAGE S-10 OF THIS PROSPECTUS SUPPLEMENT AND
AT PAGE 3 OF THE 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 SUPPLEMENT.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PUBLIC UNDERWRITING PROCEEDS TO
OFFERING PRICE DISCOUNT(1) COMPANY(2)
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Note................................... 100% 3.5% 96.5%
- -----------------------------------------------------------------------------------
Total...................................... $25,000,000 $875,000 $24,125,000
- -----------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses of the Offering estimated at $250,000, which will
be paid by the Company.
-----------
The Notes are offered by the Underwriters, subject to prior sale, when, as
and if delivered to and accepted by the Underwriters and subject to their right
to reject orders in whole or in part. It is expected that delivery of the Notes
will be made on or about , 1997 through the facilities of The
Depository Trust Company or at the offices of Robert W. Baird & Co.
Incorporated, Milwaukee, Wisconsin.
ROBERT W. BAIRD & CO. PIPER JAFFRAY INC.
INCORPORATED
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS , 1997.
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE NOTES.
SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THE OFFERING,
AND MAY BID FOR, AND PURCHASE, THE NOTES IN THE OPEN MARKET. FOR A DESCRIPTION
OF THESE ACTIVITIES, SEE "UNDERWRITING."
S-2
<PAGE>
PROSPECTUS SUPPLEMENT SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and consolidated financial
statements, including the notes thereto, appearing elsewhere and incorporated
by reference in the Prospectus. The Company's fiscal year ends July 31; the
fiscal years ended July 31, 1995, 1996, 1997 and 1998 are referred to herein as
"fiscal 1995," "fiscal 1996," "fiscal 1997" and "fiscal 1998," respectively.
All references in this Prospectus Supplement to the "Company" include its
consolidated subsidiaries unless the context otherwise indicates.
THE COMPANY
The Company is a leader in the engineering, manufacturing and marketing of
replacement products and original equipment for the freight railroad and rail
transit industries. The Company's products include specialty trackwork, such as
rail crossings and switches and classification yard products and automation
systems; mechanical products, such as railcar, locomotive and idler wheels,
mounted wheel sets and metal brake shoes; and railway signal systems
engineering, installation and maintenance. The Company manufactures and
distributes products in the composition brake shoe market through a joint
venture. The Company has a substantial share of all of the specialty trackwork
and mechanical products markets it serves.
Specialty Trackwork. Based upon industry information and information gathered
from its customers, the Company believes that it has an approximately 50% share
of the North American freight specialty trackwork market, more than twice that
of its next largest competitor. The Company is the only vertically integrated
specialty trackwork manufacturer in North America. The Company designs,
engineers and manufactures a full line of specialty trackwork to customer
specifications. The Company's products include track switches or turnouts,
which divert a train from one track to another; crossings, which allow one set
of railroad tracks to cross through another; switch throws, which set a track
switch in order to divert a train from one track to another; and other
trackwork products, including guard rails and rail lubricators. Through its ABC
Deco Inc. ("Deco") subsidiary, the Company engineers and manufactures railroad
classification yard retarder control and automation systems. The Company also
manufactures cast manganese steel trackwork components that are sold as part of
a track switch assembly or as replacement parts. Typically, track switches
serve to divert trains between two tracks, but the Company also designs and
manufactures more complicated track switches serving three, four or even more
route diversions to meet switching requirements in areas of high density
traffic, such as urban freight yards, passenger terminals and high traffic
industrial and port areas. Freight railroad products are generally used for
replacement of existing track. Rail transit products are used for replacement
of existing track and new construction. For fiscal 1995, 1996 and 1997, sales
of specialty trackwork products accounted for approximately 57%, 49% and 49%,
respectively, of the Company's net sales.
Railcar, Locomotive and Idler Wheels and Wheel Sets. The Company manufactures
28, 33, 36 and 38-inch diameter wheels for freight railcars and 40-inch
diameter wheels for diesel locomotives. These wheels are made of cast steel.
Wheel flange width and bore size vary within each size classification and
between classifications. The railroad industry generally considers wheels as
"stock" items for their common sizes and variations. In addition to producing
railroad wheels, the Company has been the sole-source manufacturer of cast
idler wheels for Caterpillar Inc.'s high-drive tracked equipment since 1988.
Idler wheels are secondary wheels, not connected to the equipment's power
train, which guide the treads on such tracked construction equipment as
bulldozers and backhoes. In May 1995, the Company commenced its railcar wheel
mounting and assembly operations at five strategic locations. Wheel mounting,
which is primarily a reconditioning service business, involves the
remanufacturing, reworking and distributing of new and used freight car wheel
sets. Freight car wheel sets consist of the wheel, axle and bearing units that
are mounted to freight cars. The Company's reconditioning services include
inspection and analysis of existing wheel sets to determine necessary
replacement parts, remachining of axle units, replacement and/or remachining of
wheels, and replacement and/or reinstallation of bearings. The Company's wheel
customers are independent rolling stock operators and railroads, including
Class
S-3
<PAGE>
I railroads. For fiscal 1995, 1996 and 1997, sales of railcar, locomotive and
idler wheels and wheel sets accounted for approximately 36%, 46% and 43%,
respectively, of the Company's net sales.
Composition and Metal Brake Shoes. Composition and metal brake shoes exert
friction on the railcar wheel to generate braking power. As a result, the brake
shoe and the railcar wheel are worn simultaneously, although at different
rates. Worn brake shoes are replaced during routine maintenance or at
inspection sites located at various areas along a railroad. Composition brake
shoes are made from fibers, elastomers and various resins and provide a higher
level of friction for use with modern, low-pressure braking systems; metal
brake shoes are made from cast iron. Composition and metal brake shoes are not
interchangeable. For certain applications, the composition shoe is superior for
braking and reducing heat buildup. The Company participates in a 50/50 joint
venture with Anchor Brake Shoe Company. The purpose of the joint venture, which
the Company accounts for under the equity method, is to design, manufacture,
market and sell railcar composition brake shoes. For fiscal 1995, 1996 and
1997, sales of brake shoes accounted for approximately 7%, 5% and 5%,
respectively, of the Company's net sales.
Signal Systems. The Company, through its American Systems Technologies, Inc.
("AST") subsidiary, engineers, installs and maintains railway signal and safety
systems. AST's primary customers are shortline, regional, commuter and transit
railroads. In addition, AST is positioned to expand its customer base to the
Class I railroads, one of which recently signed a service contract with AST.
For fiscal 1997, AST accounted for approximately 3% of the Company's net sales.
Strategic Joint Ventures, Alliances and Acquisitions. The Company continually
explores opportunities to enhance its technology base and marketing and
distribution capabilities. Because the railroad supply industry is highly
fragmented, with many private companies manufacturing only single product lines
and railroads exiting the component manufacturing business, the Company
believes that a variety of acquisition opportunities exist. The Company seeks
acquisitions of complementary product lines, particularly those that offer
potential manufacturing or marketing synergies. In May 1996, the Company
entered into a joint venture agreement with China's Ministry of Railroads to
establish the Datong ABC Castings Company Ltd. The joint venture will
manufacture wheels in China primarily for the rapidly growing Chinese railway
markets. In December 1996, the Company acquired AST, as described above. On
March 17, 1997, the Company entered into a joint venture agreement with Damy
Cambios de Via, S.A. The joint venture will manufacture trackwork equipment and
supply services to the railroad industry in Mexico, and will be managed by the
Mexican partner. In addition, the Company acquired United Railway Systems
Group, Inc. ("URSG"), a leading independent provider of signal engineering
services to the railroad industry. The Company believes that operating
synergies will result from the opportunity to complement AST's signal
installation and maintenance service business with the engineering services
provided by URSG. The acquisition of URSG was effective at the beginning of the
second quarter of fiscal 1998.
General. The Company's business began in 1902 as the American Brake Shoe and
Foundry Company. In 1987, the Company was formed by management as a Delaware
corporation to acquire substantially all of the assets and certain related
liabilities of the Railroad Products Group of Abex Corporation which was then a
subsidiary of IC Industries, now Whitman Corporation. The principal executive
offices of the Company are located at 200 South Michigan Avenue, Suite 1300,
Chicago, Illinois 60604-2402 and its telephone number is (312) 322-0360.
S-4
<PAGE>
FORWARD-LOOKING STATEMENTS
This Prospectus Supplement and the Prospectus contain forward-looking
statements that are based on current expectations and are subject to a number
of risks and uncertainties. Actual results could differ materially from current
expectations due to a number of factors, including general economic conditions;
competitive factors and pricing pressures; shifts in market demand; the
performance and needs of industries served by the Company's businesses; actual
future costs of operating expenses such as rail and scrap steel, self-insurance
claims and employee wages and benefits; actual costs of continuing investments
in technology; the availability of capital to finance possible acquisitions and
to refinance debt; the ability of management to implement the Company's
strategy of acquisitions, rebuilding and process improvements; and the risks
discussed under the caption "Risk Factors" in this Prospectus Supplement and
the Prospectus and the risks described from time to time in the Company's
reports filed with the Securities and Exchange Commission.
S-5
<PAGE>
THE OFFERING
Notes Offered........... $25,000,000 principal amount of % Senior
Subordinated Notes, Series B, Due 2004. See
"Description of the Notes--General."
Maturity................ December 31, 2004.
Interest Payment Dates.. Monthly in arrears, commencing February 1, 1998 and
on the first day of each month thereafter to holders
of record of the Notes (the "Holders") as of the last
business day of the month immediately preceding such
payment date. The first interest payment will be
calculated from the date of delivery of the Notes
through January 31, 1998.
Sinking Fund............ None.
Redemption at Option of
the Company.............
The Notes are not redeemable prior to December 31,
1999. At the option of the Company, and upon 30 days'
written notice, the Notes may be redeemed at any time
on or after December 31, 1999 and through December
30, 2000 in whole or in part, at 102% of the
principal amount, plus accrued and unpaid interest,
if any, to the date of redemption. At the option of
the Company, and upon 30 days' written notice, the
Notes may be redeemed at any time on or after
December 31, 2000 in whole or in part, at 100% of the
principal amount, plus accrued and unpaid interest,
if any, to the date of redemption.
Change of Control....... Upon a Change of Control (defined herein), the
Company will be required to make an offer to purchase
all outstanding Notes at a cash purchase price equal
to 103% of the principal amount thereof, plus accrued
and unpaid interest, if any, if prior to December 31,
2000 or 101% of the principal amount thereof, plus
accrued and unpaid interest, if any, if on or after
December 31, 2000. Upon a Change of Control Default
Event (defined herein), the Company will be required
to redeem all outstanding Notes at a cash redemption
price equal to 103% of the principal amount thereof,
plus accrued and unpaid interest, if any, if prior to
December 31, 2000 or 101% of the principal amount
thereof, plus accrued and unpaid interest, if any, if
on or after December 31, 2000. Due to the highly
leveraged structure of the Company, the Company may
not have sufficient funds or financing to repurchase
the Notes and satisfy other obligations (including
secured obligations under the Credit Agreement
(defined herein)) which may be due upon the
occurrence of a Change of Control or Change of
Control Default Event. See "Risk Factors--High
Leverage," "--Change of Control" and "Description of
the Notes--Certain Covenants of the Company--
Repurchase or Redemption of Notes Upon Change of
Control."
Subordination........... The payment of the principal of and interest on the
Notes will be general unsecured obligations of the
Company, and will be subordinated in right of payment
to all existing and future Senior Indebtedness and
will be structurally subordinated to all existing and
future indebtedness and other liabilities of the
Company's subsidiaries. The Notes will rank pari
passu in right of payment with the 9 1/8% Notes and
with any future senior subordinated indebtedness of
the Company and will rank senior to all
S-6
<PAGE>
other subordinated indebtedness of the Company. Upon
consummation of the Offering, only the capital stock
of the Company will be junior to the Notes. As a
result of the subordination provisions, Holders may,
in the event of insolvency or similar event of the
Company, recover less ratably than holders of Senior
Indebtedness. On a pro forma basis, after giving
effect to the Offering and the application of the net
proceeds therefrom, the Company, excluding its
subsidiaries, would have had approximately $29.8
million of Senior Indebtedness outstanding and its
subsidiaries would have had approximately $7.1
million of indebtedness and other liabilities
outstanding as of October 31, 1997. See "Risk
Factors--Subordination of the Notes,"
"Capitalization," "Use of Proceeds," "Description of
the Notes--Subordination," and "--Certain Covenants
of the Company."
Covenants............... The Notes will contain certain covenants that, among
other things, will (i)
limit the payment of dividends or distributions to
holders of the Company's equity securities, (ii)
require the Company to maintain a minimum
Consolidated Net Worth (defined herein), (iii) limit
the Company's ability under certain circumstances to
incur additional Funded Debt (defined herein), (iv)
require the Company to maintain a minimum Operating
Coverage Ratio (defined herein) and (v) limit the
Company's ability to effect certain consolidations,
mergers and transfers of all or substantially all of
the Company's assets. All of these covenants,
however, are subject to a number of important
qualifications and exceptions. See "Description of
the Notes--Certain Covenants of the Company."
Form and Denominations.. The Notes will be issued only in fully registered
form in denominations of $1,000 and multiples
thereof.
Use of Proceeds;
Purpose of Offering.....
The net proceeds to be received by the Company from
the Offering will be used to repay bank indebtedness.
See "Use of Proceeds."
Trustee................. First Trust National Association (the "Trustee").
S-7
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
<TABLE>
<CAPTION>
AS OF AND FOR THE
AS OF AND FOR THE YEAR THREE MONTHS
ENDED JULY 31, ENDED OCTOBER 31,
-------------------------------- ------------------
1995(A) 1996 1997 1996 1997(B)
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND
RATIOS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............... $243,229 $240,664 $259,190 $ 55,911 $ 67,885
Gross profit............ 35,584 31,374 27,121 5,373 6,792
Operating income........ 22,573 15,929(c) 12,889 2,131 3,170
Interest expense
(excluding deferred
financing cost
amortization).......... 3,387 5,239 7,016 1,275 2,185
Settlement of
litigation............. -- 2,800(d) -- -- --
Income before
extraordinary items and
cumulative effect of
accounting change...... 11,685 8,448 3,601 479 705
Net income.............. 9,657(e) 8,448 3,291(f) 479 705
Income before
extraordinary items and
cumulative effect of
accounting change per
common share........... $ 1.46 $ 1.02 $ 0.41 $ 0.06 $ 0.08
Net income per common
share.................. $ 1.21(e) $ 1.02 $ 0.38(f) $ 0.06 $ 0.08
Weighted average common
shares outstanding..... 8,012 8,306 8,756 8,297 9,220
OPERATING DATA:
Depreciation and
amortization expense... $ 7,909 $ 11,022 $ 12,412 $ 2,725 $ 3,277
Capital expenditures.... 25,497 13,943 34,607 6,123 9,083
Consolidated EBITDA(g).. $ 30,858 $ 33,051 $ 26,451 $ 4,928 $ 6,770
Ratio of Consolidated
EBITDA to Consolidated
Interest Expense(h).... 7.87x 5.63x 3.37x 3.41x 2.86x
Ratio of earnings to
fixed charges(i)....... 5.60x 3.18x 1.80x 1.54x 1.50x
BALANCE SHEET DATA:
Total assets............ $157,264 $169,026 $230,607 $177,849 $242,534
Total debt (including
cash overdrafts)....... 63,544 60,292 101,989 67,312 111,533
Stockholders' equity.... $ 50,454 $ 64,396 $ 80,496 $ 66,490 $ 81,201
Total debt to
capitalization(j)...... 55.7% 48.4% 55.9% 50.3% 57.9%
</TABLE>
- --------
(a) In May 1995, the Company acquired its wheel mounting operations for
approximately $26.1 million.
(b) See "Recent Developments."
(c) Includes the effect of a $3.2 million special charge for the closure of a
manufacturing facility and the cost of certain re-engineering efforts.
(d) Represents judgment received in a lawsuit with Abex Corporation.
(e) Includes the after-tax effect of extraordinary non-cash charges of $0.8
million ($0.10 per common share) in connection with the write-off of
unamortized deferred financing costs related to the early extinguishment of
debt and the after-tax cumulative effect of an accounting change of $1.2
million ($0.15 per common share) for certain postemployment benefits which
were previously accounted for on a cash basis.
(f) Includes the after-tax effect of an extraordinary non-cash charge of $0.3
million ($0.03 per common share) in connection with the write-off of
unamortized deferred financing costs related to the early extinguishment of
debt.
(g) See "Description of the Notes--Certain Definitions" for a definition of
Consolidated EBITDA. Consolidated EBITDA is presented because it is
commonly used by certain investors and analysts to analyze and compare on
the basis of operating performance and to determine a company's ability to
service and incur debt, but is not a measure of financial performance under
generally accepted accounting principles and does not necessarily indicate
that cash flow will be sufficient to fund cash requirements. Accordingly,
Consolidated EBITDA should not be considered in isolation from or as a
substitute for net income, cash flows from operating activities or other
consolidated income or cash flow statement data prepared in accordance with
generally accepted accounting principles or as a measure of profitability
or liquidity.
(h) See "Description of the Notes--Certain Definitions" for a definition of
Consolidated Interest Expense. This ratio is not a measure of financial
performance under generally accepted accounting principles and should not
be considered in isolation from or as a substitute for other ratios or
other financial data prepared in accordance with generally accepted
accounting principles or as a measure of profitability or liquidity. The
computation of these ratios, and such ratios for the year ended July 31,
1997 and for the three months ended October 31, 1997 on a pro forma basis,
after giving effect to the Offering and the application of the net proceeds
therefrom, is shown on the next page.
(i) Earnings and fixed charges include the items shown on the next page. The
computation of these ratios, and such ratios for the year ended July 31,
1997 and for the three months ended October 31, 1997 on a pro forma basis,
after giving effect to the Offering at an assumed interest rate of 9.0% and
the application of the net proceeds therefrom, is shown on the next page.
(j) Capitalization includes total debt and stockholders' equity. On an adjusted
basis, after giving effect to the Offering and the application of the net
proceeds therefrom, total debt to capitalization as of October 31, 1997
would have been 58.1%. This adjusted data does not include shares of Common
Stock issued in connection with the Company's acquisition of URSG. See
"Recent Developments."
S-8
<PAGE>
<TABLE>
<CAPTION>
ACTUAL PRO FORMA(A)
----------------------------------------- -------------------
FOR THE
FOR THE THREE FOR THE THREE
FOR THE YEAR MONTHS ENDED YEAR MONTHS
ENDED JULY 31, OCTOBER 31, ENDED ENDED
------------------------- -------------- JULY 31, OCTOBER 31,
1995 1996 1997 1996 1997 1997 1997
------- ------- ------- ------ ------ -------- -----------
(IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
Income before
extraordinary items and
cumulative effect of
accounting change...... $11,685 $ 8,448 $3,601 $ 479 $ 705 $ 3,301 $ 630
Add back:
Provision for income
taxes................. 7,619 4,726 2,951 331 552 2,751 502
Interest expense
(excluding deferred
financing cost
amortization)......... 3,387 5,239 7,016 1,275 2,185 7,356 2,270
Interest portion of
rent expense.......... 533 633 833 171 180 833 180
Depreciation and
amortization
(excluding deferred
financing cost
amortization)......... 7,634 10,850 12,050 2,672 3,148 12,050 3,148
Special charge......... -- 3,155 -- -- -- -- --
------- ------- ------- ------ ------ ------- ------
Consolidated EBITDA.. 30,858 33,051 26,451 4,928 6,770 26,291 6,730
Consolidated Interest
Expense:
Interest expense
(excluding deferred
financing cost
amortization)......... 3,387 5,239 7,016 1,275 2,185 7,356 2,270
Interest portion of
rent expense.......... 533 633 833 171 180 833 180
------- ------- ------- ------ ------ ------- ------
Consolidated Interest
Expense............. $ 3,920 $ 5,872 $ 7,849 $1,446 $2,365 $ 8,189 $2,450
Ratio of Consolidated
EBITDA to Consolidated
Interest Expense....... 7.87x 5.63x 3.37x 3.41x 2.86x 3.21x 2.75x
Income before income
taxes, extraordinary
items and cumulative
effect of accounting
change................. $19,304 $13,174 $ 6,552 $ 810 $1,257 $ 6,052 $1,132
Add fixed charges:
Interest expense
(excluding deferred
financing cost
amortization)......... 3,387 5,239 7,016 1,275 2,185 7,356 2,270
Amortization of
deferred financing
costs................. 275 172 362 53 129 523 169
Interest portion of
rent expense.......... 533 633 833 171 180 833 180
------- ------- ------- ------ ------ ------- ------
Total fixed charges.. 4,195 6,044 8,211 1,499 2,494 8,712 2,619
------- ------- ------- ------ ------ ------- ------
Adjusted earnings.... $23,499 $19,218 $14,763 $2,309 $3,751 $14,764 $3,751
Ratio of earnings to
fixed charges.......... 5.60x 3.18x 1.80x 1.54x 1.50x 1.69x 1.43x
</TABLE>
- --------
(a) The pro forma data give effect to the Offering at an assumed interest rate
of 9.0% on the Notes and the application of the net proceeds therefrom, but
does not include results of operations of URSG (which the Company acquired
effective at the beginning of the second quarter of fiscal 1998). See
"Recent Developments."
S-9
<PAGE>
RISK FACTORS
Prospective investors should consider carefully the specific risk factors
set forth below, as well as the other information set forth or incorporated by
reference in this Prospectus Supplement, prior to purchasing the Notes offered
hereby.
HIGH LEVERAGE
The Company is highly leveraged. At October 31, 1997, the Company had
approximately $111.5 million of indebtedness. Following the consummation of
the Offering, the Company will remain highly leveraged and will have the
ability to incur significant additional indebtedness. Accordingly, (i) the
Company will have significant interest expense and principal repayment
obligations; (ii) the ability of the Company to satisfy its obligations
(including its debt service requirements relating to the Notes and the other
indebtedness that will remain outstanding following consummation of this
Offering) will depend on achieving satisfactory operating results, which will
be subject to prevailing economic conditions and financial, business and other
factors, many of which are beyond the control of the Company; (iii) the
outstanding indebtedness may limit the Company's ability to effect future
financings, to make capital expenditures or acquisitions and to take advantage
of other business opportunities that may arise, and may otherwise restrict
corporate activities; and (iv) a portion of the Company's indebtedness will be
subject to fluctuations in interest rates. See "Capitalization."
INABILITY TO REFINANCE OR REPAY INDEBTEDNESS AT MATURITY
Following the consummation of the Offering, the Company will have
substantial indebtedness. The Company will have the ability to incur, subject
to certain limitations, up to $90.0 million of indebtedness under the Second
Amended and Restated Loan and Security Agreement, dated as of January 31,
1997, as amended (the "Credit Agreement"), among the Company, Deco and AST, as
Borrowers, the financial institutions named therein, as Lenders, and American
National Bank and Trust Company of Chicago, as Agent, which indebtedness will
mature in 2000. There can be no assurance that the Company will be able to
meet its debt service requirements from operating cash flow through 2004. In
addition, if the Company is unable to comply with the financial and operating
covenants under the Credit Agreement, the 9 1/8% Notes or the Notes, or
otherwise defaults under the Credit Agreement, the 9 1/8% Notes or the Notes,
it may need to refinance amounts borrowed thereunder prior to 2000, January
2004 or December 2004, respectively. The Company does not expect to be able to
repay the indebtedness maturing in 2000 through 2004 from operating cash
flows. Accordingly, the Company currently expects to refinance the
indebtedness represented by the Credit Agreement, the 9 1/8% Notes and the
Notes. The Company may determine that it is necessary to include an equity
offering as a component of any proposed refinancing. The Company's ability to
refinance this indebtedness, including its ability to issue equity, will be
dependent on its future operating results and cash flow from operations, which
are in turn dependent upon a number of factors, including prevailing economic
conditions and financial, business and other factors, many of which are beyond
the control of the Company. There can be no assurance that the Company will be
able to refinance its indebtedness under the Credit Agreement, the 9 1/8%
Notes and the Notes, if necessary, at maturity. For a discussion of the
possible consequences of an event of default under the Credit Agreement, see
"--Subordination of the Notes."
SOURCES OF PAYMENTS TO HOLDERS
No sinking fund will be created to repay the Notes upon maturity or earlier
redemption or repurchase. The principal source of funds for the Company's
payment of principal and interest on the Notes will be cash generated from
operations or refinancing of the Notes upon their maturity or earlier
redemption or repurchase.
LIMITED COVENANTS
The covenants in the Indenture are limited and may not protect Holders in
the event of a material adverse change in the Company's financial condition or
results of operations. Therefore, neither the covenants nor the other
provisions of the Indenture should be a significant factor in evaluating
whether the Company will be able to comply with its obligations with respect
to the Notes. See "Description of the Notes--Certain Covenants of the
Company."
S-10
<PAGE>
SUBORDINATION OF THE NOTES
The payment of the principal of and interest on the Notes will be general
unsecured obligations of the Company, will be subordinated in right of payment
to all existing and future Senior Indebtedness of the Company and will be
structurally subordinated to all existing and future indebtedness and other
liabilities of the Company's subsidiaries. The Notes will rank pari passu with
the 9 1/8% Notes and with any future senior subordinated indebtedness of the
Company and will rank senior to all other subordinated indebtedness of the
Company. Upon consummation of the Offering, only the capital stock of the
Company will be junior to the Notes. As a result of the subordination
provisions, Holders may, in the event of insolvency or similar event of the
Company, recover less ratably than holders of Senior Indebtedness. In
addition, under certain circumstances, no payments may be made with respect to
the principal of or interest on the Notes if there exists (and has not been
waived) a non-payment default or certain other defaults with respect to the
Credit Agreement or other Senior Indebtedness. See "Description of the Notes--
Subordination."
ABSENCE OF A MARKET FOR THE NOTES
The Notes will likely have no active trading market, and the Company does
not intend to list the Notes on any securities exchange or have them included
for quotation on any quotation system. Although the Underwriters have
indicated an intention to make a market in the Notes, no Underwriter is
obligated to make such a market and any market making may be discontinued at
any time at the sole discretion of such Underwriters. If the Notes are traded
after their original issuance, they may trade at a discount to their principal
amount. Without an active market, it may be difficult to sell the Notes.
CHANGE OF CONTROL
In the event of a Change of Control, the Company is required promptly to
make an offer to repurchase all outstanding Notes at a purchase price in cash
in an amount equal to 103% of the principal amount thereof, plus accrued and
unpaid interest, if any, if prior to December 31, 2000 or 101% of the
principal amount thereof, plus accrued and unpaid interest, if any, if on or
after December 31, 2000. In the event of a Change of Control Default Event,
the Company is required to redeem all outstanding Notes at a redemption price
in cash in an amount equal to 103% of the principal amount thereof, plus
accrued and unpaid interest, if any, if prior to December 31, 2000 or 101% of
the principal amount thereof, plus accrued and unpaid interest, if any, if on
or after December 31, 2000.
Due to the highly leveraged structure of the Company, the Company may be
unable to repurchase or redeem the Notes upon the occurrence of a Change of
Control or a Change of Control Default Event. In addition, any such Change of
Control or Change of Control Default Event would constitute an event of
default under the Credit Agreement with the result that the lenders could
declare the loans under the Credit Agreement to be immediately due and
payable. In such events, the holders of all such obligations could seek to
pursue various contractual and legal remedies against the Company. If the
Company were unable to pay all amounts that would become due in respect of all
such obligations in such circumstance, it could result in the liquidation,
reorganization, dissolution or other winding-up of the Company or any of its
subsidiaries, or an assignment for the benefit of its creditors or a
marshaling of the Company's assets and liabilities or the assets and
liabilities of any of the Company's subsidiaries. The assets of the Company
may be insufficient to pay the amounts due under the Credit Agreement and the
Notes in such event. See "Description of the Notes--Subordination" and "--
Certain Covenants of the Company." For a description of the Company's ability
to incur additional indebtedness, see "Description of the Notes--Certain
Covenants of the Company--Limitation on Additional Indebtedness."
INDUSTRY CYCLICALITY
Demand for railroad products generally fluctuates in line with overall
economic conditions. In economic downturns, railroads may defer certain
expenditures in order to conserve cash in the short term. Also, reductions in
freight traffic due to economic downturns or other factors may reduce demand
for the Company's replacement products by reducing wear. In economic upturns,
railroads, particularly Class I railroads, experience heavier
S-11
<PAGE>
traffic demands that can cause problems associated with congestion. The
operational problems related to congestion have an unpredictable impact on
railroad expenditures for new and replacement products, including those sold
by the Company. It is possible that during periods of peak usage, railroads
might defer certain expenditures due to management's need to address the
operational challenges caused by these conditions and due to possible
reductions in volume caused by congested conditions. Such uncertainties may be
exacerbated by certain other issues, such as the possibility of heightened
government regulation during periods of congestion and the internal challenges
of managing railroad operations as the Class I railroads continue to
consolidate.
COMPETITION
Although in North America there are only three other principal specialty
trackwork manufacturers and two other principal railroad wheel producers, the
markets served by the Company are competitive. The limited number of railroad
customers, their efforts to reduce costs and excess industry capacity in
certain of the Company's product lines historically have limited the Company's
ability to increase prices. Some competitors have greater financial resources
than the Company. Currently, no single company competes with the Company
across all of its product lines. However, there can be no assurance that
competition in one or more of its product lines will not reduce the Company's
profitability. Historically, the Company has experienced limited foreign
competition due to the specialized nature of many of its products, the
importance of the Association of American Railroads product approvals,
compliance with the American Railroad Engineering Association specifications
and the cost of shipping. However, there can be no assurance that foreign
competition will not increase in the future.
RELIANCE ON CERTAIN CUSTOMERS
The Company's principal specialty trackwork customers are the North American
Class I railroads, although the Company also sells specialty trackwork to a
number of regional and short-line railroads as well as rail transit systems.
The Company's wheel and wheel mounting customers include the Class I
railroads, regional and short-line railroads, railcar and locomotive
manufacturers and railroad service companies. The Company's metal brake shoe
customers include railroads, rail transit systems and manufacturers of railcar
and locomotive braking systems. The Company's largest customers are Burlington
Northern Santa Fe Corp. and Union Pacific Railroad Company, which accounted
for approximately 23% and 21%, respectively, of the Company's net sales for
fiscal 1997. No other customer accounted for more than 10% of fiscal 1997 net
sales. The Company's five largest customers accounted for approximately 58% of
the Company's net sales during fiscal 1997. A significant decrease in business
from any of these customers, or the loss of any major customer, could have a
material adverse effect on the Company.
UNEVEN TRACKWORK SHIPMENT PATTERNS; SEASONALITY
The peak season for installation of specialty trackwork extends from March
through October, when weather conditions are generally favorable for
installation, and, as a result, net sales of specialty trackwork have
historically been more concentrated in the period from January to June, a
period roughly corresponding to the second half of the Company's fiscal year.
In addition, a number of the Company's facilities close for regularly
scheduled maintenance in late summer and late December, which tends to reduce
operating results during the first half of the Company's fiscal year.
Consequently, the majority of the Company's net sales of specialty trackwork
have historically occurred in the second half of its fiscal year. In addition,
transit industry practice with respect to specialty trackwork generally
involves the periodic shipment of large quantities, which may be unevenly
distributed throughout the year. For fiscal 1997, sales of specialty trackwork
products accounted for approximately 49% of the Company's net sales.
DEPENDENCE ON CONTINUOUS IMPROVEMENT OF PRODUCTION TECHNOLOGIES
The ability of the Company to continue to meet customer specifications with
respect to performance, cost, quality, delivery time and service will depend,
in part, upon the Company's ability to remain technologically competitive with
its production processes. The Company's business may therefore require from
time to time significant additional capital or other resources to meet this
continuing challenge. In addition, improvements to production processes may
cause significant disruption to the normal manufacturing process flow. The
Company
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<PAGE>
is currently upgrading its foundry process at its Calera, Alabama railcar
wheel and idler wheel plant. The Company is also restructuring its trackwork
plants in the areas of manufacturing, engineering design and order processing
in Chicago Heights, Illinois; Pueblo, Colorado; Anderson, Indiana; and
Superior, Wisconsin to significantly cut lead times and reduce inventories.
The inability of the Company to continuously improve its production
technologies in order to remain competitive could have a material adverse
effect on the Company's business.
RISKS OF FOREIGN MANUFACTURING
The Company is subject to numerous risks inherent in foreign manufacturing,
including the following: fluctuations in currency exchange rates; economic and
political instability; restrictive actions by foreign governments; the laws
and policies of the United States affecting the importation of goods
(including duties, quotas and taxes); and trade and foreign tax laws.
LABOR RELATIONS
Labor unions represent approximately 65% of the Company's employees. The
Company believes that its labor relations are good. There can be no assurance,
however, that work stoppages will not occur in the future in connection with
contract negotiations or otherwise, or of the outcome of future contract
negotiations.
ENVIRONMENTAL COMPLIANCE
The Company is subject to a variety of environmental laws and regulations
governing discharges to air and water, the handling, storage and disposal of
hazardous or solid waste materials and the remediation of contamination
associated with releases of hazardous substances. Although the Company
believes it is in material compliance with all of the various regulations
applicable to its business, there can be no assurance that requirements will
not change in the future or that the Company will not incur significant costs
to comply with such requirements.
S-13
<PAGE>
RECENT DEVELOPMENTS
The Company has entered into an agreement to acquire certain patents and
other intellectual property and other rights that relate to rail hardening and
specialty trackwork hardening products from Permatrack Systems Inc. The
Company currently expects the transaction to close during the second quarter
of fiscal 1998; however, there can be no assurances that the conditions to
closing, which are usual and customary, will be met and that the transaction
will be consummated.
Effective at the beginning of the second quarter of fiscal 1998, the Company
acquired URSG, a leading independent provider of signal engineering services
to the railroad industry.
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the Notes in
the Offering (after deducting the underwriting discount and estimated offering
expenses payable by the Company) are estimated to be $23.9 million. The
Company will use the net proceeds to repay certain outstanding indebtedness
under the Credit Agreement. As of October 31, 1997, the Company had $42.6
million of indebtedness outstanding under the Credit Agreement. The weighted
average interest rate on such indebtedness was 8.2% per annum as of October
31, 1997. Future borrowings under the Credit Agreement will be used for
general corporate purposes, which may include acquiring new businesses or
making strategic investments in companies that complement the Company's
business lines and strategies. The Company has no understandings or agreements
with respect to any material acquisition. See "Description of Certain Other
Indebtedness--Credit Agreement."
RATIO OF EARNINGS TO FIXED CHARGES
Set forth below are the ratios of earnings to fixed charges (unaudited) for
the Company for the last five years:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
-------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C>
2.21x 4.05x 5.60x 3.18x 1.80x
</TABLE>
For the purpose of computing the ratios of earnings to fixed charges,
earnings have been calculated by adding fixed charges to income before income
taxes, cumulative effect of accounting change and extraordinary items. Fixed
charges represent interest expense, amortization of deferred financing costs
and the interest portion of rent expense.
S-14
<PAGE>
DESCRIPTION OF CERTAIN OTHER INDEBTEDNESS
CREDIT AGREEMENT
GENERAL
The Credit Agreement consists of a $90.0 million revolving credit line. At
October 31, 1997, the Company had $42.6 million of indebtedness outstanding
under the Credit Agreement and $15.3 million of remaining availability. On
August 8, 1997, the Credit Agreement was amended to, among other things, add
AST as a borrower. Concurrently with the consummation of the Offering, the
Credit Agreement will be amended to permit the Company to incur the
indebtedness evidenced by the Notes offered hereby.
INTEREST RATES
Interest on all amounts borrowed under the Credit Agreement generally is
payable monthly, in arrears, at one of the following rates at the option of
the Company: (i) base rate (as defined) plus 0.5% or (ii) LIBOR (as defined)
plus 2.0%.
COLLATERAL
The Company's obligations are secured by security interests in substantially
all of the assets of the Company except for certain excluded properties
securing purchase money financing provided by Creditanstalt Corporate Finance,
Inc., pursuant to a Loan and Letter of Credit Reimbursement Agreement dated as
of July 20, 1995. The Credit Agreement provides that upon the repayment of all
of the indebtedness and obligations for which any such excluded property is
collateral and the release by the holder of such indebtedness of all of its
liens on and security interests in such excluded property, such excluded
property will become additional collateral securing the Company's obligations
under the Credit Agreement.
CERTAIN FINANCIAL COVENANTS UNDER THE CREDIT AGREEMENT
Minimum Consolidated Net Worth. The Company must maintain consolidated net
worth (as defined) at the end of each of its fiscal quarters at an amount not
less than the sum of (i) $63.2 million, plus (ii) 50% of net income (as
defined) for each fiscal quarter ended after October 31, 1996 (or plus zero
for any such fiscal quarter if net income for such period is negative) plus
(iii) 85% of the fair market value (as defined) of net proceeds from the
issuance, sale or other transfer of any capital stock, options or warrants,
occurring after October 31, 1996.
Interest Coverage Ratio. The Company will not permit the interest coverage
ratio (defined as an amount equal to the consolidated ratio of EBITDA (as
defined) to interest expense (as defined) for the Company and certain of its
subsidiaries) for any period of four consecutive quarters to be less than 2.6
to 1.0.
Maximum Capital Expenditures. In any period of four consecutive fiscal
quarters, with certain exceptions (which include capital expenditures arising
under capitalized leases), the Company and its subsidiaries will not make
capital expenditures which in the aggregate are greater than the sum of (i)
$12.0 million, plus (ii) the amount by which availability for borrowing by the
Company under the Credit Agreement on the last day of such period is greater
than $10.0 million. The Company received a waiver of compliance with this
covenant for the fourth quarter of fiscal 1997 and the first quarter of fiscal
1998.
Limitation on Additional Indebtedness. The Company will not, and will not
permit any of its subsidiaries to, create, incur, assume, guarantee or be
liable with respect to any funded debt (as defined) if, immediately giving
effect to any such creation, incurrence, assumption or guarantee (including
the retirement of any existing indebtedness from the proceeds of such
additional funded debt), the aggregate amount of funded debt outstanding would
exceed 70% of consolidated capitalization (as defined).
S-15
<PAGE>
EVENTS OF DEFAULT
The Credit Agreement specifies a number of "events of default" including,
among others (i) the failure to make timely principal and interest payments;
(ii) the failure to comply with certain covenants and financial tests
contained in the Credit Agreement; (iii) the entry of judgment in excess of
$1.0 million with respect to the Company, which remains unsatisfied for 40
consecutive days and is not covered by the Company's insurance policy; and
(iv) the filing of a notice of lien, levy or assessment with respect to all or
a substantial part of the Company's assets by a governmental agency and is not
released within 30 days after notice. Upon the occurrence of an event of
default under the Credit Agreement, the lenders have the right to cease making
loans, to terminate the Credit Agreement and to declare all amounts
outstanding thereunder immediately due and payable. Because of Cross-
acceleration provisions that apply with respect to the Notes, an acceleration
of the indebtedness outstanding under the Credit Agreement could lead, subject
to certain conditions, to an acceleration of repayment of the Notes.
S-16
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
October 31, 1997 on an actual basis and as adjusted to give effect to the
Offering and the application of the estimated net proceeds therefrom to reduce
indebtedness as set forth under "Use of Proceeds." This information should be
read in conjunction with the Company's consolidated financial statements and
notes thereto incorporated by reference in this Prospectus Supplement.
<TABLE>
<CAPTION>
AS OF OCTOBER 31, 1997
-------------------------
AS ADJUSTED
ACTUAL FOR THE OFFERING
-------- ----------------
(IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)
<S> <C> <C>
Cash overdrafts...................................... $ 5,087 $ 5,087
======== ========
Current maturities of long-term debt................. $ 2,405 $ 2,405
======== ========
Long-term debt (excluding current maturities):
Credit Agreement................................... $ 42,620 $ 18,745
Term loans......................................... 8,135 8,135
Industrial revenue bonds and capital lease......... 3,286 3,286
9 1/8% Senior Subordinated Notes Due 2004.......... 50,000 50,000
% Senior Subordinated Notes, Series B, Due 2004. -- 25,000
-------- --------
Total long-term debt........................... 104,041 105,166
Stockholders' equity:
Preferred Stock, $1.00 par value, 1,000 shares
authorized, none issued or outstanding............ -- --
Common Stock, $0.01 par value, 25,000 shares
authorized, 8,954 shares issued and outstanding
(a)............................................... 90 90
Additional paid-in capital......................... 67,362 67,362
Retained earnings.................................. 13,749 13,749
-------- --------
Total stockholders' equity..................... 81,201 81,201
-------- --------
Total capitalization........................... $185,242 $186,367
======== ========
</TABLE>
- --------
(a) Does not include shares of Common Stock that may be issued upon the
exercise of outstanding stock options.
S-17
<PAGE>
DESCRIPTION OF THE NOTES
The following description of the terms of the Notes offered hereby (referred
to in the Prospectus as the "Offered Debt Securities") supplements the
description of the Debt Securities set forth in the Prospectus under the
heading "Description of the Debt Securities," to which description reference is
hereby made. Such descriptions of certain provisions of the Notes and the
Indenture do not purport to be complete and are qualified in their entirety by
reference to, all the provisions of the Notes and the Indenture, including the
definitions therein of certain terms (certain of which are summarized under "--
Certain Definitions"). Wherever particular provisions or defined terms of the
Indenture (defined below) are referred to, such provisions or defined terms are
incorporated herein by reference as part of the statements made herein. A form
of the Indenture, including a form of the Notes, is filed as an exhibit to the
Registration Statement of which this Prospectus Supplement is a part.
GENERAL
The Notes will be general unsecured obligations of the Company, will be
limited to $25 million aggregate principal amount and will mature on December
31, 2004. Interest on the Notes will be payable on the first day of each month,
commencing February 1, 1998 at the rate of interest stated on the cover page of
this Prospectus Supplement. The Regular Record Date shall be the last business
day of the month prior to the applicable Interest Payment Date. Interest is
payable in arrears for the period preceding each Interest Payment Date. The
first interest payment will be calculated from the date of delivery of the
Notes through January 31, 1998. The Notes will mature on December 31, 2004,
unless (i) repurchased earlier at the option of the Company, (ii) mandatorily
redeemed by the Company under certain circumstances or (iii) redeemed by the
Company at the request of the Holder under certain circumstances. See "--
Certain Covenants of the Company--Repurchase or Redemption of Notes Upon Change
of Control," "--Consolidation, Merger and Sale of Assets" and "Description of
the Debt Securities--Optional Redemption." Principal of and interest on the
Notes will be payable at the office maintained for such purposes, which
initially shall be the office of the Trustee in Chicago, Illinois. The
beneficial interests of the book-entry Notes will be transferable or
exchangeable without a service charge to the beneficial owner thereof,
provided, however, such transfer or exchange may be subject to brokerage
charges and the Company may require a payment by such beneficial owner to cover
taxes or other government charges. The Notes will initially be issued in book-
entry form only, through The Depository Trust Company ("DTC"), and, except as
described herein, the Notes will not be issuable in definitive certificate form
to any holder other than DTC or its nominees. See "--Book-Entry System."
The Notes will be issued under an Indenture dated as of January 15, 1997
between the Company and the Trustee, as supplemented by the First Supplemental
Indenture dated as of January 15, 1997 between the Company and the Trustee, and
certain terms of the Notes will be set forth in an Officer's Certificate
(collectively, the "Indenture").
The Notes will not be entitled to the benefit of any mandatory sinking fund
for the retirement of principal.
BOOK-ENTRY SYSTEM
The Notes will be issued pursuant to a book-entry system only, and upon their
issuance, the Notes will be represented by a single fully registered global
note ("Global Note"). Such Global Note will be deposited with, or on behalf of,
DTC, as depositary, and registered in the name of Cede & Co. as the nominee of
DTC. No investor will be entitled to receive a certificate representing such
person's interest in the Notes, except in the limited circumstances described
below. Unless and until it is exchanged in whole or in part for Notes in
certificate form, the Global Note may not be transferred except as a whole by
DTC to a nominee of DTC or by a nominee of DTC to another depositary.
DTC is a limited-purpose trust company organized under the Banking Law of the
State of New York, a banking organization within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code, and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Securities
Exchange Act of 1934,
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<PAGE>
as amended ("Exchange Act"). DTC was created to hold securities of its
participants ("Participants") and to facilitate the clearance and settlement
of transactions among its Participants in such securities through electronic
book-entry changes in accounts of the Participants, thereby eliminating the
need for physical movement of securities certificates. DTC's Participants
include securities brokers and dealers (including the Underwriters), banks,
trust companies, clearing corporations, and certain other organizations, some
of whom (and/or their representatives) own DTC. Indirect access to the book-
entry system is also available to others, such as banks, brokers, dealers and
trust companies, that clear through or maintain a custodial relationship with
a Participant, either directly or indirectly ("Indirect Participants").
DTC is the owner of the Notes for record purposes only and Cede & Co. is
treated as the sole registered owner for purposes of the Indenture. DTC, in
turn, recognizes only the Participants recorded on its book-entry register as
the owners for purposes of payments on the Notes or the distribution of
notices and other information. The actual purchasers of or investors in the
Notes have their beneficial ownership rights recorded on the books of the
Participant with which such beneficial owner has its account. Payments of
principal and interest are distributed by the Company solely to DTC. DTC will
then remit payments to Participants who in turn are responsible for the
distribution of such payments to the beneficial owners. The ownership
interests of beneficial owners are transferred on the books of the
Participants. Because DTC can only act on behalf of Participants, who in turn
act on behalf of Indirect Participants, if applicable, the ability of a
beneficial owner to pledge the Notes to persons or entities that do not
participate in the DTC system, or to otherwise act with respect to such Notes,
may be limited due to the lack of a physical certificate for such Notes. In
addition, the laws of some states may require that certain purchasers of
securities take physical delivery of securities in certificate form.
Accordingly, a beneficial owner's ability to own, transfer or pledge
beneficial interests in the Notes may be impaired.
So long as DTC, or Cede & Co. as its nominee, is the registered owner of a
Global Note (i.e., the Holder), DTC or its nominee will be considered the sole
Holder for all purposes under the Indenture. Except as provided below,
beneficial owners will not be entitled to have the Notes registered in their
names, will not receive or be entitled to receive physical delivery of the
Notes and will not be considered Holders under the Indenture. Accordingly,
each beneficial owner must rely on the procedures of DTC and the Participants
or the Indirect Participants through which such person owns its interest, to
exercise any rights under the Indenture. DTC has advised the Company that it
will take any action permitted to be taken by a Holder under the Indenture
only at the direction of one or more Participants to whose accounts with DTC
the Notes are credited. Additionally, DTC has advised the Company that, if any
action requires approval by Holders of a certain percentage of the Notes, DTC
will take such action only at the direction of and on behalf of Participants
credited with ownership of Notes in an aggregate amount that satisfies any
such percentage. Conveyance of notices and other communications by DTC to
Participants, by Participants to Indirect Participants and by Direct and
Indirect participants to beneficial owners will be generated by arrangements
among them, subject to any statutory or regulatory requirements as may be in
effect.
Payment of principal of, and interest on, Notes registered in the name of
DTC or its nominee will be made to DTC or its nominee, as the case may be, in
same day funds. Neither the Company, the Trustee nor any other agent of the
Company or the Trustee will have any responsibility or liability for any
aspect of the records relating to, or payments made on account of, beneficial
ownership interests or for supervising or reviewing any records relating to
such beneficial ownership interests. The Company expects that DTC, upon
receipt of any payment of principal or interest, will credit the accounts of
the Participants with payments in same day funds in amounts proportionate to
their respective interests in such Global Note as shown on the records of DTC
in accordance with the procedures of DTC. The Company also expects that
payments by Participants to beneficial owners will be governed by standing
customer instructions and customary practices and recognizes that such
payments will be the responsibility of such Participants.
If (i) DTC is at any time unwilling or unable to continue as depositary or
ceases to be a clearing agency registered under the Exchange Act and the
Company does not appoint a successor depositary, (ii) the Company determines
that the Notes shall no longer be represented by a Global Note, or (iii) the
Trustee is properly notified
S-19
<PAGE>
that an Event of Default has occurred and is continuing with respect to the
Notes, or any event which after notice or lapse of time, or both, would
constitute an Event of Default, the Global Note will be transferable or
exchangeable for Notes in certificate form of like tenor and of an equal
aggregate principal amount in denominations of $1,000 and integral multiples
thereof.
The information in this section concerning the DTC and DTC's book-entry
system has been obtained from sources that the Company believes to be reliable
but the Company takes no responsibility for the accuracy thereof.
SUBORDINATION
The payment of the principal of and interest on the Notes will be general
unsecured obligations of the Company, and will be subordinated in right of
payment to all existing and future Senior Indebtedness of the Company and will
be structurally subordinated to all existing and future indebtedness and other
liabilities of the Company's subsidiaries. The Notes will rank pari passu with
the 9 1/8% Notes and with any future senior subordinated indebtedness of the
Company and will rank senior to all other subordinated indebtedness of the
Company. Upon consummation of the Offering, only the capital stock of the
Company will be junior to the Notes. In addition, under certain circumstances,
no payments may be made generally for a period of 180 days with respect to the
principal of or interest on the Notes if there exists (and has not been
waived) a non-payment default or certain other defaults with respect to the
Credit Agreement or other Senior Indebtedness.
Upon any distribution to creditors of the Company in a liquidation or
dissolution of the Company or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Company or its property, an
assignment for the benefit of creditors or any marshaling of the Company's
assets and liabilities, the holders of Senior Indebtedness will be entitled to
receive payment in full of all obligations due in respect of such Senior
Indebtedness (including interest after the commencement of any such proceeding
at the rate specified in the documents relating to the applicable Senior
Indebtedness) before the Holders will be entitled to receive any payment with
respect to the Notes, and until all obligations with respect to Senior
Indebtedness are paid in full, any distribution to which Holders would be
entitled shall be made to the holders of Senior Indebtedness (except that
Holders may receive (i) securities that are subordinated at least to the same
extent as the Notes are to Senior Indebtedness and (ii) payments made from the
trust described in the Prospectus under the heading "Descriptions of the Debt
Securities--Defeasance and Covenant Defeasance").
As a result of the subordination provisions described above, in the event of
an insolvency or similar event of the Company, Holders may recover less
ratably than holders of Senior Indebtedness. On a pro forma basis, after
giving effect to the Offering and the application of the net proceeds
therefrom, the Company, excluding its subsidiaries, would have had
approximately $29.8 million of Senior Indebtedness outstanding and its
subsidiaries would have had approximately $7.1 million of indebtedness and
other liabilities outstanding as of October 31, 1997. The Indenture and the
Notes limit, subject to certain financial tests, the amount of additional
indebtedness that the Company can incur. See "--Certain Covenants of the
Company--Limitation on Additional Indebtedness," "--Maintenance of Operating
Coverage Ratio" and "--Limitations on Other Senior Subordinated Indebtedness."
OPTIONAL REDEMPTION
The Notes are not redeemable prior to December 31, 1999. At the option of
the Company, and upon 30 days' written notice, the Notes may be redeemed at
any time on or after December 31, 1999 and through December 30, 2000 in whole
or in part, at 102% of the principal amount, plus accrued and unpaid interest,
if any, to the date of redemption. At the option of the Company, and upon 30
days' written notice, the Notes may be redeemed at any time on or after
December 31, 2000 in whole or in part, at 100% of the principal amount, plus
accrued and unpaid interest, if any, to the date of redemption.
The Credit Agreement contains other provisions that may also limit the
Company's ability optionally to redeem the Notes. See "Description of Certain
Other Indebtedness--Credit Agreement."
S-20
<PAGE>
MANDATORY REDEMPTION
The Notes are not subject to mandatory redemption prior to maturity, except
as provided in "--Certain Covenants of the Company--Repurchase or Redemption of
Notes Upon a Change of Control" and "--Consolidation, Merger and Sale of
Assets."
CERTAIN COVENANTS OF THE COMPANY
GENERAL
The Indenture contains covenants that restrict the operations of the Company
and its subsidiaries. The covenants provide Holders with an opportunity to
accelerate redemption of the Notes after expiration of a grace period and
notice in the event of (i) payment of dividends or other distributions on the
Company's equity securities in excess of certain amounts, (ii) the failure of
the Company to maintain a minimum Consolidated Net Worth, (iii) the incurrence
of Funded Debt exceeding 75% of Consolidated Capitalization, (iv) the failure
of the Company to maintain an Operating Coverage Ratio of at least 2.4:1 and
(v) certain mergers, consolidations and sales of assets. The ability to
accelerate redemption of the Notes is intended to deter the Company from taking
certain actions that could be potentially disadvantageous to Holders and also
to allow Holders to seek redemption at a time when the Company's ability to
fulfill its obligations may be greater than when an actual default in payment
on the Notes occurs. Thus, the covenants are intended for the benefit of
Holders, but do not protect them in all events or from the risk that the
Company could default in payment on the Notes.
Because of the nature of covenants generally, and the limited nature of the
covenants in the Indenture, the covenants described below are unlikely to
provide to Holders the right to accelerate the Notes in the event of certain
material adverse changes in the financial condition or results of operations of
the Company or of its subsidiaries. Therefore, the financial condition and
results of operations of the Company and not the covenants and other provisions
of the Indenture should be the primary factor in an evaluation of whether the
Company will be able to satisfy its obligations with respect to the Notes.
Although the Indenture contains certain financial and other covenants
described below, such covenants otherwise offer no protection to Holders in the
event of highly leveraged transactions or other transactions that may adversely
affect Holders.
REPURCHASE OR REDEMPTION OF NOTES UPON CHANGE OF CONTROL
If a Change of Control occurs each Holder will have the right to require the
Company to repurchase such Holder's Notes in whole or in part in integral
multiples of $1,000, at a cash purchase price equal to 103% of the principal
amount thereof, plus accrued and unpaid interest, if any, if prior to December
31, 2000 or 101% of the principal amount thereof, plus accrued and unpaid
interest, if any, if on or after December 31, 2000. Such repurchase will be no
earlier than 30 days nor more than 60 days from the date the Company notifies
such Holders of the occurrence of a Change of Control. If a Change of Control
Default Event occurs, the Company will be required to redeem all outstanding
Notes, at a cash redemption price equal to 103% of the principal amount
thereof, plus accrued and unpaid interest, if any, if prior to December 31,
2000 or 101% of the principal amount thereof, plus accrued and unpaid interest,
if any, if on or after December 31, 2000. Such redemption will be no earlier
than 30 days nor more than 60 days from the date the Company notifies such
Holders of the occurrence of a Change of Control Default Event. There can be no
assurance that sufficient funds will be available at the time of any Change of
Control or Change of Control Default Event to make any required repurchases or
redemptions. The Company may only effect such repurchases or redemptions either
with the consent of the lenders under the Credit Agreement or by repaying
amounts owed to such lenders under the Credit Agreement. The failure to satisfy
either such condition would constitute a default with respect to the Notes. In
addition, the Company's ability to repurchase or redeem Notes following a
Change of Control or a Change of Control Default Event may be limited by the
terms of the existing Senior Indebtedness including, without limitation, the
subordination provisions described above under "--Subordination." Therefore, a
requirement that
S-21
<PAGE>
the Company repurchase or redeem the Notes could cause a default with respect
to the Notes even if the Change of Control or Change of Control Default Event
would not, due to the financial effect of such repurchase on the Company.
Failure of the Company to repurchase or redeem the Notes in the event of a
Change of Control or a Change of Control Default Event will create an Event of
Default with respect to the Notes regardless of whether such repurchase or
redemption is permitted by the subordination provisions.
Under the Indenture, the Company is obligated to give notice to Holders
within 30 days following a Change of Control specifying, among other things,
the purchase price, the purchase date, the place at which Notes shall be
presented and surrendered for purchase, that interest accrued to the purchase
date will be paid upon such presentation and surrender and that interest will
cease to accrue on Notes surrendered for purchase as of such purchase date.
For a Holder properly to put its Notes to the Company for purchase, the Holder
must give notice and present and surrender its Notes to the Company at the
place specified in the Company's aforementioned notice at least 15 days prior
to the purchase date. Any such tender by a Holder of Notes shall be
irrevocable.
Under the Indenture, the Company is obligated to give notice to Holders
within 30 days following a Change of Control Default Event specifying, among
other things, the redemption price, the redemption date, the place at which
Notes shall be presented and surrendered for redemption, that interest accrued
to the redemption date will be paid upon such presentation and surrender and
that interest will cease to accrue on Notes surrendered for redemption as of
such redemption date.
The Change of Control and Change of Control Default Event repurchase and
redemption features of the Notes may in certain circumstances make it more
difficult to effect a takeover of the Company and may discourage such a
takeover. Accordingly, the Change of Control and Change of Control Default
Event repurchase and redemption features of the Notes may make it more
difficult to effect the removal of the Company's incumbent management. The
Change of Control and Change of Control Default Event purchase features,
however, are not the result of management's knowledge of any specific effort
to accumulate the Company's stock or to obtain control of the Company by means
of a merger, tender offer, solicitation or otherwise, or part of a plan by
management to adopt a series of antitakeover provisions. Instead, the Change
of Control and Change of Control Default Event purchase features are a result
of negotiations between the Company and the Underwriters. Management has no
present intention to engage in a transaction involving a Change of Control,
although it is possible that the Company would decide to do so in the future.
Subject to the limitations discussed below, including the limitations on
incurrence of additional Indebtedness and the issuance of certain securities,
the Company could, in the future, enter into certain transactions, including
acquisitions, refinancings or other recapitalizations, that would not
constitute a Change of Control with respect to the Notes, but that could
increase the amount of Senior Indebtedness (or any other Indebtedness)
outstanding at such time or otherwise affect the Company's capital structure.
RESTRICTIONS ON DIVIDENDS, REDEMPTIONS AND OTHER PAYMENTS
The Indenture prohibits the payment of dividends and other distributions of
the Company's capital stock and the purchase of such capital stock (whether
through redemption or purchase), unless after giving effect thereto, the
aggregate amount expended for those purposes subsequent to October 31, 1996,
does not exceed the sum of (i) $13.2 million plus (ii) 50% of the aggregate
Consolidated Net Income for each fiscal year commencing subsequent to fiscal
1997, plus (iii) 100% of the aggregate net proceeds received by the Company on
account of any capital stock offering subsequent to January 1, 1998, plus (iv)
100% of the aggregate net proceeds received by the Company on account of any
disposition of property received by the Company from such sales, less (v) 100%
of the aggregate Consolidated Net Loss (as defined herein) for each fiscal
year commencing subsequent to fiscal 1997. Notwithstanding the foregoing, the
Company is not prohibited from (1) (a) issuing capital stock or (b) purchasing
its capital stock (whether through redemption or purchase) in connection with
the investment by the Company in another asset or business or (2) paying
dividends and making other distributions with respect to the Company's capital
stock pursuant to the Rights Agreement (defined in the Prospectus, see
"Description of
S-22
<PAGE>
Capital Stock--Common Stock, Rights and Series A Preferred Stock"), as amended
by Amendment Number One to the Rights Agreement, dated as of November 18,
1996, between the Company and LaSalle National Trust, N.A., as Rights Agent.
MINIMUM CONSOLIDATED NET WORTH
The Company will maintain Consolidated Net Worth at the end of each fiscal
quarter at an amount not less than the sum of (i) $56.6 million (85% of
Consolidated Net Worth as of October 31, 1996), plus (ii) 35% of Consolidated
Net Income for each fiscal quarter ending after October 31, 1996 plus (iii)
85% of the amount of the net proceeds from the sale of any of the Company's or
its subsidiaries' capital stock, options or warrants computed on a cumulative
basis. As of October 31, 1997, the Company's Consolidated Net Worth was $81.2
million; the covenant described above required the Company to maintain
Consolidated Net Worth at an amount not less than $67.9 million at October 31,
1997.
LIMITATION ON ADDITIONAL INDEBTEDNESS
The Company will not, and will not permit any of its subsidiaries to,
create, incur, assume, guarantee or be liable with respect to any Funded Debt
if, immediately after giving effect to any such creation, incurrence,
assumption or guarantee (including the retirement of any existing Indebtedness
from the proceeds of such additional Funded Debt), the aggregate amount of
Funded Debt outstanding would exceed 75% of Consolidated Capitalization.
MAINTENANCE OF OPERATING COVERAGE RATIO
The Company will maintain, at the end of each of its fiscal quarters, an
Operating Coverage Ratio with respect to the four consecutive fiscal quarters
then ended taken as a whole of at least 2.4:1.0.
LIMITATION ON OTHER SUBORDINATED INDEBTEDNESS
The Company will not, directly or indirectly, incur any Indebtedness that by
its terms (or by the terms of the agreement governing such Indebtedness) is
subordinate in right of payment to any other Indebtedness of the Company
unless such Indebtedness is also by its terms (or the terms of the agreement
governing such Indebtedness) made expressly either (i) pari passu in right of
payment with the Notes or (ii) subordinate in right of payment to the Notes in
the same manner and at least to the same extent as the Notes are subordinate
to Senior Indebtedness.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company may not consolidate with, or sell or convey all or substantially
all of its assets to, or merge with or into any other person or entity unless
(i) either the Company is the continuing corporation, or the successor is a
corporation organized and existing under the laws of the United States or a
state thereof and the successor corporation expressly assumes by an indenture
supplement the Company's obligations on the Notes and under the Indenture;
(ii) the Company or the successor corporation, as the case may be, is not
immediately after the merger or consolidation, or the sale or conveyance, in
default in the performance of any covenant or condition under the Indenture;
and (iii) after giving effect to the transaction, no Event of Default, and no
event that, after notice or lapse of time or both, would become an Event of
Default, shall have occurred or be continuing. See "Repurchase or Redemption
of the Notes Upon Change of Control."
EVENTS OF DEFAULT
In addition to the Events of Default described in the Prospectus under
"Description of the Debt Securities--Events of Default," the following events
will constitute Events of Default with respect to the Notes: (i) the entry by
a court having jurisdiction in the premises of a decree or order or decrees or
orders adjudging the Company or any of its subsidiaries liable for the payment
of money of at least in the aggregate $6.0 million, and the continuance of any
such decrees or orders unstayed, unbonded or otherwise uncontested and in
effect for a period
S-23
<PAGE>
of 90 consecutive days, and (ii) if because of an event of default as defined
in any mortgage, indenture, bond, debenture, note, or instrument under which
there may be issued, or by which there may be secured or evidenced, any
indebtedness of the Company or any of its subsidiaries for money borrowed,
whether such indebtedness now exists or shall hereafter be created, more than
$6.0 million (either individually or in the aggregate) (or its equivalent in
any other currency) in principal amount of such indebtedness becomes or is
declared due and payable before the date on which it would otherwise become
due and payable (in which case the Company shall give notice to the Trustee of
such default as soon as is reasonably practicable), and that acceleration
shall not be rescinded or annulled, or such indebtedness shall not have been
discharged, within a period of 30 days after there has been given, by
registered or certified mail, to the Company by the Trustee or to the Company
and the Trustee by Holders of at least 25% in principal amount of the Notes a
written notice specifying such acceleration and requiring the Company to cause
the acceleration to be rescinded or annulled or to cause that indebtedness to
be discharged and stating that the notice is a "Notice of Default" under the
Indenture.
DEFEASANCE
The Company may elect, at its option at any time, to have the provisions of
the Indenture described under "Description of the Debt Securities--
Defeasance--Defeasance and Covenant Defeasance" in the Prospectus apply with
respect to the Notes.
MODIFICATION AND WAIVER
Without the consent of any Holder, the Company and the Trustee may enter
into one or more supplemental indentures, described under "Description of the
Debt Securities--Modification and Waiver" in the Prospectus.
CERTAIN DEFINITIONS
"Change of Control" means the occurrence of one or more of the following
events, whether or not approved by the Board of Directors:
(1) any Person or any Persons acting together that would constitute a
"group" for purposes of Section 13(d) of the Exchange Act (a "Group"),
together with any Affiliates thereof, other than any employee stock
ownership plan of the Company or the trusts for any other employee stock
ownership, benefit or pension plans of the Company or any subsidiary, shall
beneficially own (as defined in Rule 13d-3 of the Commission) at least 50%
of the Voting Stock of the Company;
(2) any one Person or Group (other than the Board of Directors of the
Company as it may be constituted from time to time), or any Affiliates
thereof, shall succeed in having sufficient of its or their nominees
elected to the Board of Directors of the Company such that such nominees,
when added to any existing director remaining on the Board of Directors of
the Company after such election who is an Affiliate of such Group, shall
constitute a majority of the Board of Directors of the Company;
(3) any sale, lease, exchange or other transfer (in one transaction of a
series of related transactions) of all, or substantially all, the assets of
the Company to any Person or Group;
(4) the shareholders of the Company shall approve any plan for the
liquidation or dissolution of the Company; or
(5) the merger or consolidation of the Company with or into another
corporation or the merger of another corporation into the Company with the
effect that immediately after such transaction any Person or Group holds
more than 50% of the Voting Stock of the surviving corporation of such
merger or consolidation.
"Change of Control Default Event" means (i) the Company or the successor
corporation, as the case may be, is immediately after the Change of Control,
in default in the performance of any covenant or condition under the Indenture
or the Notes or (ii) after giving effect to the Change of Control, an Event of
Default or an event
S-24
<PAGE>
that, after notice or lapse of time or both, would become an Event of Default,
shall have occurred or be continuing.
"Consolidated Capitalization" means the sum of (i) Funded Debt plus (ii)
Consolidated Net Worth.
"Consolidated EBITDA" means the sum of (i) Consolidated Net Income for a
period (which excludes special charges or gains (including income taxes
thereon), the cumulative effect of accounting changes and extraordinary
items), plus (ii) provision for income taxes of the Company during such
period, plus (iii) depreciation and amortization expense of the Company
accrued during such period (but only to the extent not included in
Consolidated Interest Expense) plus (iv) Consolidated Interest Expense during
such period.
"Consolidated Interest Expense" of the Company means the sum of (i) its
interest expense for borrowed money for a period plus (ii) its imputed
interest expense on capitalized leases for such period plus (iii) one-third of
rent expense under its operating leases for such period.
"Consolidated Net Income (Loss)" means the amount of net income (loss) of
the Company, for a period; provided however, that there shall not be included
in Consolidated Net Income (i) any net income (loss) of a subsidiary for any
period during which it was not a consolidated subsidiary, (ii) any net income
(loss) of businesses, properties or assets acquired or disposed of (by way of
merger, consolidation, purchase, sale or otherwise) by the Company or any
subsidiary for such period prior to the acquisition thereof or subsequent to
the disposition thereof, (iii) the cumulative effect of accounting changes and
extraordinary items during such period or (iv) special charges or gains
(including income taxes thereon) during such period.
"Consolidated Net Worth" means at any time the excess, after making
appropriate deductions for any minority interest in the net worth of
consolidated subsidiaries, of (i) the assets of the Company over (ii) the
liabilities of the Company; provided however, that any write-up in the book
value of any assets acquired subsequent to the date of the Officer's
Certificate relating to the Notes (other than a write-up required for assets
acquired in connection with the purchase of a Person or business and taken at
the time of such acquisition) shall not be taken into account.
"Designated Senior Indebtedness" means all Indebtedness and Obligations
heretofore, now or hereinafter arising under or in connection with the Credit
Agreement, including, without limitation, all "Liabilities" (as such term is
defined in the Credit Agreement).
"Funded Debt" means any of the following obligations of the Company which by
its terms matures at or is extendible or renewable at the sole option of the
obligor without requiring the consent of the obligee to a date more than
twelve months after the date of the creation of incurrence of such obligation:
(i) any obligations (including all Senior Indebtedness), contingent or
otherwise, for borrowed money or for the deferred purchase price of property
or services (including, without limitation, any interest accrued subsequent to
any Event of Default), (ii) all obligations (including the Notes) evidenced by
bonds, notes, debentures or other similar instruments, (iii) all Indebtedness
created or arising under any conditional sale or other title retention
agreement with respect to property acquired (even though the rights and
remedies of the seller or lender under such agreement in the event of default
are limited to repossession or sale of such property), except any such
obligation that constitutes a trade payable or an accrued liability arising in
the ordinary course of business, if and to the extent any of the Indebtedness
under this clause (iii) would appear as a liability upon a balance sheet
prepared in accordance with generally accepted accounting principles, (iv) all
capitalized lease obligations, (v) all Indebtedness of the type referred to in
clause (i), (ii), (iii) or (iv) above secured by (or for which the holder of
such Indebtedness has an existing right, contingent or otherwise, to be
secured by) any Lien upon property of the Company (including, without
limitation, accounts and contract rights), even though the Company has not
assumed or become liable for the payment of such Indebtedness and (vi) any
guarantee of any obligation of the type referred to in any of the foregoing
clauses (i) through (v), regardless of whether such obligation would appear on
a balance sheet.
S-25
<PAGE>
"Indebtedness" means, with respect to any Person, (i) every obligation of
such Person for money borrowed, (ii) every obligation of such Person evidenced
by bonds, debentures, notes or other similar instruments, (iii) every
reimbursement obligation of such Person with respect to letters of credit,
bankers' acceptances or similar facilities issued for the account of such
Person, (iv) every obligation of such Person issued or assumed as the deferred
purchase price of property (including pursuant to capitalized lease
obligations), every conditional sale obligation and every obligation under any
title retention agreement, in each case if on terms permitting any portion of
the purchase price to be paid beyond one year from the date of purchase, (v)
every obligation of such Person issued or contracted for as payment in
consideration of the purchase by such Person or an Affiliate of such Person of
the stock or substantially all of the assets of another Person or a merger or
consolidation to which such Person or an Affiliate of such Person was a party,
(vi) every obligation of the type referred to in clauses (i) through (v) of
other Persons for the payment of which such Person is responsible or liable,
directly or indirectly, as obligor, guarantor or otherwise and (vii) every
obligation of the type referred to in clauses (i) through (vi) of other
Persons secured by any Lien on any property or asset of such Person (whether
or not such obligation is assumed by such Person), the amount of such
obligation being deemed to be the lesser of the value of such property or
assets or the amount of the obligation so secured.
"Lien" means any mortgage, lien, pledge, security interest, easement,
conditional sale or other title retention agreement, or other encumbrance of
any kind.
"Operating Coverage Ratio" means the ratio of (i) Consolidated EBITDA during
any period to (ii) Consolidated Interest Expense during any such period.
"Senior Indebtedness" means (i) all Designated Senior Indebtedness up to a
maximum principal amount of $90.0 million plus the amount of all interest and
other Obligations at any time due thereon or with respect thereto (the sum of
such maximum principal amount, interest and other Obligations being the "Base
Amount"), and (ii) any other Indebtedness (and related Obligations) permitted
to be incurred by the Company under the terms of the Indenture (including,
without limitation, Indebtedness (and related Obligations) arising under or
with respect to the Credit Agreement in excess of the Base Amount), unless the
instrument under which such Indebtedness is incurred expressly provides that
it is on a parity with or subordinated in right of payment to the Notes.
Notwithstanding anything to the contrary in the foregoing, Senior Indebtedness
described in clause (ii) above will not include (1) any liability for federal,
state, local or other taxes owed or owing by the Company, (2) any Obligation
of the Company to any of its subsidiaries, (3) any accounts payable or trade
liabilities arising in the ordinary course of business (including instruments
evidencing such liabilities), (4) any Indebtedness that is incurred in
violation of the Indenture; provided, however, that for purposes of this
clause (4), Indebtedness (and related Obligations) arising under or with
respect to the Credit Agreement in an amount in excess of the Base Amount
(such excess being the "Excess Amount") shall be deemed not to have been
incurred in violation of the Indenture (and shall be Senior Indebtedness) so
long as the amount of the Excess Amount constituting principal (or a
reimbursement obligation with respect to a letter of credit) could be incurred
under the terms of the Indenture (as in effect on the date hereof) on the date
that the Company was first permitted to borrow such principal amount (or have
such a letter of credit issued), without giving effect to any conditions
precedent that may exist in the Credit Agreement with respect thereto, (5)
Indebtedness which, when incurred and without respect to any election under
Section 1111(b) of Title 11, United States Code, is without recourse to the
Company, (6) any Indebtedness, guarantee or Obligation of the Company which is
subordinate or junior to any other Indebtedness, guarantee or Obligation of
the Company, (7) Indebtedness evidenced by the Notes and (8) capital stock of
the Company.
"Voting Stock" means securities of the class or classes having general
voting power under ordinary circumstances to elect at least a majority of the
board of directors, managers or trustees of such corporation, association,
partnership or other entity (irrespective of whether or not at the time
securities of any other class or classes shall have or might have voting power
by reason of the happening of any contingency).
S-26
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement and the
receipt of certain legal opinions, the Company has agreed to sell to each of
the Underwriters, and the Underwriters have each severally agreed to purchase
from the Company, the respective principal amounts of the Notes set forth
opposite their names below.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OF
UNDERWRITERS NOTES
- ------------ -----------
<S> <C>
Robert W. Baird & Co. Incorporated................................. $
Piper Jaffray Inc. ................................................
-----------
Total.......................................................... $25,000,000
===========
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
thereunder are subject to approval of certain legal matters by their counsel
and to various other conditions. The Underwriters are obligated to purchase
all of the Notes offered hereby, if any are purchased.
The Company has been advised by the Underwriters that the Underwriters
propose to offer the Notes to the public at the public offering price set
forth on the cover page of this Prospectus and may offer Notes to certain
dealers at such price less a concession of not more than 1.5% of the principal
amount of the Notes. The Underwriters may allow, and such dealers may reallow,
concessions not in excess of 0.5% of the principal amount of the Notes to
certain other brokers and dealers. After the commencement of the Offering, the
public offering price and concessions and reallowances to dealers may be
changed by the Underwriters.
The Company does not intend to list the Notes on any securities exchange or
have them included for quotation by the Nasdaq National Market or any other
quotation system, and no active trading market is expected to develop. The
Underwriters have each indicated an intention to make a market in the Notes as
permitted by applicable laws and regulations. No Underwriter, however, is
obligated to make a market in the Notes, and any such market making could be
discontinued at any time at the sole discretion of such Underwriter. If the
Notes are traded after their initial issuance, they may trade at a discount to
their principal amount.
In connection with the offering of the Notes, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Notes. Specifically, the Underwriters may over-allot in connection with the
offering of the Notes, creating a short position. In addition, the
Underwriters may bid for and purchase Notes in the open market to cover short
positions or to stabilize the price of the Notes. Finally, the Underwriters
may reclaim selling concessions allowed for distributing the Notes in the
offering of the Notes, if the Underwriters repurchase previously distributed
Notes in covering transactions, stabilization transactions or otherwise. Any
of these activities may stabilize or maintain the market price of the Notes
above independent market levels. The Underwriters are not required to engage
in any of these activities, and may end any of them at any time.
The Company and the Underwriters have agreed to indemnify, or contribute to
payments made by, each other with respect to certain civil liabilities,
including certain civil liabilities under the Securities Act of 1933, as
amended.
S-27
<PAGE>
PROSPECTUS
ABC RAIL PRODUCTS CORPORATION
SUBORDINATED DEBT SECURITIES
COMMON STOCK
----------------
ABC Rail Products Corporation, a Delaware corporation (the "Company"), may
offer, from time to time, (i) its Subordinated Debt Securities (the "Debt
Securities") and/or (ii) shares of its Common Stock, par value $0.01 (the
"Common Stock"), at prices and on terms to be determined when an agreement to
sell is made or at the time or times of sale, as the case may be. The Debt
Securities and the Common Stock may be issued in one or more series or
issuances, as the case may be, and the aggregate initial offering price
thereof will not exceed $100,000,000. The Debt Securities and the Common Stock
are collectively referred to herein as the "Securities."
This Prospectus will be supplemented by an accompanying prospectus
supplement or supplements ("Prospectus Supplement") that will set forth, in
the case of any Debt Securities for which this Prospectus is being delivered
("Offered Debt Securities"), the form in which such Debt Securities are to be
issued and the designation thereof, their aggregate principal amount, rate or
rates and times of payment of interest, maturity or maturities, their purchase
price or prices and initial offering price or prices, redemption or repurchase
provisions, if any, and other specific terms of such Debt Securities and, in
the case of any Common Stock for which this Prospectus is being delivered
("Offered Stock"), the number of shares of such Common Stock and their
purchase price and the initial public offering price or prices. See
"Description of the Debt Securities" and "Description of Capital Stock"
herein.
The Common Stock of the Company is listed on the Nasdaq National Market
under the symbol "ABCR." Unless otherwise specified in the applicable
Prospectus Supplement, the Offered Stock will be listed, subject to notice of
issuance, on the Nasdaq National Market.
----------------
PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY THE INFORMATION DISCUSSED
UNDER THE CAPTION "RISK FACTORS" AT PAGE 3 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
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
----------------
The Company may sell the Securities to or through underwriters, dealers or
agents, or directly to one or more purchasers. The Prospectus Supplement will
set forth the names of underwriters or agents, if any, any applicable
commissions or discounts and the net proceeds to the Company from any such
sale. See "Plan of Distribution" for possible indemnification arrangements for
underwriters, dealers and agents.
----------------
THE DATE OF THIS PROSPECTUS IS DECEMBER 12, 1997.
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE NOTES.
SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THE OFFERING,
AND MAY BID FOR, AND PURCHASE, THE NOTES IN THE OPEN MARKET. FOR A DESCRIPTION
OF THESE ACTIVITIES, SEE "PLAN OF DISTRIBUTION."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS MAY ENGAGE IN PASSIVE
MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON NASDAQ IN ACCORDANCE WITH
RULE 103 OF REGULATION M. SEE "PLAN OF DISTRIBUTION."
----------------
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange 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 information filed by the Company with the Commission pursuant
to the informational requirements of the Exchange Act may be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's
regional offices located at Seven World Trade Center, 13th Floor, New York,
New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. The Commission maintains a World Wide Web site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission. Copies of such material may be obtained at prescribed rates by
writing the Commission, Public Reference Section, 450 Fifth Street, N.W.,
Washington, D.C. 20549. Such reports, proxy statements and other information
can also be inspected at the offices of The Nasdaq Stock Market, 1735 K
Street, N.W., Washington, D.C. 20006.
The Company has filed with the Commission a registration statement (the
"Registration Statement," which term shall include any amendments thereto) on
Form S-3 under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the Debt Securities and shares of Common Stock offered hereby.
This Prospectus does not contain all the information set forth in the
Registration Statement and the exhibits and schedules thereto, certain parts
of which are omitted in accordance with the rules and regulations of the
Commission, and to which reference is hereby made. For further information,
reference is hereby made to the Registration Statement and the exhibits and
schedules thereto.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, heretofore filed by the Company with the Commission
pursuant to the Exchange Act, are hereby incorporated by reference:
1. The Company's Annual Report on Form 10-K for the fiscal year ended July
31, 1997, as amended by Form 10-K/A-1 filed December 10, 1997;
2. the Company's Quarterly Report on Form 10-Q for the quarter ended
October 31, 1997; and
3. the description of the Company's Common Stock set forth in the Company's
Registration Statement on Form 8-A filed November 19, 1993, including any
amendments or reports filed for the purpose of updating such description.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering shall be deemed to be incorporated by reference in
this Prospectus and to be a part hereof from their respective dates of filing.
Any statement contained herein or in any document incorporated or deemed to be
incorporated shall be deemed to be modified or superseded for all purposes of
this Prospectus to the extent a statement contained in this Prospectus or in
any subsequently filed document that also is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus.
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<PAGE>
THE COMPANY HEREBY UNDERTAKES TO PROVIDE WITHOUT CHARGE TO EACH PERSON TO
WHOM A COPY OF THIS PROSPECTUS HAS BEEN DELIVERED, UPON WRITTEN OR ORAL
REQUEST OF SUCH PERSON, A COPY OF ANY AND ALL OF THE INFORMATION THAT HAS BEEN
INCORPORATED BY REFERENCE IN THIS PROSPECTUS (OTHER THAN EXHIBITS TO THE
INFORMATION THAT HAS BEEN INCORPORATED BY REFERENCE UNLESS SUCH EXHIBITS ARE
SPECIFICALLY INCORPORATED BY REFERENCE INTO THE INFORMATION THAT THIS
PROSPECTUS INCORPORATES). REQUESTS SHOULD BE DIRECTED TO D. CHISHOLM
MACDONALD, EXECUTIVE VICE PRESIDENT--ADMINISTRATION AND BUSINESS DEVELOPMENT,
ABC RAIL PRODUCTS CORPORATION, AT THE COMPANY'S PRINCIPAL EXECUTIVE OFFICES,
200 SOUTH MICHIGAN AVENUE, SUITE 1300, CHICAGO, ILLINOIS 60604, TELEPHONE
NUMBER (312) 322-0360. PERSONS REQUESTING COPIES OF EXHIBITS TO SUCH DOCUMENTS
THAT WERE NOT SPECIFICALLY INCORPORATED BY REFERENCE IN SUCH DOCUMENTS WILL BE
CHARGED THE COSTS OF REPRODUCTION AND MAILING.
THE COMPANY
ABC Rail Products Corporation (the "Company") is a leader in the
engineering, manufacturing and marketing of replacement products and original
equipment for the freight railroad and rail transit industries. The Company's
products include specialty trackwork, such as rail crossings and switches;
mechanical products, such as railcar, locomotive and idler wheels, mounted
wheel sets and metal brake shoes; and classification yard products and
automation systems. The Company operates in the composite brake shoe market
through a joint venture. The Company was incorporated under the laws of
Delaware in 1987. The principal executive offices of the Company are located
at 200 South Michigan Avenue, Suite 1300, Chicago, Illinois 60604 and its
telephone number is (312) 322-0360.
RISK FACTORS
Prospective investors should carefully consider the following matters,
together with the other information set forth in the Prospectus, in evaluating
the Company and its business before making an investment decision.
INDUSTRY CYCLICALITY
Demand for railroad products generally fluctuates in line with overall
economic conditions. In economic downturns, railroads may defer certain
expenditures in order to conserve cash in the short term. Also, reductions in
freight traffic due to economic downturns or other factors may reduce demand
for the Company's replacement products by reducing wear.
COMPETITION
Although in North America there are only three other principal specialty
trackwork manufacturers and two other principal railroad wheel producers, the
markets served by the Company are competitive. The limited number of railroad
customers, their efforts to reduce costs and excess industry capacity in
certain of the Company's product lines historically have limited the Company's
ability to increase prices. Some competitors have greater financial resources
than the Company. Currently, no single company competes with the Company
across all of its product lines. However, there can be no assurance that
competition in one or more of its product lines will not reduce the Company's
profitability. Historically, the Company has experienced limited foreign
competition due to the specialized nature of many of its products, the
importance of the Association of American Railroads product approvals and
compliance with the American Railroad Engineering Association specifications
and the cost of shipping. However, there can be no assurance that foreign
competition will not increase in the future.
RELIANCE ON CERTAIN CUSTOMERS
The Company's principal specialty trackwork customers are the North American
Class I railroads, although the Company also sells specialty trackwork to a
number of regional and short-line railroads as well as rail transit systems.
The Company's wheel and wheel mounting customers include the Class I
railroads, regional and short-line railroads, railcar and locomotive
manufacturers and railroad service companies. The Company's metal brake
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<PAGE>
shoe customers include railroads, rail transit systems and manufacturers of
railcar and locomotive braking systems. The Company's largest customers are
Burlington Northern Santa Fe Corp. and Union Pacific Railroad Company, which
accounted for approximately 23% and 21%, respectively, of the Company's net
sales for fiscal 1997. No other customer accounted for more than 10% of fiscal
1997 net sales. The Company's five largest customers accounted for
approximately 58% of the Company's net sales during fiscal 1997. A significant
decrease in business from any of these customers, or the loss of any major
customer, could have a material adverse effect on the Company.
UNEVEN TRACKWORK SHIPMENT PATTERNS; SEASONALITY
The peak season for installation of specialty trackwork extends from March
through October, when weather conditions are generally favorable for
installation and, as a result, net sales of specialty trackwork have
historically been more concentrated in the period from January to June, a
period roughly corresponding to the second half of the Company's fiscal year.
In addition, a number of the Company's facilities close for regularly
scheduled maintenance in the late summer and late December, which tends to
reduce operating results during the first half of the Company's fiscal year.
Consequently, the majority of the Company's net sales of specialty trackwork
have historically occurred in the second half of its fiscal year. In addition,
transit industry practice with respect to specialty trackwork generally
involves the periodic shipment of large quantities, which may be unevenly
distributed throughout the year. For fiscal 1997, sales of specialty trackwork
products accounted for approximately 49% of the Company's net sales.
ACQUISITION STRATEGY; RISKS RELATED TO RAPID GROWTH
A principal component of the Company's business strategy is to continue to
grow by making additional acquisitions of complementary businesses. The
Company historically has financed its acquisitions through a combination of
secured and unsecured borrowings, augmented by internally generated cash flow
and the issuance of equity securities. The Company's future growth and
financial success will be dependent upon a number of factors including, among
others, the Company's ability to identify acceptable acquisition candidates,
consummate the acquisition of such businesses on terms that are favorable to
the Company, attain customer retention levels at acquired businesses that are
advantageous to the Company, and promptly and profitably integrate the
acquired operations into the Company. There can be no assurance that the
Company will be successful with respect to such factors. There can also be no
assurance that the Company will adequately anticipate all of the changing
demands its growth will impose on its internal systems, procedures and
structure. Any failure to adequately anticipate and respond to such changing
demands could have a material adverse effect on the Company.
LABOR RELATIONS
Labor unions represent approximately 65% of the Company's employees. The
Company believes that its labor relations are good. However, there can be no
assurance that work stoppages will not occur in the future in connection with
contract negotiations or otherwise, or of the outcome of future contract
negotiations.
ENVIRONMENTAL COMPLIANCE
The Company is subject to a variety of environmental laws and regulations
governing discharges to air and water, the handling, storage and disposal of
hazardous or solid waste materials and the remediation of contamination
associated with releases of hazardous substances. Although the Company
believes it is in material compliance with all of the various regulations
applicable to its business, there can be no assurance that requirements will
not change in the future or that the Company will not incur significant costs
to comply with such requirements.
4
<PAGE>
In connection with its formation and the purchase of certain assets and
liabilities from the Railroad Products Group of Abex Corporation ("Abex") in
1987, the Company obtained a comprehensive environmental indemnity from Abex.
The indemnity covers environmental conditions, whether or not then known, in
existence at the time of the purchase, without dollar or time limit. Shortly
after the purchase, the Company performed surveys to assess the environmental
conditions at the time of the purchase. As a result of these studies, the
Company has undertaken environmental projects, including underground storage
tank removal, corrective action and other remedial action as necessary. Some
of these actions are ongoing and similar actions may be necessary in the
future. When Abex refused to compensate the Company for costs incurred, the
Company filed suit against Abex on November 18, 1991. In a separate lawsuit
filed in October 1994, the Company also asserts that Abex is required to
indemnify the Company for the reduction in value of one of the sold properties
(a Pennsylvania manufacturing facility owned by the Company) caused by the
environmental contamination at that site. In October 1995, a judgment in the
1991 lawsuit was finalized with the Company receiving a payment of $2.8
million from Abex. The Company recorded the receipt of this payment as other
non-operating income during the first quarter of fiscal 1996. The judgment is
exclusive of indemnification for any future environmental claims. While the
Company believes the cost of environmental projects related to ongoing Abex
issues may be properly recoverable under the indemnity, the Company is
responsible for such cost irrespective of whether it receives payment under
the indemnity.
SUBORDINATION OF THE DEBT SECURITIES
The Debt Securities will be general unsecured obligations of the Company.
The Debt Securities will be subordinated in the right of payment to all
existing and future Senior Indebtedness (as hereinafter defined), including
the payment of principal, premium, if any, interest and all other amounts due
on or payable in connection with Senior Indebtedness. "Senior Indebtedness"
includes all indebtedness of the Company for borrowed money whether existing
on or created or incurred after the date of issuance of the Debt Securities
and, under the Indenture, the Company may incur substantial Senior
Indebtedness. By reason of such subordination, in the event of liquidation,
reorganization, dissolution or winding up of the Company, or upon an
assignment for the benefit of its creditors or any other marshalling of the
Company's assets and liabilities, or upon other proceedings, the holders of
Senior Indebtedness must be paid in full before the holders of the Debt
Securities may be paid. This may have the effect of reducing the amount of
such proceeds paid to the holders of the Debt Securities. In addition, under
certain circumstances, no payments may be made with respect to the principal
of or interest on the Debt Securities if there exists (and has not been
waived) a non-payment default, or certain other defaults with respect to
Senior Indebtedness. See "Description of the Debt Securities."
USE OF PROCEEDS
The Company currently intends to use the net proceeds from the issuance and
sale of the Securities offered hereby for general corporate purposes, which
may include the reduction of indebtedness, possible acquisitions and such
other purposes as will be stated in any Prospectus Supplement. Pending such
use, the net proceeds may be temporarily invested in short-term investment
securities or deposited in interest-bearing accounts. The precise amounts and
timing of the application of proceeds will depend upon the funding
requirements of the Company and the availability of other funds.
RATIO OF EARNINGS TO FIXED CHARGES
Set forth below are the ratios of earnings to fixed charges (unaudited) for
the Company for the last five years:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
-------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C>
2.21x 4.05x 5.60x 3.18x 1.80x
</TABLE>
5
<PAGE>
For the purpose of computing the ratios of earnings to fixed charges,
earnings have been calculated by adding fixed charges to income before income
taxes, cumulative effect of accounting change and extraordinary items. Fixed
charges represent interest expense, amortization of deferred financing costs
and the interest portion of rent expense.
DESCRIPTION OF THE DEBT SECURITIES
The Debt Securities will be issued under an Indenture (the "Indenture") by
and between the Company and First Trust National Association, as trustee (the
"Trustee"). The Indenture provides that Debt Securities may be issued from
time to time in one or more series pursuant to the terms of one or more
Officer's Certificates or supplemental indentures creating such series. The
particular terms of each series, or of Debt Securities forming a part of a
series, that are offered by a Prospectus Supplement will be described in such
Prospectus Supplement.
The following summaries of certain provisions of the Indenture and the Debt
Securities do not purport to be complete and are subject to, and are qualified
in their entirety by reference to, all the provisions of the Indenture and any
Officer's Certificates or any supplemental indentures relating thereto,
including the definitions therein of certain terms. Wherever particular
Sections or defined terms of the Indenture are referred to herein or in a
Prospectus Supplement, such Sections, references to such Sections or defined
terms are incorporated by reference herein or therein, as the case may be.
GENERAL
The Indenture provides that Debt Securities in separate series may be issued
thereunder from time to time without limitation as to aggregate principal
amount. The Company may specify a maximum aggregate principal amount for the
Debt Securities of any series. (Section 301) The Debt Securities are to have
such terms and provisions that are not inconsistent with the Indenture,
including terms and provisions relating to maturity, principal and interest,
as the Company may determine. The Debt Securities will be unsecured
subordinated obligations of the Company.
The applicable Prospectus Supplement will set forth the price or prices at
which the Offered Debt Securities will be issued and will describe the
following terms of such Offered Debt Securities: (i) the title of such Offered
Debt Securities; (ii) any limit on the aggregate principal amount of such
Offered Debt Securities or the series of which they are a part; (iii) if other
than the Trustee, the identity of each Security Registrar and Paying Agent;
(iv) the date or dates, or the method by which such date or dates are
determined or extended, on which the principal and premium (if any) of any of
such Offered Debt Securities will be payable; (v) the rate or rates (which may
be fixed or variable) at which any of such Offered Debt Securities will bear
interest, or the method, if any, by which such rates will be determined, the
date or dates from which any such interest will accrue, the Interest Payment
Dates on which any such interest will be payable, or the method by which such
date will be determined, and the basis on which interest shall be calculated,
if other than that of a 360-day year of twelve thirty-day months; (vi) if
other than the fifteenth day next preceding an Interest Payment Date, the
Regular Record Date with respect to an Interest Payment Date; (vii) the place
or places, if any, other than or in addition to the Corporate Trust Office,
where the principal of and any premium and interest on any of such Offered
Debt Securities will be payable; (viii) the period or periods within which,
the price or prices at which and the terms and conditions on which any of such
Offered Debt Securities may be redeemed, in whole or in part, at the option of
the Company; (ix) the obligation, if any, of the Company to redeem, repay or
purchase any of such Offered Debt Securities pursuant to any sinking fund or
analogous provision or at the option of the Holder thereof, and the period or
periods within which, the price or prices at which and the terms and
conditions on which any of such Offered Debt Securities will be redeemed,
repaid or purchased, in whole or in part, pursuant to any such obligation; (x)
the denominations in which any of such Offered Debt Securities will be
issuable, if other than denominations of $1,000 and any integral multiple
thereof; (xi) if other than the currency of the United States of America, the
currency, currencies or currency units in which the principal of or any
premium or interest on any
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<PAGE>
of such Offered Debt Securities will be payable (and the manner in which the
equivalent of the principal amount thereof in the currency of the United
States of America is to be determined for purposes of determining the
principal amount deemed to be Outstanding at any time); (xii) if the amount of
principal of or any premium or interest on any of such Offered Debt Securities
may be determined with reference to an index, the manner in which such amounts
will be determined; (xiii) if the principal of or any premium or interest on
any of such Offered Debt Securities is to be payable, at the election of the
Company or the Holder thereof, in one or more currencies or currency units
other than those in which such Offered Debt Securities are stated to be
payable, the currency, currencies or currency units in which payment of any
such amount as to which such election is made will be payable, and the periods
within which and the terms and conditions upon which such election is to be
made; (xiv) if other than the principal amount thereof, the portion of the
principal amount of any of such Offered Debt Securities that will be payable
upon declaration of acceleration of the Maturity thereof; (xv) if applicable,
that such Offered Debt Securities, in whole or any specified part, are
defeasible pursuant to the provisions of the Indenture described under
"Defeasance--Defeasance and Discharge" or "Defeasance--Covenant Defeasance",
or under both such captions; (xvi) any addition to or change in the Events of
Default applicable to any of such Offered Debt Securities and any change in
the right of the Trustee or the Holders to declare the principal of and any
premium or interest on any of such Offered Debt Securities due and payable;
(xvii) any addition to or change in the covenants and definitions in the
Indenture or in the provisions of the Indenture described under
"Consolidation, Merger, Conveyance or Transfer" and under "Covenants"; (xviii)
whether any of such Offered Debt Securities will be issuable in whole or in
part in the form of one or more Global Securities and, if so, the respective
Depositaries for such Global Securities and, if different from those described
under the Indenture caption entitled "Registration, Registration of Transfer
and Exchange," any circumstances under which any such Global Security may be
exchanged for Offered Debt Securities registered, and any transfer of such
Global Security may be registered, in the names of Persons other than the
Depositary for such Global Security or its nominee and (xix) any other terms
of such Offered Debt Securities not inconsistent with the provisions of the
Indenture, including, without limitation, any subordination provisions.
(Section 301) If specified in any applicable Prospectus Supplement, the Debt
Securities of any series may be issued in bearer form, and if so issued, the
applicable Prospectus Supplement will describe any additions to or changes in
any of the provisions of the Indenture that are necessary to permit or
facilitate such issuance. (Section 901)
Debt Securities, including Original Issue Discount Securities, may be sold
at a substantial discount below their principal amount. Certain special United
States federal income tax considerations (if any) applicable to Debt
Securities sold at an original issue discount will be described in the
applicable Prospectus Supplement. In addition, certain special United States
federal income tax or other considerations (if any) applicable to any Debt
Securities that are denominated in a currency or currency unit other than
United States dollars will be described in the applicable Prospectus
Supplement.
Except to the extent that the covenants described in the applicable
Prospectus Supplement may otherwise provide, neither the Indenture nor the
Debt Securities will contain any covenants or other provisions designed to
afford Holders of the Debt Securities protection in the event of a highly
leveraged transaction, change in credit rating or other similar occurrence
involving the Company or any Subsidiary.
FORM, EXCHANGE AND TRANSFER
Unless otherwise specified in the applicable Prospectus Supplement, the Debt
Securities of each series will be issuable only in fully registered form,
without coupons, and only in denominations of $1,000 and integral multiples
thereof. (Section 302)
At the option of the Holder, subject to the terms of the Indenture and the
limitations applicable to Global Securities, Debt Securities of each series
will be exchangeable for other Debt Securities of the same series of any
authorized denomination and of a like tenor and aggregate principal amount.
(Section 305)
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<PAGE>
Subject to the terms of the Indenture and the limitations applicable to
Global Securities, Debt Securities may be presented for exchange as provided
above or for registration of transfer (duly endorsed or with a written
instrument of transfer duly executed) at the office of the Security Registrar
or at one or more offices or agencies designated by the Company for such
purpose. No service charge will be made for any registration of transfer or
exchange of Debt Securities, but the Company or the Trustee will require
payment of a sum sufficient to cover any tax or other governmental charge
payable in connection therewith. Such transfer or exchange will be effected
upon the Security Registrar's being satisfied with the documents of title and
identity of the person making the request. Unless otherwise set forth in the
applicable Prospectus Supplement, the Company has appointed the Trustee as
Security Registrar for each series of Debt Securities for the purpose of
registering Debt Securities and transfers of Debt Securities at its Corporate
Trust Office in Chicago, Illinois. (Section 305) Any other office or agency
(in addition to the Security Registrar) initially designated by the Company
for the registration and transfer of any Debt Securities will be named in the
applicable Prospectus Supplement. The Company may at any time designate
additional offices and agencies for the registration and transfer or exchange
of any Debt Securities or rescind such designations, except that the Company
will be required to maintain an office or agency in each Place of Payment for
the Debt Securities of each series. (Section 1002)
If the Debt Securities of any series are to be redeemed in part, the Company
will not be required to (i) issue, register the transfer of or exchange any
Debt Security of that series during a period beginning at the opening of
business 15 days before the selection of such Debt Securities of that series
to be redeemed and ending at the close of business on the day of the mailing
of a notice of redemption or (ii) register the transfer of or exchange any
Debt Security so selected for redemption, in whole or in part, except the
unredeemed portion of any such Debt Security being redeemed in part. (Section
305)
GLOBAL SECURITIES
Some or all of the Debt Securities of any series may be represented, in
whole or in part, by one or more Global Securities that will have an aggregate
principal amount equal to that of the Debt Securities represented thereby.
Each Global Security will be registered in the name of a Depositary or a
nominee thereof identified in the applicable Prospectus Supplement, and will
be deposited with such Depositary or nominee or a custodian therefor.
Notwithstanding any provision of the Indenture or any Debt Security
described herein, no Global Security may be exchanged for Debt Securities
registered in the name of, and no transfer of a Global Security may be
registered to, any Person other than the Depositary for such Global Security
or any nominee of such Depositary unless (i) the Depositary notifies the
Company that it is unwilling or unable to continue as Depositary for such
Global Security or if the Company determines that the Depositary is unable to
continue as Depositary and the Company thereupon fails to appoint a successor
Depositary; (ii) the Company executes and delivers to the Trustee a Company
Order that such Global Security shall be so exchangeable and the transfer
thereof so registerable; (iii) the Company provides for such exchange in
creating such Global Security (which will be described in any applicable
Prospectus Supplement); (iv) there shall have occurred and be continuing an
Event of Default with respect to the Debt Securities evidenced by such Global
Security or (v) there shall exist such circumstances, if any, in addition to
or in lieu of those described above as may be described in the applicable
Prospectus Supplement. All securities issued in exchange for a Global Security
or any portion thereof will be registered in such names as the Depositary may
direct. (Section 305)
As long as the Depositary, or its nominee, is the registered Holder of a
Global Security, the Depositary or such nominee, as the case may be, will be
considered the sole owner and Holder of such Global Security and the Debt
Securities represented thereby for all purposes under the Debt Securities and
the Indenture. Except in the limited circumstances referred to above, owners
of beneficial interests in a Global Security will not be entitled to have such
Global Security or any Debt Securities represented thereby registered in their
names, will not receive or be entitled to receive physical delivery of
certificates representing Debt Securities in exchange therefor and will not be
considered to be the owners or Holders of such Global Security or any Debt
Securities represented
8
<PAGE>
thereby for any purpose under the Debt Securities or the Indenture. All
payments of principal of and any premium and interest on a Global Security
will be made to the Depositary or its nominee, as the case may be, as the
Holder thereof. The laws of some jurisdictions require that certain purchasers
of securities take physical delivery of such securities in definitive form.
These laws may impair the ability to transfer beneficial interests in a Global
Security.
Ownership of beneficial interests in a Global Security will be limited to
institutions that have accounts with the Depositary or its nominee
("participants") and to persons that may hold beneficial interests through
participants. In connection with the issuance of any Global Security, the
Depositary will credit, on its book-entry registration and transfer system,
the respective principal amounts of Debt Securities represented by the Global
Security to the accounts of its participants. Ownership of beneficial
interests in a Global Security will be shown only on, and the transfer of
those ownership interests will be effected only through, records maintained by
the Depositary (with respect to participants' interests) or any such
participant (with respect to interests of persons held by such participants on
their behalf). Payments, transfers, exchanges and other matters relating to
beneficial interests in a Global Security may be subject to various policies
and procedures adopted by the Depositary from time to time. None of the
Company, the Trustee, the Security Registrar, the Paying Agent or any agent of
the Company or the Trustee will have any responsibility or liability for (i)
any aspects of the Depositary's or any participant's records relating to, or
for payments made on account of, beneficial interests in a Global Security, or
for maintaining, supervising or reviewing any records relating to such
beneficial interests; (ii) the payments to the beneficial owners of the Global
Security of amounts paid to the Depositary or its nominee or (iii) any other
matter related to the actions and practices of the Depositary. (Section 305)
PAYMENT AND PAYING AGENTS
Unless otherwise indicated in the applicable Prospectus Supplement, payment
of interest on a Debt Security on any Interest Payment Date will be made to
the Person in whose name such Debt Security (or one or more Predecessor
Securities) is registered at the close of business on the Regular Record Date
for such interest. (Section 307)
Principal and any premium and interest due on a Debt Security upon Maturity
or upon redemption or repurchase will be paid by wire transfer (if appropriate
instructions are received) against presentation and surrender of the Debt
Security by the Holder thereof at the office of the Paying Agent. Interest
payments on any Debt Security (other than interest due at Maturity or on
redemption or repurchase) will be made by check mailed to the address of the
Person entitled thereto as such address appears in the Security Register;
provided that a Holder of Debt Securities of any series that pay interest on
the same day and that are in an aggregate principal amount in excess of
$10,000,000 may elect to receive payments of interest with respect to such
series via wire transfer. (Section 307) The Paying Agent or Agents initially
designated by the Company for the Debt Securities of a particular series will
be named in the applicable Prospectus Supplement. The Company may at any time
designate additional Paying Agents or one or more other offices or agencies
where the Debt Securities may be presented or surrendered for payment and from
time to time rescind such designations, except that the Company will be
required to maintain an office or agency in each Place of Payment for the Debt
Securities of a particular series. (Section 1002)
All moneys paid by the Company to a Paying Agent or the Trustee for the
payment of the principal of or any premium or interest on any Debt Security
that remain unclaimed at the end of one year after such principal, premium or
interest has become due and payable will be repaid to the Company, and the
Holder of such Security thereafter may, as an unsecured creditor, look only to
the Company for payment thereof, and all liability of the Paying Agent and the
Trustee with respect thereto, and all liability of the Company as a trustee
thereof, shall thereupon cease. (Section 1003)
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company may not consolidate with, or sell or convey all or substantially
all of its assets to, or merge with or into any other person or entity unless
(i) either the Company is the continuing corporation, or the
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<PAGE>
successor is a corporation organized and existing under the laws of the United
States or a state thereof and the successor corporation expressly assumes by
an indenture supplement the Company's obligations on the Debt Securities and
under the Indenture; (ii) the Company or the successor corporation, as the
case may be, is not immediately after the merger or consolidation, or the sale
or conveyance, in default in the performance of any covenant or condition
under the Indenture and (iii) after giving effect to the transaction, no Event
of Default, and no event that, after notice or lapse of time or both, would
become an Event of Default, shall have occurred or be continuing. (Section
801)
EVENTS OF DEFAULT
Each of the following will constitute an Event of Default under the
Indenture with respect to Debt Securities of any series: (i) default in the
payment of any interest upon any Debt Security of that series when it became
due and payable, and continuance of that default for a period of 30 days; (ii)
default in the payment of the principal of (or premium, if any, on) any Debt
Security of that series when it became due and payable at its Maturity; (iii)
default in the deposit of any sinking fund payment, when due by the terms of a
Debt Security of that series; (iv) default in the performance, or breach, of
any covenant or warranty of the Company in the Indenture with respect to any
Debt Security of that series (other than a covenant or warranty a default in
the performance of which or the breach of which is specifically dealt with
elsewhere or that has expressly been included in the Indenture solely for the
benefit of a series other than that series), and continuance of that default
or breach for a period of 30 days after written notice has been given by the
Trustee, or by the Holders of at least 25% in principal amount of the
Outstanding Securities of that series, as provided in the Indenture and (v)
certain events in bankruptcy, insolvency or reorganization. (Section 501)
If an Event of Default with respect to the Debt Securities of any series at
the time Outstanding shall occur and be continuing, either the Trustee or the
Holders of at least 25% in aggregate principal amount of the Outstanding
Securities of that series by notice as provided in the Indenture may declare
the principal amount of the Debt Securities of that series (or, in the case of
any Debt Security that is an Original Issue Discount Security, such portion of
the principal amount of such Debt Security, as may be specified in the terms
of such Debt Security) to be due and payable immediately. After any such
acceleration, but before a judgment or decree based on acceleration, the
Holders of a majority in aggregate principal amount of the Outstanding
Securities of that series may, under certain circumstances, rescind and annul
such acceleration if (i) the Company has paid or deposited with the Trustee a
sum sufficient to pay (a) all overdue interest on all Outstanding Securities
of that series, (b) the principal and premium, if any, on any Debt Securities
of that series that have become due otherwise than by such acceleration and
any interest thereon at the rate or rates prescribed therefor in such Debt
Securities, (c) to the extent that payment of such interest is lawful,
interest upon overdue interest at the rate or rates prescribed therefore in
such Debt Securities and (d) certain fees of the Trustee and (ii) all Events
of Default, other than the non-payment of accelerated principal (or premium,
if any) or interest on Debt Securities of that series, have been cured or
waived as provided in the Indenture. (Section 502) For information as to
waiver of defaults, see "Modification and Waiver".
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default shall occur and be continuing, the
Trustee will be under no obligation to exercise any of its rights or powers
under the Indenture at the request or direction of any of the Holders, unless
such Holders shall have offered to the Trustee reasonable security or
indemnity. (Section 603) Subject to such provisions for the giving of security
or the indemnification of the Trustee, the Holders of a majority in aggregate
principal amount of the Outstanding Securities of any series will have the
right to direct the time, method and place of conducting any proceeding for
any remedy available to the Trustee or exercising any trust or power conferred
on the Trustee with respect to the Debt Securities of that series. (Section
512)
No Holder of a Debt Security of any series will have any right to institute
any proceeding with respect to the Indenture, or for the appointment of a
receiver or a trustee, or for any other remedy thereunder, unless (i) such
Holder has previously given to the Trustee written notice of a continuing
Event of Default with respect to
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the Debt Securities of that series; (ii) the Holders of at least 25% in
aggregate principal amount of the Outstanding Securities of that series have
made written request, and such Holder or Holders have offered reasonable
indemnity, to the Trustee to institute such proceeding as Trustee and (iii)
the Trustee has failed to institute such proceeding, and has not received from
the Holders of a majority in aggregate principal amount of the Outstanding
Securities of that series a direction inconsistent with such request, within
60 days after such notice, request and offer. (Section 507) However, such
limitations do not apply to a suit instituted by a Holder of a Debt Security
for the enforcement of payment of the principal of or any premium or interest
on such Security on or after the applicable due date specified in such Debt
Security. (Section 508)
The Company will be required to furnish to the Trustee annually a statement
by certain of its officers as to whether or not the Company, to their
knowledge, is in default in the performance or observance of any of the terms,
provisions and conditions of the Indenture and, if so, specifying all such
known defaults. (Section 1004)
MODIFICATION AND WAIVER
Without the consent of any Holders of Outstanding Securities, the Company
and the Trustee may enter into one or more supplemental indentures and/or
Officer's Certificates for any of the following purposes: (i) to evidence the
succession of another Person to the Company and the assumption by any such
successor of the covenants of the Company in the Indenture and in the Debt
Securities; (ii) to add to the covenants of the Company for the benefit of the
Holders of all or any series of Debt Securities (and if such covenants are to
be for the benefit of less than all series of Debt Securities, stating that
such covenants are expressly being included solely for the benefit of such
series) or to surrender any right or power conferred upon the Company by the
Indenture; (iii) to add to or change any of the provisions of the Indenture to
such extent as shall be necessary to permit or facilitate the issuance of Debt
Securities of any series in bearer form, registrable or not registrable as to
principal, and with or without interest coupons, or to permit or facilitate
the issuance of Debt Securities of any series in uncertificated form; (iv) to
add to, change or eliminate any of the provisions of the Indenture in respect
of one or more series of Debt Securities; provided, however, that any such
addition, change or elimination shall either (a) not adversely affect the
rights of the Holders of Outstanding Securities of any series in any material
respect, or (b) not apply to any Outstanding Securities of any series created
prior to the execution of such supplemental indenture where such addition,
change or elimination has an adverse effect on the rights of the Holders of
such Outstanding Securities in any material respect; (v) to secure the Debt
Securities of any series; (vi) to establish the form or terms of Debt
Securities of any series as permitted by the Indenture; (vii) to evidence and
provide for the acceptance of appointment of a successor Trustee under the
Indenture with respect to the Debt Securities of one or more series and to add
to or change any of the provisions of the Indenture as shall be necessary to
provide for or facilitate the administration of the trusts under the Indenture
by more than one Trustee; (viii) to cure any ambiguity or defect in and to
correct or supplement any provision in the Indenture or any Debt Security of
any series that may be inconsistent with any other provision in the Indenture
or in the Debt Security of such series, or to make any other provisions with
respect to matters or questions arising under the Indenture; provided,
however, that any such action shall not adversely affect the rights of the
Holders of Outstanding Securities of any series in any material respect; (ix)
to modify, eliminate or add to the provisions of the Indenture to such extent
as shall be necessary to effect qualification of the Indenture under the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"), or under any
similar federal statute hereafter enacted, and to add to the Indenture such
other provisions as may be expressly permitted by the Trust Indenture Act or
(x) to amend or supplement the restrictions on and procedures for resale,
attempted resale and other transfers of any series of Debt Securities (whether
or not Outstanding) to reflect any change in applicable law or regulation (or
interpretation thereof) or in practices relating to the resale or transfer of
Restricted Securities generally. (Section 901)
Except as described above, the consent of the Holders of a majority in
aggregate principal amount of the Outstanding Securities of each series
affected by a modification or amendment (voting as one class) is required for
the purpose of adding any provisions to, or changing in any manner or
eliminating any of the provisions of, the Indenture pursuant to a supplemental
indenture; provided, however, that no such modification or amendment
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may, without the consent of the Holder of each Outstanding Security affected
thereby: (i) extend the Stated Maturity of the principal of, or any
installment of principal of or interest on, any Security; (ii) reduce the
principal amount of, or any premium or interest on, any Debt Security; (iii)
reduce the amount of principal of an Original Issue Discount Security payable
upon acceleration of the Maturity thereof; (iv) change the place or currency
of payment of principal of, or any premium or interest on, any Debt Security;
(v) impair the right to institute suit for the enforcement of any payment on
or with respect to any Debt Security; (vi) reduce the percentage in principal
amount of Outstanding Securities of any series, the consent of whose Holders
is required for modification or amendment of the Indenture; (vii) reduce the
percentage in principal amount of Outstanding Securities of any series
necessary for waiver of compliance with certain provisions of the Indenture or
for waiver of certain defaults or (viii) modify such provisions with respect
to modification and waiver. (Section 902)
The Holders of a majority in principal amount of the Outstanding Securities
of any series may waive any past default under the Indenture, except a default
in the payment of principal, premium or interest and certain covenants and
provisions of the Indenture that cannot be amended without the consent of the
Holder of each Outstanding Security of such series affected. (Section 513)
The Indenture provides that in determining whether the Holders of the
requisite principal amount of the Outstanding Securities have given or taken
any direction, notice, consent, waiver or other action under the Indenture as
of any date, (i) the principal amount of an Original Issue Discount Security
that will be deemed to be Outstanding will be the amount of the principal
thereof that would be due and payable as of such date upon acceleration of the
Maturity thereof to such date, and (ii) the principal amount of a Security
denominated in one or more foreign currencies or currency units that will be
deemed to be Outstanding will be the U.S. dollar equivalent, determined as of
such date in the manner prescribed for such Debt Security, of the principal
amount of such Debt Security (or, in the case of a Debt Security described in
clause (i) above, of the amount described in such clause). Certain Debt
Securities, including those for whose payment or redemption money has been
deposited or set aside in trust for the Holders and those that have been fully
defeased pursuant to Section 1302, will not be deemed to be Outstanding.
(Section 101)
Except in certain limited circumstances, the Company will be entitled to set
any day as a record date for the purpose of determining the Holders of
Outstanding Securities of any series entitled to give or take any direction,
notice, consent, waiver or other action under the Indenture, in the manner and
subject to the limitations provided in the Indenture. In certain limited
circumstances, the Trustee also will be entitled to set a record date for
action by Holders. If a record date is set for any action to be taken by
Holders of a particular series, such action may be taken only by persons who
are Holders of Outstanding Securities of that series on that record date,
whether or not such Holders remain Holders after such record date. To be
effective, such action must be taken by Holders of the requisite principal
amount of such Debt Securities within a specific period following the record
date. For any particular record date, this period will be 90 days. (Section
104)
DEFEASANCE AND COVENANT DEFEASANCE
If and to the extent indicated in the applicable Prospectus Supplement, the
Company may elect, at its option at any time, to have the provisions of
Section 1302, relating to defeasance and discharge of indebtedness, or Section
1303, relating to defeasance of certain restrictive covenants that may be
described in the applicable Prospectus Supplement, applied to the Debt
Securities of any series, or to any specified part of the series. (Section
1301)
Defeasance and Discharge. The Indenture provides that, upon the Company's
exercise of its option (if any) to have Section 1302 applied to any Debt
Securities, the Company will be discharged from all its obligations with
respect to such Debt Securities (except for certain obligations to exchange or
register the transfer of Debt Securities, to replace stolen, lost or mutilated
Debt Securities, to maintain paying agencies and to hold moneys for payment in
trust) upon the deposit in trust for the benefit of the Holders of such Debt
Securities of money or
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U.S. Government Obligations, or both, that, through the payment of principal
and interest, if any, in respect thereof in accordance with their terms, will
provide money in an amount sufficient to pay the principal of and any premium
and interest on such Debt Securities on the respective Stated Maturities in
accordance with the terms of the Indenture and such Debt Securities. Such
defeasance or discharge may occur only if, among other things, the Company has
delivered to the Trustee an Opinion of Counsel to the effect that Holders of
such Debt Securities will not recognize income, gain or loss for federal
income tax purposes as a result of such deposit, defeasance and discharge and
will be subject to federal income tax on the same amount, in the same manner
and at the same times as would have been the case if such deposit, defeasance
and discharge were not to occur. (Sections 1302 and 1304)
Defeasance of Certain Covenants. The Indenture provides that, upon the
Company's exercise of its option (if any) to have Section 1303 applied to any
Debt Securities, the Company's failure to comply with certain covenants, as
may be described in the applicable Prospectus Supplement will be deemed not to
be or result in an Event of Default, with respect to such Debt Securities. The
Company, in order to exercise such option, will be required to deposit, in
trust for the benefit of the Holders of such Debt Securities, money or U.S.
Government Obligations, or both, that, through the payment of principal and
interest, if any, in respect thereof in accordance with their terms, will
provide money in an amount sufficient to pay the principal of and any premium
and interest on such Debt Securities on the respective Stated Maturities or on
redemption in accordance with the terms of the Indenture and such Debt
Securities. The Company will also be required, among other things, to deliver
to the Trustee an Opinion of Counsel to the effect that Holders of such Debt
Securities will not recognize income, gain or loss for federal income tax
purposes as a result of such deposit and defeasance of certain obligations and
will be subject to federal income tax on the same amount, in the same manner
and at the same times as would have been the case if such deposit and
defeasance were not to occur. (Sections 1303 and 1304)
NOTICES
Except as may be described in any Prospectus Supplement with respect to the
Holders of a particular series of Debt Securities, notices to Holders of Debt
Securities will be given by mail to the addresses of such Holders as they may
appear in the Security Register. (Sections 101 and 106)
TITLE
The Company, the Trustee and any agent of the Company or the Trustee may
treat the Person in whose name a Debt Security is registered as the owner
thereof (whether or not such Debt Security may be overdue) for the purpose of
making payment and for all other purposes. (Section 308)
GOVERNING LAW
The Indenture and the Debt Securities will be governed by, and construed in
accordance with, the law of the State of Illinois. (Section 112)
RELATIONSHIPS WITH THE TRUSTEE
Other than through the Indenture, the Company does not maintain any
relationships with the Trustee.
DESCRIPTION OF CAPITAL STOCK
GENERAL
The total amount of the authorized capital stock of the Company is
25,000,000 shares of Common Stock and 1,000,000 shares of preferred stock, par
value $1.00 (the "Preferred Stock"), none of which are outstanding. No series
of Preferred Stock has been designated other than 100,000 shares of Series A
Junior Participating
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Preferred Stock (the "Series A Preferred Stock"). The following description is
a summary of the material provisions of the Company's capital stock and is
qualified in its entirety by reference to the provisions of the Company's
restated certificate of incorporation, its bylaws and the Rights Agreement,
dated as of September 29, 1995 (the "Rights Agreement") between the Company
and LaSalle National Trust, N.A., as Rights Agent, copies of which have been
filed as exhibits to the Registration Statement of which the Prospectus forms
a part.
COMMON STOCK, RIGHTS AND SERIES A PREFERRED STOCK
COMMON STOCK
As of November 28, 1997, there were 8,976,304 shares of Common Stock
outstanding held by 65 holders of record (including brokerage firms and other
nominees). The issued and outstanding shares of Common Stock are validly
issued, fully paid and nonassessable. The holders of outstanding shares of
Common Stock are entitled to receive dividends out of assets legally available
therefor at such times and in such amounts as the Board of Directors of the
Company (the "Board of Directors") may from time to time determine, subject to
any prior rights of the holders of any preferred stock that may be
outstanding. Upon liquidation, dissolution or winding up of the Company, the
holders of Common Stock are entitled to receive pro rata the assets of the
Company that are legally available for distribution, after payment of all
debts and other liabilities and subject to the prior rights of any holders of
preferred stock then outstanding. Each outstanding share of Common Stock is
entitled to one vote on all matters submitted to a vote of stockholders. There
is no cumulative voting.
RIGHTS AND SERIES A PREFERRED STOCK
Under the Rights Agreement, each outstanding share of Common Stock is
accompanied by one preferred share purchase right (each, a "Right"). Except as
described below, each Right entitles the registered holder to purchase from
the Company one one-hundredth of a share of Series A Preferred Stock at a
purchase price of $150 per one one-hundredth share (the "Purchase Price"),
subject to adjustment. The description and terms of the Rights are set forth
in the Rights Agreement.
From the Record Date (as such term is defined in the Rights Agreement), the
Rights attach implicitly to all Common Stock certificates outstanding. No
separate Right certificates have been distributed. Until the earlier of (i) 10
days following a public announcement that a person or group of affiliated or
associated persons (an "Acquiring Person") has acquired, or obtained the right
to acquire, beneficial ownership of 15% or more of the outstanding shares of
Common Stock (the "Shares Acquisition Date") or (ii) 15 business days (or such
later date as may be determined by action of the Board of Directors prior to
the time that any person becomes an Acquiring Person) following the
commencement of (or a public announcement of an intention to make) a tender or
exchange offer if, upon consummation thereof, such person or group would be
the beneficial owner of 15% or more of such outstanding shares of Common Stock
(the earlier of such dates being called the "Distribution Date"), the Rights
will be evidenced together with a copy of the Summary of Stockholder Right
Plan that is attached as Exhibit C to the Rights Agreement (the "Summary of
Stockholder Rights Plan") and not by separate certificates.
The Rights Agreement also provides that, until the Distribution Date, the
Rights will be transferred with and only with the Common Stock. Until the
Distribution Date (or earlier redemption, expiration or termination of the
Rights), the transfer of any certificates for Common Stock, with or without a
copy of the Summary of Stockholder Rights Plan, will also constitute the
transfer of the Rights associated with the Common Stock represented by such
certificates. As soon as practicable following the Distribution Date, separate
certificates evidencing the Rights ("Right Certificates") will be mailed to
holders of record of the Common Stock as of the close of business on the
Distribution Date and, thereafter, such separate Right Certificates alone will
evidence the Rights.
The Rights are not exercisable until the Distribution Date and will expire
at the earliest of (i) September 29, 2005 (the "Final Expiration Date"), (ii)
the redemption of the Rights by the Company as described below and (iii) the
exchange of all Rights for Common Stock as described below.
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In the event that any person (other than the Company, its subsidiaries or
any person receiving newly-issued shares of Common Stock directly from the
Company) becomes the beneficial owner of 15% or more of the then outstanding
shares of Common Stock, each holder of a Right will thereafter have the right
to receive, upon exercise at the then current exercise price of the Right,
Common Stock (or, in certain circumstances, cash, property or other securities
of the Company) having a value equal to two times the exercise price of the
Right. The Rights Agreement contains an exemption for any issuance of Common
Stock by the Company directly to any person (for example, in a private
placement or an acquisition by the Company in which Common Stock is used as
consideration), even if that person would become the beneficial owner of 15%
or more of the Common Stock, provided that such person does not acquire any
additional shares of Common Stock.
In the event that, at any time following the Shares Acquisition Date, the
Company is acquired in a merger or other business combination transaction or
50% or more of the Company's assets or earning power are sold, proper
provision will be made so that each holder of a Right will thereafter have the
right to receive, upon exercise at the then current exercise price of the
Right, common stock of the acquiring or surviving company having a value equal
to two times the exercise price of the Right.
Notwithstanding the foregoing, following the occurrence of any of the events
set forth in the preceding two paragraphs (the "Triggering Events"), any
Rights that are, or (under certain circumstances specified in the Rights
Agreement) were, beneficially owned by any Acquiring Person will immediately
become null and void.
The Purchase Price payable, and the number of shares of Series A Preferred
Stock or other securities or property issuable, upon exercise of the Rights,
are subject to adjustment from time to time to prevent dilution, among other
circumstances, in the event of a stock dividend on, or a subdivision, split,
combination, consolidation or reclassification of, the Series A Preferred
Stock or the Common Stock, or a reverse split of the outstanding shares of the
Series A Preferred Stock or the Common Stock.
At any time after the acquisition by a person or group of affiliated or
associated persons of beneficial ownership of 15% or more of the outstanding
Common Stock and prior to the acquisition by such person or group of 50% or
more of the outstanding Common Stock, the Board of Directors may exchange the
Rights (other than Rights owned by such person or group, which will have
become void), in whole or in part, at an exchange ratio of one share of Common
Stock per Right (subject to adjustment).
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
the Purchase Price. The Company will not be required to issue fractional
shares of Series A Preferred Stock or Common Stock (other than fractions in
multiples of one one-hundredths of a share of Series A Preferred Stock) and,
in lieu thereof, an adjustment in cash may be made based on the market price
of the Series A Preferred Stock or Common Stock on the last trading date prior
to the date of exercise.
At any time after the date of the Rights Agreement until the time that a
person becomes an Acquiring Person, the Board of Directors may redeem the
Rights in whole, but not in part, at a price of $.01 per Right (the
"Redemption Price"), which may (at the option of the Company) be paid in cash,
shares of Common Stock or other consideration deemed appropriate by the Board
of Directors. Upon the effectiveness of any action of the Board of Directors
ordering redemption of the Rights, the Rights will terminate and the only
right of the holders of Rights will be to receive the Redemption Price.
Until a Right is exercised, the holder thereof, as such, will have no rights
as a stockholder of the Company, including, without limitation, the right to
vote or to receive dividends.
The Board of Directors of the Company is generally responsible for
administering, interpreting and making all decisions and taking all actions
with respect to the Rights Agreement, including, without limitation, the
decision to redeem or exchange the Rights or to amend the Rights Agreement
(each of the foregoing being hereinafter referred to as an "Action").
Notwithstanding the foregoing, in the event the Board of Directors is required
or permitted to take any Action with respect to the Rights Agreement and (i)
such Action occurs on or
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after the date of a change (resulting from a proxy or consent solicitation) in
the Board of Directors as composed at the commencement of such solicitation
and (ii) a person who was a participant in the solicitation has stated that
such person (or any of its affiliates or associates) has taken, intends to
take or may consider taking, or if the majority of the Continuing Directors
(as hereinafter defined) has determined in good faith that such person (or any
of its affiliates or associates) has taken, intends to take or is likely to
take, any action that would result in such person becoming an Acquiring Person
or which would cause the occurrence of a Triggering Event, then, such Action
shall not be effective for purposes of the Rights Agreement unless (i) at the
time of such Action there are at least three Continuing Directors and such
Action is approved by a majority of the Continuing Directors then holding
office. "Continuing Directors" is defined as those directors who are either
presently in office or have been approved or nominated by Continuing
Directors, and who are neither Acquiring Persons nor affiliates or associates
of Acquiring Persons.
The provisions of the Rights Agreement may be amended by the Company, except
that any amendment adopted after the time that a person becomes an Acquiring
Person may not adversely affect the interests of holders of Rights.
The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire the Company
without conditioning the offer on the Rights being redeemed or a substantial
number of Rights being acquired, and under certain circumstances the Rights
beneficially owned by such a person or group will become void. The Rights
should not interfere with any merger or other business combination approved by
the Board of Directors because, if the Rights would become exercisable as a
result of such merger or business combination, the Board of Directors may, at
its option, at any time prior to the time that any Person becomes an Acquiring
Person, redeem all (but not less than all) of the then outstanding Rights at
the Redemption Price.
PREFERRED STOCK
The Board of Directors is authorized to issue preferred stock in series and
to fix the designations, powers, preferences, rights, qualifications,
limitations, or restrictions of any such series including without limitation,
the rate and nature of dividends, the price and terms and conditions on which
shares may be redeemed, the amount payable in the event of voluntary or
involuntary liquidation, the terms and conditions for conversion or exchange
into any other class or series of stock, voting rights, preemptive rights and
other terms. To date, the Board of Directors has so fixed only the Series A
Preferred Stock. Although no preferred stock is currently outstanding, because
the Board of Directors has the power to establish the preferences and rights
of the shares of any additional series of Preferred Stock, it may afford
holders of any such Preferred Stock preferences, powers and rights (including
voting rights), senior to the rights of holders of Common Stock, which could
adversely affect the holders of Common Stock.
CERTAIN EFFECTS OF AUTHORIZED BUT UNISSUED STOCK
Under the Company's restated certificate of incorporation, as of November
28, 1997, there were approximately 16,023,696 shares of Common Stock and
1,000,000 shares of preferred stock available for future issuance without
stockholder approval. These additional shares may be utilized for a variety of
corporate purposes including future public offerings to raise additional
capital or to facilitate corporate acquisitions.
One of the effects of the existence of unissued and unreserved Common Stock
and preferred stock may be to enable the Board of Directors to issue shares to
persons friendly to current management that could render more difficult or
discourage an attempt to obtain control of the Company by means of a merger,
tender offer, proxy contest or otherwise, and thereby protect the continuity
of the Company's management. Such additional shares also could be used to
dilute the stock ownership of persons seeking to obtain control of the
Company.
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The Board of Directors is authorized without any future action by the
stockholders to determine the rights, preferences, privileges and restrictions
of the unissued preferred stock. The purpose of authorizing the Board of
Directors to determine such rights and preferences is to eliminate delays
associated with a stockholder vote on specific issuances. The Board of
Directors may issue preferred stock with voting and conversion rights that
could adversely affect the voting power of the holders of Common Stock, and
that could, among other things, have the effect of delaying, deferring or
preventing a change in control of the Company.
CERTAIN CHARTER AND BYLAW PROVISIONS
The Company's restated certificate of incorporation contains a provision
that limits the liability of the Company's directors for monetary damages for
breach of fiduciary duty as a director or officer to the full extent permitted
by the General Corporation Law of the State of Delaware. Such limitation does
not, however, affect the liability of a director (i) for any breach of the
director's duty of loyalty to the Company or its stockholders, (ii) for acts
or omissions not in good faith or that involve intentional misconduct or a
knowing violation of law, (iii) in respect of certain unlawful dividend
payments or stock redemptions or repurchases or (iv) for any transaction from
which the director derives an improper personal benefit. The effect of this
provision is to eliminate the rights of the Company and its stockholders
(through stockholders' derivative suits on behalf of the Company) to recover
monetary damages against a director for breach of the fiduciary duty of care
as a director (including breaches resulting from negligent or grossly
negligent behavior) except in the situations described in clauses (i) through
(iv) above. This provision does not limit or eliminate the rights of the
Company or any stockholder to seek non-monetary relief such as an injunction
in the event of a breach of a director's duty of care.
Section 203 of the General Corporation Law of the State of Delaware (the
"Delaware Business Combination Act") generally imposes a three-year moratorium
on business combinations between a Delaware corporation and an "interested
stockholder" (in general, a stockholder owning 15% or more of a corporation's
outstanding voting stock) or an affiliate or associate thereof unless (i)
prior to an interested stockholder becoming such, the board of directors of
the corporation approved either the business combination or the transaction
resulting in an interested stockholder becoming such; (ii) upon consummation
of the transaction resulting in an interested stockholder becoming such, the
interested stockholder owns at least 85% of the voting stock outstanding at
the time the transaction commenced (excluding, from the calculation of
outstanding shares, shares beneficially owned by directors who are also
officers and certain employee stock plans); or (iii) on or after an interested
stockholder becomes such, the business combination is approved by (a) the
board of directors and (b) holders of at least 66 2/3% of the outstanding
shares (other than those shares beneficially owned by the interested
stockholder) at a meeting of stockholders.
The Delaware Business Combination Act applies to certain public companies
incorporated in the State of Delaware unless the corporation expressly elects
not to be governed by such legislation and sets forth such election in (i) the
corporation's original certificate of incorporation; (ii) an amendment to the
corporation's bylaws as adopted by the corporation's board of directors within
90 days of the effective date of such legislation; or (iii) an amendment to
the corporation's certificate of incorporation or bylaws as approved by (in
addition to any other vote required by law) a majority of the shares entitled
to vote (however, such amendment would not be effective until 12 months after
the date of its adoption and would not apply to any business combination
between the corporation and any person who became an interested stockholder on
or prior to such adoption of such amendment). The Company has not made such an
election and is therefore subject to the Delaware Business Combination Act.
REGISTRAR AND TRANSFER AGENT
The registrar and transfer agent for the Common Stock is American Stock
Transfer & Trust Company.
17
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LEGAL MATTERS
Certain legal matters in connection with the validity of the Securities
offered hereby will be passed upon for the Company by Jones, Day, Reavis &
Pogue, Chicago, Illinois, and for any agents, underwriters or dealers by
McDermott, Will & Emery, Chicago, Illinois. Douglas H. Walter, a partner of
Jones, Day, Reavis & Pogue, is the beneficial owner of 82,762 shares of Common
Stock.
EXPERTS
The consolidated financial statements incorporated by reference in this
Prospectus and elsewhere in this Registration Statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are so incorporated herein in reliance upon
the authority of said firm as experts in giving said report.
PLAN OF DISTRIBUTION
The Company may sell Securities through underwriters or dealers, directly to
one or more purchasers or through agents. The applicable Prospectus Supplement
will set forth the terms of the offering of any Securities, including the names
of any underwriters or agents, the purchase price of such Securities and the
proceeds to the Company from such sale, any underwriting discounts and other
items constituting underwriters' compensation, any initial public offering
price, any discounts or concessions allowed or reallowed or paid to dealers and
any securities exchanges on which such Securities may be listed.
If underwriters are used in the sale, Securities will be acquired by the
underwriters for their own account and may be resold from time to time in one
or more transactions, including negotiated transactions, at a fixed public
offering price or at varying prices determined at the time of sale. Such
Securities may be offered to the public either through underwriting syndicates
represented by managing underwriters or by underwriters without a syndicate.
Unless otherwise set forth in the applicable Prospectus Supplement, the
obligations of the underwriters to purchase such Securities will be subject to
certain conditions precedent, and the underwriters will be obligated to
purchase all of such Securities if any of such Securities are purchased. Any
initial offering price and any discounts or concessions allowed or reallowed or
paid to dealers may be changed from time to time. Only underwriters named in a
Prospectus Supplement are deemed to be underwriters in connection with the
Securities offered thereby.
Securities may also be sold directly by the Company or through agents
designated by the Company from time to time. Any agent involved in the offer or
sale of Securities will be named, and any commissions payable by the Company to
such agent will be set forth in the applicable Prospectus Supplement. Unless
otherwise indicated in the applicable Prospectus Supplement, any such agent
will act on a best efforts basis for the period of its appointment.
If so indicated in the applicable Prospectus Supplement, the Company will
authorize agents, underwriters or dealers to solicit offers by certain
specified institutions to purchase Securities at the public offering price set
forth in such Prospectus Supplement pursuant to delayed delivery contracts
providing for payment and delivery on a future date specified in such
Prospectus Supplement. Such contacts will be subject only to those conditions
set forth in the applicable Prospectus Supplement and such Prospectus
Supplement will set forth the commissions payable for solicitation of such
contracts.
Any underwriters, dealers or agents participating in the distribution of
Securities may be deemed to be underwriters and any discounts or commissions
received by them on the sale or resale of Securities may be deemed to be
underwriting discounts and commissions under the Securities Act. Agents and
underwriters may be entitled under agreements entered into with the Company to
indemnification by the Company against certain liabilities, including
liabilities under the Securities Act or to contribution with respect to
payments that the agents or underwriters may be required to make in respect
thereof. Agents and underwriters may be customers of, engage in transactions
with, or perform services for, the Company or its affiliates in the ordinary
course of business.
18
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NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS
AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION AND REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY AGENT. NEITHER THE
DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATES ANY IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATES AS OF WHICH
INFORMATION IS GIVEN IN THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS. THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR
A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE REGISTERED SE-
CURITIES TO WHICH THEY RELATE. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS
DO NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAW-
FUL.
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TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Supplement Summary.............................................. S-3
Risk Factors............................................................... S-10
Recent Developments........................................................ S-14
Use of Proceeds............................................................ S-14
Ratio of Earnings to Fixed Charges......................................... S-14
Description of Certain Other Indebtedness.................................. S-15
Capitalization............................................................. S-17
Description of the Notes................................................... S-18
Underwriting............................................................... S-27
PROSPECTUS
Available Information...................................................... 2
Incorporation of Certain Documents by Reference............................ 2
The Company................................................................ 3
Risk Factors............................................................... 3
Use of Proceeds............................................................ 5
Ratio of Earnings to Fixed Charges......................................... 5
Description of the Debt Securities......................................... 6
Description of Capital Stock............................................... 13
Legal Matters.............................................................. 18
Experts.................................................................... 18
Plan of Distribution....................................................... 18
</TABLE>
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$25,000,000
LOGO
ABC RAIL PRODUCTS
CORPORATION
% SENIOR SUBORDINATED NOTES,
SERIES B, DUE 2004
----------------------
PROSPECTUS SUPPLEMENT
----------------------
ROBERT W. BAIRD & CO.
INCORPORATED
PIPER JAFFRAY INC.
, 1997
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