<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
April 30, 1998 0-22906
- --------------------------- ---------------------------
For the Quarter Ended Commission File Number
ABC Rail Products Corporation
(Exact name of registrant as specified in its charter)
Delaware 36-3498749
- ------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
200 South Michigan Avenue, Chicago, IL 60604-2402
- --------------------------------------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number (312) 322-0360
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------ ------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at May 29, 1998
- ---------------------------- ---------------------------
Common Stock, $.01 par value 8,976,304 Shares
<PAGE>
ABC RAIL PRODUCTS CORPORATION AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I Financial Information
Item 1 Consolidated Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Operations 4
Consolidated Statements of Stockholders' Equity 5
Consolidated Statements of Cash Flows 6
Notes to Unaudited Consolidated Financial Statements 7--9
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 10--13
Part II Other Information
Item 6 Exhibits and Reports on Form 8-K 14
</TABLE>
2
<PAGE>
ABC RAIL PRODUCTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of April 30, 1998 and July 31, 1997
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
April 30, July 31,
ASSETS 1998 1997
- ------ ----------- --------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Accounts receivable, less allowances of $1,261
and $1,006, respectively $ 55,126 $ 38,208
Inventories (Note 3) 51,986 46,580
Prepaid expenses and other current assets 3,737 1,964
Prepaid income taxes 519 963
-------- --------
Total current assets 111,368 87,715
-------- --------
PROPERTY, PLANT AND EQUIPMENT:
Land 1,927 1,927
Buildings and improvements 12,576 12,491
Machinery and equipment 87,428 84,653
Construction in progress 72,043 36,421
-------- --------
173,974 135,492
Less - Accumulated depreciation (44,186) (37,480)
-------- --------
Net property, plant and equipment 129,788 98,012
-------- --------
INVESTMENT IN UNCONSOLIDATED JOINT VENTURES 16,215 14,684
-------- --------
OTHER ASSETS - net 33,877 30,196
-------- --------
Total assets $291,248 $230,607
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Cash overdrafts $ 3,854 $ 2,991
Current maturities of long-term debt 2,976 3,987
Accounts payable 31,784 26,617
Accrued liabilities 19,237 11,273
-------- --------
Total current liabilities 57,851 44,868
-------- --------
LONG-TERM DEBT, less current maturities (Note 4) 139,252 95,011
-------- --------
DEFERRED INCOME TAXES 6,031 5,881
-------- --------
OTHER LONG-TERM LIABILITIES 3,997 4,351
-------- --------
STOCKHOLDERS' EQUITY:
Preferred stock, $1.00 par value; 1,000,000 shares
authorized; no shares issued or outstanding
Common stock, $.01 par value; 25,000,000 shares
authorized; 8,976,304 shares and 8,954,082
shares issued and outstanding as of April 30,
1998 and July 31, 1997, respectively 90 90
Additional paid-in capital 67,798 67,362
Retained earnings 16,229 13,044
-------- --------
Total stockholders' equity 84,117 80,496
-------- --------
Total liabilities and stockholders' equity $291,248 $230,607
======== ========
</TABLE>
The accompanying notes to the unaudited consolidated financial statements
are an integral part of these consolidated balance sheets.
3
<PAGE>
ABC RAIL PRODUCTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three and Nine Months Ended April 30, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
(In thousands, except per share data)
Three Months Ended Nine Months Ended
April 30 April 30
-------------------- -------------------
1998 1997 1998 1997
-------- -------- -------- -------
<S> <C> <C> <C> <C>
NET SALES $ 89,660 $ 73,817 $227,915 $185,438
COST OF SALES 78,341 67,592 201,785 165,232
-------- -------- -------- --------
Gross profit 11,319 6,225 26,130 20,206
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 4,785 4,411 12,461 10,405
-------- -------- -------- --------
Operating income 6,534 1,814 13,669 9,801
EQUITY INCOME OF UNCONSOLIDATED JOINT VENTURES 418 686 1,087 738
INTEREST EXPENSE 2,347 1,943 6,632 4,641
AMORTIZATION OF DEFERRED FINANCING COSTS 173 117 446 229
-------- -------- -------- --------
Income before income taxes, cumulative effect
of accounting change and extraordinary item 4,432 440 7,678 5,669
PROVISION FOR INCOME TAXES 1,954 177 3,382 2,319
-------- -------- -------- --------
Income before cumulative effect of accounting
change and extraordinary item 2,478 263 4,296 3,350
CUMULATIVE EFFECT OF ACCOUNTING CHANGE (NOTE 6) -- -- (1,111) --
EXTRAORDINARY ITEM (NOTE 4) -- (310) -- (310)
-------- -------- -------- --------
Net income (loss) $ 2,478 $ (47) $ 3,185 $ 3,040
======== ======== ======== ========
EARNINGS PER SHARE DATA (Note 5):
Basic:
Income before cumulative effect of accounting
change and extraordinary item $ 0.28 $ 0.03 $ 0.48 $ 0.38
Cumulative effect of accounting change -- -- (0.12) --
Extraordinary item -- (0.03) -- (0.03)
-------- -------- -------- --------
Net income $ 0.28 $ -- $ 0.36 $ 0.35
======== ======== ======== ========
Weighted average common shares outstanding 8,976 8,954 8,967 8,635
======== ======== ======== ========
Diluted:
Income before cumulative effect of accounting
change and extraordinary item $ 0.27 $ 0.03 $ 0.46 $ 0.38
Cumulative effect of accounting change -- -- (0.12) --
Extraordinary item -- (0.03) -- (0.03)
-------- -------- -------- --------
Net income $ 0.27 $ -- $ 0.34 $ 0.35
======== ======== ======== ========
Weighted average common and equivalent
shares outstanding 9,280 9,045 9,266 8,737
======== ======== ======== ========
</TABLE>
The accompanying notes to the unaudited consolidated financial statements are an
integral part of these consolidated statements.
4
<PAGE>
ABC RAIL PRODUCTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Nine Months Ended April 30, 1998 and 1997
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Additional
Common Paid-in Retained
Stock Capital Earnings
------- ---------- ----------
<S> <C> <C> <C>
BALANCE, July 31, 1996 $ 83 $ 55,251 $ 9,062
Net income -- -- 3,040
Exercised stock options 1 1,484 --
Income tax benefit from exercised stock options -- 417 --
Shares issued in business acquisition 6 10,220 --
------- ---------- ----------
BALANCE, April 30, 1997 $ 90 $ 67,372 $ 12,102
======= ========== ==========
BALANCE, July 31, 1997 $ 90 $ 67,362 $ 13,044
Net income -- -- 3,185
Shares issued in business acquisition -- 436 --
------- ---------- ----------
BALANCE, April 30, 1998 $ 90 $ 67,798 $ 16,229
======= ========== ==========
</TABLE>
The accompanying notes to the unaudited consolidated financial statements are an
integral part of these consolidated statements.
5
<PAGE>
ABC RAIL PRODUCTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three and Nine Months Ended April 30, 1998 and 1997
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
April 30 April 30
-------------------- --------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 2,478 $ (47) $ 3,185 $ 3,040
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Cumulative effect of accounting change (Note 6) - - 1,111 -
Extraordinary item (Note 4) - 310 - 310
Equity income of unconsolidated joint ventures (418) (686) (1,087) (738)
Depreciation and amortization 3,773 3,545 10,422 9,950
Deferred income taxes 593 167 924 473
Changes in certain assets and liabilities, net
of effect of acquired businesses:
Accounts receivable - net (6,146) (6,684) (16,330) (4,427)
Inventories (3,708) 44 (5,287) (9,312)
Prepaid expenses and other current assets (48) 1,835 (1,757) 330
Other assets - net (1,489) (693) (5,148) (1,886)
Accounts payable and accrued liabilities 4,154 (5,346) 13,100 1,981
Other long-term liabilities (69) - (354) 1
--------- --------- --------- ---------
Total adjustments (3,358) (7,508) (4,406) (3,318)
--------- --------- --------- ---------
Net cash used in operating activities (880) (7,555) (1,221) (278)
--------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (13,353) (11,915) (39,712) (24,895)
Business acquisitions, less cash acquired (339) - (1,378) (2)
Investment in unconsolidated joint ventures (21) (2,050) (362) (4,971)
--------- --------- --------- ---------
Net cash used in investing activities (13,713) (13,965) (41,452) (29,868)
--------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in cash overdrafts (2,631) 2,010 863 349
Activity under the Credit Agreement:
Net activity under revolving line of credit 17,861 (4,611) 19,997 4,805
Repayment of acquisition facility - (2,165) - (5,193)
Draw on acquisition facility - - - 1,750
Repayment of non-amortizing term loan - (15,000) - (15,000)
Issuance of senior subordinated notes - 50,000 25,000 50,000
Issuance of other long-term debt - - 1,516 1,878
Repayment of other long-term debt (637) (6,039) (3,515) (7,182)
Payment of deferred financing costs - (2,675) (1,188) (2,746)
Exercised stock options - - - 1,485
--------- --------- --------- ---------
Net cash provided by financing activities 14,593 21,520 42,673 30,146
--------- --------- --------- ---------
Net change in cash - - - -
CASH, beginning of period - - - -
--------- --------- --------- ---------
CASH, end of period $ - $ - $ - $ -
========= ========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 3,090 $ 804 $ 7,501 $ 3,430
Cash paid for income taxes, net 154 900 912 1,576
NON-CASH TRANSACTIONS:
Business acquisitions:
Common stock issued $ - $ - $ 436 $ 10,226
Cash paid 339 - 1,417 2
--------- --------- --------- ---------
Total consideration 339 - 1,853 10,228
Assets acquired 339 - 2,637 17,209
--------- --------- --------- ---------
Liabilities assumed $ - $ - $ 784 $ 6,981
========= ========= ========= =========
</TABLE>
The accompanying notes to the unaudited consolidated financial statements are an
integral part of these consolidated statements.
6
<PAGE>
ABC RAIL PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
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; classification yard
products and automation systems; and railway signal systems installation,
engineering and maintenance services.
The accompanying unaudited consolidated financial statements include, in
the opinion of management, all adjustments (consisting of only normal
recurring adjustments) necessary for a fair statement of the results of
operations and financial condition of the Company for and as of the interim
dates. Results for the interim period are not necessarily indicative of
results for the entire year.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission. The Company
believes that the disclosures contained herein are adequate to make the
information presented not misleading. These unaudited consolidated
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's 1997
Annual Report to Stockholders and the Company's amended 1997 Form 10-K/A.
2. Business Combinations
Effective December 17, 1996, the Company acquired American Systems
Technologies, Inc. ("AST") of Verona, Wisconsin for common stock valued at
$10.2 million. AST provides railway signal system installation and
maintenance to the short line, regional, commuter and transit railroads.
As part of the purchase agreement, the prior owners will be issued
additional shares of common stock if certain earnings goals are met over
the succeeding three years.
The acquisition was accounted for under the purchase method of accounting.
Accordingly, certain recorded assets and liabilities of the company were
revalued to estimated fair values as of the acquisition date. Management
has used its best judgment and available information in estimating the fair
market value of those assets and liabilities. Any changes to these
estimates are not expected to be material. The operating results of the
company are included in the consolidated statement of operations from the
date of acquisition.
3. Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out method for substantially all inventories.
Inventory costs include material, labor and manufacturing overhead.
Supplies and spare parts primarily consist of manufacturing supplies and
equipment replacement parts.
7
<PAGE>
ABC RAIL PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Inventories at April 30, 1998, and July 31, 1997, consisted of the
following (in thousands):
April 30, July 31,
1998 1997
---------- --------
Raw materials $29,695 $27,734
Work in process 10,990 8,575
Finished goods 6,700 5,983
Supplies and spare parts 4,601 4,288
------- -------
$51,986 $46,580
======= =======
4. Debt
On November 15, 1996, the Company filed a Registration Statement with the
Securities and Exchange Commission for the issuance of up to $100 million
of Subordinated Debt Securities and/or shares of its Common Stock. On
February 1, 1997, the Company completed an offering ("the Offering") of $50
million of 9 1/8% Senior Subordinated Notes (the "Notes"). The Company
used the $47.9 million of net proceeds of the Offering to repay certain
outstanding indebtedness under its primary and other credit facilities. A
$0.3 million extraordinary after-tax loss was recognized in the third
quarter of fiscal year 1997 upon the early retirement of this indebtedness.
The Notes are general unsecured obligations of the Company and are
subordinated in right of payment to all existing and future senior
indebtedness of the Company and other liabilities of the Company
subsidiaries. Financing cost of $2.2 million was deferred in connection
with the issuance of the Notes.
On December 23, 1997, the Company (under the Registration Statement filed
with the SEC on November 15, 1996) completed an offering of $25.0 million,
8 3/4% Senior Subordinated Notes, Series B ( the "Notes - Series B"). The
Company used the $24.1 million of net proceeds of this offering to repay
indebtedness under its primary credit facility. The Notes - Series B are
general unsecured obligations of the Company and are subordinated in right
of payment to all existing and future senior indebtedness of the Company
and other liabilities of the Company subsidiaries. Financing cost of $1.2
million was deferred in connection with the issuance of the Notes - Series
B.
As of April 30, 1998 availability under the Company's bank revolving credit
facility ("Credit Agreement") was $36.9 million.
The Company entered into a seven-year term loan agreement on July 20, 1995,
to finance up to $12.5 million of capital expenditures for the rail mill
center located in Chicago Heights, Illinois. In December, 1997, the
Company drew an additional $1.5 million under the term loan. Through April
30, 1998, $12.3 million had been drawn under this term loan.
5. Earnings Per Share
SFAS No. 128, "Earnings Per Share" was issued in February 1997 and adopted
by the Company in the second quarter of fiscal 1998. This new
pronouncement established revised reporting standards for earnings per
share and has been retroactively applied to all periods presented herein.
Previously reported earnings per share for each such period were not
materially different than currently reported diluted earnings per share.
8
<PAGE>
ABC RAIL PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Additionally, application of the new standard for fiscal 1998 periods did
not materially impact the calculation of diluted earnings per share versus
what would have been reported under the prior standard. Diluted earnings
per share for the Company includes the impact of the assumed exercise of
dilutive stock options as well as the assumed issuance of up to 180,000
shares related to the earn-out for an acquired company.
6. Accounting Changes
On November 20, 1997, the FASB Emerging Issues Task Force reached a
consensus that companies write-off previously capitalized business process
reengineering costs and expense future costs as incurred. The Company had
capitalized certain process re-engineering costs in prior fiscal years. In
accordance with this consensus, in the second quarter of fiscal 1998, the
Company recorded a non-cash, after-tax charge of $1.1 million to reflect
the cumulative effect of this accounting change.
In April 1998, Statement of Position No. 98-5 was issued which requires
that companies write-off previously capitalized start-up costs and expense
future start-up costs as incurred. This new accounting rule must be
adopted by the Company by fiscal 2000, but earlier adoption is permitted.
The Company had capitalized certain start-up costs in prior periods,
including $5.0 million during the nine-month period ended April 30, 1998.
As of such date, start-up costs of $9.5 million remain unamortized on the
Company's consolidated balance sheet. Such costs, and any other such new
costs capitalized before the Company adopts this new rule, will be written
off as the cumulative effect of an accounting change in the period of
adoption.
9
<PAGE>
ABC RAIL PRODUCTS CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
The following is management's discussion and analysis of certain significant
factors which have affected the Company's financial condition and results of
operations during the interim periods included in the accompanying unaudited
Consolidated Financial Statements.
RESULTS OF OPERATIONS
- ---------------------
Three Months Ended April 30, 1998 Compared to Three Months Ended April 30, 1997
Net Sales. Net sales increased 21.5% to $89.7 million from $73.8 million. The
increase in sales is due primarily to an increase in sales in the Wheel Services
Division ($8.8 million), principally resulting from an increased level of
activity to support customers that build new railcars and increased sales of
$5.7 million in the Track Products Division.
Gross Profit and Cost of Sales. Gross profit increased from 8.4% of revenue in
1997 to 12.6% of revenue in 1998. The increase in the gross profit is primarily
the result of improved sales volumes in all major divisions and improved
production at the Company's Calera, AL wheel plant.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $0.4 million. The increase in expenses
between periods reflects additional expense required to support the Company's
new information systems (SAP's R/3 enterprise-wide software).
Other. Interest expense increased 20.8%, or $0.4 million, due primarily to an
overall higher level of outstanding debt to support acquisitions, capital
projects and expanding operations, along with the marginally higher interest
rate on the new Senior Subordinated Notes.
Extraordinary Item. The extraordinary non-cash after-tax charge of $0.3 million
represents the write-off of unamortized deferred financing costs related to
previous indebtedness which was retired with proceeds from the Senior
Subordinated Notes issued during the third fiscal quarter of 1997.
10
<PAGE>
ABC RAIL PRODUCTS CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Nine Months Ended April 30, 1998 Compared to Nine Months Ended April 30, 1997
Net Sales. Net sales increased 22.9% to $227.9 million from $185.4 million.
The increase in sales is due primarily to an increase in sales in the Wheel
Services Division ($20.8 million), principally resulting from an increased level
of activity to support customers that build new railcars, additional sales
associated with the Track Products Division and the December 1996 acquisition of
American Systems Technologies, Inc.
Gross Profit and Cost of Sales. Gross profit increased from 10.9% of revenue
in 1997 to 11.5% of revenue in 1998 primarily due to the result of improved
sales volumes in all major divisions and improved production at the Company's
Calera, AL wheel plant.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $2.1 million. The increase in expenses
between periods reflects additional expense in the customer support area (field
sales and customer service) to meet the expanding needs of customers and the
additional effort required to support the Company's new information systems
(SAP's R/3 enterprise-wide software).
Other. Interest expense increased 42.9%, or $2.0 million, due primarily to an
overall higher level of outstanding debt to support acquisitions, capital
projects and expanding operations, along with the marginally higher interest
rate on the new Senior Subordinated Notes.
Accounting Change. On November 20, 1997, the FASB Emerging Issues Task Force
reached a consensus that companies must write-off previously capitalized
business process reengineering costs and expense future costs as incurred. The
Company had capitalized certain process reengineering costs in prior fiscal
years. In accordance with this consensus, in the second quarter of fiscal 1998,
the Company recorded a non-cash, after-tax charge of $1.1 million to reflect the
cumulative effect of this accounting change.
Extraordinary Item. The extraordinary non-cash after-tax charge of $0.3 million
represents the write-off of unamortized deferred financing costs related to
previous indebtedness which was retired with proceeds from the Senior
Subordinated Notes issued during the third fiscal quarter of 1997.
11
<PAGE>
NEW ACCOUNTING PRONOUNCEMENT
- ----------------------------
In April 1998, Statement of Position No. 98-5 was issued which requires that
companies write-off previously capitalized start-up costs and expense future
start-up costs as incurred. This new accounting rule must be adopted by the
Company by fiscal 2000, but earlier adoption is permitted. The Company had
capitalized certain start-up costs in prior periods, including $5.0 million
during the nine-month period ended April 30, 1998. As of such date, start-up
costs of $9.5 million remain unamortized on the Company's consolidated balance
sheet. Such costs, and any other such new costs capitalized before the Company
adopts this new rule, will be written off as the cumulative effect of an
accounting change in the period of adoption.
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 through 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. Transit
industry practice with respect to specialty trackwork generally involves the
periodic shipment of large quantities, which may be unevenly distributed
throughout the year. The Company does not expect any significant departure from
the historical demand patterns during the present fiscal year ending July 31,
1998.
LIQUIDITY AND CAPITAL RESOURCES
- --------------------------------
Cash generated from operations, structured borrowings and debt and equity
offerings have been the major sources of funds for working capital, capital
expenditures and acquisitions. For the nine months ended April 30, 1998 and
1997, net cash used in operating activities totaled $1.2 million and $0.3
million, respectively. The decrease in operating cash flow is due primarily to
a net increase in working capital.
Capital expenditures during the first nine months of fiscal 1998 and 1997 were
$39.7 million and $24.9 million, respectively. The increase in spending between
periods is due principally to improvements at the Calera, Alabama wheel plant,
construction of the Rail Mill in Chicago Heights, Illinois, and cost associated
with the implementation of SAP's R/3 enterprise-wide software. As of April 30,
1998, the Company has $72 million of property, plant and equipment classified as
construction in process. The majority of these assets relate to expenditures
for the new Calera equipment, the Rail Mill and SAP. These assets will come on-
line during the last quarter of the current fiscal year and the first quarter of
the new fiscal year. As these assets come on-line, earnings may be negatively
impacted as a result of the increase in depreciation expense.
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 Chinese railway
markets. The Company's contribution of its 40% share in the joint venture
consists of technical know-how, expertise and cash. The Company has invested
$9.2 million of cash in the joint venture through April 30, 1998. The cash
funding is being used to construct a manufacturing facility which is currently
going through a start-up period and is expected to be operational by the first
quarter of fiscal year 1999.
In January, 1998, the Company purchased the exclusive rights to patents for the
manufacture and sale of heat-treated and head-hardened rail in the Americas.
Progress payments of $1.4 million have been made on equipment for processing the
rail. Total expenditures over the next
12
<PAGE>
year for patent rights and production equipment are expected to be $10 - $12
million and are expected to be financed through the Company's Credit Agreement.
For the nine months ended April 30, 1998 and 1997, net cash provided by
financing activities totaled $42.7 million and $30.1 million, respectively. The
increase in financing cash flows is due primarily to the higher level of net
borrowings during the period.
On December 23, 1997, the Company (under the Registration Statement filed with
the SEC on November 15, 1996) completed an offering of $25 million 8 3/4% Senior
Subordinated Notes, Series B (the "Notes - Series B").
As of April 30, 1998, availability under the Company's Credit Agreement was
$36.9 million.
The Company started to address the "Y2K" or Year 2000 problem, caused by
obsolete computer programs which cannot recognize dates beyond 1999, over two
years ago. As part of that analysis, it was determined, based on recognized
industry standards, that the Company would have to incur a minimum of $2.0
million to upgrade its existing legacy systems to solve the "Y2K" problem.
Based on that analysis, the Company elected to install new software (SAP's R/3
enterprise software) which is expected to not only solve the "Y2K" computer
problem but to also fully support the Company's overall strategic growth plans.
The estimated completion date for the basic SAP R/3 software programs to cure
the "Y2K" issues continues to be the Fall of 1998. The Company is also in the
process of reviewing other possible customer and supplier "Y2K" issues not
addressed by SAP. At the present time, management is unable to estimate the
potential impact on the Company of the possible failure of its customers and
suppliers to become Year 2000 compliant. If the Company's major customers and
suppliers are not and do not become Year 2000 compliant on a timely basis, the
Company's results of operations could be adversely affected.
REGARDING FORWARD-LOOKING STATEMENTS
- ------------------------------------
The foregoing contains 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 long-term business strategy of
acquisitions; "Y2K" issues and the risks described from time to time in the
Company's SEC reports.
13
<PAGE>
Part II OTHER INFORMATION
- --------------------------------------------------------------------------------
Item 6 - Exhibits and Reports on Form 8-K
(A) Exhibits
3.1 Restated Certificate of Incorporation of the Company (1)
3.2 Bylaws of the Company (2)
10.1 Amendment No. 4, dated as of December 22, 1997 to the Second
Amended and Restated Loan and Security Agreement, dated as of
January 31, 1997, by and among the Company, ABC Deco Inc. and
American System Technologies, Inc., as borrowers, the financial
institutions named therein, as lenders, and American National
Bank and Trust Company of Chicago, as agent, as amended by
Amendment No. 1 thereto dated as of August 8, 1997, Amendment
No. 2 thereto dated as of October 31, 1997, and Amendment No. 3
thereto dated as of December 8, 1997.
10.2 Amendment No. 3, dated as of April 8, 1998 to the Loan and
Letter of Credit Reimbursement Agreement, dated as of July 20,
1995, by and between the Company and Creditanstalt Corporate
Finance, Inc., as amended by amendments thereto dated as of
September 29, 1995 and September 30, 1996.
10.3 Amendment No. 5, dated April 24, 1998 to the Second Amended and
Restated Loan and Security Agreement, dated as of January 31,
1997, by and among the Company, ABC Deco Inc. and American
System Technologies, Inc., as borrowers, the financial
institutions named therein, as lenders, and American National
Bank and Trust Company of Chicago, as agent, as amended by
Amendment No. 1 thereto, dated as of August 8, 1997, Amendment
No. 2 thereto dated as of October 31, 1997, Amendment No. 3
thereto dated as of December 8, 1997, and Amendment No. 4
thereto dated as of December 22, 1997.
27.1 Financial Data Schedule
(1) Incorporated by reference to the same numbered exhibit
filed with the Registrant's Registration Statement on Form
S-1 originally filed with the Securities and Exchange
Commission on April 13, 1994 (SEC File No. 33-77652).
(2) Incorporated by reference to the same numbered exhibit
filed with the Registrant's Annual Report on Form 10-K for
the fiscal year ended July 31, 1994 (SEC File No.
0-22906).
(B) Reports on Form 8-K
None
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ABC RAIL PRODUCTS CORPORATION
/s/ Robert W. Willmschen, Jr.
-----------------------------
Robert W. Willmschen, Jr.
Executive Vice President
and Chief Financial Officer
(Duly authorized Officer)
/s/ J. P. Singsank
-----------------------------
J. P. Singsank
Corporate Controller and
Assistant Secretary
(Chief Accounting Officer)
Date: June 8, 1998
--------------
15
<PAGE>
EXHIBIT 10.1
AMENDMENT NO. 4
---------------
THIS AMENDMENT NO. 4 (this "Agreement") is entered into as of December
22, 1997 by and among ABC Rail Products Corporation ("Rail"), ABC Deco Inc.
("Deco"), American System Technologies, Inc. ("AST;" AST, Rail and Deco being
the "Borrowers"), the financial institutions named on the signature pages hereto
(collectively, the "Lenders") and American National Bank and Trust Company of
Chicago, as agent for the Lenders (the "Agent").
RECITALS
--------
A. The Agent, the Lenders and the Borrowers have entered into a
Second Amended and Restated Loan and Security Agreement dated as of January 31,
1997 (as heretofore amended, supplemented or otherwise modified, the "Loan
Agreement").
B. The Borrowers desire that Rail issue subordinated indebtedness in
an aggregate principal amount of up to $25,000,000 (the "Subordinated Debt").
C. In order to permit the issuance of the Subordinated Debt, the
Borrowers have requested that the Agent and the Lenders agree to amend the Loan
Agreement pursuant to the terms and subject to the conditions hereof.
D. The Agent and the Lenders are willing to enter into this
Agreement, but only on the terms and subject to the conditions set forth below.
NOW, THEREFORE, in consideration of the premises set forth above, the
terms and conditions contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1. Definitions. Terms defined in the Loan Agreement which are used
herein shall have the same meaning as are set forth in the Loan Agreement for
such terms unless otherwise defined herein.
2. Amendments. Subject to Section 3 below:
(a) The following definition set forth in Subsection 1.1 is
hereby amended and restated as follows:
"Final Termination Date" shall mean the earlier of (a) March
31, 2005, and (b) the date that is ninety-one (91) days prior to the
earliest stated maturity of any Subordinated Notes.
<PAGE>
(b) Subsection 1.1 is hereby further amended by adding thereto
(after the definition of Applicable LIBOR Margin) the following:
"'Approved Officer's Certificates' shall mean, collectively,
the certificates attached to this Agreement as Exhibits J-1 and J-2."
(c) Subsection 8.2(viii) is hereby amended by deleting reference
therein to "$50,000,000" and inserting in lieu thereof: "$75,000,000."
(d) The last sentence of Subsection 8.17 is hereby amended and
restated as follows: "Rail shall not, without the prior written consent of
the Required Lenders: (X) consent or otherwise agree to any amendment,
supplement or other modification to any Subordinated Debt Document or (Y)
execute or deliver any "Officer's Certificate" (as defined in the
Subordinated Debt Indenture) pursuant to Section 301 of the Subordinated
Debt Indenture or otherwise establish the terms of any "Securities" (as
defined in the Subordinated Debt Indenture) under the Subordinated Debt
Indenture other than the Approved Officer's Certificates.
(e) The Loan Agreement is further amended by adding immediately
after Exhibit J thereto an Exhibit J-1 and an Exhibit J-2 in the form of
Exhibit J-1 and Exhibit J-2 hereto, respectively.
3. Conditions. The terms of Section 2 above shall become effective
only when each of the following conditions have been completely satisfied as
determined by the Agent in its sole discretion (the date of such satisfaction
being hereinafter referred to as the "Effective Date"):
(a) Documents. The Agent shall have received each of the
following agreements, instruments and other documents, in each case in form
and substance acceptable to the Agent:
(i) eight (8) copies of this Agreement duly executed and
delivered by each of the Borrowers and the Required Lenders;
(ii) eight (8) copies of a Reaffirmation Agreement duly
executed and delivered by each of the Borrowers and certain of their
affiliates in the form of Exhibit A attached hereto;
(iii) eight (8) copies of a certificate duly executed and
delivered by the chief financial officer of each Borrower as to (1)
all representations and warranties of each Borrower in the Loan
Agreement (both immediately before and after giving effect to this
Agreement and the issuance of the Subordinated Debt (collectively, the
"Contemplated Transactions") being true and complete, (2) the absence
of any Default or Event of Default (both immediately before and after
giving effect to the
-2-
<PAGE>
Contemplated Transactions), and (3) with respect to Rail only, the
Subordinated Debt Documents being in full force and effect and being
in the form attached to such certificate;
(iv) eight (8) copies of a certificate duly executed by the
corporate secretary of each Borrower as to: (1) the resolutions
adopted by its Board of Directors (and, if necessary, its
shareholders) authorizing the execution, delivery and performance of
this Agreement and the other agreements and instruments contemplated
hereby and thereby, (2) the incumbency, names and signatures of the
officers of such Borrower who are duly authorized to execute and
deliver the foregoing items, and (3) the Charter and By-Laws of each
such Borrower;
(v) certificates of good standing as to each Borrower issued
by the appropriate state office(s) in the jurisdiction of such
Borrower's incorporation, dated as of a date within five (5) days
prior to the Effective Date;
(vi) eight (8) copies of an opinion of Jones, Day, Reavis &
Pogue, special counsel to the Borrower ("Jones Day"), in the form of
Exhibit B attached hereto;
(vii) eight (8) copies of a reliance letter of Jones Day
which provides, in effect, that the Agent and the Lenders (including
the Issuing Bank) may fully rely on the opinion letter or letters (as
the case may be) rendered by Jones Day in connection with the issuance
of the Subordinated Debt; and
(viii) such other documents, certificates, agreements,
opinions and items as the Agent may request in connection with the
Contemplated Transactions.
(b) Subordinated Debt. All indentures, agreements, instruments
and documents relating to the Subordinated Debt (the "Subordinated Debt
Documents") shall, in all respects be satisfactory in form and substance to
the Agent and the Lenders, as determined in their sole and absolute
discretion; such Subordinated Debt Documents shall be in full force and
effect, and no default (or event which with the passage of time, giving of
notice or both would constitute a default) shall exist thereunder; and Rail
shall have concurrently received not less than $24,125,000 net cash
proceeds from the issuance of the Subordinated Debt.
(c) Representations and Warranties; No Default. As of the
Effective Date, the representations and warranties contained herein and in
the Loan Agreement (both immediately before and after giving effect to the
Contemplated Transactions) shall be true and complete, and no Default or
Event of Default shall exist.
(d) Proceedings. All corporate and other proceedings taken or
to be taken in connection with the transactions contemplated hereby and all
documents incident thereto
-3-
<PAGE>
shall be in form and substance satisfactory to the Agent and the Required
Lenders, as determined in their sole and absolute discretion.
4. Representations, Warranties and Agreements of the Borrowers.
(a) Each of the Borrowers represents and warrants that: (1) the
execution and delivery by such Borrower of this Agreement and the
agreements and instruments contemplated hereby and the performance of each
Borrower's obligations hereunder and thereunder: (i) are within the
corporate powers of each Borrower; (ii) are duly authorized by the Board of
Directors of each Borrower, and, if necessary, the stockholders of each
Borrower; (iii) are not in contravention of the terms of the Charter or By-
Laws of either Borrower, or of any contract, instrument, indenture or other
agreement or undertaking to which either Borrower is a party or by which
either Borrower or any of its property is bound or any judgment, decree or
order applicable to either Borrower; (iv) do not require any governmental
consent, registration or approval or any filing with or notice to any
governmental entity or agency; (v) do not contravene any governmental
restriction binding upon either Borrower; and (vi) will not result in the
imposition of any lien, charge, security interest or encumbrance upon any
property of either Borrower under any indenture, mortgage, deed of trust,
loan or credit agreement or other agreement or instrument to which either
Borrower is a party or by which it or any of its property may be bound or
affected; (2) this Agreement has been duly executed and delivered by each
Borrower and constitutes the legal, valid and binding obligation of each
Borrower, enforceable against each Borrower in accordance with its terms,
except as limited by applicable bankruptcy, reorganization, insolvency or
similar laws affecting the enforcement of creditors' rights generally and
except as limited by general principles of equity; (3) the Loan Agreement,
after giving effect hereto, constitutes the legal, valid and binding
obligation of the Borrowers enforceable against the Borrowers in accordance
with its terms, except as enforcement may be limited by bankruptcy,
insolvency, reorganization or other similar laws affecting the enforcement
of creditors' rights generally or by general equitable principles; and (4)
as of the date hereof, and as of the Effective Date (both immediately
before and after giving effect to the Contemplated Transactions), there
exists no Default or Event of Default.
(b) Each of the Borrowers hereby reaffirms all covenants,
representations and warranties made in the Loan Agreement and all other
Financing Agreements. Each of the Borrowers hereby agrees that all
covenants, representations and warranties made in the Loan Agreement and
all other Financing Agreements shall be deemed to have been remade as of
the date hereof and the Effective Date.
5. Reference to the Effect on the Loan Agreement.
-4-
<PAGE>
(a) On and after the Effective Date, (i) each reference in the
Loan Agreement to "this Agreement," "hereunder," "hereof," "herein," or
words of like import shall mean and be a reference to the Loan Agreement as
amended hereby, and (ii) each reference to the Loan Agreement in all other
Financing Agreements shall mean and be a reference to the Loan Agreement,
as amended hereby.
(b) Except as specifically amended above, the Loan Agreement,
and all other Financing Agreements and other documents, instruments and
agreements executed and/or delivered in connection therewith, shall remain
in full force and effect, and are hereby ratified and confirmed.
(c) The execution, delivery and effectiveness of this Agreement
shall not operate as a waiver of any right, power or remedy of the Agent or
the Lenders, nor constitute a waiver of, or consent to and departure from,
any provision of the Loan Agreement, any other Financing Agreement, or any
other documents, instruments and agreements executed and/or delivered in
connection therewith.
6. Governing Law. This Agreement shall be governed by and construed
in accordance with the internal laws (without giving effect to conflicts of law
principles) of the State of Illinois.
7. Headings. Section headings in this Agreement are included herein
for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose.
8. Counterparts. This Agreement may be executed by one or more of
the parties to this Agreement on any number of separate counterparts and all of
said counterparts taken together shall be deemed to constitute one and the same
instrument. Delivery by any party of an executed counterpart hereof by telecopy
of similar facsimile transmission shall constitute valid and effective delivery
hereof by such party.
9. Termination. This Agreement shall cease to be of any effect if
the Effective Date has not occurred on or before December 31, 1997.
-5-
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed as of the
day and year first above written.
ABC RAIL PRODUCTS CORPORATION
/s/ D. CHISHOLM MACDONALD
By:_________________________________________
EXECUTIVE VICE-PRESIDENT--ADMINISTRATION
AND BUSINESS DEVELOPMENT
Title:______________________________________
ABC DECO INC.
/s/ D. CHISHOLM MACDONALD
By:_________________________________________
Title:______________________________________
AMERICAN SYSTEMS TECHNOLOGIES, INC.
/s/ D. CHISHOLM MACDONALD
By:_________________________________________
Title:______________________________________
AMERICAN NATIONAL BANK AND TRUST
COMPANY OF CHICAGO, individually and as
Agent
/s/ DENNIS E. HARRISON
By:_________________________________________
SENIOR VICE PRESIDENT
Title:______________________________________
BTM CAPITAL CORPORATION
/s/ WILLIAM R. YORK, JR.
By:_________________________________________
Senior Vice President
Title:______________________________________
<PAGE>
LASALLE NATIONAL BANK
/s/ TERRI MAURER
By:_________________________________________
VICE PRESIDENT
Title:______________________________________
NATIONS BANK OF TEXAS, N.A.
/s/ JAMES BERKEMEIER
By:_________________________________________
VICE PRESIDENT
Title:______________________________________
MELLON BANK, N.A.
/s/ JEFFREY G. SAPERSTEIN
By:_________________________________________
ASSISTANT VICE PRESIDENT
Title:______________________________________
<PAGE>
EXHIBIT A
---------
See Attached.
<PAGE>
REAFFIRMATION AGREEMENT
-----------------------
This Reaffirmation Agreement ("Reaffirmation") is made as of December
23, 1997 by each of the undersigned (collectively, the "Undersigned") in favor
of American National Bank and Trust Company of Chicago, as Agent.
RECITALS
--------
A. The Undersigned are parties to one or more Financing Agreements
(as defined in the Loan Agreement referenced below) in connection with that
certain Second Amended and Restated Loan and Security Agreement dated as of
January 31, 1997 (as amended, supplemented or otherwise modified, the "Loan
Agreement"; terms defined in the Loan Agreement have the same meaning herein
unless otherwise defined).
B. The Undersigned desire that the Agent and the Lenders enter into
that certain Amendment No. 4 dated as of December 22, 1997 among the Agent, the
Borrowers and the Lenders (the "Amendment").
C. The Agent and the Lenders are willing to enter into the Amendment
only if, among other things, the Undersigned execute and deliver this
Reaffirmation.
NOW, THEREFORE, in consideration of the facts recited above, to induce
the Agent and the Lenders to enter into the Amendment and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Undersigned each agree as follows:
1. The Undersigned each hereby ratify and reaffirm all of their
respective obligations and liabilities arising under, or relating to, each
Financing Agreement to which it is a party, in each case, after giving effect to
the Amendment, and each of the Undersigned further agree that each Financing
Agreement to which it is a party shall remain in full force and effect in
accordance with its terms, after giving effect to the Amendment.
2. Without limiting the foregoing, the term "Loan Agreement" and
each similar reference to the Loan Agreement as used in each Financing Agreement
shall mean and include the Loan Agreement as amended by the Amendment.
3. The execution, delivery and effectiveness of the Amendment and
the agreements and instruments contemplated thereby shall not diminish, or
operate as a waiver of, any right, power or remedy of the Agent or any Lender
under any Financing Agreement except to the extent of the waivers expressly set
forth in the Amendment.
4. Notice of acceptance hereof is hereby waived by the Undersigned.
<PAGE>
IN WITNESS WHEREOF, this Reaffirmation has been duly executed and
delivered as of the date first above written.
ABC RAIL PRODUCTS CORPORATION
/s/ D. CHISHOLM MACDONALD
By:_________________________________________
Title:______________________________________
ABC RAIL PRODUCTS CHINA INVESTMENT
CORPORATION
/s/ D. CHISHOLM MACDONALD
By:_________________________________________
Title:______________________________________
ABC RAIL BRAKE SHOE HOLDINGS, INC.
/s/ D. CHISHOLM MACDONALD
By:_________________________________________
Title:______________________________________
ABC DECO INC.
/s/ D. CHISHOLM MACDONALD
By:_________________________________________
Title:______________________________________
AMERICAN SYSTEMS TECHNOLOGIES, INC.
/s/ D. CHISHOLM MACDONALD
By:_________________________________________
Title:______________________________________
UNITED RAILWAY SIGNAL GROUP, INC.
/s/ D. CHISHOLM MACDONALD
By:_________________________________________
Title:______________________________________
<PAGE>
EXHIBIT 10.2
AMENDMENT NO. 3 TO LOAN AGREEMENT
AMENDMENT NO. 3 TO LOAN AND LETTER OF CREDIT REIMBURSEMENT AGREEMENT,
dated as of April 8, 1998 (the "Amendment") by and between ABC RAIL PRODUCTS
CORPORATION, a Delaware corporation (the "Borrower") and CREDITANSTALT CORPORATE
FINANCE, INC., a Delaware corporation ("CCF").
WITNESSETH:
WHEREAS, the Borrower and CCF have heretofore entered into a Loan and
Letter of Credit Reimbursement Agreement, dated July 20, 1995, (as amended by
amendments dated as of September 29, 1995 and September 30, 1996 and as
hereafter amended, modified or supplemented, the "Credit Agreement"); and
WHEREAS, the Borrower and CCF desire to amend the Credit Agreement as
hereinafter set forth:
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Defined Terms. As used herein, all terms which are defined in the
Credit Agreement shall have the same meanings herein.
2. Amendment of Section 6.9. Section 6.9 of the Credit Agreement is
hereby amended by substituting the ratio "2.5:1.0" for the ratio "4.5:1.0"
listed for the Minimum Total Interest Coverage Ratio set forth in the schedule
for the period August 1, 1997 and thereafter.
3. Representations. The Borrower hereby represents and warrants to
CCF that, as of the execution and delivery hereof and after giving effect to the
Amendment:
(a) There exists no Default or Event of Default;
(b) All representations and warranties contained in the Credit
Agreement (as amended by this Amendment) and in the other
Financing Documents are true and correct in all material
respects with the same effect as if those such
representations and warranties had been made on and as of
such date; and
(c) the execution, delivery and performance by the Borrower of
each Financing Document and the consummation of the
transactions contemplated thereby, are within the Borrower's
corporate powers, have been duly authorized by all necessary
corporate action, and do not contravene (i) the Borrower's
certificate of incorporation or by-laws or (ii) any law,
rule, regulation
<PAGE>
(including, without limitation, Regulations U and X of the
Board of Governors of the Federal Reserve System), order,
writ, judgment, injunction, decree, determination or award
or any contractual restriction binding on or affecting the
Borrower or any of its properties and do not result in or
require the creation of any lien, security interest or other
charge or encumbrance (other than pursuant hereto) upon or
with respect to any of its properties.
4. Conditions. This Amendment shall become effective upon the date
(the "Effective Date") when:
(a) this Amendment shall have been executed by CCF and the
Borrower and CCF shall have received evidence satisfactory
to it of such execution;
(b) the Borrower shall have paid to CCF in immediately available
funds all amounts that shall be due in reimbursement of the
costs and out-of-pocket expenses of CCF (including, without
limitation, legal fees and expenses incurred and estimated
to be incurred prior to the Effective Date in connection
with the negotiation, preparation, execution and delivery of
this Amendment); and
(c) CCF shall have received a certificate executed by the
Chairman, the President, Chief Financial Officer or
Treasurer of the Borrower dated the Effective Date
certifying that the representations set forth in subsection
3 are true and correct and that the Borrower shall have
complied and shall then be in compliance with all of the
terms, covenants and conditions of the Credit Agreement; and
5. Full Force and Effect. Except to the extent hereby amended, the
Credit Agreement and each of the Financing Documents remain in full force and
effect and are hereby ratified and affirmed.
6. Expenses. The Borrower agrees that its obligations set forth in
Section 9.1 of the Credit Agreement shall extend to the preparation, execution
and delivery of this Amendment.
7. Limited Waiver; References to Credit Agreement. This Amendment
shall be limited precisely as written and shall not be deemed (a) to be a
consent granted pursuant to, or a waiver or modification of, any other term or
condition of the Credit Agreement or any of the instruments or agreements
referred to therein. Whenever the Credit Agreement is referred to in the Credit
Agreement or any of the instruments, agreements or other documents or papers
executed or delivered in connection therewith, such reference shall be deemed to
mean the Credit Agreement as modified by this Amendment.
2
<PAGE>
8. Counterparts. This Amendment may be executed in separate
counterparts, each of which when so executed and delivered shall be deemed to be
an original and which taken together shall constitute but one and the same
instrument.
9. Governing Law. This Amendment shall be governed by and construed
in accordance with the laws of the State of New York, without regard to
conflicts of law principles.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed as of the day and the year first above written.
ABC RAIL PRODUCTS CORPORATION
/s/ CHARLES E. SELF
By:_____________________________________
Title: CORPORATE TREASURER
CREDITANSTALT CORPORATE FINANCE, INC.
/s/ M. ROY GOSSE
By:_____________________________________
Title: VICE PRESIDENT
/s/ W.J. DESMOND
By:_____________________________________
Title: VICE PRESIDENT
3
<PAGE>
EXHIBIT 10.3
AMENDMENT NO. 5
---------------
THIS AMENDMENT NO. 5 (this "Agreement") is entered into as of April
24, 1998 by and among ABC Rail Products Corporation ("Rail"), ABC Deco Inc.
("Deco"), American System Technologies, Inc. ("AST;" AST, Rail and Deco being,
collectively, the "Borrowers"), the financial institutions named on the
signature pages hereto (collectively, the "Lenders") and American National Bank
and Trust Company of Chicago, as agent for the Lenders (the "Agent").
RECITALS
--------
A. The Agent, the Lenders and the Borrowers have entered into a
Second Amended and Restated Loan and Security Agreement dated as of January 31,
1997 (as heretofore amended, supplemented or otherwise modified, the "Loan
Agreement").
B. The Borrowers have requested that the Agent and the Required
Lenders agree to amend the Loan Agreement pursuant to the terms and subject to
the conditions hereof.
C. The Agent and the Required Lenders are willing to enter into this
Agreement, but only on the terms and subject to the conditions set forth below.
NOW, THEREFORE, in consideration of the premises set forth above, the
terms and conditions contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1. Definitions. Terms defined in the Loan Agreement which are used
herein shall have the same meaning as are set forth in the Loan Agreement for
such terms unless otherwise defined herein.
2. Amendments. Subject to Section 3 below, the Loan Agreement is
hereby amended as follows:
(a) Section 1.1 is hereby amended as follows:
(i) The following definition is added in the appropriate
alphabetical order:
"'Wholly-Owned Subsidiary' shall mean any Subsidiary 100% of
the outstanding capital stock of which is owned by Rail (directly
or through one or more other Wholly-Owned Subsidiaries)."
<PAGE>
(ii) The definition of "Excluded Subsidiary" is hereby deleted.
(iii) The definition of "Funded Debt" is hereby amended by
deleting the following: "(other than Excluded Subsidiaries for all purposes
of this Agreement except Subsection 8.13(D), but including Excluded
Subsidiaries for purposes of Subsection 8.13(D))."
(b) Clause (v) of Subsection 2.4(B)(i) is hereby amended by deleting
"$10,000,000" and inserting in lieu thereof: "$30,000,000."
(c) Subsection 3.18 is hereby amended and restated as follows:
"3.18 Certain Rail Mill Provisions. Without limiting Subsection
11.2 of the Agreement, the Borrowers will indemnify the Agent for all
costs and expenses it may incur in connection with the Mortgagee
Waiver and Intercreditor Agreement dated as of September 29, 1995
between Agent and Creditanstalt Corporate Finance, Inc., which costs
and expenses will be payable on demand. The Purchase Agreement dated
as of March 27, 1995 by and between Automated Machine Tools, Ltd. and
Rail is no longer of any force or effect; no purchases of any property
will be made thereunder; and any property heretofore purchased
thereunder has been accurately described to the Agent and the Lenders
in writing. Rail will cause all personal property and fixtures
constituting part of the Rail Mill to be maintained separate from all
other personal property and fixtures of Rail (and its Subsidiaries)
and readily identifiable as distinct therefrom."
(d) Subsection 6.11 is hereby amended by deleting the last sentence
thereof.
(e) Subsection 6.12 is hereby amended and restated as follows:
"6.12 Subsidiaries. Except as disclosed on Schedule 6.12 and
except for Subsidiaries acquired in accordance with the terms of
Subsection 8.3, such Borrower has no Subsidiaries."
(f) Clauses A and B of Subsection 7.1 are hereby amended by deleting
the following phrase each time it appears therein: "(other than Excluded
Subsidiaries)."
(g) Clause (H) of Subsection 7.1 is hereby amended and restated as
follows:
"(H) Joint Ventures. As soon as practicable, and in any event
within ninety (90) days after the end of each fiscal year of each
Joint
2
<PAGE>
Venture, statements of income, retained earnings and cash flow of each
Joint Venture for such fiscal year and a balance sheet of such Joint
Venture as of the end of such fiscal year, all in reasonable detail,
audited by the Auditors, and certified as accurate by the chief
financial officer or treasurer of such Person."
(h) Clause (viii) of Subsection 8.1 is hereby amended and restated as
follows: "[INTENTIONALLY OMITTED]."
(i) Clause (iv) of Subsection 8.2 is hereby amended and restated as
follows:
"(iv) indebtedness expressly permitted to exist under the terms
of Subsection 8.4."
(j) Clause (v) of Subsection 8.2 is hereby amended and restated as
follows: "[INTENTIONALLY OMITTED]."
(k) Subsection 8.3 is hereby amended and restated as follows:
"8.3 Consolidations, Mergers or Acquisitions. Such Borrower shall
not, and shall not permit any of its Subsidiaries to, recapitalize, consolidate
with, merge with, or consummate an acquisition (an "Acquisition"), directly or
indirectly, of all or substantially all of the business, assets or properties of
any other Person or any division or line of business of any other Person or
enter into any agreement with respect to any of the foregoing; provided,
however, that (i) subject to the immediately following sentence, Deco may merge
into Rail with Rail being the surviving entity, provided written notice thereof
is promptly given to Agent; (ii) Rail or any Wholly-Owned Subsidiary may
consummate an Acquisition and enter into an agreement to consummate an
Acquisition if (a) the aggregate "Acquisition Price" (as defined below) with
respect to any such Acquisition does not exceed $2,000,000; (b) the aggregate
Acquisition Price with respect to all Acquisitions does not exceed $10,000,000;
(c) no Default or Event of Default exists immediately prior to, or would exist
(determined on a pro forma basis) immediately after, such Acquisition; (d) Rail
has provided written notice to Agent of such Acquisition as soon as practicable
prior to consummation thereof; (e) Agent shall have a valid, first priority
(subject to Subsection 8.1) perfected security interest in all personal property
and fixtures acquired pursuant to such Acquisition and a valid, first priority
(subject to Subsection 8.1) Mortgage on all real property acquired pursuant to
such Acquisition, and all necessary or advisable actions in this regard shall
have been completed at or prior to the time of consummation of such Acquisition
to the reasonable satisfaction of Agent and its counsel (including, without
limitation, satisfaction of the requirements of Subsection 5.2 and 5.3 hereof
and execution and delivery of such security agreements or other documents as
Agent may request); (f) concurrently with consummating such Acquisition, Rail
causes the entity surviving such Acquisition to execute and deliver to Agent a
guaranty, in form and substance acceptable to Agent, of all Liabilities (unless
such surviving entity is Rail or a Subsidiary that has already delivered such a
guaranty to Agent) and (g) Availability (with respect to Rail) immediately
before and immediately after giving effect to such
3
<PAGE>
Acquisition shall be not less than $10,000,000; and (iii) in addition to any
Acquisition permitted under clause (ii) above, Rail or any Wholly-Owned
Subsidiary may acquire 100% of the stock of, or all or substantially all of the
assets of, SES Co., Inc., a Massachusetts corporation (the "SESCO Acquisition")
on substantially the terms presented by Rail to the Lenders in its "Proposal for
the Acquisition of SES Co., Inc. by American Systems Technologies, Inc." dated
December, 1997 if (a) the aggregate Acquisition Price does not exceed
$11,000,000 at the time of consummating such Acquisition plus common stock, to
be issued by Rail after consummation of the Acquisition upon the occurrence of
certain events, having a fair market value not in excess of $5,700,000 at the
time of issuance , and (b) each of the conditions set forth in clauses (c), (d),
(e), (f) and (g) in the preceding clause (ii) above are satisfied with respect
to the SESCO Acquisition. In the event Deco merges into Rail as contemplated
by clause (i) above then, effective automatically and concurrently with such
merger, (1) all obligations and liabilities of Deco in connection with this
Agreement (including, without limitation all Liabilities of Deco) shall become
obligations and liabilities of Rail, (2) Deco shall no longer be a "Borrower"
under this Agreement, and (3) the additional modifications to the Agreement
described in Schedule 8.3 hereto shall be effective. "Acquisition Price" shall
mean, with respect to any Acquisition, the total consideration paid or payable
by Rail or any Subsidiary in connection with such Acquisition including, without
limitation, any and all cash, stock, assumed liabilities, deferred purchase
price amounts, contingent purchase price amounts (based on the assumption that
contingencies giving rise to the maximum amount payable actually occur) and
amounts paid or payable in connection with any non-compete, consulting or
similar arrangements entered into in connection with such Acquisition."
(l) Subsection 8.4 is hereby amended and restated as follows:
"8.4 Investments or Loans. Such Borrower shall not, and shall not
permit any of its Subsidiaries to, make or permit to exist investments or loans
in or to any other Person, except (i) investments in short-term direct
obligations of the United States Government, (ii) investments in negotiable
certificates of deposit maturing within thirty (30) days from the date of
issuance, issued by any Lender or an affiliate of any Lender or by any other
federally insured bank (provided that any such investments do not exceed the
limit of any such federal insurance) satisfactory to Agent, in its reasonable
discretion, and payable to the order of such Borrower or any of its Subsidiaries
or to bearer and delivered to Agent, (iii) investments in commercial paper
issued by companies organized under the laws of the United States or any state
thereof, maturing in ninety (90) days or less from the date of issuance, which
at the time of acquisition by such Borrower or any such Subsidiary is rated A-
1/P-1 by Standard & Poor's Rating Services (a division of McGraw-Hill Companies,
Inc.) or Moody's Investor Services, Inc., (iv) demand deposits in banks and
similar financial institutions in reasonable amounts necessary to such
Borrower's and its Subsidiaries' operations, (v) advances and reimbursements for
travel and expenses to such Borrower's or its Subsidiaries' officers, directors
or employees in the ordinary course of business and consistent with past
practices, (vi) investments (including debt obligations) received in connection
with the bankruptcy or reorganization of suppliers and customers and in
settlement of delinquent obligations of, and other disputes with, customers and
suppliers arising in the ordinary course of business, (vii) investments existing
on the date hereof by such Borrower in its Subsidiaries and the Joint Ventures
and described on Schedule 8.4, (viii) loans
4
<PAGE>
made from time to time by Rail to any Wholly-Owned Subsidiary, and loans made
from time to time by any Wholly-Owned Subsidiary to Rail, provided that the
aggregate outstanding principal amount of all such loans at no time exceeds
$2,000,000, (ix) without limiting the foregoing clause (viii), (a) loans made
from time to time by Rail to Deco, provided that (1) the aggregate outstanding
principal amount of all such loans at no time exceeds $7,500,000, and (2) such
loans are evidenced by a promissory note duly pledged to Agent to secure payment
and performance of Rail's Liabilities, (b) loans made from time to time by Rail
to AST, provided that (1) the aggregate outstanding principal amount of all such
loans at no time exceeds $3,000,000, and (2) such loans are evidenced by a
promissory note duly pledged to Agent to secure payment and performance of
Rail's Liabilities, and (c) the loan made by Rail to its Wholly-Owned
Subsidiary, United Railway Signal Group, in the original principal amount of
$2,050,000 made on or about October 31, 1997, provided that (1) the aggregate
outstanding principal amount of such loan at no time exceeds $2,050,000 minus
the amount of all prepayments and repayments made thereon, and (2) such loans
are evidenced by a promissory note duly pledged to Agent to secure payment and
performance of Rail's Liabilities, and (x) additional investments not to exceed
$100,000 in the aggregate for all Borrowers and their Subsidiaries at any time
outstanding."
(m) Subsection 8.13 (C) is hereby amended and restated as follows:
"(C) Capital Expenditures. Incur or permit its Subsidiaries to incur
(i) Capital Expenditures (other than Capital Expenditures financed under
Capitalized Leases): (a) in an aggregate amount (for Rail and all Subsidiaries)
in excess of $12,000,000 during the period of March 1, 1998 through July 31,
1998; (b) in an aggregate amount (for Rail and all Subsidiaries) in excess of
$25,000,000 during the period of August 1, 1998 through July 31, 1999; provided
that Rail shall be permitted to incur additional Capital Expenditures during
such period in an amount up to $10,000,000 for the sole purpose of funding the
"Permatrack Project" (as such term is defined below); and (c) in an aggregate
amount (for Rail and all Subsidiaries) in excess of $25,000,000 during any
period of four consecutive Fiscal Quarters after July 31, 1999; provided,
however, that in the event Rail and its Subsidiaries make Capital Expenditures
in any period to which clauses (a), (b) and (c) above apply in an amount which
is less than the maximum amount (exclusive of the additional $10,000,000
availability for the Permatrack Project) permitted under each such clause, then
the maximum amount set forth in clauses (b) and (c), as the case may be, with
respect to the following four consecutive Fiscal Quarter period (but only such
following period) shall increase by an amount (the "Rollover Amount") equal to
such difference, or if less, $5,000,000; it being understood that no Rollover
Amount (if any) shall carry over for more than four consecutive Fiscal Quarters;
or (ii) Capital Expenditures, financed under Capitalized Leases, of more than
$2,000,000 in the aggregate for Rail and all Subsidiaries in any period of four
consecutive Fiscal Quarters ending on or after July 31, 1995. The term
"Permatrack Project" shall mean Rail's proposed line of business involving the
manufacture and sale of heat treated and head-hardened rail to high speed heavy
haul freight railroads as further described in the report entitled "Purchase of
Permatrack Patents" provided by Rail to the Agent by letter dated as of April
24, 1998.
5
<PAGE>
(n) The definition of "EBITDA" set forth in Subsection 8.13 is hereby
amended by deleting "(other than Excluded Subsidiaries)," and by deleting from
clause (iii) thereof "or Excluded Subsidiaries" each time such phrase appears in
such clause (iii).
(o) The definition of "Interest Coverage Ratio" set forth in
Subsection 8.13 is hereby amended by deleting the following: "(other than
Excluded Subsidiaries)."
(p) The definition of "Interest Expense" set forth in Subsection 8.13
is hereby amended by deleting the following: "(other than Excluded
Subsidiaries)."
(q) The definition of "Net Income" set forth in Subsection 8.13 is
hereby amended by deleting the following: "(other than Excluded Subsidiaries for
all purposes of this Agreement except Subsection 8.13(B)(ii), but including
Excluded Subsidiaries for purposes of Subsection 8.13(B)(ii))."
(r) Clause (B) of Subsection 8.16 is hereby amended by deleting the
following: "Excluded."
(s) Section 7 is hereby amended by adding after Subsection 7.12 the
following:
"7.13 Appraisal. On or before July 31, 1998, Rail shall deliver
to Agent written appraisal reports of the value of all Equipment and
all real property owned by Rail and all Subsidiaries, in each case
reasonably satisfactory to Agent in form, scope and methodology and
prepared by an appraiser reasonably satisfactory to Agent."
(t) Paragraph 1 of Schedule 1.1A is hereby amended and restated as
follows:
"(1) The equipment and fixtures referenced in paragraph 2 of the
letter from Rail to Agent dated as of April 24, 1998 (and summarized
on Annex A-1 hereto) that are located at the property described in
paragraph (2) below."
(u) The Loan Agreement is further amended by (1) adding Schedule 8.3
hereto as Schedule 8.3 thereto, and (2) adding Annex A-1 hereto as Annex A-1 to
Schedule 1.1A of the Loan Agreement.
3. Conditions. The terms of Section 2 above shall become effective
as of the date hereof only when each of the following conditions have been
completely satisfied as determined by the Agent in its sole discretion (the date
of such satisfaction being hereinafter referred to as the "Effective Date"):
6
<PAGE>
(a) Documents. The Agent shall have received each of the
following agreements, instruments and other documents, in each case in form and
substance acceptable to the Agent:
(i) eight (8) copies of this Agreement duly executed and
delivered by each of the Borrowers and the Required Lenders;
(ii) eight (8) copies of a Reaffirmation Agreement duly executed
and delivered by each of the Borrowers and certain of their affiliates in
the form of Exhibit A attached hereto;
(iii) eight (8) copies of a certificate duly executed by the
corporate secretary of each Borrower as to: (1) the resolutions adopted by
its Board of Directors (and, if necessary, its shareholders) authorizing
the execution, delivery and performance of this Agreement and the other
agreements and instruments contemplated hereby and thereby, (2) the
incumbency, names and signatures of the officers of such Borrower who are
duly authorized to execute and deliver the foregoing items, and (3) the
charter and by-laws of each such Borrower; and
(iv) such other documents, certificates, agreements, opinions and
items as the Agent may request in connection herewith.
(b) Representations and Warranties; No Default. As of the Effective
Date, the representations and warranties contained herein and in the Loan
Agreement shall be true and complete, and no Default or Event of Default shall
exist.
(c) Proceedings. All corporate and other proceedings taken or to be
taken in connection with the transactions contemplated hereby and all documents
incident thereto shall be in form and substance satisfactory to the Agent and
the Required Lenders, as determined in their sole and absolute discretion.
4. Representations, Warranties and Agreements of the Borrowers.
(a) Each of the Borrowers represents and warrants that: (1) the
execution and delivery by such Borrower of this Agreement and the agreements and
instruments contemplated hereby and the performance of each Borrower's
obligations hereunder and thereunder: (i) are within the corporate powers of
each Borrower; (ii) are duly authorized by the Board of Directors of each
Borrower, and, if necessary, the stockholders of each Borrower; (iii) are not in
contravention of the terms of the charter or by-laws of any Borrower, or of any
contract, instrument, indenture or other agreement or undertaking to which any
Borrower is a party or by which any Borrower or any of its property is bound or
any judgment, decree or order applicable to any Borrower; (iv) do not require
any governmental consent, registration or approval or any filing with or notice
to any
7
<PAGE>
governmental entity or agency; (v) do not contravene any governmental
restriction binding upon any Borrower; and (vi) will not result in the
imposition of any lien, charge, security interest or encumbrance upon any
property of any Borrower under any indenture, mortgage, deed of trust, loan or
credit agreement or other agreement or instrument to which any Borrower is a
party or by which it or any of its property may be bound or affected; (2) this
Agreement has been duly executed and delivered by each Borrower and constitutes
the legal, valid and binding obligation of each Borrower, enforceable against
each Borrower in accordance with its terms, except as limited by applicable
bankruptcy, reorganization, insolvency or similar laws affecting the enforcement
of creditors' rights generally and except as limited by general principles of
equity; (3) the Loan Agreement, after giving effect hereto, constitutes the
legal, valid and binding obligation of the Borrowers enforceable against the
Borrowers in accordance with its terms, except as enforcement may be limited by
bankruptcy, insolvency, reorganization or other similar laws affecting the
enforcement of creditors' rights generally or by general equitable principles;
and (4) as of the date hereof, and (if different) as of the Effective Date,
there exists no Default or Event of Default.
(b) Each of the Borrowers hereby reaffirms all covenants,
representations and warranties made in the Loan Agreement and all other
Financing Agreements. Each of the Borrowers hereby agrees that all covenants,
representations and warranties made in the Loan Agreement and all other
Financing Agreements shall be deemed to have been remade as of the date hereof
and (if different) the Effective Date.
5. Reference to the Effect on the Loan Agreement.
(a) On and after the Effective Date, (i) each reference in the Loan
Agreement to "this Agreement," "hereunder," "hereof," "herein," or words of like
import shall mean and be a reference to the Loan Agreement as amended hereby,
and (ii) each reference to the Loan Agreement in all other Financing Agreements
shall mean and be a reference to the Loan Agreement, as amended hereby.
(b) Except as specifically amended above, the Loan Agreement, and all
other Financing Agreements and other documents, instruments and agreements
executed and/or delivered in connection therewith, shall remain in full force
and effect, and are hereby ratified and confirmed.
(c) The execution, delivery and effectiveness of this Agreement shall
not operate as a waiver of any right, power or remedy of the Agent or the
Lenders, nor constitute a waiver of, or consent to and departure from, any
provision of the Loan Agreement, any other Financing Agreement, or any other
documents, instruments and agreements executed and/or delivered in connection
therewith.
8
<PAGE>
6. Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws (without giving effect to conflicts of law
principles) of the State of Illinois.
7. Headings. Section headings in this Agreement are included herein
for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose.
8. Counterparts. This Agreement may be executed by one or more of the
parties to this Agreement on any number of separate counterparts and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument. Delivery by any party of an executed counterpart hereof by telecopy
of similar facsimile transmission shall constitute valid and effective delivery
hereof by such party.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
9
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed as of the
day and year first above written.
ABC RAIL PRODUCTS CORPORATION
By: /s/ Robert Willmschen Jr.
___________________________________
Title: Chief Financial Officer
________________________________
ABC DECO INC.
By: /s/ Robert Willmschen Jr.
___________________________________
Title:__________________________________
AMERICAN SYSTEMS TECHNOLOGIES, INC.
By: /s/ Robert Willmschen Jr.
___________________________________
Title:__________________________________
AMERICAN NATIONAL BANK AND TRUST
COMPANY OF CHICAGO, individually and as
Agent
By: /s/ Donna H. Evans
___________________________________
Title: Vice President
________________________________
PNC BUSINESS CREDIT
By: Thomas Fischer
____________________________________
Title: Vice President
_________________________________
<PAGE>
LASALLE NATIONAL BANK
By: /s/ Terri Maurer
_____________________________________
Title: Vice President
__________________________________
NATIONSBANK GEORGIA, N.A.
By: /s/ Gaye Stathis
_____________________________________
Vice President
Title: __________________________________
MELLON BANK, N.A.
By: Thomas J. Bugieda
_____________________________________
Assistant Vice President
Title: __________________________________
<PAGE>
EXHIBIT A
---------
See Attached.
<PAGE>
REAFFIRMATION AGREEMENT
-----------------------
This Reaffirmation Agreement ("Reaffirmation") is made as of April 24,
1998 by each of the undersigned (collectively, the "Undersigned") in favor of
American National Bank and Trust Company of Chicago, as Agent.
RECITALS
--------
A. The Undersigned are parties to one or more Financing Agreements
(as defined in the Loan Agreement referenced below) in connection with that
certain Second Amended and Restated Loan and Security Agreement dated as of
January 31, 1997 (as amended, supplemented or otherwise modified, the "Loan
Agreement"; terms defined in the Loan Agreement have the same meaning herein
unless otherwise defined).
B. The Undersigned desire that the Agent and the Lenders enter into
that certain Amendment No. 5 dated as of the date hereof among the Agent, the
Borrowers and the Required Lenders (the "Amendment").
C. The Agent and the Required Lenders are willing to enter into the
Amendment only if, among other things, the Undersigned execute and deliver this
Reaffirmation.
NOW, THEREFORE, in consideration of the facts recited above, to induce
the Agent and the Lenders to enter into the Amendment and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Undersigned each agree as follows:
1. The Undersigned each hereby ratify and reaffirm all of their
respective obligations and liabilities arising under, or relating to, each
Financing Agreement to which it is a party, in each case, after giving effect to
the Amendment, and each of the Undersigned further agree that each Financing
Agreement to which it is a party shall remain in full force and effect in
accordance with its terms, after giving effect to the Amendment.
2. Without limiting the foregoing, the term "Loan Agreement" and
each similar reference to the Loan Agreement as used in each Financing Agreement
shall mean and include the Loan Agreement as amended by the Amendment.
3. The execution, delivery and effectiveness of the Amendment and
the agreements and instruments contemplated thereby shall not diminish, or
operate as a waiver of, any right, power or remedy of the Agent or any Lender
under any Financing Agreement except to the extent of the waivers expressly set
forth in the Amendment.
4. Notice of acceptance hereof is hereby waived by the Undersigned.
<PAGE>
IN WITNESS WHEREOF, this Reaffirmation has been duly executed and
delivered as of the date first above written.
ABC RAIL PRODUCTS CORPORATION
/s/ D.W. GRINTER
By:_________________________________________
CHIEF EXECUTIVE OFFICER
Title:______________________________________
ABC RAIL PRODUCTS CHINA INVESTMENT
CORPORATION
/s/ D.W. GRINTER
By:_________________________________________
CHAIRMAN
Title:______________________________________
ABC RAIL BRAKE SHOE HOLDINGS, INC.
/s/ D.W. GRINTER
By:_________________________________________
PRESIDENT
Title:______________________________________
ABC DECO INC.
/s/ D.W. GRINTER
By:_________________________________________
CHAIRMAN
Title:______________________________________
AMERICAN SYSTEMS TECHNOLOGIES, INC.
/s/ D.W. GRINTER
By:_________________________________________
CHAIRMAN
Title:______________________________________
UNITED RAILWAY SIGNAL GROUP, INC.
/s/ D.W. GRINTER
By:_________________________________________
CHIEF EXECUTIVE OFFICER
Title:______________________________________
<PAGE>
ANNEX A- 1 5/14/98
----------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
ITEM Total P.O. Actual Pd.
Machines/Equipment Vendor Issued To Date
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
Cranes Illinois Crane 567,913.64 559,910.99
- ------------------------------------------------------------------------------------------------
Rail Car Mover (Diesel) Ricci & Co. 98,512.50 98,512.50
- ------------------------------------------------------------------------------------------------
Saw-Drill for Rail & D-Bar (Saw #1) Centro Metalcut 1,450,000.00 1,354,264.50
- ------------------------------------------------------------------------------------------------
Metalcut IIIP H.S.S. Saw (Saw #2) Centro Matalcut 991,975.39 805,736.00
- ------------------------------------------------------------------------------------------------
Bender Williams White 214,350.00 171,480.00
- ------------------------------------------------------------------------------------------------
D-Bar Mill Versamill 449,750.00 404,775.00
- ------------------------------------------------------------------------------------------------
D-Bar Fixtures-Magnetic chucks Tecnomagnette 76,200.00 75,700.00
- ------------------------------------------------------------------------------------------------
SNK Gantry Milling Machine 90' for rails Gulf Components 1,884,000.00 1,884,000.00
- ------------------------------------------------------------------------------------------------
SNK Rebuild & Modify (for rails) MTR Ravensburg 2,455,537.00 2,446,857.90
- ------------------------------------------------------------------------------------------------
100 HP Heads Devlieg/Futuremill 804,448.00 710,400.00
- ------------------------------------------------------------------------------------------------
SNK Fixtures-Magnetic Chucks Tecnomagnette 440,000.00 418,000.00
- ------------------------------------------------------------------------------------------------
Other
Roofing Solutions 514,897.00 514,897.00
- ------------------------------------------------------------------------------------------------
Kirivan (heating) 105,000.00 105,000.00
- ------------------------------------------------------------------------------------------------
Turner Machinery (gantry) 95,000.00 95,000.00
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
Total 10,147,583.53 9,644,533.89
- ------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
SCHEDULE 8.3
------------
Provided below are certain amendments to the Agreement that pursuant
to Subsection 8.3 thereof will automatically become effective upon the merger
(if any) of Deco with and into Rail as contemplated by Subsection 8.3 thereof.
1. The definition of "Borrower" set forth in Subsection 1.1 is
amended and restated as follows: "Borrower" shall mean each of Rail and AST,
individually, and "Borrowers" shall mean "Rail and AST, collectively."
2. The definition of "Inventory Sublimit" set forth in Subsection
1.1 is amended and restated as follows: "Inventory Sublimit" shall mean, with
respect to Rail, the "Rail Inventory Sublimit" (as defined in Subsection 2.4
hereof).
3. Subsection 2.4 (B)(ii) is amended and restated as follows:
"[INTENTIONALLY OMITTED]."
4. Subsection 5.1 is amended by deleting the words "and Deco" and
inserting in lieu thereof: "and AST."
5. Subsection 8.4 is amended by deleting clause (ix)(a) and
inserting in lieu thereof: "[INTENTIONALLY OMITTED]."
6. Subsection 9.1(D), Subsection 9.1(M) and Subsection 11.6(C) are
each amended by deleting the words "Deco and."
7. Subsection 11.17(iv) is amended by deleting the words "Deco or."
8. Schedules 6.1, 6.5, 6.7, 6.8, 6.12, 6.16 are each amended by
deleting the references to "Deco" therein and the information set forth therein
that specifically and exclusively applies to Deco.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE PERIOD ENDED APRIL 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-START> AUG-01-1997
<PERIOD-END> APR-30-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 55,126<F1>
<ALLOWANCES> 0
<INVENTORY> 51,986
<CURRENT-ASSETS> 111,368
<PP&E> 173,974
<DEPRECIATION> 44,186
<TOTAL-ASSETS> 291,248
<CURRENT-LIABILITIES> 57,851
<BONDS> 139,252
0
0
<COMMON> 90
<OTHER-SE> 84,027
<TOTAL-LIABILITY-AND-EQUITY> 291,248
<SALES> 227,915
<TOTAL-REVENUES> 227,915
<CGS> 201,785
<TOTAL-COSTS> 201,785
<OTHER-EXPENSES> 11,374
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,078
<INCOME-PRETAX> 7,678
<INCOME-TAX> 3,382
<INCOME-CONTINUING> 4,296
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (1,111)
<NET-INCOME> 3,185
<EPS-PRIMARY> .36
<EPS-DILUTED> .34
<FN>
<F1> Notes and accounts receivable - trade are reported net of allowances for
doubtful accounts in the Consolidated Balance Sheets.
</FN>
</TABLE>
