<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 1999
----------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File Number 0-22906
-------
ABC-NACO INC.
(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)
2001 BUTTERFIELD ROAD, SUITE 502 60515
DOWNERS GROVE, IL (Zip Code)
(Address of principal executive offices)
(630)852-1300
-------------
(Registrant's telephone number, including area code)
ABC Rail Products Corporation, 200 South Michigan Avenue, Chicago, IL 60604
---------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year if
Changed Since Last Report)
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
----- -----
At February 28, 1999, there were 18,356,436 shares of the registrant's common
stock outstanding.
1
<PAGE>
ABC-NACO INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I Financial Information
Item 1 Unaudited Consolidated Financial Statements
Unaudited Consolidated Balance Sheets 3
Unaudited Consolidated Statements of Operations 4
Unaudited Consolidated Statements of Stockholders' Equity 5
Unaudited Consolidated Statements of Cash Flows 6
Notes to Unaudited Consolidated Financial Statements
(Including Unaudited Consolidated Pro Forma Combined Financial
Statements and Notes Thereto) 7
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 17
Part II Other Information
Item 3 Quantitative and Qualitative Disclosures about Market Risks 21
Item 4 Submission of Matters to a Vote of Security Holders 21
Item 5 Other Information 22
Item 6 Exhibits and Reports on Form 8-K 23
</TABLE>
2
<PAGE>
ABC-NACO INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of January 31, 1999 and July 31, 1998
Part I - Financial Information
Item 1 - Unaudited Consolidated Financial Statements
<TABLE>
<CAPTION>
(In thousands, except share data)
January 31, July 31,
1999 1998
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Accounts receivable, less allowances of $1,406
and $1,434, respectively $ 48,153 $ 49,708
Inventories 59,829 51,973
Prepaid expenses and other current assets 5,001 1,925
Prepaid income taxes 3,689 2,833
-------- --------
Total current assets 116,672 106,439
-------- --------
PROPERTY, PLANT AND EQUIPMENT:
Land 2,490 1,890
Buildings and improvements 22,143 15,948
Machinery and equipment 157,729 98,621
Construction in progress 21,855 68,051
-------- --------
204,217 184,510
Less - Accumulated depreciation (52,429) (45,846)
-------- --------
Net property, plant and equipment 151,788 138,664
-------- --------
INVESTMENT IN UNCONSOLIDATED JOINT VENTURES 15,109 15,586
-------- --------
OTHER ASSETS - net 34,526 34,652
-------- --------
Total assets $318,095 $295,341
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Cash overdrafts $ 3,614 $ 6,300
Current maturities of long-term debt 2,977 2,516
Accounts payable 36,663 24,176
Accrued liabilities 14,452 19,556
-------- --------
Total current liabilities 57,706 52,548
-------- --------
LONG-TERM DEBT, less current maturities 162,955 143,529
-------- --------
DEFERRED INCOME TAXES 8,551 7,556
-------- --------
OTHER LONG-TERM LIABILITIES 4,618 4,495
-------- --------
COMMITMENTS AND CONTINGENCIES -- --
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 issued and
outstanding as of January 31, 1999 and July 31, 1998 90 90
Additional paid-in capital 67,798 67,798
Retained earnings 16,377 19,325
-------- --------
Total stockholders' equity 84,265 87,213
-------- --------
Total liabilities and stockholders' equity $318,095 $295,341
-------- --------
-------- --------
</TABLE>
The accompanying notes to the unaudited consolidated financial statements are
an integral part of these consolidated balance sheets.
3
<PAGE>
ABC-NACO INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three and Six Months Ended January 31, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
(In thousands, except per share data)
Three Months Ended Six Months Ended
January 31, January 31,
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET SALES $73,421 $70,370 $150,935 $138,255
COST OF SALES 68,511 63,044 138,077 124,137
-------- -------- -------- --------
Gross profit 4,910 7,326 12,858 14,118
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 5,070 4,351 9,718 7,973
-------- -------- -------- --------
Operating income(loss) (160) 2,975 3,140 6,145
EQUITY (INCOME) OF UNCONSOLIDATED JOINT VENTURES (378) (268) (553) (669)
INTEREST EXPENSE 3,388 1,110 5,629 3,295
AMORTIZATION OF DEFERRED FINANCING COSTS 181 144 354 273
-------- -------- -------- --------
Income(loss) before income taxes and
cumulative effect of accounting changes (3,351) 1,989 (2,290) 3,246
PROVISION(CREDIT) FOR INCOME TAXES (1,408) 876 (962) 1,428
-------- -------- -------- --------
Income(loss) before cumulative effect of
accounting changes (1,943) 1,113 (1,328) 1,818
CUMULATIVE EFFECT OF ACCOUNTING CHANGES, net
of income taxes of $695 and $1,014, respectively -- (1,111) (1,620) (1,111)
-------- -------- -------- --------
Net income (loss) $(1,943) $ 2 $ (2,948) $ 707
-------- -------- -------- --------
-------- -------- -------- --------
EARNINGS PER SHARE DATA
Basic:
Income(loss) before cumulative effect of
accounting changes $ (0.22) $ 0.12 $ (0.15) $ 0.20
Cumulative effect of accounting changes -- (0.12) (0.18) (0.12)
-------- -------- -------- --------
Net income(loss) $ (0.22) $ -- $ (0.33) $ 0.08
-------- -------- -------- --------
-------- -------- -------- --------
Weighted average common shares outstanding 8,976 8,970 8,976 8,963
-------- -------- -------- --------
-------- -------- -------- --------
Diluted:
Income(loss) before cumulative effect of
accounting changes $ (0.22) $ 0.12 $ (0.15) $ 0.20
Cumulative effect of accounting changes -- (0.12) (0.18) (0.12)
-------- -------- -------- --------
Net income (loss) $ (0.22) $ -- $ (0.33) $ 0.08
-------- -------- -------- --------
-------- -------- -------- --------
Weighted average common and equivalent
shares outstanding 8,976 9,291 8,976 9,259
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
The accompanying notes to the unaudited consolidated financial statements are
an integral part of these consolidated statements.
4
<PAGE>
ABC-NACO INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Six Months Ended January 31, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
(In thousands)
Additional
Common Paid-in Retained
Stock Capital Earnings
------ ---------- --------
<S> <C> <C> <C>
BALANCE, July 31, 1997 $ 90 $ 67,362 $ 13,044
Comprehensive income(loss) 707
Shares issued in business acquisition -- 436
---- -------- --------
BALANCE, January 31, 1998 $ 90 $ 67,798 $ 13,751
---- -------- --------
---- -------- --------
BALANCE, July 31, 1998 $ 90 $ 67,798 $ 19,325
Comprehensive income(loss) -- -- (2,948)
---- -------- --------
BALANCE, January 31, 1999 $ 90 $ 67,798 $ 16,377
---- -------- --------
---- -------- --------
</TABLE>
The accompanying notes to the unaudited consolidated financial statements are
an integral part of these consolidated statements.
5
<PAGE>
ABC-NACO INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three and Six Months Ended January 31, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
(In thousands)
Three Months Ended Six Months Ended
January 31, January 31,
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (1,943) $ 2 $ (2,948) $ 707
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Cumulative effect of accounting change -- 1,111 1,620 1,111
Equity income of unconsolidated joint ventures (378) (268) (553) (669)
Depreciation and amortization 4,166 3,372 8,938 6,649
Deferred income taxes 365 31 139 331
Changes in certain assets and liabilities, net
of effect of acquired businesses:
Accounts receivable - net 8,032 (2,938) 1,555 (10,184)
Inventories (379) (4,849) (7,856) (1,579)
Prepaid expenses and other current assets (2,527) (666) (3,126) (1,709)
Other assets - net (261) (3,017) (2,050) (3,659)
Accounts payable and accrued liabilities 1,673 7,088 8,321 8,946
Other long-term liabilities (408) (67) (196) (285)
-------- -------- -------- --------
Total adjustments 10,283 (203) 6,792 (1,048)
-------- -------- -------- --------
Net cash provided by (used in) operating
activities 8,340 (201) 3,844 (341)
-------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (8,460) (17,276) (20,860) (26,359)
Business acquisitions, less cash acquired -- (1,039) -- (1,039)
Investment in unconsolidated joint ventures -- (20) -- (341)
-------- -------- -------- --------
Net cash used in investing activities (8,460) (18,335) (20,860) (27,739)
-------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in cash overdrafts (1,531) 1,398 (2,686) 3,494
Net activity under revolving lines of credit (684) (7,905) 18,129 2,136
Issuance of Senior Subordinated Notes -- 25,000 -- 25,000
Issuance of other long-term debt 3,000 1,516 3,000 1,516
Repayment of other long-term debt (620) (285) (1,242) (2,878)
Payment of deferred financing costs (45) (1,188) (185) (1,188)
-------- -------- -------- --------
Net cash provided by financing activities 120 18,536 17,016 28,080
-------- -------- -------- --------
Net change in cash -- -- -- --
CASH, beginning of period -- -- -- --
-------- -------- -------- --------
CASH, end of period $ -- $ -- $ -- $ --
-------- -------- -------- --------
-------- -------- -------- --------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 4,466 $ 2,713 $ 7,614 $ 4,411
Cash paid for income taxes, net 196 719 1,101 758
</TABLE>
The accompanying notes to the unaudited consolidated financial statements are
an integral part of these consolidated statements.
6
<PAGE>
ABC-NACO INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
ABC-NACO Inc. ("ABC-NACO"), together with its subsidiaries (the "Company"),
is the leader in the design, engineering and manufacture of
high-performance freight rail car, locomotive and passenger rail suspension
and coupler systems; wheels and mounted wheel sets; and specialty track
products. The Company also supplies freight railroad and transit signaling
systems and services, as well as highly engineered valve bodies and
components for industrial flow control systems worldwide.
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.
The unaudited financial statements, accompanying notes (except for portions
of Note 3 and all of Note 7) and Management Discussion and Analysis present
information for ABC Rail Products Corporation ("ABC") prior to its merger
with NACO, Inc. ("NACO") on February 19, 1999.
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 information and the consolidated
financial statements and notes thereto included in the Company's 1998 Form
10-K,1998 Form 10-K/A and the Company's S-4 filed on January 21, 1999.
2. 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.
Inventories at January 31, 1999 and July 31, 1998, consisted of the
following (in thousands):
<TABLE>
<CAPTION>
January 31, July 31,
1999 1998
----------- ----------
<S> <C> <C>
Raw materials $ 35,922 $ 34,504
Work in process and finished goods 19,505 13,367
Supplies and spare parts 4,402 4,102
-------- --------
$ 59,829 $ 51,973
-------- --------
-------- --------
</TABLE>
7
<PAGE>
ABC-NACO INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
3. DEBT
In December, 1998, a $3.0 million IRB was issued on behalf of the Company
for its new paneling facility in Ashland, Wisconsin. The IRB's bear at an
adjustable rate of interest as determined by the Public Bond Market
Association Index. As of January 31, 1999, the adjustable interest rate on
the bonds was set at 2.8%. The bonds mature in December, 2018.
Immediately after consummation of the Merger (see Note 7), the Company
entered into a new credit facility (the "Credit Facility") with a syndicate
of financial institutions. The Credit Facility will provide the Company
with loans and other extensions of credit of up to $200 million. The
initial net proceeds of the Credit Facility were used to (1) refinance
existing bank debt and certain other indebtedness of the Company, (2)
refinance substantially all of NACO's outstanding debt, (3) provide initial
financing for the Company's on-going working capital needs, and (4) pay
fees and expenses relating to the Merger and the Credit Facility. The
Credit Facility has a LIBOR-based variable interest rate index and
presently pays a 1.5% spread over the LIBOR base rate. The Credit
Facility's covenants include ratio restrictions on total leverage, senior
leverage, interest coverage, a minimum net worth restriction and
restrictions on capital expenditures.
4. PER SHARE DATA
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 basic and diluted earnings per share.
Common share equivalents included in the computation of diluted earnings
per share include (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
January 31, January 31,
------------------ ------------------
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Stock options -- 141 -- 131
Business acquisition
earn-out agreements -- 180 -- 165
</TABLE>
5. UNCONSOLIDATED JOINT VENTURE
The Company has various unconsolidated joint ventures with ownership
interests of 40% to 50%. The most significant of these ventures is Anchor
Brake Shoe, LLC with operations in West Chicago, Illinois. Summarized
financial information for the Anchor Brake Shoe joint venture for the three
and six months ended January 31, 1999 and 1998 is as follows:
8
<PAGE>
ABC-NACO INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
January 31, January 31,
------------------ ------------------
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net sales $4,675 $4,158 $8,938 $8,274
Gross profit 1,657 1,049 2,867 2,444
Net income 1,098 467 1,743 1,268
</TABLE>
6. ACCOUNTING CHANGES
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. The Company had capitalized certain
start-up costs in prior periods. Effective August 1, 1998, the Company
elected early adoption of this standard and wrote-off $2.6 million ($1.6
million after-tax) of previously capitalized start-up costs.
On November 20, 1997, the FASB Emerging Issues Task Force reached a
consensus that all 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, the Company recorded a non-cash
charge of $1.8 million ($1.1 million after-tax) to reflect the cumulative
effect of this accounting change.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 is effective for
fiscal years beginning after June 15, 1999. SFAS 133 requires all
derivative instruments be recorded on the balance sheet at their fair value
and that changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. The Company has
not yet determined the impact that the adoption of SFAS 133 will have on
its earnings or statement of financial position. However, the Company
anticipates that, due to its limited use of derivative instruments, the
adoption of SFAS 133 will not have a significant effect on its results of
operations or its financial position.
7. SUBSEQUENT EVENT
On February 19, 1999, the shareholders of the Company approved the merger
with NACO, Inc. to create one of the largest suppliers of technologically
advanced products for the railroad industry.
9
<PAGE>
The following unaudited pro forma financial information gives effect to
the Merger under the pooling-of-interests method of accounting, which
means that the recorded assets, liabilities, income and expenses of ABC
and NACO are combined at their historical amounts. The information
assumes the issuance of 8.7 shares of ABC-NACO common stock for each
share of NACO common stock and each NACO common stock equivalent that
was issued and outstanding at the time of the Merger. As permitted in a
pooling-of-interests business combination, the financial information
reflects certain adjustments to conform the accounting policies of both
companies, as described in Note 2 to the Unaudited Pro Forma Combined
Financial Information. These adjustments retroactively conform, for all
periods presented, the accounting policies of ABC and NACO, consistent
with the intent to present ABC and NACO as though they had always been
combined.
The financial information is presented as if the Merger had been
consummated as of August 1, 1997 for the Unaudited Pro Forma Combined
Condensed Statements of Operations and as of January 31, 1999 for the
Unaudited Pro Forma Combined Balance Sheet. ABC-NACO's fiscal year ends
July 31. Prior to the Merger, ABC's fiscal year ended on July 31 and
NACO's fiscal year ended on the Sunday closest to March 31. Thus,
certain of the quarterly periods of ABC and NACO being compared in the
following financial information do not compare the same six month
periods, as permitted under Regulation S-X promulgated by the Securities
and Exchange Commission. For purposes of presenting ABC-NACO's
financial information on a pro forma combined basis, NACO's financial
position as of January 31, 1999 and results of operations for the six
months ended January 31, 1999 and December 28, 1997 have been combined
with ABC's financial position as of January 31, 1999 and results of
operations for the six months ended January 31, 1999 and January 31,
1998, respectively.
The following financial information is being provided for illustrative
purposes only. The financial information is not necessarily indicative
of the operating results and financial position that might have been
achieved had the Merger been consummated at the beginning of the
earliest period presented, nor is it necessarily indicative of operating
results and financial position that may occur in the future. This
information also does not reflect (1) the effect of any operating income
improvements that may be achieved as a result of the Merger, or (2)
costs associated with combining the operations of ABC and NACO.
10
<PAGE>
ABC-NACO INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF JANUARY 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
Historical Pro Forma
-------------------------------------- Adjustments Pro Forma
ABC NACO (See Note 2) Combined
----------------- ----------------- ---------------- ---------------
<S> <C> <C> <C> <C>
ASSETS:
Cash and marketable securities $ 0 $ 540 $ -- $ 540
Accounts receivable, net 48,153 35,258 -- 83,411
Inventories, net 59,829 23,291 -- 83,120
Other current assets 8,690 4,922 -- 13,612
--------- --------- ---------- ---------
Total current assets 116,672 64,011 -- 180,683
Property, plant and equipment, net 151,788 68,334 -- 220,122
Investment in unconsolidated joint ventures 15,109 -- 15,109
Other assets 34,526 585 -- 35,111
--------- --------- ---------- ---------
Total assets $ 318,095 $132,930 $ -- $ 451,025
--------- --------- ---------- ---------
--------- --------- ---------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Cash overdrafts $ 3,614 $ 1,929 $ -- $ 5,543
Accounts payable 36,663 38,250 -- 74,913
Accrued liabilities 14,452 14,342 -- 28,794
Current maturities of long-term debt 2,977 8,393 -- 11,370
--------- --------- ---------- ---------
Total current liabilities 57,706 62,914 -- 120,620
Long-term debt, less current maturities 162,955 43,697 -- 206,652
Other noncurrent liabilities 13,169 13,761 1,965 (c) 28,895
Common stock 90 6 -- 96
Paid-in capital 67,798 271 -- 68,069
Retained earnings 16,377 12,784 (1,965) 27,196
Cumulative translation adjustment -- (503) -- (503)
--------- --------- ---------- ---------
Total stockholders' equity 84,265 12,558 (1,965)(c) 94,858
--------- --------- ---------- ---------
Total liabilities and
stockholders' equity $ 318,095 $132,930 $ -- $ 451,025
--------- --------- ---------- ---------
--------- --------- ---------- ---------
</TABLE>
11
<PAGE>
ABC-NACO INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JANUARY 31, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Historical Pro Forma
-------------------------------------- Adjustments Pro Forma
ABC NACO (See Note 2) Combined
----------------- ----------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Net sales $ 150,935 $182,995 ($1,100)(b) $332,830
Cost of sales 138,077 154,761 (4,924)(a,c) 287,914
--------- --------- ------------ ---------
Gross profit 12,858 28,234 3,824 44,916
Selling, general and administrative expenses 9,718 17,643 4,824 (a) 32,185
--------- --------- ---------- ---------
Operating income 3,140 10,591 (1,000) 12,731
Equity income of unconsolidated joint ventures (553) 0 0 (553)
Interest expense 5,983 2,513 8,496
Other non-operating expense 0 1,100 (1,100)(b) 0
--------- --------- ---------- ---------
Income (loss) before taxes, cumulative
effect of accounting change (2,290) 6,978 100 4,788
Provision (benefit) for income taxes (962) 1,038 40(d) 116
--------- --------- ---------- ---------
Income (loss) before cumulative effect
of accounting change $ (1,328) $ 5,940 $ 60 $ 4,672
--------- --------- ---------- ---------
--------- --------- ---------- ---------
Income (loss) before cumulative effect of
accounting change per share:
Basic ($0.15) $0.26
Diluted ($0.15) $0.25
Weighted average shares outstanding:
Basic 8,976 17,964
Diluted 8,976 18,526
</TABLE>
12
<PAGE>
ABC-NACO INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JANUARY 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Historical Pro Forma
-------------------------------------- Adjustments Pro Forma
ABC NACO (See Note 2) Combined
----------------- ----------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Net sales $ 138,255 $148,255 ($848)(b) $285,662
Cost of sales 124,137 127,650 (4,696)(a,c) 247,091
--------- --------- ----------- ---------
Gross profit 14,118 20,605 3,848 38,571
Selling, general and administrative expenses 7,973 14,477 4,596 (a) 27,046
--------- --------- ---------- ---------
Operating income 6,145 6,128 (748) 11,525
Equity income of unconsolidated joint ventures (669) 0 0 (669)
Interest expense 3,568 2,856 0 6,424
Other non-operating expense 0 848 (848)(b) 0
--------- --------- ---------- ---------
Income before taxes, cumulative effect of
accounting change 3,246 2,424 100 5,770
Provision for income taxes 1,428 1,290 40(d) 2,758
--------- --------- ---------- ---------
Income before cumulative effect of
accounting change $ 1,818 $ 1,134 $ 60 $ 3,012
--------- --------- ---------- ---------
--------- --------- ---------- ---------
Income before cumulative effect of accounting
change per share:
Basic $0.20 $0.17
Diluted $0.20 $0.16
Weighted average shares outstanding:
Basic 8,963 17,834
Diluted 9,259 18,602
</TABLE>
13
<PAGE>
ABC-NACO INC.
NOTES TO UNAUDITED PRO FORMA
COMBINED FINANCIAL INFORMATION
NOTE 1--BASIS OF PRESENTATION
The Unaudited Pro Forma Combined Financial Information assumes the
issuance of 8.7 shares of ABC common stock and common stock equivalents in
exchange for each outstanding share of NACO common stock and common stock
equivalent. This financial information also assumes that the Merger will be
accounted for using the pooling-of-interests method of accounting pursuant to
Opinion No. 16 of the Accounting Principles Board. The pooling-of-interests
method of accounting assumes that ABC and NACO have been merged from their
inception, and the historical financial statements for periods prior to the
consummation of the Merger are restated as though ABC and NACO have been
combined from their inception.
Pursuant to the rules and regulations promulgated by the Securities and
Exchange Commission, the Unaudited Pro Forma Combined Condensed Statements of
Operations exclude the results of operations associated with extraordinary
items and cumulative effects of accounting changes. The Unaudited Pro Forma
Combined Financial Information does not give effect to any cost savings which
may result from the integration of ABC's and NACO's operations, nor does it
include the special charges directly related to the Merger, which were
incurred to complete the Merger and which have been and will continue to be
incurred to achieve anticipated savings.
The financial information is presented as if the Merger had been
consummated as of August 1, 1997 for the Unaudited Pro Forma Combined
Condensed Statements of Operations and as of January 31, 1999 for the
Unaudited Pro Forma Combined Balance Sheet. ABC-NACO's fiscal year ends July
31. Prior to the Merger, ABC's fiscal year ended on July 31 and NACO's
fiscal year ended on the Sunday closest to March 31. Thus, certain of the
quarterly periods of ABC and NACO being compared in the financial statements
do not compare the same six month periods, as permitted under Regulation
S-X promulgated by the Securities and Exchange Commission. For purposes of
presenting ABC-NACO's financial information on a pro forma combined basis,
NACO's financial position as of January 31, 1999 and results of operations
for the six months ended January 31, 1999 and December 28, 1997 have been
combined with ABC's financial position as of January 31, 1999 and results of
operations for the six months ended January 31, 1999 and January 31, 1998,
respectively.
NOTE 2--ADJUSTMENTS TO CONFORM ACCOUNTING POLICIES
As permitted in a pooling-of-interests business combination, the
Unaudited Pro Forma Combined Financial Information reflects certain
adjustments to conform the accounting policies of ABC and NACO. The pro
forma adjustments are as follows:
(a) ABC and NACO classified certain types of plant and administrative costs
differently in their respective classified statements of operations. All
expenses classified in ABC's historical financial statements as a component
of cost of sales have been reclassified as selling, general and
administrative expenses in order to conform the presentation of these
expenses. These expenses were as follows (in thousands):
<TABLE>
<CAPTION>
Six Months Ended
January 31,
----------------
1999 1998
------ ------
<S> <C> <C>
Administrative and accounting salaries
and related costs...............................$3,103 $3,296
Information systems costs and other............... 1,721 1,300
------ ------
$4,824 $4,596
------ ------
------ ------
</TABLE>
14
<PAGE>
ABC-NACO INC.
NOTES TO UNAUDITED PRO FORMA
COMBINED FINANCIAL INFORMATION--(CONTINUED)
(b) ABC and NACO classified cash discounts taken by customers differently in
their respective classified statements of operations. The discounts
classified in NACO's historical financial statements as a component of
other non-operating expense were reclassified as a reduction of net sales
in order to conform the presentation of discounts.
(c) Conformity in the method of original adoption of Statement of Financial
Accounting Standards No. 106--"Employers Accounting for Postretirement
Benefits Other Than Pensions." ABC chose to recognize the 1993 transition
obligation ratably over a 20-year period. NACO chose the option of
immediate recognition. ABC-NACO will follow the immediate recognition
method.
(d) Estimated provision for income taxes related to pro forma adjustments
described in (c) above are based on an assumed combined federal and
state income tax rate of approximately 40%.
As a result, these adjustments retroactively conform, for all periods
presented, the accounting policies of ABC and NACO consistent with the intent
to present ABC and NACO as though they had always been combined.
NOTE 3--MERGER-RELATED CHARGES AND POTENTIAL SAVINGS
In connection with the integration of ABC's and NACO's operations,
ABC-NACO currently expects to record special charges estimated to be between
$15 million and $20 million ($11 million and $14 million on an after-tax
basis). These special charges principally relate to debt refinancing costs
of approximately $5 million to $6 million (including prepayment penalties of
approximately $4.4 million to $5.4 million and write-off of unamortized
deferred financing costs); the direct costs of the Merger (principally
financial advisors, legal, printing and accounting costs) of approximately $7
million to $9 million; and severance and related costs to eliminate
duplicative functions and excess capacity of approximately $3 million to $5
million for salaried and hourly plant and headquarter employee terminations.
ABC-NACO expects to incur these costs within the next six to twelve months.
Substantially all of these costs, other than write-offs of deferred financing
costs, require cash outlays. ABC-NACO will report debt refinancing costs on
an after-tax basis as an extraordinary charge in the quarter ending April 30,
1999. These special charges have not been included in the Unaudited Pro Forma
Combined Condensed Statements of Operations or the Unaudited Pro Forma
Combined Balance Sheet. Management also estimates that incremental capital
expenditures of approximately $9 million over the next six to twelve months
will be necessary to implement the integration of ABC's and NACO's operations.
15
<PAGE>
ABC-NACO INC.
NOTES TO UNAUDITED PRO FORMA
COMBINED FINANCIAL INFORMATION--(CONTINUED)
NOTE 4--NET PER SHARE DATA
The pro forma combined per share data has been computed based on the
combined historical income from continuing operations as adjusted for
retroactive changes in certain accounting methods of ABC and NACO in order to
achieve conformity. The weighted average number of shares outstanding for the
periods presented was calculated to give effect to shares assumed to be
issued under the terms of the Merger Agreement as if the Merger and the
issuance of shares of ABC common stock in the Merger had occurred at the
beginning of the periods presented. For purposes of this calculation, ABC's
weighted average common and equivalent shares outstanding were increased by
NACO's weighted average common and equivalent shares outstanding (as adjusted
by multiplying NACO's shares by 8.7, the merger exchange ratio) for
each period presented.
NOTE 5--OTHER MATTERS
During the six months ended January 31, 1999, NACO reversed a $2.4
million deferred tax liability related to a tax contingency item for which
the statute of limitations expired.
Immediately following the consummation of the Merger, ABC-NACO refinanced
its debt by entering into the Credit Facility. The Credit Facility will
provide ABC-NACO with loans and other extensions of credit of up to $200
million. The initial net proceeds of the Credit Facility were used to
(1) refinance existing bank debt and certain other indebtedness of ABC-NACO,
(2) refinance substantially all of NACO's outstanding debt, (3) provide initial
financing for ABC-NACO's on-going working capital needs, and (4) pay fees and
expenses relating to the Merger and the Credit Facility.
16
<PAGE>
Item 2.
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. As noted above in Note 1, the following
information relates to ABC prior to its February 19, 1999 merger with NACO.
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, except where noted, does not
expect any significant departure from the historical demand patterns during
the present fiscal year ending July 31, 1999.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JANUARY 31, 1999 COMPARED TO THREE MONTHS ENDED
JANUARY 31, 1998
NET SALES. Net sales increased 4.3% to $73.4 million from $70.4 million. The
increase in sales is due primarily to an increase in sales in the Wheel
Manufacturing and Wheel Services Division ($8.2 million), with production up
substantially over last year at the wheel manufacturing facility, along with
increased activity in the wheel services group to support customers that
build new railcars. Offsetting this increase was a $6.8 million reduction in
sales within the Track Products Division. Track orders from two of our major
Class I Railroad customers were down significantly from the second quarter
last year. The decline in orders from one of these major customers is due to
an across-the-board reduction in orders for capital goods by that customer
that may also impact future periods.
GROSS PROFIT AND COST OF SALES. Gross profit decreased to 6.7% of revenue in
1999 from 10.4% of revenue in 1998. The decrease in the gross profit is
primarily the result of the reduction in the Track Products Division as a
result of lower sales volume and inefficiencies during the initial start-up
of production at the Company's new state-of-the-art Rail Mill, partially
offset by the improved operating results of the Wheel Division. The gross
profit margin for the Track Products Division decreased approximately 95%
(11.9 percentage points), while the gross profit margin for the Wheel
Division increased 4% (0.4 percentage points).
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $0.7 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) and other
general increases.
17
<PAGE>
OTHER. On November 20, 1997, the FASB Emerging Issues Task Force reached a
consensus that all 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, the Company recorded a non-cash charge of
$1.8 million ($1.1 million after-tax) to reflect the cumulative effect of
this accounting change.
Interest expense, net of $0.9 million capitalized on the Company's major
capitalization projects, increased $2.3 million, due primarily to an overall
higher level of debt to support working capital increases and capital project
spending.
SIX MONTHS ENDED JANUARY 31, 1999 COMPARED TO SIX MONTHS ENDED JANUARY 31, 1998
NET SALES. Net sales increased 9.2% to $150.9 million from $138.3 million.
The increase in sales is due primarily to a general increase in sales in the
Wheel Services Division ($18.3 million) and the additional sales associated
with the second quarter of fiscal 1998 acquisition of United Railway Signal
Group, Inc. Offsetting this increase was a $10.6 million reduction in sales
within the Track Products Division. Track orders from two of our major Class
I Railroad customers were down significantly from the first six months of
last year. The decline in orders from one of these major customers is due to
an across-the-board reduction in orders for capital goods by that customer
that may also impact future periods.
GROSS PROFIT AND COST OF SALES. Gross profit decreased from 10.2% of revenue
in 1998 to 8.5% of revenue in 1999. The decrease in the gross profit is
primarily the result of the reduction in the Track Products Division as a
result of lower sales volume and the inefficiencies during initial start-up
of production at the Company's new state-of-the-art Rail Mill, partially
offset by the improved operating results of the Wheel Division. The gross
profit margin for the Track Products Division decreased approximately 54%
(6.6 percentage points), while the gross profit margin for the Wheel Division
increased 27% (2.2 percentage points).
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $1.7 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 our
customers, the additional effort required to support the Company's new
information systems (SAP's R/3 enterprise-wide software), and other general
increases.
OTHER. The non-cash effect of an accounting change of $2.6 million ($1.6
million after-tax) in fiscal 1998 represents the write-off, in accordance
with Statement of Position 98-5, of previously capitalized start-up costs.
On November 20, 1997, the FASB Emerging Issues Task Force reached a consensus
that all 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, the Company recorded a non-cash, charge of
$1.8 million ($1.1 million after-tax) to reflect the cumulative effect of
this accounting change.
Interest expense, net of $0.2 million capitalized on the Company's major
capitalization projects, increased $2.3 million, due primarily to an overall
higher level of debt to support working capital increases and capital project
spending.
18
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
For the six months ended January 31, 1999 and 1998, net cash provided by
(used in) operating activities totaled $3.8 million and ($0.3) million,
respectively. The increase in operating cash flow is due primarily to a net
reduction in working capital.
Capital expenditures during the first six months of fiscal 1999 and 1998 were
$20.9 million and $26.4 million, respectively. Spending during the first half
of fiscal 1999 is related primarily to cost associated with the
implementation of SAP's R/3 enterprise-wide software, a new track panel
facility in Ashland, Wisconsin, normal improvements to the Calera, Alabama
wheel plant and production equipment for a new facility to process used rail
into reusable heat-treated and head-hardened rail.
At the beginning of the second quarter of fiscal 1998, the Company acquired
United Railway Signal Group, Inc. ("URSG") headquartered in Jacksonville,
Florida for a combination of cash and the Company's common stock totaling
$1.5 million. URSG provides independent signal engineering services to the
railroad industry. 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 next three years. This acquisition was accounted for under the
purchase method of accounting.
For the six months ended January 31, 1999 and 1998, net cash provided by
financing activities totaled $17.0 million and $28.1 million respectively.
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 "8-3/4% Notes"). The Company
used the $24.1 million of net proceeds of this Offering to repay indebtedness
under its primary credit facility. The 8-3/4% 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. The 8-3/4% Notes rank with the 9-1/8% Notes.
Financing costs of $1.2 million were deferred in connection with the issuance
of the 8-3/4% Notes. The 8-3/4% Notes will mature in 2000, unless repurchased
earlier at the option of the Company on or after December 31, 1999 at 102% of
face value prior to December 30, 2000 or at 100% of face value thereafter.
The 8-3/4% Notes are subject to mandatory repurchase or redemption prior to
maturity upon a change of control (as defined in the Indenture). The
Indenture under which the 8-3/4% Notes were issued subjects the Company to
various financial covenants which are substantially similar to the covenants
relating to the 9-1/8% Notes.
In December, 1998, a $3.0 million IRB was issued on behalf of the Company for
the new paneling facility in Ashland, Wisconsin. The IRB's bear an adjustable
rate of interest as determined by the Public Bond Market Association. As of
January 31, 1999, the adjustable interest rate on the bonds was set at 2.8%.
The bonds mature in December 2018.
19
<PAGE>
Immediately after consummation of the Merger (see Note 7), the Company
entered into a new credit facility (the "Credit Facility") with a syndicate
of financial institutions. The Credit Facility will provide the Company with
loans and other extensions of credit of up to $200 million. . The initial net
proceeds of the Credit Facility were used to (1) refinance existing bank debt
and certain other indebtedness of the Company, (2) refinance substantially
all of NACO's outstanding debt, (3) provide initial financing for the
Company's on-going working capital needs, and (4) pay fees and expenses
relating to the Merger and the Credit Facility. The Credit Facility has a
LIBOR-based variable interest rate index and presently pays a 1.5% spread
over the LIBOR base rate. The Credit Facility's covenants include ratio
restrictions on total leverage, senior leverage, interest coverage, a minimum
net worth restriction and restrictions on capital expenditures.
During the second quarter of fiscal 1999, the Company suspended activity on
the project to process used rail into reusable heat-treated and head-hardened
rail. The project is being re-evaluated in conjunction with the ABC-NACO
merger.
The following Year 2000 ("Y2K") discussion relates to ABC prior to the merger
with NACO. As described in detail in Item 7 of the Company's fiscal 1998 Form
10-K, the Company is actively addressing its Y2K issues. The Company remains
on target with the remediation initiatives detailed in the Form 10-K. 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 Y2K
compliant. If the Company's major customers and suppliers are not and do not
become Y2K compliant on a timely basis, the Company's results of operations
could be adversely affected.
REGARDING FORWARD-LOOKING STATEMENTS
Safe Harbor Statement Under the Private Securities Litigation Reform Act of
1995: The statements contained in this release which are not historical
facts, such as those concerning future financial performance and growth, may
be deemed to be forward-looking statements that are subject to change based
on various factors which may be deemed to be forward-looking statements that
are subject to change based on various factors which may be beyond the
control of ABC-NACO Inc. Accordingly, actual results of the company could
differ materially from those expressed or implied in any such forward-looking
statement. Factors that could affect actual results are described more fully
in the ABC Rail Products Corporation Proxy Statement/Prospectus dated January
21, 1999, under the caption "Cautionary Statement Concerning Forward Looking
Statements."
20
<PAGE>
Part II OTHER INFORMATION
- ------- -----------------
Item 3 - Quantitative and Qualitative Disclosures about Market Risks
ABC's market risk sensitive instruments do not subject ABC to material
market risk exposures, except as such risks related to interest rate
fluctuations. As of January 31, 1999, ABC has long-term debt
outstanding with a carrying value of $162.9 million. The estimated
fair value of this debt is $160.4 million. ABC historically has not
entered into interest rate protection agreements. Fixed interest rate
debt outstanding as of January 31, 1999 represents 47.2% of total
debt, carries an average interest of 8.9% and matures as follows:
$0.01 million in fiscal 1999, $0.05 million in fiscal 2000, $0.5
million in fiscal 2001, $0.5 million in fiscal 2002, $0.6 million in
fiscal 2003 and $76.2 million thereafter. Variable interest rate debt
outstanding as January 31, 1999 had an average interest rate at that
date of 6.9% and matures as follows: $1.3 million in fiscal 1999,
$78.3 million in fiscal 2000, $2.4 million in fiscal 2001, $2.4
million in fiscal 2002, $0.2 million in fiscal 2003 and $3.0 million
thereafter.
Item 4 - Submission of Matters to a Vote of Security Holders
On February 19, 1999, ABC held a special meeting of stockholders.
The following matters were submitted for shareholder approval:
1.) The issuance of shares pursuant to the Amended and Restated
Agreement and Plan of Merger (the "Merger Agreement") dated as of
December 10, 1998, which provides for the merger of ABCR
Acquisition Sub., Inc. with and into NACO Inc. The votes cast
for, votes cast against and abstentions were as follows:
<TABLE>
<CAPTION>
For Against Abstain
--------- ------- -------
<S> <C> <C> <C>
7,329,721 4,312 10,600
</TABLE>
2.) To amend the ABC's certificate of incorporation to provide
for a classified board of directors as provided in the merger
agreement. The votes cast for, votes cast against and abstentions
were as follows:
<TABLE>
<CAPTION>
For Against Abstain
--------- ------- -------
<S> <C> <C> <C>
6,130,603 1,212,474 10,600
</TABLE>
3.) To amend the ABC's certificate of incorporation to change the
name of the corporation to "ABC-NACO Inc.". The votes cast for,
votes cast against and abstentions were as follows:
<TABLE>
<CAPTION>
For Against Abstain
--------- ------- -------
<S> <C> <C> <C>
7,794,016 4,542 10,050
</TABLE>
21
<PAGE>
4.) To consider a proposal to postpone or adjourn the Special
Meeting, if proposed by the Company's board of directors. The
votes cast for, votes cast against and abstentions were as
follows:
<TABLE>
<CAPTION>
For Against Abstain
--------- ------- -------
<S> <C> <C> <C>
4,934,499 2,421,229 360,890
</TABLE>
Item 5 - Other Information
On February 19, 1999, the Company consummated its Merger with NACO, a
privately held Delaware corporation that designs, manufactures and
supplies highly engineered cast steel and related products for the
railroad supply and flow control supply markets. Pursuant to the
Amended and Restated Agreement and Plan of Merger, dated as of
December 10, 1998, as amended as of February 16, 1999, by and among
ABC, ABCR, a Delaware corporation and wholly owned subsidiary of ABC,
and NACO, ABCR merged with and into NACO, and NACO became a wholly
owned subsidiary of ABC. As a result of the Merger, each outstanding
share of NACO common stock was converted into 8.7 shares of ABC common
stock. ABC issued approximately 9.4 million shares of its common
stock. The Merger was treated as a tax-free reorganization for federal
income tax purposes and will be accounted for as a
pooling-of-interests transaction. In connection with the Merger, ABC
filed a certificate of amendment to its Restated Certificate of
Incorporation (1) changing its name to "ABC-NACO Inc." and (2)
providing for a classified board of directors.
Immediately after consummation of the Merger, the Company entered into
a new credit facility (the "Credit Facility") with a syndicate of
financial institutions in which Bank of America National Trust &
Savings Association acted as the Agent and Letter of Credit Issuing
Lender and Bank of America Canada acted as the Canadian Revolving
Lender. The Credit Facility will provide the Company with loans and
other extensions of credit of up to $200 million. The initial net
proceeds of the Credit Facility were used to (1) refinance existing
bank debt and certain other indebtedness of the Company, (2) refinance
substantially all of NACO's outstanding debt, (3) provide initial
financing for the Company's on-going working capital needs, and (4)
pay fees and expenses relating to the Merger and the Credit Facility.
On March 4, 1999, the Company issued a press release reporting (1)
ABC's earnings and, on a pro forma combined basis, ABC-NACO's
earnings, for the three months and the six months ended January 31,
1999 and 1998, and (2) certain initiatives that the Company will be
undertaking within its track products group to reduce manufacturing
costs and increase profitability.
22
<PAGE>
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<S> <C>
2.1 Amended and Restated Agreement and Plan of Merger, dated as of
December 10, 1998 (the "Merger Agreement"), by and among ABC,
ABCR Acquisition Sub, Inc. and NACO (incorporated herein by
reference to Exhibit 2.1 to ABC's Registration Statement on
Form S-4 (Reg. No. 333-65517), as filed with the Securities
and Exchange Commission on January 21, 1999).
2.2 Amendment to the Merger Agreement, dated as of February 16,
1999, by and among ABC, ABCR, ABCR Acquisition Sub, Inc. and
NACO (incorporated by reference by Exhibit 2.2 to ABC-NACO's
Current Report on Form 8-K dated February 19, 1999 (the
"Form 8-K")).
3.1 Restated Certificate of Incorporation, as amended (incorporated
by reference to Exhibit 3.1 to the Form 8-K).
3.2 Restated By-Laws (incorporated by reference to Exhibit 3.2 to
the Form 8-K).
4.1 Credit Agreement, dated as of February 19, 1999, among
ABC-NACO, ABC-NACO de Mexico, S.A. de C.V., Dominion Castings
Limited, Bank of America Canada (as Canadian Revolving Lender),
Bank of America National Trust and Savings Association (as Agent
and Letter of Credit Issuing Lender), and the other financial
institutions party thereto (incorporated by reference to
Exhibit 4.1 to the Form 8-K).
4.2 Specimen Common Stock Certificate.
10.1 Registration Rights Agreement, dated as of February 19, 1999, by
and among ABC and certain affiliates of NACO listed as parties
thereto.
10.2 Form of Amended and Restated Employment Agreement, dated as of
February 19, 1999, entered into between ABC and each of Joseph A.
Seher, Vaughn W. Makary, Wayne R. Rockenbach and John W. Waite.
10.3 Form of Stock Purchase Agreement entered into between NACO and
certain of its employees.
27.1 Financial Data Schedule.
</TABLE>
(b) Reports on Form 8-K
ABC-NACO filed a Form 8-K on March 5, 1999 to announce the
consummation of the merger with NACO, Inc. (pursuant to the
merger agreement dated as of December 10, 1998, as amended as of
February 16, 1999), the changing of ABC's name to ABC-NACO Inc.
and providing for a classified board of directors. The Form 8-K
also describes the new credit facility.
23
<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-NACO INC.
By: /s/ J. P. Singsank
---------------------------
J. P. Singsank
Vice President - Finance
(Principal Financial and Accounting
Officer)
Date: March 16, 1999
24
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
2.1 Amended and Restated Agreement and Plan of Merger, dated as of
December 10, 1998 (the "Merger Agreement"), by and among ABC, ABCR
Acquisition Sub, Inc. and NACO (incorporated herein by reference to
Exhibit 2.1 to ABC's Registration Statement on Form S-4 (Reg. No.
333-65517), as filed with the Securities and Exchange Commission on
January 21, 1999).
2.2 Amendment to the Merger Agreement, dated as of February 16, 1999,
by and among ABC, ABCR, ABCR Acquisition Sub, Inc. and NACO
(incorporated by reference to Exhibit 2.2 to ABC-NACO's Current
Report on Form 8-K dated February 19, 1999 (the "Form 8-K")).
3.1 Restated Certificate of Incorporation, as amended (incorporated by
reference to Exhibit 3.1 to the Form 8-K).
3.2 Restated By-Laws (incorporated by reference to Exhibit 3.2 to the
Form 8-K).
4.1 Credit Agreement, dated as of February 19, 1999, among ABC-NACO,
ABC-NACO de Mexico, S.A. de C.V., Dominion Castings Limited, Bank
of America Canada (as Canadian Revolving Lender), Bank of America
National Trust and Savings Association (as Agent and Letter of
Credit Issuing Lender), and the other financial institutions party
thereto (incorporated by reference to Exhibit 4.1 to the Form 8-K).
4.2 Specimen Common Stock Certificate.
10.1 Registration Rights Agreement, dated as of February 19, 1999, by
and among ABC and certain affiliates of NACO listed as parties
thereto.
10.2 Form of Amended and Restated Employment Agreement, dated as of
February 19, 1999, entered into between ABC and each of Joseph A.
Seher, Vaughn W. Makary, Wayne R. Rockenbach and John W. Waite.
10.3 Form of Stock Purchase Agreement entered into between NACO and
certain of its employees.
27.1 Financial Data Schedule.
<PAGE>
EXHIBIT 4.2
[SPECIMEN ABC-NACO INC. COMMON STOCK CERTIFICATE]
[ABC-NACO logo]
NUMBERABC-NACO INC.SHARES
ABCA DELAWARE CORPORATION
COMMONCOMMON
CUSIP 000752 10 5
THIS CERTIFIES THAT
SEE REVERSE FOR
CERTAIN DEFINITIONS
is the owner of
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK ($.01 PAR VALUE) OF
ABC-NACO INC.
transferable on the books of the Corporation by the holder hereof in person
or by duly authorized attorney, upon the surrender of this certificate
properly endorsed.
This Certificate is not valid until countersigned by the Transfer Agent
and registered by the Registrar.
Witness the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated
/s/ John S. Lison /s/ Joseph A. Seher
------------------------- [ABC-NACO seal] ------------------------
SECRETARY CHIEF EXECUTIVE OFFICER
Countersigned and Registered:
AMERICAN STOCK TRANSFER & TRUST COMPANY
(New York, New York)
Transfer Agent and Registrar
By
Authorized Officer
<PAGE>
ABC-NACO INC.
ABC-NACO INC. will furnish without charge to each stockholder who so
requests the powers, designations, preferences, and relative, participating,
optional or other special rights of each class of stock or series thereof of
the Corporation, and the qualifications, limitations or restrictions of such
preferences and/or rights. Such request may be made to the Corporation or
the Transfer Agent.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C> <C>
TEN COM-- as tenants in common UNIF GIFT MIN ACT ............. Custodian...........
(Cust) (Minor)
TEN ENT-- as tenants by the entireties under Uniform Gifts to Minors Act
JT TEN -- as joint tenants with rights of
survivorship and not as tenants .................................
in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
TRANSFER FORM
COMPLETE THIS FORM ONLY WHEN TRANSFERRING TO ANOTHER PERSON
For value received _________________________________________ hereby sell
assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
(please typewrite name and address)
Shares
represented by the within Certificate and do hereby irrevocably constitute
and appoint _____________________________________________ attorney to
transfer the same on the books of the within-named Corporation, with full
power of substitution in the premises.
Dated ___________________________
SIGNATURE GUARANTEED BY
SIGNATURE(S)
_________________________________ NOTICE: The signature(s) to this assignment
must correspond with the name as written upon the face of the certificate in
every particular, without alteration or enlargement or any change whatsoever.
<PAGE>
EXHIBIT 10.1
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is entered into as of
this 19th day of February, 1999 by and among ABC Rail Products Corporation, a
Delaware corporation ("ABC") and the stockholders listed on the signature page
of this Agreement (each, a "Stockholder" and collectively, the "Stockholders").
WHEREAS, ABC is a party to an Agreement and Plan of Merger with NACO, Inc.,
a Delaware corporation ("NACO"), and ABCR Acquisition Sub, Inc., a Delaware
corporation and wholly owned subsidiary of ABC ("Merger Subsidiary") dated as of
September 17, 1998 and amended and restated as of December 10, 1998, as further
amended as of February 16, 1999 (the "Merger Agreement");
WHEREAS, pursuant to the merger (the "Merger") contemplated by the Merger
Agreement all issued and outstanding shares of common stock, par value $.01 per
share, of NACO ("NACO Common Stock"), including shares beneficially owned by the
Stockholders, will be converted at the Effective Time of the Merger into shares
of common stock, par value $0.01 per share, of ABC ("ABC Common Stock");
WHEREAS, the parties hereto desire to make provisions for the registration
of possible resales of ABC Common Stock beneficially owned immediately after the
Merger by the Stockholders who otherwise are restricted by Rule 144 under the
Act in their resales of ABC Common Stock; and
WHEREAS, the undertakings and agreements of ABC contained herein are a
material inducement to the Stockholders to consummate and effect the
transactions contemplated by the Merger Agreement;
NOW, THEREFORE, the parties hereto agree as follows:
(a) DEFINITIONS. For purposes of this Agreement:
(i) The term "Act" means the Securities Act of 1933, as heretofore
or hereafter amended;
(ii) The terms "register," "registered," and "registration" refer to
a registration effected by preparing and filing a registration statement or
similar document in compliance with the Act, and the declaration or
ordering of effectiveness of such registration statement or document;
(iii) The term "Registrable Securities" means the shares of ABC
Common Stock beneficially owned by the Stockholders immediately after the
Merger, and any securities paid, issued or distributed in respect of such
shares by way of stock dividend or distribution
<PAGE>
or stock split or in connection with a combination of shares,
recapitalization, reorganization, merger, consolidation or otherwise.
(iv) The term "Sellers" means the Stockholders who elect to join in
a registration effected pursuant to this Agreement; and
(v) All other capitalized terms not defined herein shall have the
meanings assigned to them in the Merger Agreement.
(b) DEMAND RIGHTS.
(i) If ABC shall receive at any time after 180 days after the
Effective Time of the Merger, a written request from Stockholders
beneficially owning at least two percent (2%) of the then outstanding
shares of ABC Common Stock that ABC file a registration statement under the
Act for a public offering of all or a part of the Registrable Securities
(which written request shall specify the aggregate number of shares of
Registrable Securities requested to be registered), then ABC shall effect
such registration of Registrable Securities in accordance with this
Agreement; provided, however, that ABC shall not be required to take any
action pursuant to this Paragraph (b) unless the requested registration
relates to at least 360,000 shares of Registrable Securities.
(ii) If the Sellers intend to distribute the Registrable Securities
covered by their request by means of an underwriting, they shall so advise
ABC as a part of the request made pursuant to the foregoing Subparagraph
(b)(i), in which event the managing underwriter shall be selected by ABC
with the prior written consent of the Sellers holding a majority in number
of the Registrable Securities covered by the registration request.
(iii) ABC may postpone a registration requested pursuant to
Subparagraph (b)(i) for a period not to exceed 90 days if, at the time ABC
receives a registration request pursuant to Subparagraph (b)(i), ABC is
engaged in confidential negotiations or other confidential business
activities (a "Confidential Transaction"), the disclosure of which, based
upon the written advice of outside counsel, would be required in the
registration statement, and the Board of Directors of ABC determines in
good faith that such disclosure would be materially detrimental to ABC and
its stockholders or would have a material adverse effect on the
Confidential Transaction.
(iv) (a) ABC will not include in any demand registration pursuant
to this Paragraph (b) any securities which are not Registrable Securities
without the prior written consent of the Sellers holding a majority in
number of the Registrable Securities covered by the registration request,
subject to ABC's obligations existing at the date hereof to register
additional shares of ABC Common Stock as set forth on Exhibit A hereto.
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<PAGE>
(b) If a demand registration pursuant to this Paragraph (b) is
an underwritten offering and the managing underwriter advises ABC in
writing that in its opinion the number of Registrable Securities requested
to be included in such offering and, if permitted, the number of securities
which are not Registrable Securities requested to be included in such
offering exceed the number of securities which can be sold in an orderly
manner in such offering within a price range acceptable to the Sellers
holding a majority in number of Registrable Securities covered by the
registration request, ABC will include in such registration, FIRST, prior
to the inclusion of any securities which are not Registrable Securities,
the number of Registrable Securities requested to be included which in the
opinion of such underwriter can be sold in an orderly manner within the
price range of such offering, pro rata (as nearly as practicable) among the
Sellers on the basis of the number of Registrable Securities proposed to be
sold by each such Seller; and SECOND, the number of securities which are
not Registrable Securities requested to be included which in the opinion of
such underwriter can be sold in an orderly manner within the price range of
such offering, pro rata (as nearly as practicable) among the holders of
such securities on the basis of the number of securities proposed to be
sold by each such holder.
(v) Upon the closing of a demand registration pursuant to this
Paragraph (b), each Seller agrees not to effect any public sale or
distribution of equity securities, or any securities convertible into or
exchangeable or exercisable for such securities, of ABC for a period of at
least 90 days after such closing.
(vi) ABC agrees:
(a) not to effect any public sale or distribution of its
equity securities, or any securities convertible into or exchangeable
or exercisable for such securities, during the 25-day period prior to
and during the 90-day period beginning on the effective date of any
underwritten registration under this Paragraph (b) (except pursuant to
(i) registrations on Form S-8 or any successor form, and (ii)
registrations on a form which does not include substantially the same
information as would be required to be included in a registration
statement covering the sale of the Registrable Securities or which
does not permit the inclusion of shares of persons other than ABC)
unless the underwriters managing the registered public offering
otherwise agree, and
(b) after the date hereof not to grant, directly or
indirectly, any other persons the right to request ABC to register any
equity securities of ABC in excess of the number of shares equal to
four percent (4%) of the then outstanding shares of ABC Common Stock.
(c) PIGGYBACK RIGHTS. If ABC proposes to register shares of its Common
Stock for a public offering (including an offering by stockholders other than
the Sellers but excluding an offering to employees on Form S-8 or any other
offering on a form which does not include
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<PAGE>
substantially the same information as would be required to be included in a
registration statement covering the sale of the Registrable Securities or which
does not permit the inclusion of shares of persons other than ABC), ABC shall
promptly give the Stockholders written notice of such proposed registration.
Upon the written request of any Stockholder given within 20 days after mailing
of such notice by ABC, ABC shall, subject to the provisions of Paragraph (g)
hereof, use its reasonable best efforts to register under the Act all of the
Registrable Securities that any Stockholder has requested to have included. The
Sellers' participation in a registration pursuant to this Paragraph (c) shall be
conditioned upon the Sellers' complete and full cooperation on a timely basis
with all requirements reasonably established by ABC and/or the managing
underwriter in the course of such registration.
(d) OBLIGATIONS OF ABC. Whenever required under this Agreement to effect
the registration of any Registrable Securities, ABC shall, as expeditiously as
possible:
(i) Prepare and file with the Securities and Exchange Commission
(the "SEC") (or any successor agency) a registration statement with respect
to such Registrable Securities (provided that before filing a registration
statement or prospectus or any amendments or supplements thereto, ABC will
furnish on a timely basis to the counsel selected by Sellers copies of all
such documents required to be filed, which documents in the case of a
registration under Paragraph (b) will be subject to review by such
counsel), and use its reasonable best efforts to cause such registration
statement to become effective, and, upon the request of the Sellers, use
its reasonable best efforts to keep such registration statement effective
for up to 120 days;
(ii) Prepare and file with the SEC such supplements and amendments
to such registration statement and the prospectus used in connection with
such registration statement as may be necessary to comply with the
provisions of the Act with respect to the disposition of all securities
covered by such registration statement during an effective period, if
requested by the Sellers, of not to exceed 120 continuous days;
(iii) Furnish to the Sellers such numbers of copies of the
prospectus, including a preliminary prospectus in conformity with the
requirements of the Act, and such other documents as the Sellers may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them;
(iv) Use its reasonable best efforts to expeditiously register or
qualify the Registrable Securities under such securities or Blue Sky laws
of such jurisdictions within the United States as shall be appropriate or
reasonably requested by the Sellers;
(v) In the case of a registration under Paragraph (b), enter into
such customary agreements (including underwriting agreements in customary
form) and take all such other actions as the holders of a majority of the
shares of Registrable Securities being sold or the underwriters, if any,
reasonably request in order to expedite or facilitate the disposition of
such Registrable Securities, including, without limitation:
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<PAGE>
(a) making such representations and warranties to the
underwriters in form, substance and scope, reasonably satisfactory to
the managing underwriter, as are customarily made by issuers to
underwriters in underwritten secondary offerings;
(b) obtaining opinions and updates thereof of counsel, which
counsel and opinions to ABC (in form, scope and substance) shall be
reasonably satisfactory to the managing underwriter, addressed to the
managing underwriter covering the matters customarily covered in
opinions requested in underwritten secondary offerings and such other
matters as may be reasonably requested by the managing underwriter;
(c) causing the underwriting agreements to set forth in full
the indemnification provisions and procedures of Paragraph (j) below
(or such other substantially similar provisions and procedures as the
managing underwriter shall reasonably request) with respect to all
parties to be indemnified pursuant to said Paragraph (j); and
(d) delivering such documents and certificates as may be
reasonably requested by the Sellers to evidence compliance with the
provisions of this Subparagraph (d)(v) and with any customary
conditions contained in the under-writing agreement or other agreement
entered into by ABC; and
(vi) Promptly notify each Seller at any time when a prospectus
relating thereto is required to be delivered under the Act, of the
happening of any event as a result of which the prospectus included in such
registration statement contains an untrue statement of a material fact or
omits any material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading,
and, at the request of any such Seller, ABC will promptly prepare and
furnish such Seller a supplement or amendment to such prospectus so that,
as thereafter delivered to the purchasers of such Registrable Securities,
such prospectus will not contain an untrue statement of a material fact or
omit to state any material fact necessary to make the statements therein,
in the light of the circumstances under which they were made, not
misleading.
(e) SELLER INFORMATION. It shall be a condition precedent to the
obligations of ABC to take any action pursuant to this Agreement that the
Sellers shall furnish to ABC such information regarding themselves, the
Registrable Securities held by them, and the intended method of disposition of
such securities as shall be required to effect the registration of their
Registrable Securities.
(f) EXPENSES. ABC shall pay all fees and expenses incurred in connection
with any registration pursuant to this Agreement, including, without limitation,
all registration, filing and qualification fees and expenses, accounting fees,
fees and disbursements of counsel for ABC, printing fees, listing fees,
miscellaneous travel and other out-of-pocket expenditures incurred by ABC.
Sellers shall pay all fees and disbursements of counsel for Sellers and all
underwriting
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<PAGE>
discounts and all commissions or brokerage fees applicable to the Registrable
Securities sold by them and all miscellaneous travel and other out-
of-pocket expenditures incurred by them.
(g) UNDERWRITING REQUIREMENTS. In connection with any offering involving
an underwriting of shares, ABC shall not be required under Paragraph (c) to
include any of the Registrable Securities in such underwriting unless Sellers
accept the terms of the underwriting as agreed upon between ABC and the
underwriters selected by it, and then only in such quantity as will not, in the
opinion of the underwriters, jeopardize the success of the offering by ABC. If
the total number of Registrable Securities that Sellers request be included in
such offering exceeds (when combined with the securities being offered by ABC
and any other selling stockholders having rights to participate in such
offering) the number of securities that the underwriters reasonably believe
compatible with the success of the offering by ABC, then ABC shall be required
to include in the offering only that number of securities, including Registrable
Securities, which the underwriters believe will not jeopardize the success of
the offering by ABC, the securities so included to be allocated pro rata (as
nearly as practicable) among the Sellers and other selling stockholders on the
basis of the number of securities proposed to be sold by each.
(h) SUCCESSORS AND ASSIGNS. The registration rights provided by this
Agreement shall be binding upon and inure to the benefit of ABC (and its
successors and assigns), and the Stockholders (and any affiliates thereof to
whom the Registrable Securities are transferred, sold or disposed). Except as
expressly stated in the foregoing sentence, the registration rights provided by
this Agreement may not be assigned by the Stockholders without the prior written
consent of ABC.
(i) LIMITS ON RIGHTS. The right of the Stockholders to require a
registration pursuant to Paragraph (b) shall be limited to two registrations.
Participation in a registration pursuant to Paragraph (c) shall be limited, as
to any Stockholder, to a single registration and any Stockholder participating
in a registration pursuant to Paragraph (c) shall have no right to participate
in any further registration pursuant thereto unless such Stockholder was not
allowed to register at least seventy-five percent (75%) of the Registrable
Securities requested for inclusion in such registration due to the operation of
Paragraph (g) above. The failure of the Sellers to sell all of the Registrable
Securities offered in a registration effected pursuant to Paragraph (b) shall
not entitle any of the Sellers to require or participate in any further
registration under Paragraph (b) of ABC securities.
(j) INDEMNIFICATION.
(i) ABC agrees to indemnify, to the extent permitted by law, each
holder of Registrable Securities, its officers, directors, stockholders,
partners and employees and each person who controls (within the meaning of
the Act) such holder against all losses, claims, damages, liabilities and
expenses whatsoever, as incurred, and reasonable fees and expenses of
counsel incurred in investigating, preparing or defending against, or
aggregate amounts paid in settlement of any litigation, action,
investigation or proceeding by any governmental agency or body, commenced
or threatened, in each case whether or not a party, or any claim whatsoever
based upon, caused by or arising out of any untrue or alleged untrue
statement
6
<PAGE>
of material fact contained in any registration statement, prospectus or
preliminary prospectus or any amendment thereof or supplement thereto or
any omission or alleged omission of a material fact required to be stated
therein or necessary to make the statements therein not misleading, except
insofar as the same are caused by or contained in any information furnished
in writing to ABC by such holder expressly for use therein or by such
holder's failure to deliver a copy of the registration statement or
prospectus or any amendments or supplements thereto after ABC has furnished
such holder with a sufficient number of copies of the same. In connection
with an underwritten offering, ABC will indemnify such underwriters, their
officers and directors and each person who controls (within the meaning of
the Act) such underwriters to the same extent as provided above with
respect to the indemnification of the holders of Registrable Securities.
(ii) In connection with any registration statement in which a holder
of Registrable Securities is participating, each such holder will furnish
to ABC in writing such information as ABC reasonably requests for use in
connection with any such registration statement or prospectus and, to the
extent permitted by law, will indemnify ABC, its directors, stockholders,
employees and officers and each person who controls (within the meaning of
the Act) ABC against any losses, claims, damages, liabilities and expenses
whatsoever, as incurred, and reasonable fees and expenses of counsel
incurred in investigating, preparing or defending against, or aggregate
amounts paid in settlement of any litigation, action, investigation or
proceeding by any governmental agency or body, commenced or threatened, in
each case whether or not a party, or any claim whatsoever based upon,
caused by or arising out of any untrue or alleged untrue statement of
material fact contained in the registration statement, prospectus or
preliminary prospectus or any amendment thereof or supplement thereto or
any omission or alleged omission of a material fact required to be stated
therein or necessary to make the statements therein not misleading, but
only to the extent that such untrue statement or omission is contained in
any information so furnished in writing by such holder expressly for such
purpose and is reasonably relied upon in conformity with such written
information.
(iii) Any person entitled to indemnification hereunder will (a) give
reasonably prompt written notice to the indemnifying party of any claim
with respect to which he or it seeks indemnification and (b) unless in such
indemnified party's reasonable judgment a conflict of interest between such
indemnified and indemnifying parties may exist with respect to such claim,
permit such indemnifying party to assume the defense of such claim with
counsel reasonably satisfactory to the indemnified party. If such defense
is assumed, the indemnifying party will not be subject to any liability for
any settlement made by the indemnified party without his or its consent
(but such consent will not be unreasonably withheld). An indemnifying
party who is not entitled to, or elects not to, assume the defense of a
claim will not be obligated to pay the fees and expenses of more than one
counsel for all parties indemnified by such indemnifying party with respect
to such claim, unless in the reasonable judgment of any indemnified party a
conflict of interest may exist between such indemnified party and any other
of such indemnified parties with respect to such claim.
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<PAGE>
(iv) The indemnification provided for under this Agreement will
remain in full force and effect regardless of any investigation made by or
on behalf of the indemnified party or any officer, director or controlling
person of such indemnified party and will survive the transfer of
securities. ABC also agrees to make such provisions, as are reasonably
requested by any indemnified party, for contribution to such party in the
event ABC's indemnification is unavailable for any reason. Such right to
contribution shall be in such proportion as is appropriate to reflect the
relative fault of and benefits to ABC on the one hand and the Sellers on
the other (in such proportions that the Sellers are severally, not jointly,
responsible for the balance), in connection with the statements or
omissions which resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. The
relative benefits to the indemnifying party and indemnified parties shall
be determined by reference to, among other things, the total proceeds
received by the indemnifying party and the indemnified parties in
connection with the offering to which losses, claims, damages, liabilities
or expense relate. The relative fault of the indemnifying party and
indemnified parties shall be determined by reference to, among other
things, whether the action in question, including any untrue or alleged
untrue statement of a material fact or omission or alleged omission to
state a material fact, has been made by, or relates to information supplied
by, such indemnifying party or the indemnified parties, and the parties'
relative intent, knowledge, access to information and opportunity to
correct or prevent such action.
The parties hereto agree that it would not be just or equitable
if contribution pursuant hereto were determined by pro rata allocation or
by any other method of allocation which does not take account of the
equitable considerations referred to in the immediate preceding paragraph.
No person found guilty of any fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from
any person who was not found guilty of such fraudulent misrepresentation.
Notwithstanding the provisions of this Subparagraph (j)(iv), no Seller
shall be required to contribute any amount in excess of the net amount of
proceeds received by such Seller from the sale of Registrable Securities
pursuant to the registration statement.
(k) ENTIRE AGREEMENT; MODIFICATION; AMENDMENT. This Agreement constitutes
the entire Agreement between the parties covering the subject matter hereof and
supersedes all prior agreements or understandings whether written or oral. This
Agreement may not be modified or amended other than in a writing signed by ABC
and Stockholders holding a majority of the Registrable Securities.
(l) NO INCONSISTENT AGREEMENTS. ABC will not hereafter enter into any
agreement with respect to its securities which is inconsistent with or violates
the rights granted to the holders of Registrable Securities in this Agreement.
(m) ADJUSTMENTS AFFECTING REGISTRABLE SECURITIES. ABC will not take any
action, or permit any change to occur, with respect to its securities which
would materially and adversely affect
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<PAGE>
the ability of the holders of Registrable Securities to include such Registrable
Securities in a registration undertaken pursuant to this Agreement provided that
this Paragraph (m) shall not apply to actions or changes with respect to ABC's
business, earnings, revenues, financial conditions or prospects.
(n) TERMINATION. This Agreement, other than the provisions of
Paragraph (j) above, shall terminate on the sixth anniversary of the date
hereof; PROVIDED, HOWEVER, that such termination shall not be effective until
completion of any registration of Registrable Securities requested prior to such
sixth anniversary in accordance with this Agreement; and PROVIDED FURTHER, that
with respect to any Stockholder, this Agreement shall terminate on the date on
which such Stockholder may sell Registrable Securities in accordance with Rule
145(d)(2) or (3) under the Act.
(o) REMEDIES. Any person having rights under any provision of this
Agreement will be entitled to enforce such rights specifically to recover
damages caused by reason of any breach of any provision of this Agreement and to
exercise all other rights granted by law. The parties hereto agree and
acknowledge that money damages may not be an adequate remedy for any breach of
the provisions of this Agreement and that any party may in its sole discretion
apply to any court of law or equity of competent jurisdiction (without posting
any bond or other security) for specific performance and for other injunctive
relief in order to enforce or prevent violation of the provisions of the
Agreement.
(p) SEVERABILITY. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be prohibited by or
invalid under applicable law, such provisions will be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
this Agreement.
(q) DESCRIPTIVE HEADINGS. The descriptive headings of this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
(r) GOVERNING LAW. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Delaware applicable to contracts
executed in and to be performed entirely within the State, without regard to the
conflicts of laws provision thereof.
(s) NOTICES. All notices and other communications given or made pursuant
hereto shall be in writing and shall be deemed to have been duly given or made
as of the date of receipt and shall be delivered personally or mailed by
registered or certified mail (postage prepaid, return receipt requested), sent
by overnight courier or sent by telecopy, to the Parties at the following
addresses or telecopy numbers (or at such other address or telecopy number for a
Party as shall be specified by like notice):
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<PAGE>
(a) If to ABC:
ABC Rail Products Corporation
200 South Michigan Avenue
13th Floor
Chicago, IL 60604
Attention: Donald W. Ginter
Telecopy No.: (312) 322-0397
(b) If to a Stockholder, at the address specified by such
holder to ABC.
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<PAGE>
IN WITNESS WHEREOF, this Agreement has been entered into by the parties
hereto as of the date first written above.
ABC RAIL PRODUCTS CORPORATION
By: /s/ James P. Singsank
----------------------------------------
Name: James P. Singsank
Title: Assistant Secretary
STOCKHOLDERS:
/s/ Joseph A. Seher
---------------------------------------------
Joseph A. Seher
/s/ Vaughn W. Makary
---------------------------------------------
Vaughn W. Makary
/s/ Wayne R. Rockenbach
---------------------------------------------
Wayne R. Rockenbach
/s/ John W. Waite
---------------------------------------------
John W. Waite
/s/ John M. Lison
---------------------------------------------
John M. Lison
/s/ Stephen W. Becker
---------------------------------------------
Stephen W. Becker
/s/ John M. Giba
---------------------------------------------
John M. Giba
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<PAGE>
/s/ Brian L. Greenburg
---------------------------------------------
Brian L. Greenburg
/s/ Michael B. Heisler
---------------------------------------------
Michael B. Heisler
/s/ Jack R. Long
---------------------------------------------
Jack R. Long
/s/ Wilbur G. Streams
---------------------------------------------
Wilbur G. Streams
/s/ Richard A. Drexler
---------------------------------------------
Richard A. Drexler
/s/ Daniel W. Duval
---------------------------------------------
Daniel W. Duval
/s/ Willard H. Thompson
---------------------------------------------
Willard H. Thompson
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<PAGE>
EXHIBIT 10.2
FORM OF
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This Agreement, dated as of the 19th day of February, 1999, is between ABC
Rail Products Corporation, a Delaware corporation ("ABC"), NACO, Inc., a
Delaware corporation and a wholly owned subsidiary of ABC ("NACO"), and
______________ ("Employee").
RECITALS
A. The parties hereto wish to amend, restate and supersede in its
entirety the Employment Agreement, dated as of the 29th day of June, 1988,
between NACO and the Employee, upon the terms and subject to the conditions set
forth herein.
B. The Employee is a key employee of ABC and NACO.
C. ABC and NACO desire to engage the Employee as an employee to render
services to ABC and NACO and to provide for the financial security of the
Employee.
TERMS AND CONDITIONS
For valuable consideration, the parties agree as follows:
1. DEFINITIONS.
a. A "Change in Control" of NACO shall mean (i) any acquisition,
beneficially or otherwise, by an "Unrelated Party" of 25% or more
of the common stock of NACO issued and outstanding immediately
prior to such acquisition (a series of acquisitions by an
Unrelated Party shall be treated as a single acquisition to the
extent the aggregate number of shares acquired in such series
exceeds 25%); (ii) a voluntary or involuntary dissolution or
reorganization of NACO; (iii) a change in the majority of the
board of directors of NACO in connection with, or directly
resulting from, a merger, sale of assets or other reorganization
of NACO, an Unrelated Party tender offer or proxy contest, or the
acquisition by a person or group of more than 25% of the voting
power of NACO; or (iv) a sale by NACO of substantially all of its
assets to another corporation which is not a wholly owned
subsidiary of NACO. A change in the majority of the board of
directors shall be deemed to have occurred if the persons who
were directors of NACO immediately before such event or
acquisition cease to constitute a majority of the board of
directors of NACO or any successor to NACO. For the purpose of
this subsection, an "Unrelated Party" shall mean any party or
group of parties acting together, excluding, however, NACO, any
trustee under any employee benefit plan maintained by NACO, and
any nominee holder for securities exchange in which the common
stock of NACO may be traded, if any. Notwithstanding anything
contained herein to the contrary, a Change in Control shall not
include the reincorporation of NACO in a state other than
Delaware or the restructuring of NACO to create a holding
company, provided that such restructuring does not otherwise
result in Change in Control.
<PAGE>
b. "For Cause" shall mean any act of the Employee which constitutes,
on the part of the Employee, common law fraud, a felony or a
gross or willful breach of fiduciary duty to ABC or NACO.
c. "Good Reason" shall mean (i) a reduction in the Employee's annual
base salary, targeted bonus percentage or benefits; (ii) a
significant reduction in the duties, authorities or
responsibilities of the Employee's position; (iii) ABC's or
NACO's requiring the Employee to be based at any office or
location other than at which the Employee is based on the date of
the Change in Control; or (iv) the termination of this Agreement
or the failure to assume the terms of this Agreement, as the case
may be, by ABC or NACO or any successor of ABC or NACO.
2. TERMINATION OF EMPLOYMENT.
a. If ABC or NACO terminates the Employee's employment for a reason
other than For Cause, the Employee shall be compensated by ABC as
follows, in addition to any other payments from ABC or NACO due
to the Employee:
(i) Base salary as of the termination date (or prior to any
reduction resulting in Good Reason for resignation) for a
period of twenty-four months.
(ii) Continuation of ABC's medical, dental and life insurance
coverage in effect at the termination date for a period of
two years or until the Employee is covered by a similar
insurance plan at a new employer, if sooner.
(iii) Continuation of the Employee's car lease or car allowance
for a period of twenty-four months.
(iv) Payment of outplacement services as selected by the
Employee.
(v) The prorata share, based upon the number of months
employed during the fiscal year, of bonus that would have
been earned by the Employee in the fiscal year that the
termination occurs.
b. If, within three years following a Change in Control, ABC or NACO
terminates the Employee's employment for a reason other than For
Cause, or if the Employee terminates his employment with ABC or
NACO for Good Reason, the Employee shall be compensated as
follows, in addition to any other payments from ABC or NACO due
to the Employee:
(i) Each of the items included above in Section 2.a. (i) - (v)
inclusive.
(ii) A payment equal to the larger of (i) two times the average
of the bonus paid to the Employee during the prior two
fiscal years; or (ii) two times the bonus the Employee
would earn based upon the current salary times the
targeted bonus percentage during the year in which the
termination occurs.
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c. If the payments to the Employee under this Section or combined
with other payments to the Employee cause the payments to be in
excess of certain limitations set forth in the Internal Revenue
Code and result in the imposition of excise tax on such payments,
ABC will reimburse the Employee for such excise tax plus the
income and excise taxes thereon.
3. MISCELLANEOUS.
a. This Agreement shall inure to the benefit of, and be enforceable
by, the Employee's legal representatives, heirs and assigns. If
the Employee should die while any amounts are still payable to
him hereunder, all such amounts shall be paid in accordance with
the terms of this Agreement to the Employee's estate.
The parties have executed this Agreement and it becomes effective as of the
date set forth in Recital A on the first page of this Agreement.
NACO, Inc.
By: /s/ John M. Lison
--------------------------------------------------
John M. Lison
Executive Vice President--Corporate
Development and Secretary
ABC RAIL PRODUCTS CORPORATION
By: /s/ James P. Singsank
--------------------------------------------------
James P. Singsank
Corporate Controller and Assistant Secretary
Employee
--------------------------------------------------
3
<PAGE>
FORM OF STOCK PURCHASE AGREEMENT
THIS AGREEMENT, made as of the _____ day of ______ , between NACO, Inc., a
Delaware corporation, having its principal place of business in Lisle, Illinois
("Corporation"), and _________, an individual, residing at ________,
_________,______________, ("Stockholder").
Whereas, concurrent with the execution of this Agreement, the Corporation
sold ______________ (_____________) shares of its common stock to Stockholder;
Whereas, Stockholder represents to the Corporation that he has conducted a
diligent investigation and has obtained all desired information and has
otherwise satisfied himself with respect to the business and financial condition
of the Corporation, the tax and other legal considerations relating to this
transaction or to the shares of stock being purchased, the present fair market
value of such shares and all other matters which Stockholder considers to be
relevant in connection with this transaction.
It is deemed by the parties hereto to be in the best interests of the
Corporation, and all of its stockholders, to enter into this Agreement so that
the number of persons owning stock in the Corporation might be limited.
NOW, THEREFORE, in consideration of the premises, which are incorporated
into and made an integral part of this Agreement, the issuance and sale of stock
of the Corporation to the Stockholder and the mutual promises and covenants
herein contained, it is hereby agreed as follows:
1. DEFINITIONS
(a) "Stock" - the term "Stock" shall mean the shares of common stock of
the Corporation identified herein including any securities issued in exchange
therefor or received on account of any stock dividend, reclassification or
recapitalization thereof.
(b) "Stockholder" - the term "Stockholder" shall mean the individual
stockholder executing this Agreement and the permitted assigns of such
Stockholder.
(c) "Employed" or "Employment" - the term "Employed" or "Employment" shall
mean the actual service as an Officer, Director or other employee of the
Corporation or any subsidiary or affiliate of the Corporation and its
subsidiaries.
2. REQUIREMENT OF OFFER TO SELL BY STOCKHOLDER. Except as otherwise
provided in Sections 11 and 13 hereof, if (i) the Stockholder shall cease for
any reason to be actively employed by the Corporation or (ii) the Stockholder
shall make any attempt to sell, pledge, donate or dispose of the stock in any
manner, Stockholder agrees to immediately deliver to the Corporation a written
<PAGE>
offer (which offer shall state that it is irrevocable for a period of 30 days
after receipt by the Corporation) offering to sell the Stock for the price and
upon the terms set forth in this Agreement. Simultaneously with the offer,
Stockholder shall deliver to the Corporation (in the event the Corporation does
not then already have custody thereof) the certificates representing the Stock
together with stock transfer powers duly executed in blank. The Stockholder's
offer may be accepted by written notice to that effect given to the Stockholder
within such 30-day period. If the Stockholder shall fail to deliver the written
offer of sale as well as the stock certificates and stock transfer powers (if
the Corporation does not already have custody thereof), the Corporation shall be
deemed to have an exclusive assignable option to purchase the Stock at the price
and on the terms set forth in this Agreement for six (6) months after the last
to occur of (i) the date when such offer was required to have been delivered to
the Corporation, (ii) the date upon which the Corporation was informed of the
cessation of Stockholder's employment, (iii) the date upon which the Corporation
was informed of an attempted disposition of the Stock by Stockholder, or (iv)
the date upon which the Corporation makes demand upon the Stockholder as herein
provided. This option may be exercised by the Corporation by written notice
within such six-month period.
3. PRICE. The price to be paid for any Stock being sold by the
Stockholder pursuant to this Agreement shall be determined as soon as
practicable in the manner hereinafter provided and shall, subject to the
provisions of this Section 3, be an amount (without interest) equal to the fair
market value of such Stock as of the close of the last day (the "valuation
date") preceding the earliest to occur of the following dates:
(a) The date upon which the written offer of sale to the Corporation
pursuant to Section 2 was required to be delivered to the Corporation;
(b) The date upon which the Stockholder ceases to be actively employed by
the Corporation;
(c) The date upon which the Corporation makes written demand upon the
Stockholder to offer his stock for sale to the Corporation;
(d) The date upon which the Corporation exercises its option
to purchase the Stockholder's stock; or
(e) The date of the Stockholder's death.
In no event, however, shall the price for any portion of the Stock sold
pursuant to this Agreement exceed the Stockholder's cost if (i) Stockholder and
the Corporation cannot agree on the fair market value of such Stock and
Stockholder neglects or refuses to take any action required of Stockholder
within the time prescribed or pursuant to the procedure for determination of
fair market value set forth in Section 4 below; (ii) if Stockholder fails to use
his best efforts (including, but not limited to, prompt execution and delivery
to any appraiser of appropriate instructions to proceed with the appraisal,
guarantees of expenses, releases of appraiser's liabilities to Stockholder,
etc.) to cause
2
<PAGE>
a prompt determination of fair market value to be made in the manner
contemplated herein; (iii) if a determination of fair market value in
accordance with the procedure set forth herein is not in fact made within six
(6) months of the applicable valuation date; and (iv) with respect to the
percentage of the Stock set forth below, if Stockholder's continuous
employment ceased for any reason other than Stockholder's death or, at
the discretion of the Corporation, Stockholder's disability during the
applicable employment period set forth below:
<TABLE>
<CAPTION>
Period of Continuous Percent of Stock To
EMPLOYMENT OF STOCKHOLDER BE RESOLD AT COST
-------------------------- ---------------------
<S> <C>
Less than one year 100%
One year or more but less than two years 80%
Two years or more but less than three years 60%
Three years or more but less than four years 40%
Four years or more but less than five years 20%
Five years or more 0
</TABLE>
4. APPRAISAL OF STOCK. For purposes of this Agreement, the fair market
value of the Stock as of any valuation date shall be determined by agreement
between the Corporation and the Stockholder. In the event the Corporation
and the Stockholder cannot agree on the fair market value of such Stock within
thirty (30) days of the date on which the Corporation gives written notice
accepting an offer of sale or the date on which the Corporation gives notice of
the election to exercise the option as provided in Section 2 hereof, then the
fair market value of the Stock shall be determined by the following procedure:
(a) The Stockholder and the Corporation shall promptly indicate their
opinions in writing as to the fair market value of the Stock as of the
applicable valuation date.
(b) The Stockholder and the Corporation shall, within ten (10) days after
the expiration of the 30-day period referred to above, jointly appoint a
recognized investment banking firm or firm specializing in the appraisal of
shares of stock of private companies to act as an appraiser hereunder. If the
parties are unable to agree upon an appraisal firm, then each party shall
promptly appoint a recognized firm willing to act under these provisions and the
two firms so selected shall select another recognized firm which is willing and
shall act as the sole appraiser. In selecting the sole appraiser, the firms
appointed by Stockholder and the Corporation may consult with the parties hereto
but shall be entitled to make an independent selection of the appraiser and
shall have no
3
<PAGE>
liability to either party as a result of such selection.
(c) Following its selection, the appraiser shall promptly determine the
fair market value of the Stock as of the valuation date. In determining such
value, the appraiser shall apply such principles of valuation as it, in its
sole discretion, deems appropriate under all the circumstances. For this
purpose, fair market value shall mean the price at which the Stock would change
hands between a willing buyer and a willing seller, neither being under any
compulsion to buy or sell, but assuming, if the Stock was purchased by such a
buyer, that such a buyer would be subject to the same transfer and other
restrictions which are applicable to Stockholder.
(d) All costs incident to the selection of an appraiser and an appraisal
hereunder, including the fees of the appraiser, shall be borne by (i) the
Corporation if the difference between the fair market value determined by the
appraiser and the fair market value asserted in writing by the Corporation prior
to submission to the appraiser is greater than the difference between the fair
market value determined by the appraiser and the fair market value asserted by
the Stockholder in writing prior to submission to the appraiser, or (ii) the
Stockholder if the difference between the fair market value determined by the
appraiser and the fair market value asserted in writing by the Stockholder prior
to submission to the appraiser is greater than the difference between the fair
market value determined by the appraiser and the fair market value asserted by
the Corporation in writing prior to submission to the appraiser.
5. PAYMENT. If the Stockholder and the Corporation agree on the fair
market value of the Stock, the amount required to be paid for such Stock shall
be paid within sixty (60) days thereafter. In the event no agreement is
reached as to the fair market value of such Stock, the amount required to be
paid for such Stock shall be paid sixty (60) days after the determination of its
fair market value pursuant to the provisions of Section 3.
6. EFFECTING THE SALE. A sale by Stockholder hereunder shall be
effected by the delivery to the Corporation of a written offer to sell the
Stockholder's Stock together with certificates evidencing the Stock, duly
endorsed and stamped for transfer, (unless the Corporation already has custody
thereof) together with duly executed stock powers, and delivery by the
Corporation to the Stockholder of written notice to the effect that the
Corporation has elected to accept the Stockholder's offer of sale. In the event
the option provisions of Section 2 become effective, a sale hereunder shall be
effected by delivery by the Corporation to the Stockholder of a written notice
during the option period to the effect that the Corporation has elected to
exercise its rights thereunder. Any damages (including but not limited to
lost opportunities and out-of-pocket costs such as attorneys' fees) suffered by
the Corporation as the result of any delay in the delivery of any written offer,
notice, stock certificate or other document required to be delivered under this
Agreement shall be charged against the Stockholder and may be offset against any
amount or amounts otherwise payable to the Stockholder.
7. ELECTION NOT TO PURCHASE. Subject to the terms of Section 15, in the
event the Corporation elects not to accept an offer of sale by the Stockholder
or not to exercise its option rights
4
<PAGE>
as provided in Section 2 hereof, the Corporation shall then promptly deliver
to the Stockholder the certificate or certificates for the Stock of the
Stockholder so offered or subject to such option.
8. ACKNOWLEDGMENT OF DELIVERY. Stockholder is herewith delivering to
Corporation certificates representing the Stock together with stock transfer
powers subject to the terms of this Agreement. The Corporation shall have the
authority to transfer such Stock in accordance with the provisions hereof.
9. RESTRICTIONS ON TRANSFER. While this Agreement is in effect, the
Stockholder shall not sell, assign, encumber, pledge, or give or otherwise
dispose of any of the Stock of the Corporation now, or hereafter owned by
the Stockholder (except to the Corporation) without the prior written
consent of the Corporation. Stockholder agrees that the Corporation shall not
effect any transfer of Stock on its books except pursuant to the terms of
this Agreement. The Corporation agrees not to unreasonably withhold consent
to any proposed action by the Stockholder provided Stockholder shall
provide the Corporation with the undertaking and agreement of any proposed
transferee, in form and substance satisfactory to the Corporation's counsel,
that the terms and conditions of this Agreement shall bind the transferee in
the same fashion as if such transfer had not occurred.
10. CHANGE IN CAPITALIZATION. If, at any time while this Agreement
shall remain in effect, the common stock of the Corporation shall be
increased or changed, such increased or changed capital stock (as the case
may be) shall be subject to each and all of the terms, conditions and
provisions hereof.
11. PUBLIC MARKET FOR STOCK. If at any time prior to the applicable
valuation date under Section 3, there shall be created a public market for the
voting securities of the Corporation with the consent of the Corporation, then
all the rights and obligations of the Corporation and the Stockholder hereunder,
insofar as the same relate to the Stock subject to this Agreement, shall cease
and terminate except that the provisions of Section 11 of this Agreement shall
not apply to that percentage of the Stock which, upon the happening of certain
events, the Corporation is entitled to repurchase at cost pursuant to Section 3
(iv) above.
12. LEGEND ON STOCK. The certificates representing the Stock shall bear
substantially the following legend:
"The shares of stock represented by this certificate are subject to the
terms and conditions of a certain "Stock Purchase Agreement" entered into by and
between the Corporation and the holder of this Stock, and all amendments thereof
and supplements thereto, executed at any time by the parties thereto, or by
their respective and successive successors in interest. Said Stock Purchase
Agreement is on file with the Secretary of the Corporation, and provides
that (i) the Stockholder shall not sell, assign, encumber, pledge, give or
otherwise dispose of this stock except as provided therein, and (ii) the
Corporation has the right to purchase this stock at the time and price specified
therein. The holder hereof accepts and holds this certificate subject to and
with notice of all of the terms, conditions and provisions of said Stock
Purchase Agreement and agrees to be bound thereby."
5
<PAGE>
13. SALE OR EXCHANGE OF STOCK BY CORPORATION. If the holders of the
Corporation's securities representing sixty-six and two-thirds percent (66-2/3%)
or more of the votes entitled to be cast at a meeting of Stockholders thereon
have voted in favor of the sale or exchange of such securities to any
person, firm, association or corporation (except a conventional underwriting of
such securities by an investment banking firm for sale to the public),
Stockholder then shall be free to participate in such sale or exchange
notwithstanding any other provisions of this Agreement if the Corporation shall
send a written notice to Stockholder advising him thereof and offering to
include in such sale or exchange all Stock subject hereto on the same terms as
the other stock being sold or exchanged. In the event such a notice is given by
Corporation to Stockholder and if Stockholder shall not, within fifteen (15)
days from the delivery of such notice, deliver to the Corporation a written
acceptance of such offer, the Corporation shall, for the succeeding sixty (60)
days, have an exclusive assignable option to purchase such stock in the same
manner and on the same terms as though Stockholder had ceased his employment
with the Corporation and the Corporation had elected to purchase the Stock with
a valuation date on the fifteenth (15th) day after the delivery of such notice
by the Corporation to the Stockholder.
14. ASSIGNMENT OF CORPORATION'S RIGHT TO PURCHASE. Following any
determination under Section 3 of the fair market value of Stock to be sold
pursuant to this Agreement, the Corporation may assign its right to purchase any
or all of such Stock to any person, firm or corporation and such assignee shall
be entitled to purchase such Stock in accordance with the terms of this
Agreement upon the payment of the purchase price. In the event the Corporation
makes such an assignment, it shall immediately give written notice thereof to
the Stockholder or his legal representative.
15. EXTENDED PURCHASE OPTION
a) In the event the Stockholder is required to offer Stock to the
Corporation pursuant to Section 2 hereof and the Corporation does not purchase
all of the Stockholder's Stock subject to this Agreement, the Stockholder agrees
that the Corporation shall have an irrevocable option to purchase the Stock
which was subject to this Agreement for a period of five (5) years from the date
the Stockholder was required, pursuant to Section 2, to offer the stock to the
Corporation or until the date upon which there shall is a public market in
voting securities of the Corporation with the consent of the Corporation,
whichever shall first occur. The purchase price shall be the fair market value
of such securities on the date the option granted under this Section 15 is
exercised by the Corporation. Fair market value shall be determined in
accordance with Section 4 of this Stock Purchase Agreement. The Corporation
shall exercise this option in writing by notice of exercise mailed, registered
or certified mail, to the Stockholder's last known address. Within 30 days of
mailing the notice of exercise, the Stockholder shall deliver to the Corporation
any certificates (if not already on the Corporation's possession) evidencing
the shares subject to the option along with a warranty that such shares are free
and clear of any liens or encumbrances whatsoever. Upon receipt of the shares,
the Corporation shall pay the purchase price in cash. The option provided for
in this Section 15 shall be in addition to the Corporation's other rights
hereunder and shall not supersede any other provision or term of this Stock
Purchase Agreement. The Stockholder further agrees that this Section 15 shall be
binding upon his successors and assignees and that
6
<PAGE>
the Certificates evidencing the Common shares subject to the Stock Purchase
Agreement shall continue to bear the legend as set forth in Section 12 hereof.
(b) In furtherance of this Section 15 the Stockholder agrees to deposit or
permit to remain on deposit with the Corporation the original share certificates
evidencing the shares subject to this Stock Purchase Agreement, along with a
stock power duly endorsed in blank, and authorize the secretary of the
Corporation to fulfill the obligations of the Stockholder hereunder in the
event the Stockholder fails to do so. The Corporation may, at its
discretion, release the share certificates to the Stockholder but such release
shall not affect the rights granted hereunder.
16. NOTICES. All notices pursuant hereto shall be sent, with all charges
prepaid, and addressed as follows:
To Corporation:
NACO, Inc.
One Corporate Lakes
2525 Cabot Drive
Suite 107
Lisle, IL 60532
Attention: Mr. Joseph A. Seher
with a copy to:
Lison & Griffin
200 West Adams
Suite 2000
Chicago, IL 60606
Attention: Mr. John M. Lison
To Stockholder:
-------------------------
-------------------------
-------------------------
-------------------------
The address of any party hereto may be changed from time to time by notice in
writing to the other party duly served in accordance with the provisions
hereof. All notices sent pursuant hereto be certified mail or by telegram
shall, if sent from any point within the United States, be deemed to be
delivered within seventy-two (72) hours after they are sent.
17. SUCCESSORS AND ASSIGNS. All of the terms, conditions, benefits and
obligations in this Agreement shall be binding upon and running in favor of the
parties hereto, their heirs, executors,
7
<PAGE>
administrators, successors and assigns.
18. GOVERNING LAW. This Agreement shall be construed under and enforced
in accordance with the laws of the State of Illinois.
19. DUPLICATE ORIGINALS. This Agreement may be signed separately by the
parties hereto upon separate copies and all of such copies shall together
constitute a single Agreement.
20. SECTION HEADINGS. The Section headings contained in this Agreement are
inserted for reference purposes only and shall not affect the meaning or
interpretation of this Agreement.
IN WITNESS WHEREOF, the stockholder hereto has executed this Agreement as
an individual party and the Corporation has caused this Agreement to be executed
by its duly authorized officer, all as of the day and year first above written.
NACO, Inc. Stockholder
By: ____________________________ __________________________________
8
<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 JANUARY 31, 1999.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-1999
<PERIOD-START> AUG-01-1998
<PERIOD-END> JAN-31-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 48,153<F1>
<ALLOWANCES> 0
<INVENTORY> 59,829
<CURRENT-ASSETS> 116,672
<PP&E> 204,217
<DEPRECIATION> 52,429
<TOTAL-ASSETS> 318,095
<CURRENT-LIABILITIES> 57,706
<BONDS> 162,955
0
0
<COMMON> 90
<OTHER-SE> 84,175
<TOTAL-LIABILITY-AND-EQUITY> 318,095
<SALES> 150,935
<TOTAL-REVENUES> 150,935
<CGS> 138,077
<TOTAL-COSTS> 138,077
<OTHER-EXPENSES> 9,165
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,983
<INCOME-PRETAX> (2,290)
<INCOME-TAX> (962)
<INCOME-CONTINUING> (1,328)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (1,620)
<NET-INCOME> (2,948)
<EPS-PRIMARY> (.33)
<EPS-DILUTED> (.33)
<FN>
<F1>Notes and accounts receivable-trade are reported net of allowances for doubtful
accounts in the Consolidated Balance Sheets.
</FN>
</TABLE>
