Exhibit 4.2
ING Furman Investments
55 East 52/nd/ Street
New York, NY 10055
April 17, 2001
ABC-NACO Inc.
2001 Butterfield Road, Suite 502
Downers Grove, Illinois 60515
Senior Second Secured Financing
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Ladies and Gentlemen:
You have requested that ING Furman Selz Investors III LP, ING Barings
U.S. Leveraged Equity Plan LLC, ING Barings Global Leveraged Equity Plan Ltd.,
Furman Selz Investors II LP, FS Employee Investors LLC and FS Parallel Fund LP
("the Investors") provide you with their financing commitment for $15 million of
Senior Second Secured Financing as described in this letter and in the summary
of terms and conditions attached as Exhibit A (the "Summary of Terms" and,
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together with this letter, this "Commitment Letter).
We understand that you are negotiating with your lenders (the
"Lenders") under the Third Amended and Restated Credit Agreement dated as of
October 30, 2000 (the "Credit Agreement") among ABC-NACO Inc. (referred to
herein as "you" or the "Borrower"), ABC-NACO de Mexico S.A. de C.V., Dominion
Castings Limited, Bank of America Canada, Bank of America National Trust and
Savings Association, as agent ("Agent") and the Lenders with respect to certain
defaults under the Credit Agreement and have requested certain amendments to the
Credit Agreement from the Lenders to cure such defaults and provide other
changes to the Credit Agreement (the "Proposed Credit Agreement Amendments")
which amendments are described in a commitment letter and term sheet dated as of
April 17, 2001 from the Agent and the Lenders (the "Lender Commitment Letter")
in the form attached hereto as Exhibit B. We further understand that you intend
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to request certain amendments from U.S. Bank National Association (the
"Trustee") as trustee under the Indenture dated as of January 15, 1997 pursuant
to which you have issued your 10 1/2% Senior Subordinated Notes, Series A due
2004 in the original principal amount of $50,000,000 (the "Series A Notes") and
your 10 1/2% Senior Subordinated Notes, Series B, due 2004 in the original
principal amount of $25,000,000 (the "Series B Notes" and, together with the
Series A Notes, the "Subordinated Notes") with respect to your obligations under
the Subordinated Notes and the transactions contemplated hereby.
2
We are pleased to commit to provide, subject to and upon the terms and
conditions set forth herein and in the Summary of Terms, $15 million of second
secured senior financing (the "Financing") on the terms and conditions set forth
herein and in the Summary of Terms. Fees payable to the Investors shall be
payable as described in the fee letter (the "Fee Letter") executed
simultaneously herewith and may be deducted from the principal amount of the
Financing. The obligations of the Investors shall be several and not joint and
shall be in the amounts set forth on Schedule 1 attached hereto.
As a part of the transactions contemplated by this letter Matrix
Metals LLC ("Matrix") is entering into an Asset Purchase Agreement dated as of
April 17, 2001 (the "Asset Purchase Agreement") among the Borrower, NACO, Inc.,
National Castings, Inc., BuyMetal Castings, Inc., National Engineered Products
Company, Inc. and Matrix providing for the purchase of certain assets by Matrix
from the parties thereto The Asset Purchase Agreement will be signed at the time
of the execution of this Commitment Letter.
Please note that the terms and conditions of this commitment are not
limited to those set forth in this Commitment Letter. Those matters that are
not covered or made clear herein or in the attached Summary of Terms are subject
to mutual agreement of the parties. The terms and conditions of this commitment
may be modified only in writing. In addition, this commitment is subject to (a)
the preparation, execution and delivery of mutually acceptable loan
documentation, including a loan agreement incorporating substantially the terms
and conditions outlined herein and in the Summary of Terms, and (b) the absence
of a material adverse change in the business, financial condition, operations,
performance, prospects, properties, assets, liabilities (contingent or
otherwise) or value (a "Material Adverse Change") of the Borrower and its
subsidiaries, taken as a whole since December 31, 2000 except as previously
disclosed in writing to the Investors. The Investors' commitments set forth in
this Commitment Letter will terminate on July 15, 2001 unless the transactions
contemplated hereby (including the Proposed Credit Agreement Amendments set
forth in the Lender Commitment Letter, the acquisition contemplated in the Asset
Purchase Agreement and the purchase of the equity securities as set forth in the
next succeeding paragraph) close on or before such date. Furthermore, if the
Investors discover information not known to them on the date of this letter
which the Investors reasonably believe constitutes or will constitute a Material
Adverse Change (including any information that the holders of Subordinated Notes
are not likely to approve the amendments to the Subordinated Notes required to
prevent an event of default from occurring thereunder as a result of the
violation of the financial covenants set forth therein and other amendments
necessary to permit the transactions contemplated thereby or that the other
conditions under the Stock Purchase Agreement (as defined below) will not be
timely satisfied or that the Borrower's shareholders are unlikely to approve the
issuance of additional equity contemplated hereby), the Investors may, in their
sole discretion suggest alternative financing amounts or structures that assure
adequate protection for their investment or decline to provide or participate in
the proposed financing. The Investors shall not be responsible or liable for
any consequential damages which may be alleged as a result of their failure to
provide the Financing.
3
Pursuant to, and in accordance with and subject to the terms and
conditions contained in the Preferred Stock and Common Stock Warrant Purchase
Agreement dated as of April 17, 2001 among the Borrower, the Investors and the
other parties thereto (the "Stock Purchase Agreement"), the Investors have
agreed that following the consummation of the Financing, they will agree to
purchase certain equity securities of the Borrower and the proceeds of such
securities will be used to repay the Financing subject to the terms and
conditions set forth therein. Such conditions include (a) appropriate approvals
of shareholders of the Borrower, and (b) amendments to the Subordinated Notes to
waive any financial covenant defaults and to amend the financial covenants as to
future periods and such further amendments as are necessary for the equity
transactions contemplated in the Stock Purchase Agreement to take place as more
fully set forth in the Stock Purchase Agreement.
To induce the Investors to issue this letter and to continue with
their efforts to close the transactions described herein, you hereby agree that
all reasonable out-of-pocket fees and expenses (including the reasonable fees
and expenses of counsel and consultants) of the Investors and their affiliates
arising in connection with this letter and in connection with the Financing and
the other transactions described herein shall be for your account. In addition,
you hereby agree to pay when and as due the fees described in the Fee Letter.
You further agree to indemnify and hold harmless the Investors and each
director, officer, employee and affiliate thereof (each an "Indemnified Person")
from and against any and all actions, suits, proceedings (including any
investigations or inquiries), claims, losses, damages, liabilities or expenses
of any kind or nature whatsoever which may be incurred by or asserted against or
involve any such Indemnified Person as a result of or arising out of or in any
way related to or resulting from this letter, the transactions described herein
or the extension of the Financing contemplated by this letter, or in any way
arising from any use or intended use of this letter or the proceeds of the
Financing contemplated by this letter, and you agree to reimburse each
Indemnified Person upon demand for any legal or other out-of-pocket expenses
incurred in connection with investigating, defending or preparing to defend any
such action, suit, proceeding (including any inquiry or investigation) or claim
(whether or not any Investors or any such other Indemnified Person is a party to
any action or proceeding out of which any such expenses arise) (collectively, an
"Action"); provided, however, that you shall not have to indemnify any
Indemnified Person against any loss, claim, damage, expense or liability to the
extent finally determined by a court of competent jurisdiction to have resulted
directly and primarily from the gross negligence or willful misconduct of such
Indemnified Person.
The Investors reserve the right to employ the services of their
affiliates in providing services contemplated by this letter and to allocate, in
whole or in part, to such affiliates certain fees payable to the Investors in
such manner as the Investors and such affiliates may agree in their sole
discretion. You acknowledge that the Investors may share with any of its
affiliates, and such affiliates may share with the Investors, any information
related to you, any of your subsidiaries or any of the matters contemplated
hereby in connection with the transactions contemplated hereby on a confidential
basis.
4
The provisions of the immediately preceding two paragraphs shall
survive any termination of this letter.
You represent and warrant (to the best of your knowledge) that (a) all
information (other than financial projections) that has been or will hereafter
be made available by or on behalf of you or by any of your representatives in
connection with the transactions contemplated hereby to the Investors or any of
their affiliates is and will be complete and correct in all material respects
and does not and will not contain any untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements
contained therein not misleading in light of the circumstances under which such
statements were or are made and (b) all financial projections, if any, that have
been or will be prepared by you or on your behalf or by any of your
representatives and made available to the Investors or any of their affiliates
or representatives in connection with the transactions contemplated hereby have
been or will be prepared in good faith based upon reasonable assumptions (it
being understood that such projections are subject to significant uncertainties
and contingencies, many of which are beyond your control, and that no assurance
can be given that any particular projections will be realized). You agree to
supplement the information and projections from time to time so that the
representations and warranties contained in this paragraph remain complete and
correct.
In issuing this commitment, the Investors are relying on the accuracy
of the information furnished to it by you or on your behalf (collectively, the
"Pre-Commitment Information"). The obligations of the Investors under this
Commitment Letter are made solely for your benefit and may not be relied upon or
enforced by any other person or entity.
You are not authorized to show or circulate this letter to any other
person or entity (other than (i) your legal, accounting and financial advisors
in connection with your evaluation hereof, (ii) the Agent and the Lenders (iii)
the Trustee and (iv) as required by law or stock exchange requirements) until
such time as you have accepted this letter as provided in the immediately
succeeding paragraph. If this letter is not accepted by you as provided in the
immediately succeeding paragraph, you are to immediately return this letter (and
any copies hereof) to the undersigned. This letter may be executed in any
number of counterparts, and by the different parties hereto on separate
counterparts, each of which counterpart shall be an original, but all of which
shall together constitute one and the same instrument.
If you are in agreement with the foregoing, please sign and return to
the Investor (including by way of facsimile transmission) the enclosed copy of
this letter, together with the Fee Letter, no later than 5:00 p.m., New York
time, on April 17, 2001. Our commitment set forth in this letter shall
terminate at the time and on the date referenced in the immediately preceding
sentence unless this letter and the Fee Letter are executed and returned by you
as provided in such sentence.
This letter and the Fee Letter shall be governed by, and construed in
accordance with the laws of the state of New York, and any right to trial by
jury with respect to any claim,
5
action, suit or proceeding arising out of or contemplated by this letter and/or
the related Fee Letter is hereby waived. The parties hereto hereby submit to the
non-exclusive jurisdiction of the federal and New York State courts located in
the City of New York in connection with any dispute related to this letter or
the Fee Letter or any matters contemplated hereby or thereby. Delivery of an
executed counterpart of this Commitment Letter by telecopier shall be effective
as delivery of a manually executed counterpart of this Commitment Letter.
Very truly yours,
ING Furman Selz Investors III LP
ING Barings U.S. Leveraged Equity Plan LLC
ING Barings Global Leveraged Equity Plan Ltd.
BY: FS Private Investments III LLC
By________________________
Name:
Title:
Furman Selz Investors II LP
FS Employee Investors LLC
FS Parallel Fund LP
BY: FS Private Investments LLC
By________________________
Name:
Title:
Agreed to and Accepted this
17th day of April, 2001
ABC-NACO Inc.
By________________________
Name:
Title:
EXHIBIT A
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SUMMARY OF CERTAIN TERMS AND CONDITIONS/1/
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I. The Parties
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Borrower: ABC-NACO Inc.
Investors: ING Furman Selz Investors III LP
ING Baring U.S. Leveraged Equity Plan LLC
ING Barings Global Leveraged Equity Plan
Furman Selz Investors II LP
FS Employee Investors LLC
FS Parallel Fund LP
Guarantors: All obligations under the Financing shall be
unconditionally guaranteed by each of the
Borrower's direct and indirect wholly-owned
subsidiaries (other than any entity that is a
controlled foreign corporation ("CFC") under
Section 957 of the Internal Revenue Code (all of
such subsidiaries being, collectively, the
"Guarantors"), subject to customary exceptions and
exclusions and release mechanics for transactions
of this type.
II. Description of the Financing
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III.
Senior Notes $15 million Senior Second Secured Notes (the
"Senior Notes"), to be issued pursuant to a loan
agreement (the "Loan Agreement") acceptable to the
Investors and the Borrower including the terms of
this Summary of Terms and the Commitment Letter.
Maturity: The final maturity of the Senior Notes (the
"Maturity Date") shall be the earlier of 350 days
after the Closing Date and the day of the closing
under the Stock Purchase Agreement.
Use of Proceeds: The proceeds of the Senior Notes shall be utilized
(a) to pay fees and expenses incurred in
connection with the transactions contemplated
hereby and (b) to finance the Borrower's and its
subsidiaries' working capital
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/1/ Capitalized terms used herein and not defined herein shall have the
meanings provided in the commitment letter (the "COMMITMENT LETTER")
to which this summary is attached.
requirements and other general corporate purposes.
III. Terms Applicable to the Financing
Closing Date for the On or before May 1, 2001.
Fianacing
Security: The Borrower and its Domestic Subsidiaries shall
grant to ING Furman Selz Investors III LP as agent
for the Investors (the "Investor Agent") a valid
and perfected second priority lien and security
interest in all of the following (subject to the
liens of the Agent and the Lenders and to certain
exceptions to be set forth in the loan
documentation):
a. All shares of capital stock of (or
other ownership interests in) and intercompany
debt of each present and future subsidiary of the
Borrower or such Guarantor, limited, in the case
of each CFC, to 66% of the voting stock of such
entity.
b. All present and future property and
assets, real and personal, of the Borrower or such
Guarantor, including, but not limited to,
machinery and equipment, inventory and other
goods, accounts receivable, owned real estate,
leaseholds, fixtures, bank accounts, general
intangibles, license rights, patents, trademarks,
tradenames, copyrights, chattel paper, insurance
proceeds, contract rights, hedge agreements,
documents, instruments, indemnification rights,
tax refunds and cash.
c. All proceeds and products of the
property and assets described in clauses (a) and
(b) above.
At the reasonable request of the Borrower made
prior to the Closing Date, assets will be excluded
from the collateral in circumstances where the
Investors and the Borrower determine that the
economic detriment to the Borrower of entering
into such guarantee or security arrangement or
taking security interests in such assets would be
excessive in view of the related benefits to be
received by the Investors or the consent of third
parties thereto cannot be obtained through
reasonably commercial efforts. The Borrower and
its Subsidiaries shall not be required to grant a
security interest to the Investor Agent in any
property which is not pledged to the Agent to
secure the obligations under the Credit Agreement
Interest Rates: The Senior Notes will bear interest at the rate of
7% per annum (based on a 360 days year) for the
first 90 days and 18% per annum thereafter which
interest will be payable on January 6, 2003 or
such earlier date as all amounts payable under the
Credit Agreement have been paid in full.
Fees: The Investors shall receive such fees as have been
separately agreed upon with the Borrower which
fees and all expenses incurred by the Investors in
connection with the transactions contemplated
hereby shall be deducted from the proceeds of the
Senior Notes.
Mandatory Proceeds from the sale of the equity interests
Prepayment: contemplated by the Stock Purchase Agreement shall
be applied by the Borrower as set forth in the
Commitment Letter to repay the Senior Notes and
not to pay the obligations under the Credit
Agreement.
Documentation: The Investors' commitment will be subject to the
negotiation, execution and delivery of definitive
financing agreements (and related security
documentation, guaranties, etc.) consistent with
the terms of this letter, in each case prepared by
counsel to the Investor.
Conditions Precedent Those customarily found in credit agreements for
to Initial Extension similar secured financings and others appropriate
of Credit in the judgment of the Investors, including
without limitation, the following:
a. The final terms and conditions of the
transactions, including, without limitation, the
documentation relating thereto and all legal
aspects thereof, shall be (i) as described in the
Commitment Letter and the exhibits hereto and
otherwise consistent with the description thereof
received in writing as part of the Pre-Commitment
Information and (ii) otherwise reasonably
satisfactory to the Investor.
b. The Proposed Credit Agreement
Amendments to the Credit Agreement shall have been
completed substantially as contemplated by the
Lender Commitment Letter in form and substance
reasonably satisfactory to the Investors and
following such amendments no event of default
shall have occurred and be continuing under the
Credit Agreement.
c. The acquisition contemplated by the
Asset Purchase Agreement shall be completed on or
prior to the closing date of the Financing.
d. There shall exist no action, suit,
investigation, litigation or proceeding pending
or, to the Borrower's knowledge, as applicable,
threatened in any court or before any arbitrator
or governmental or regulatory agency or authority
that (i) could reasonably be expected to (A) have
a material adverse effect on the business,
financial condition, operations, performance,
prospects, properties, assets, liabilities
(contingent or otherwise) or value of the Borrower
and its subsidiaries, taken as a whole, (B)
adversely affect the ability of the Borrower or
any Guarantor to perform its obligations under the
loan documentation or (C) adversely affect the
rights and remedies of the Investor under the loan
documentation (collectively, a "Material Adverse
Effect") or
(ii) purports to adversely affect the transactions
contemplated hereby.
e. All governmental and third party
consents and approvals necessary in connection
with the transactions contemplated hereby shall
have been obtained (without the imposition of any
conditions that are not acceptable to the
Investor) and shall remain in effect (other than
any such consents and approvals the absence of
which, either individually or in the aggregate,
would not be reasonably likely to result in a
Material Adverse Effect); and no law or regulation
shall be applicable in the judgment of the
Investors that restrains, prevents or imposes
materially adverse conditions upon the
transactions contemplated hereby.
f. The Investors shall have received (i)
reasonably satisfactory opinions of counsel for
the Borrower and the Guarantors and of local
counsel for the Investors as to the transactions
contemplated hereby (including, without
limitation, the tax aspects thereof and compliance
with all applicable securities laws) and (ii) such
corporate resolutions, certificates and other
documents as the Investors shall reasonably
request.
g. There shall exist no default under any
of the loan documentation, and the representations
and warranties of the Borrower, each of the
Guarantors and each of their respective
subsidiaries therein shall be true and correct in
all material respects immediately prior to, and
after giving effect to, the initial extension of
credit under the loan documentation.
h. No event shall have occurred which
makes it unlikely in the Investors' reasonable
judgement that (i) the holders of the Subordinated
Notes will not consent to amendments to the
Indentures relating thereto which would cure
events of default relating to the financial
covenants set forth therein and other
modifications necessary to permit the transactions
contemplated hereby, (ii) that Borrower's
shareholders will not consent to the transactions
relating to Borrower's capital stock contemplated
by the Stock Purchase Agreement or (iii) the other
conditions set forth in the Stock Purchase
Agreement for the purchase of the equity interests
will not be timely satisfied.
i. Concurrently with the execution of this
Commitment Letter the Borrower will enter into an
Exchange Agreement with the Investors providing
for the exchange of its Series B Preferred Stock
for its Series B-1 Preferred Stock.
j. The Lenders will permit the Borrower to
pay an $1,100,000 dividend to the holders of its
Series B Preferred Stock on the closing date for
the Financing so long as the total of amount the
Financing less such dividend and all of the
Investor's fees and expenses of the financing paid
by the Borrower exceeds $13 million.
k. All accrued fees and expenses of the
Investors (including the
reasonable fees and expenses of counsel for the
Investors) shall have been paid.
l. The Investors and the Lenders shall have
entered into an intercreditor agreement reasonably
acceptable to the Investors.
m. A voting agreement between the Borrower
and the Seher Family Limited Partnership shall
have been executed and shall be in full force and
effect.
Those customarily found in credit agreements for
similar secured financings and others appropriate
in the judgment of the Investors for the
transactions contemplated hereby (with exceptions
and caveats similar to those in the Credit
Agreement to be agreed upon such that such
representations and warranties are not more
restrictive to the Borrower and its Subsidiaries
than those set forth in the Credit Agreement),
including, without limitation, absence of any
material adverse change in the business, financial
condition, operations, performance or properties
of the Borrower and its subsidiaries, taken as a
whole.
Covenants: Those affirmative and negative covenants
(applicable to the Borrower and its subsidiaries)
customarily found in credit agreements for similar
secured financings and others appropriate in the
judgment of the Investors for the Finanacing (with
exceptions, thresholds and caveats similar to
those in the Credit Agreement to be agreed upon
such that such covenants are no more restrictive
to the Borrower and its Subsidiaries than those
set forth in the Credit Agreement), including,
without limitation, the following:
a. Affirmative Covenants - (i) Compliance
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with laws and regulations (including, without
limitation, ERISA and environmental laws); (ii)
payment of taxes and other obligations; (iii)
maintenance of appropriate and adequate insurance;
(iv) preservation of corporate existence, rights
(charter and statutory), franchises, permits,
licenses and approvals; (v) visitation and
inspection rights; (vi) keeping of proper books in
accordance with generally accepted accounting
principles; (vii) maintenance of properties;
(viii) performance of leases, related documents
and other material agreements; (ix) further
assurances as to perfection and priority of
security interests; and (x) customary financial
and other reporting requirements (including,
without limitation, audited annual financial
statements and quarterly unaudited financial
statements, in each case prepared on a
consolidated and a consolidating basis, notices of
defaults, compliance certificates, annual business
plans and forecasts, reports to shareholders and
other creditors and other business and financial
information as the Investors shall reasonably
request).
b. Negative Covenants - Restrictions on (i)
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loans, acquisitions, joint ventures and other
investments; (ii) dividends share repurchases and
other distributions to stockholders; (iii)
creating new subsidiaries; (iv) prepaying,
redeeming or repurchasing any debt subordinated to
the Senior Notes; (v) changing the nature of its
business; (vi) amending organizational documents,
or amending or otherwise modifying any
subordinated debt, any related document or any
other material agreement; and (vii) transactions
with affiliates.
c. Financial Covenants - None
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Events of Default Those customarily found in credit agreements for
similar secured financings and others appropriate
in the judgment of the Investors for the
transactions contemplated hereby (but no more
restrictive to the Borrower and its subsidiaries
than those set forth in the Credit Agreement),
including, without limitation, (a) failure to pay
principal when due, or to pay interest or other
amounts within five business days after the same
becomes due, under the loan documentation; (b) any
representation or warranty proving to have been
materially incorrect when made or confirmed; (c)
failure to perform or observe covenants set forth
in the loan documentation within a specified
period of time, where customary and appropriate,
after notice or knowledge of such failure; (d)
cross-accelerations to other indebtedness in an
amount to be agreed in the loan documentation; (e)
bankruptcy and insolvency defaults (with grace
period for involuntary proceedings); (f) monetary
judgment defaults in an amount to be agreed in the
loan documentation; (g) impairment of loan
documentation or security; (h) change of ownership
control; and (i) standard ERISA defaults.
Expenses: The Borrower shall pay Investors' reasonable out-
of-pocket expenses (including the fees and
expenses of counsel for the Investors), whether or
not any of the transactions contemplated hereby
are consummated. The Borrower shall also pay the
expenses of the Investors in connection with the
enforcement of any of the loan documentation.
Indemnity: The Borrower will indemnify and hold harmless the
Investors, and each of their affiliates and their
officers, directors, employees, agents and
advisors from claims and losses relating to
transactions contemplated hereby.
Governing Law: New York.
Counsel for the Dechert.
Investors: