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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly period ended June 30, 2023
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 000-51237
FREIGHTCAR AMERICA, INC.
(Exact name of registrant as specified in its charter)
|
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Delaware |
|
25-1837219 |
(State or other jurisdiction of incorporation or organization) |
|
(I.R.S. Employer Identification No.) |
|
|
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|
125 South Wacker Drive, Suite 1500 Chicago, Illinois |
|
60606 |
(Address of principal executive offices) |
|
(Zip Code) |
(800) 458-2235
(Registrant’s telephone number, including area code)
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|
|
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
Common stock, par value $0.01 per share |
RAIL |
The Nasdaq Global Market |
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 No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer |
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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|
|
Emerging growth company |
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
If an emerging growth company, indicate by a check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
As of August 2, 2023, there were 17,902,660 shares of the registrant’s common stock outstanding.
FREIGHTCAR AMERICA, INC.
INDEX TO FORM 10-Q
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Item |
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Page |
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PART I – FINANCIAL INFORMATION |
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1. |
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|
Condensed Consolidated Balance Sheets (Unaudited) as of |
3 |
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4 |
|
|
5 |
|
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6 |
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|
8 |
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|
Notes to Condensed Consolidated Financial Statements (Unaudited) |
9 |
2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
22 |
4. |
31 |
|
|
PART II – OTHER INFORMATION |
|
1. |
32 |
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2. |
32 |
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3. |
32 |
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4. |
32 |
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5. |
32 |
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6. |
32 |
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33 |
2
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements.
FreightCar America, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except for share data)
(Unaudited)
|
|
June 30, |
|
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December 31, |
|
||
Assets |
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|
|||||
Current assets |
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|
|
|
|
|
||
Cash, cash equivalents and restricted cash equivalents |
|
$ |
11,999 |
|
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$ |
37,912 |
|
Accounts receivable, net of allowance for doubtful accounts of $179 and $126 respectively |
|
|
21,493 |
|
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|
9,571 |
|
VAT receivable |
|
|
1,421 |
|
|
|
4,682 |
|
Inventories, net |
|
|
88,769 |
|
|
|
64,317 |
|
Assets held for sale |
|
|
— |
|
|
|
3,675 |
|
Related party asset |
|
|
1,308 |
|
|
|
3,261 |
|
Prepaid expenses |
|
|
15,650 |
|
|
|
5,470 |
|
Total current assets |
|
|
140,640 |
|
|
|
128,888 |
|
Property, plant and equipment, net |
|
|
26,624 |
|
|
|
23,248 |
|
Railcars available for lease, net |
|
|
7,070 |
|
|
|
11,324 |
|
Right of use asset operating lease |
|
|
1,221 |
|
|
|
1,596 |
|
Right of use asset finance lease |
|
|
32,160 |
|
|
|
33,093 |
|
Other long-term assets |
|
|
529 |
|
|
|
1,589 |
|
Total assets |
|
$ |
208,244 |
|
|
$ |
199,738 |
|
Liabilities, Mezzanine Equity and Stockholders’ Deficit |
|
|
|
|
|
|
||
Current liabilities |
|
|
|
|
|
|
||
Accounts and contractual payables |
|
$ |
41,778 |
|
|
$ |
48,449 |
|
Related party accounts payable |
|
|
1,213 |
|
|
|
3,393 |
|
Accrued payroll and other employee costs |
|
|
3,641 |
|
|
|
4,081 |
|
Accrued warranty |
|
|
1,632 |
|
|
|
1,940 |
|
Customer deposits |
|
|
19,644 |
|
|
|
— |
|
Current portion of long-term debt |
|
|
22,293 |
|
|
|
40,742 |
|
Other current liabilities |
|
|
6,684 |
|
|
|
7,380 |
|
Total current liabilities |
|
|
96,885 |
|
|
|
105,985 |
|
Long-term debt, net of current portion |
|
|
— |
|
|
|
51,494 |
|
Warrant liability |
|
|
40,714 |
|
|
|
31,028 |
|
Accrued pension costs |
|
|
1,176 |
|
|
|
1,040 |
|
Lease liability operating lease, long-term |
|
|
1,694 |
|
|
|
1,780 |
|
Lease liability finance lease, long-term |
|
|
32,913 |
|
|
|
33,245 |
|
Other long-term liabilities |
|
|
563 |
|
|
|
3,750 |
|
Total liabilities |
|
|
173,945 |
|
|
|
228,322 |
|
Commitments and contingencies |
|
|
|
|
|
|
||
Mezzanine equity |
|
|
|
|
|
|
||
Series C Preferred stock, $0.01 par value, 85,412 shares authorized, 85,412 and 0 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively. Liquidation value $87,023,723 and $0 at June 30, 2023 and December 31, 2022, respectively. |
|
|
83,253 |
|
|
|
— |
|
Stockholders’ deficit |
|
|
|
|
|
|
||
Preferred stock, $0.01 par value, 2,500,000 shares authorized (100,000 shares each |
|
|
— |
|
|
|
— |
|
Common stock, $0.01 par value, 50,000,000 shares authorized, 17,899,191 and 17,223,306 |
|
|
210 |
|
|
|
203 |
|
Additional paid-in capital |
|
|
92,633 |
|
|
|
89,104 |
|
Accumulated other comprehensive income |
|
|
1,099 |
|
|
|
1,022 |
|
Accumulated deficit |
|
|
(142,896 |
) |
|
|
(118,913 |
) |
Total stockholders' deficit |
|
|
(48,954 |
) |
|
|
(28,584 |
) |
Total liabilities, mezzanine equity and stockholders’ deficit |
|
$ |
208,244 |
|
|
$ |
199,738 |
|
See Notes to Condensed Consolidated Financial Statements (Unaudited).
3
FreightCar America, Inc.
Condensed Consolidated Statements of Operations
(In thousands, except for share and per share data)
(Unaudited)
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
June 30, |
|
|
June 30, |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
|
|
|
|
|||||||||||||
Revenues |
|
$ |
88,596 |
|
|
$ |
56,786 |
|
|
$ |
169,595 |
|
|
$ |
150,022 |
|
Cost of sales |
|
|
75,641 |
|
|
|
50,197 |
|
|
|
149,155 |
|
|
|
133,375 |
|
Gross profit |
|
|
12,955 |
|
|
|
6,589 |
|
|
|
20,440 |
|
|
|
16,647 |
|
Selling, general and administrative expenses |
|
|
5,851 |
|
|
|
4,053 |
|
|
|
12,239 |
|
|
|
14,766 |
|
Gain on sale of railcars available for lease |
|
|
622 |
|
|
|
— |
|
|
|
622 |
|
|
|
— |
|
Operating income |
|
|
7,726 |
|
|
|
2,536 |
|
|
|
8,823 |
|
|
|
1,881 |
|
Interest expense |
|
|
(4,351 |
) |
|
|
(5,757 |
) |
|
|
(10,951 |
) |
|
|
(11,462 |
) |
(Loss) gain on change in fair market value of Warrant liability |
|
|
(6,755 |
) |
|
|
18,746 |
|
|
|
(6,142 |
) |
|
|
(1,984 |
) |
Loss on extinguishment of debt |
|
|
(14,880 |
) |
|
|
— |
|
|
|
(14,880 |
) |
|
|
— |
|
Other (expense) income |
|
|
(69 |
) |
|
|
661 |
|
|
|
(105 |
) |
|
|
2,157 |
|
(Loss) income before income taxes |
|
|
(18,329 |
) |
|
|
16,186 |
|
|
|
(23,255 |
) |
|
|
(9,408 |
) |
Income tax provision |
|
|
560 |
|
|
|
1,647 |
|
|
|
671 |
|
|
|
1,900 |
|
Net (loss) income |
|
$ |
(18,889 |
) |
|
$ |
14,539 |
|
|
$ |
(23,926 |
) |
|
$ |
(11,308 |
) |
Net (loss) income per common share – basic |
|
$ |
(0.73 |
) |
|
$ |
0.58 |
|
|
$ |
(0.93 |
) |
|
$ |
(0.47 |
) |
Net (loss) income per common share – diluted |
|
$ |
(0.73 |
) |
|
$ |
0.58 |
|
|
$ |
(0.93 |
) |
|
$ |
(0.47 |
) |
Weighted average common shares outstanding – basic |
|
|
28,113,825 |
|
|
|
24,499,784 |
|
|
|
27,552,297 |
|
|
|
23,994,327 |
|
Weighted average common shares outstanding – diluted |
|
|
28,113,825 |
|
|
|
24,499,784 |
|
|
|
27,552,297 |
|
|
|
23,994,327 |
|
See Notes to Condensed Consolidated Financial Statements (Unaudited).
4
FreightCar America, Inc.
Condensed Consolidated Statements of Comprehensive (Loss) Income
(In thousands)
(Unaudited)
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
June 30, |
|
|
June 30, |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net (loss) income |
|
$ |
(18,889 |
) |
|
$ |
14,539 |
|
|
$ |
(23,926 |
) |
|
$ |
(11,308 |
) |
Other comprehensive income, net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Pension and postretirement liability adjustments, net of tax |
|
|
36 |
|
|
|
83 |
|
|
|
77 |
|
|
|
167 |
|
Comprehensive (loss) income |
|
$ |
(18,853 |
) |
|
$ |
14,622 |
|
|
$ |
(23,849 |
) |
|
$ |
(11,141 |
) |
See Notes to Condensed Consolidated Financial Statements (Unaudited).
5
FreightCar America, Inc.
Condensed Consolidated Statements of Mezzanine Equity and Stockholders’ Deficit
(In thousands, except for share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
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|
FreightCar America Stockholders |
|
||||||||||||||||||||||||||||||
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
||||||||
|
|
Mezzanine Equity |
|
|
|
|
|
|
|
|
|
Additional |
|
|
Other |
|
|
|
|
|
Total |
|
|||||||||||
|
|
Series C Preferred Stock |
|
|
|
Common Stock |
|
|
Paid-In |
|
|
Comprehensive |
|
|
Retained |
|
|
Stockholders' |
|
||||||||||||||
|
|
Shares |
|
|
Amount |
|
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Income (Loss) |
|
|
Deficit |
|
|
Deficit |
|
||||||||
Balance, March 31, 2022 |
|
|
- |
|
|
$ |
- |
|
|
|
|
16,525,266 |
|
|
$ |
196 |
|
|
$ |
85,127 |
|
|
$ |
(5,438 |
) |
|
$ |
(105,913 |
) |
|
$ |
(26,028 |
) |
Net income |
|
|
- |
|
|
|
- |
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
14,539 |
|
|
|
14,539 |
|
Other comprehensive income |
|
|
- |
|
|
|
- |
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
83 |
|
|
|
- |
|
|
|
83 |
|
Restricted stock awards |
|
|
- |
|
|
|
- |
|
|
|
|
60,543 |
|
|
|
1 |
|
|
|
(1 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
Forfeiture of restricted stock awards |
|
|
- |
|
|
|
- |
|
|
|
|
(70,894 |
) |
|
|
(1 |
) |
|
|
(6 |
) |
|
|
- |
|
|
|
- |
|
|
|
(7 |
) |
Stock-based compensation recognized |
|
|
- |
|
|
|
- |
|
|
|
|
- |
|
|
|
- |
|
|
|
262 |
|
|
|
- |
|
|
|
- |
|
|
|
262 |
|
Equity Fees |
|
|
- |
|
|
|
- |
|
|
|
|
185,935 |
|
|
|
2 |
|
|
|
998 |
|
|
|
- |
|
|
|
- |
|
|
|
1,000 |
|
Balance, June 30, 2022 |
|
|
- |
|
|
$ |
- |
|
|
|
|
16,700,850 |
|
|
$ |
198 |
|
|
$ |
86,380 |
|
|
$ |
(5,355 |
) |
|
$ |
(91,374 |
) |
|
$ |
(10,151 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Balance, March 31, 2023 |
|
|
- |
|
|
$ |
- |
|
|
|
|
17,702,459 |
|
|
$ |
208 |
|
|
$ |
90,165 |
|
|
$ |
1,063 |
|
|
$ |
(123,950 |
) |
|
$ |
(32,514 |
) |
Net loss |
|
|
- |
|
|
|
- |
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(18,889 |
) |
|
|
(18,889 |
) |
Issuance of Series C preferred shares, net of issuance costs |
|
|
85,412 |
|
|
|
83,253 |
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(57 |
) |
|
|
(57 |
) |
Other comprehensive income |
|
|
- |
|
|
|
- |
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
36 |
|
|
|
- |
|
|
|
36 |
|
Restricted stock awards |
|
|
- |
|
|
|
- |
|
|
|
|
143,910 |
|
|
|
1 |
|
|
|
(1 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
Exercise of stock appreciation rights |
|
|
- |
|
|
|
- |
|
|
|
|
738 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Stock appreciation rights classification modification |
|
|
- |
|
|
|
- |
|
|
|
|
- |
|
|
|
- |
|
|
|
1,738 |
|
|
|
|
|
|
|
|
|
1,738 |
|
||
Stock-based compensation recognized |
|
|
- |
|
|
|
- |
|
|
|
|
- |
|
|
|
- |
|
|
|
582 |
|
|
|
- |
|
|
|
- |
|
|
|
582 |
|
Equity fees |
|
|
- |
|
|
|
- |
|
|
|
|
52,084 |
|
|
|
1 |
|
|
|
149 |
|
|
|
- |
|
|
|
- |
|
|
|
150 |
|
Balance, June 30, 2023 |
|
|
85,412 |
|
|
$ |
83,253 |
|
|
|
|
17,899,191 |
|
|
$ |
210 |
|
|
$ |
92,633 |
|
|
$ |
1,099 |
|
|
$ |
(142,896 |
) |
|
$ |
(48,954 |
) |
See Notes to Condensed Consolidated Financial Statements (Unaudited).
6
FreightCar America, Inc.
Condensed Consolidated Statements of Mezzanine Equity and Stockholders’ Deficit
(In thousands, except for share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||
|
|
FreightCar America Stockholders |
|
||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
||||||||||||
|
|
Mezzanine Equity |
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
Other |
|
|
|
|
|
Total |
|
||||||||||||
|
|
Series C Preferred Stock |
|
|
|
Common Stock |
|
|
|
Paid-In |
|
|
Comprehensive |
|
|
Retained |
|
|
Stockholders' |
|
|||||||||||||||
|
|
Shares |
|
|
Amount |
|
|
|
Shares |
|
|
Amount |
|
|
|
Capital |
|
|
Income (Loss) |
|
|
Deficit |
|
|
Deficit |
|
|||||||||
Balance, December 31, 2021 |
|
|
- |
|
|
$ |
- |
|
|
|
|
15,947,228 |
|
|
$ |
190 |
|
|
|
$ |
83,742 |
|
|
$ |
(5,522 |
) |
|
$ |
(80,066 |
) |
|
$ |
(1,656 |
) |
|
Net loss |
|
|
- |
|
|
|
- |
|
|
|
|
- |
|
|
|
- |
|
|
|
|
- |
|
|
|
- |
|
|
|
(11,308 |
) |
|
|
(11,308 |
) |
|
Other comprehensive income |
|
|
- |
|
|
|
- |
|
|
|
|
- |
|
|
|
- |
|
|
|
|
- |
|
|
|
167 |
|
|
|
- |
|
|
|
167 |
|
|
Restricted stock awards |
|
|
- |
|
|
|
- |
|
|
|
|
357,400 |
|
|
|
4 |
|
|
|
|
(4 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Employee stock settlement |
|
|
- |
|
|
|
- |
|
|
|
|
(3,438 |
) |
|
|
- |
|
|
|
|
(13 |
) |
|
|
- |
|
|
|
- |
|
|
|
(13 |
) |
|
Forfeiture of restricted stock awards |
|
|
- |
|
|
|
- |
|
|
|
|
(71,394 |
) |
|
|
(1 |
) |
|
|
|
(6 |
) |
|
|
- |
|
|
|
- |
|
|
|
(7 |
) |
|
Stock-based compensation recognized |
|
|
- |
|
|
|
- |
|
|
|
|
- |
|
|
|
- |
|
|
|
|
666 |
|
|
|
- |
|
|
|
- |
|
|
|
666 |
|
|
Equity Fees |
|
|
- |
|
|
|
- |
|
|
|
|
471,054 |
|
|
|
5 |
|
|
|
|
1,995 |
|
|
|
- |
|
|
|
- |
|
|
|
2,000 |
|
|
Balance, June 30, 2022 |
|
|
- |
|
|
$ |
- |
|
|
|
|
16,700,850 |
|
|
$ |
198 |
|
|
|
$ |
86,380 |
|
|
$ |
(5,355 |
) |
|
$ |
(91,374 |
) |
|
$ |
(10,151 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Balance, December 31, 2022 |
|
|
- |
|
|
$ |
- |
|
|
|
|
17,223,306 |
|
|
$ |
203 |
|
|
|
$ |
89,104 |
|
|
$ |
1,022 |
|
|
$ |
(118,913 |
) |
|
$ |
(28,584 |
) |
|
Net loss |
|
|
- |
|
|
|
- |
|
|
|
|
- |
|
|
|
- |
|
|
|
|
- |
|
|
|
- |
|
|
|
(23,926 |
) |
|
|
(23,926 |
) |
|
Other comprehensive income |
|
|
- |
|
|
|
- |
|
|
|
|
- |
|
|
|
- |
|
|
|
|
- |
|
|
|
77 |
|
|
|
- |
|
|
|
77 |
|
|
Issuance of Series C preferred shares, net of issuance costs |
|
|
85,412 |
|
|
|
83,253 |
|
|
|
|
- |
|
|
|
- |
|
|
|
|
- |
|
|
|
- |
|
|
|
(57 |
) |
|
|
(57 |
) |
|
Restricted stock awards |
|
|
- |
|
|
|
- |
|
|
|
|
453,258 |
|
|
|
4 |
|
|
- |
|
|
(4 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
Employee stock settlement |
|
|
- |
|
|
|
- |
|
|
|
|
(31,888 |
) |
|
|
- |
|
|
|
|
(106 |
) |
|
|
- |
|
|
|
- |
|
|
|
(106 |
) |
|
Exercise of stock appreciation rights |
|
|
- |
|
|
|
- |
|
|
|
|
738 |
|
|
|
- |
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Stock appreciation rights classification modification |
|
|
- |
|
|
|
- |
|
|
|
|
- |
|
|
|
- |
|
|
|
|
1,738 |
|
|
|
- |
|
|
|
- |
|
|
|
1,738 |
|
|
Vesting of restricted stock units |
|
|
- |
|
|
|
- |
|
|
|
|
42,815 |
|
|
|
- |
|
|
|
|
145 |
|
|
|
- |
|
|
|
- |
|
|
|
145 |
|
|
Stock-based compensation recognized |
|
|
- |
|
|
|
- |
|
|
|
|
- |
|
|
|
- |
|
|
|
|
1,074 |
|
|
|
- |
|
|
|
- |
|
|
|
1,074 |
|
|
Equity Fees |
|
|
- |
|
|
|
- |
|
|
|
|
210,962 |
|
|
|
3 |
|
|
|
|
682 |
|
|
|
- |
|
|
|
- |
|
|
|
685 |
|
|
Balance, June 30, 2023 |
|
|
85,412 |
|
|
$ |
83,253 |
|
|
|
|
17,899,191 |
|
|
$ |
210 |
|
|
|
$ |
92,633 |
|
|
$ |
1,099 |
|
|
$ |
(142,896 |
) |
|
$ |
(48,954 |
) |
|
See Notes to Condensed Consolidated Financial Statements (Unaudited).
7
FreightCar America, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
|
|
Six Months Ended June 30, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Cash flows from operating activities |
|
|
|
|||||
Net loss |
|
$ |
(23,926 |
) |
|
$ |
(11,308 |
) |
Adjustments to reconcile net loss to net cash flows used in operating activities: |
|
|
|
|
|
|
||
Depreciation and amortization |
|
|
2,105 |
|
|
|
2,060 |
|
Non-cash lease expense on right-of-use assets |
|
|
1,307 |
|
|
|
636 |
|
Recognition of deferred income from state and local incentives |
|
|
— |
|
|
|
(2,507 |
) |
Loss on change in fair market value for Warrant liability |
|
|
6,142 |
|
|
|
1,984 |
|
Stock-based compensation recognized |
|
|
(191 |
) |
|
|
1,490 |
|
Non-cash interest expense |
|
|
7,593 |
|
|
|
7,472 |
|
Loss on extinguishment of debt |
|
|
14,880 |
|
|
|
— |
|
Other non-cash items, net |
|
|
(472 |
) |
|
|
— |
|
Changes in operating assets and liabilities, net of acquisitions: |
|
|
|
|
|
|
||
Accounts receivable |
|
|
(11,922 |
) |
|
|
(13,917 |
) |
VAT receivable |
|
|
2,963 |
|
|
|
16,940 |
|
Inventories |
|
|
(25,110 |
) |
|
|
(16,926 |
) |
Accounts and contractual payables |
|
|
(6,050 |
) |
|
|
3,525 |
|
Lease liability |
|
|
(1,991 |
) |
|
|
(954 |
) |
Customer deposits |
|
|
19,644 |
|
|
|
15,406 |
|
Other assets and liabilities |
|
|
(10,548 |
) |
|
|
(6,297 |
) |
Net cash flows used in operating activities |
|
|
(25,576 |
) |
|
|
(2,396 |
) |
Cash flows from investing activities |
|
|
|
|
|
|
||
Purchase of property, plant and equipment |
|
|
(4,954 |
) |
|
|
(2,808 |
) |
Proceeds from sale of property, plant and equipment and railcars available for lease, net of selling costs |
|
|
8,356 |
|
|
|
— |
|
Net cash flows provided by (used in) investing activities |
|
|
3,402 |
|
|
|
(2,808 |
) |
Cash flows from financing activities |
|
|
|
|
|
|
||
Proceeds from issuance of preferred shares, net of issuance costs |
|
|
13,339 |
|
|
|
— |
|
Borrowings on revolving line of credit |
|
|
89,223 |
|
|
|
49,282 |
|
Repayments on revolving line of credit |
|
|
(105,882 |
) |
|
|
(48,770 |
) |
Employee stock settlement |
|
|
(106 |
) |
|
|
(13 |
) |
Payment for stock appreciation rights exercised |
|
|
(6 |
) |
|
|
(4 |
) |
Financing lease payments |
|
|
(307 |
) |
|
|
— |
|
Net cash flows (used in) provided by financing activities |
|
|
(3,739 |
) |
|
|
495 |
|
Net decrease in cash and cash equivalents |
|
|
(25,913 |
) |
|
|
(4,709 |
) |
Cash, cash equivalents and restricted cash equivalents at beginning of period |
|
|
37,912 |
|
|
|
26,240 |
|
Cash, cash equivalents and restricted cash equivalents at end of period |
|
$ |
11,999 |
|
|
$ |
21,531 |
|
Supplemental cash flow information |
|
|
|
|
|
|
||
Interest paid |
|
$ |
3,319 |
|
|
$ |
3,990 |
|
Income taxes paid |
|
$ |
1,516 |
|
|
$ |
839 |
|
Non-cash transactions |
|
|
|
|
|
|
||
Change in unpaid construction in process |
|
$ |
332 |
|
|
$ |
(8 |
) |
Accrued PIK interest paid through issuance of PIK Note |
|
$ |
3,161 |
|
|
$ |
722 |
|
Issuance of preferred shares in exchange of term loan |
|
$ |
72,607 |
|
|
$ |
— |
|
Issuance of warrants |
|
$ |
3,010 |
|
|
$ |
8,560 |
|
Issuance of equity fee |
|
$ |
685 |
|
|
$ |
2,000 |
|
|
|
|
|
|
|
|
||
See Notes to Condensed Consolidated Financial Statements (Unaudited).
8
FreightCar America, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except for share and per share data and unless otherwise noted)
Note 1 – Description of the Business
FreightCar America, Inc. (“FreightCar” or the “Company”), operating primarily in North America through its direct and indirect subsidiaries, is a leading designer, producer and supplier of railroad freight cars including coal cars, bulk commodity cars, covered hopper cars, intermodal and non-intermodal flat cars, mill gondola cars, coil steel cars and boxcars, as well as railcar parts and components. The Company also specializes in railcar repairs, complete railcar rebody services and railcar conversions that repurpose idled rail assets back into revenue service. The Company is headquartered in Chicago, Illinois, with facilities in Johnstown, Pennsylvania; Shanghai, People’s Republic of China; and Castaños, Coahuila, Mexico (the “Castaños Facility”).
Note 2 – Basis of Presentation
The accompanying condensed consolidated financial statements include the accounts of FreightCar America, Inc. and its subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The foregoing financial information has been prepared in accordance with the accounting principles generally accepted in the United States of America (“GAAP”) and rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”) for interim financial reporting. The preparation of the financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates. The results of operations for the three and six months ended June 30, 2023 are not necessarily indicative of the results to be expected for the full year. The accompanying interim financial information is unaudited; however, the Company believes the financial information reflects all adjustments (consisting of items of a normal recurring nature) necessary for a fair presentation of financial position, results of operations and cash flows in conformity with GAAP. The 2022 year-end balance sheet data was derived from the audited financial statements as of December 31, 2022. Certain information and note disclosures normally included in the Company’s annual financial statements prepared in accordance with GAAP have been condensed or omitted. Certain prior year amounts have been reclassified, where necessary, to conform to the current year presentation. These interim financial statements should be read in conjunction with the audited financial statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.
Note 3 – Revenue Recognition
The following table disaggregates the Company’s revenues by major source:
|
|
Three Months Ended |
|
Six Months Ended |
|
|||||||||||
|
|
June 30, |
|
June 30, |
|
|||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Railcar sales |
|
$ |
85,349 |
|
|
$ |
52,764 |
|
|
$ |
162,345 |
|
|
$ |
142,072 |
|
Parts sales |
|
|
2,873 |
|
|
|
3,193 |
|
|
|
6,273 |
|
|
|
6,304 |
|
Revenues from contracts with customers |
|
|
88,222 |
|
|
|
55,957 |
|
|
|
168,618 |
|
|
|
148,376 |
|
Leasing revenues |
|
|
374 |
|
|
|
829 |
|
|
|
977 |
|
|
|
1,646 |
|
Total revenues |
|
$ |
88,596 |
|
|
$ |
56,786 |
|
|
$ |
169,595 |
|
|
$ |
150,022 |
|
Contract Balances and Accounts Receivable
Accounts receivable payments for railcar sales are typically due within 5 to 10 business days of invoicing, while payments from parts sales are typically due within 30 to 45 business days of invoicing. The Company has not experienced significant historical credit losses.
Contract assets represent the Company’s rights to consideration for performance obligations that have been satisfied but for which the terms of the contract do not permit billing at the reporting date. The Company had no contract assets as of June 30, 2023 and December 31, 2022. The Company may receive cash payments from customers in advance of the Company satisfying performance obligations under its sales contracts resulting in deferred revenue or customer deposits, which are considered contract liabilities. Deferred revenue and customer deposits are classified as either current or long-term in the Consolidated Balance Sheet based on the timing of when the Company expects to recognize the related revenue. Deferred revenue and customer deposits are included in customer deposits, other current liabilities and other long-term liabilities in the Company’s Condensed Consolidated Balance Sheet and were $22,048 and $219 as of June 30, 2023 and December 31, 2022, respectively.
9
Performance Obligations
The Company is electing not to disclose the value of the remaining unsatisfied performance obligation with a duration of one year or less as permitted by ASU 2014-09, Revenue from Contracts with Customers. The Company had remaining unsatisfied performance obligations as of June 30, 2023 with expected duration of greater than one year of $14,850.
Note 4 – Segment Information
The Company’s operations consist of two operating segments, Manufacturing and Parts, and one reportable segment, Manufacturing. The Company’s Manufacturing segment includes new railcar manufacturing, railcar leasing and major railcar conversions and rebuilds. The Company’s Parts operating segment is not significant for reporting purposes and has been combined with corporate and other non-operating activities as Corporate and Other.
Segment operating income is an internal performance measure used by the Company’s Chief Operating Decision Maker to assess the performance of each segment in a given period. Segment operating income includes all external revenues attributable to the segments as well as operating costs and income that management believes are directly attributable to the current production of goods and services. The Company’s internal management reporting package does not include interest revenue, interest expense or income taxes allocated to individual segments and these items are not considered as a component of segment operating income. Segment assets represent operating assets and exclude intersegment accounts, deferred tax assets and income tax receivables. The Company does not allocate cash and cash equivalents and restricted cash and restricted cash equivalents to its operating segments as the Company’s treasury function is managed at the corporate level. Intersegment revenues were not material in any period presented.
|
|
Three Months Ended |
|
|
|
Six Months Ended |
|
||||||||||
|
|
June 30, |
|
|
|
June 30, |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
|
2023 |
|
|
2022 |
|
||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Manufacturing |
|
$ |
85,724 |
|
|
$ |
53,606 |
|
|
|
$ |
163,323 |
|
|
$ |
143,731 |
|
Corporate and Other |
|
|
2,872 |
|
|
|
3,180 |
|
|
|
|
6,272 |
|
|
|
6,291 |
|
Consolidated revenues |
|
$ |
88,596 |
|
|
$ |
56,786 |
|
|
|
$ |
169,595 |
|
|
$ |
150,022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Operating income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Manufacturing |
|
$ |
11,769 |
|
|
$ |
4,900 |
|
|
|
$ |
17,397 |
|
|
$ |
13,416 |
|
Corporate and Other |
|
|
(4,043 |
) |
|
|
(2,364 |
) |
|
|
|
(8,574 |
) |
|
|
(11,535 |
) |
Consolidated operating income |
|
|
7,726 |
|
|
|
2,536 |
|
|
|
|
8,823 |
|
|
|
1,881 |
|
Consolidated interest expense |
|
|
(4,351 |
) |
|
|
(5,757 |
) |
|
|
|
(10,951 |
) |
|
|
(11,462 |
) |
Gain (loss) on change in fair market value of Warrant liability |
|
|
(6,755 |
) |
|
|
18,746 |
|
|
|
|
(6,142 |
) |
|
|
(1,984 |
) |
Loss on extinguishment of debt |
|
|
(14,880 |
) |
|
|
- |
|
|
|
|
(14,880 |
) |
|
|
- |
|
Consolidated other (expense) income |
|
|
(69 |
) |
|
|
661 |
|
|
|
|
(105 |
) |
|
|
2,157 |
|
Consolidated loss (income) before income taxes |
|
$ |
(18,329 |
) |
|
$ |
16,186 |
|
|
|
$ |
(23,255 |
) |
|
$ |
(9,408 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Depreciation and amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Manufacturing |
|
$ |
891 |
|
|
$ |
869 |
|
|
|
$ |
1,823 |
|
|
$ |
1,736 |
|
Corporate and Other |
|
|
142 |
|
|
|
167 |
|
|
|
|
282 |
|
|
|
324 |
|
Consolidated depreciation and amortization |
|
$ |
1,033 |
|
|
$ |
1,036 |
|
|
|
$ |
2,105 |
|
|
$ |
2,060 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Capital expenditures: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Manufacturing |
|
$ |
2,947 |
|
|
$ |
1,482 |
|
|
|
$ |
4,826 |
|
|
$ |
2,442 |
|
Corporate and Other |
|
|
47 |
|
|
|
366 |
|
|
|
|
128 |
|
|
|
366 |
|
Consolidated capital expenditures |
|
$ |
2,994 |
|
|
$ |
1,848 |
|
|
|
$ |
4,954 |
|
|
$ |
2,808 |
|
|
|
June 30, |
|
|
December 31, |
|
||
|
|
2023 |
|
|
2022 |
|
||
Assets: |
|
|
|
|
|
|
||
Manufacturing |
|
$ |
184,389 |
|
|
$ |
149,014 |
|
Corporate and Other |
|
|
23,772 |
|
|
|
50,631 |
|
Total operating assets |
|
|
208,161 |
|
|
|
199,645 |
|
Consolidated income taxes receivable |
|
|
83 |
|
|
|
93 |
|
Consolidated assets |
|
$ |
208,244 |
|
|
$ |
199,738 |
|
10
Geographic Information |
|
|||||||||||||||||||||||
|
|
Revenues |
|
|
Long Lived Assets(a) |
|
||||||||||||||||||
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
|
|
|
|
||||||||||||
|
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
|
December 31, |
|
||||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||||
United States |
|
$ |
88,596 |
|
|
$ |
56,772 |
|
|
$ |
169,595 |
|
|
$ |
150,008 |
|
|
$ |
10,240 |
|
|
$ |
15,018 |
|
Mexico |
|
|
- |
|
|
|
14 |
|
|
|
- |
|
|
|
14 |
|
|
|
56,835 |
|
|
|
54,243 |
|
Total |
|
$ |
88,596 |
|
|
$ |
56,786 |
|
|
$ |
169,595 |
|
|
$ |
150,022 |
|
|
$ |
67,075 |
|
|
$ |
69,261 |
|
(a) Long lived assets include property plant and equipment, net, railcars available for lease, and right-of-use (ROU) assets.
Note 5 – Fair Value Measurements
The following table sets forth by level within the fair value hierarchy the Company’s financial assets that were recorded at fair value on a recurring basis and the Company’s non-financial assets that were recorded at fair value on a non-recurring basis.
Recurring Fair Value Measurements |
|
As of June 30, 2023 |
|
|||||||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Warrant liability |
|
$ |
- |
|
|
$ |
40,714 |
|
|
$ |
- |
|
|
$ |
40,714 |
|
Recurring Fair Value Measurements |
|
As of December 31, 2022 |
|
|||||||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Warrant liability |
|
$ |
- |
|
|
$ |
31,028 |
|
|
$ |
- |
|
|
$ |
31,028 |
|
Non-recurring Fair Value Measurements |
|
During the Year Ended December 31, 2022 |
|
|||||||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Railcars available for lease, net |
|
$ |
- |
|
|
$ |
4,116 |
|
|
$ |
- |
|
|
$ |
4,116 |
|
Assets held for sale |
|
$ |
- |
|
|
$ |
3,675 |
|
|
$ |
- |
|
|
$ |
3,675 |
|
The fair value of the Company’s Warrant liability recorded in the Company’s financial statements, determined using the quoted price of the Company’s common stock, par value $0.01 per share (the “Common Stock”), in an active market, exercise prices of $0.01 per share and $3.57 per share, and number of shares for which warrants are exercisable at June 30, 2023 and December 31, 2022, is a Level 2 measurement.
The fair value of the Company's fleet of small cube covered hopper railcars determined using a market approach, using the known selling prices for a portion of the cars, and a weighted average selling price for the remaining cars in the asset group at December 31, 2022, is a Level 2 measurement. The portion of these assets intended to be sold were classified as assets held for sale and were no longer depreciated. These assets were sold during the three months ended June 30, 2023.
Note 6 – Restricted Cash
The Company establishes restricted cash balances when required by customer contracts and to collateralize standby letters of credit. The carrying value of restricted cash approximates fair value.
The Company’s restricted cash balances are as follows:
|
|
June 30, |
|
|
December 31, |
|
||
|
|
2023 |
|
|
2022 |
|
||
Restricted cash from customer deposit |
|
$ |
282 |
|
|
$ |
282 |
|
Restricted cash to collateralize standby letters of credit |
|
|
103 |
|
|
|
103 |
|
Restricted cash equivalents to collateralize standby letters of credit |
|
|
3,542 |
|
|
|
3,542 |
|
Restricted cash equivalents - other |
|
|
266 |
|
|
|
151 |
|
Total restricted cash and restricted cash equivalents |
|
$ |
4,193 |
|
|
$ |
4,078 |
|
11
Note 7 – Inventories
Inventories, net of reserve for excess and obsolete items, consist of the following:
|
|
June 30, |
|
|
December 31, |
|
||
|
|
2023 |
|
|
2022 |
|
||
Raw materials |
|
$ |
75,371 |
|
|
$ |
46,421 |
|
Work in process |
|
|
4,209 |
|
|
|
4,527 |
|
Finished railcars |
|
|
4,517 |
|
|
|
8,783 |
|
Parts inventory |
|
|
4,672 |
|
|
|
4,586 |
|
Total inventories, net |
|
$ |
88,769 |
|
|
$ |
64,317 |
|
Inventory on the Company’s Condensed Consolidated Balance Sheets includes reserves of $1,995 and $1,672 relating to excess or slow-moving inventory for parts and work in process at June 30, 2023 and December 31, 2022, respectively.
Note 8 – Debt Financing and Revolving Credit Facilities
Long-term debt consists of the following as of June 30, 2023 and December 31, 2022:
|
|
June 30, |
|
|
December 31, |
|
||
|
|
2023 |
|
|
2022 |
|
||
M&T Credit Agreement outstanding |
|
$ |
- |
|
|
$ |
6,917 |
|
Siena Loan Agreement outstanding |
|
|
22,293 |
|
|
|
33,825 |
|
Credit Agreement outstanding |
|
|
- |
|
|
|
58,745 |
|
Total debt |
|
|
22,293 |
|
|
|
99,487 |
|
Less Credit Agreement discount |
|
|
- |
|
|
|
(5,262 |
) |
Less Credit Agreement deferred financing costs |
|
|
- |
|
|
|
(1,989 |
) |
Total debt, net of discount and deferred financing costs |
|
|
22,293 |
|
|
|
92,236 |
|
Less amounts due within one year |
|
|
(22,293 |
) |
|
|
(40,742 |
) |
Long-term debt, net of current portion |
|
$ |
- |
|
|
$ |
51,494 |
|
The fair value of the remaining debt approximates its carrying value as of June 30, 2023 and December 31, 2022.
Credit Agreement
In October 2020, the Company entered into a $40,000 Credit Agreement (as amended from time to time, the “Credit Agreement”) by and among the Company, as guarantor, FreightCar North America, LLC (“Borrower” and together with the Company and certain other subsidiary guarantors, collectively, the “Loan Parties”), CO Finance LVS VI LLC, as lender (the “Lender”), and U.S. Bank National Association, as disbursing agent and collateral agent (“Agent”). The $40,000 term loan under the Credit Agreement closed and was funded on November 24, 2020 (the “Closing Date”). The Company incurred $2,872 in deferred financing costs that are presented as a reduction of the long-term debt balance and amortized to interest expense over the term of the Credit Agreement.
The term loan outstanding under the Credit Agreement bears interest, at Borrower’s option and subject to the provisions of the Credit Agreement, at Base Rate (as defined in the Credit Agreement) or Eurodollar Rate (as defined in the Credit Agreement) plus the Applicable Margin (as defined in the Credit Agreement) for each such interest rate set forth in the Credit Agreement.
In May 2021, the Loan Parties entered into an Amendment No. 2 to the Credit Agreement (the “Second Amendment”) with Lender and the Agent, pursuant to which the principal amount of the Credit Agreement was increased by $16,000 to a total of $56,000 (the “Additional Loan”). The Additional Loan closed and was funded on May 17, 2021. The Company incurred $480 in deferred financing costs related to the Second Amendment which are presented as a reduction of the long-term debt balance and amortized on a straight-line basis to interest expense over the term of the Second Amendment.
12
Pursuant to the Second Amendment, in the event that the Additional Loan was not repaid in full by March 31, 2022, the Company was to issue to the Lender and/or a Lender affiliate, a warrant (the “2022 Warrant”) to purchase a number of shares of Common Stock equal to 5% of the Company’s outstanding Common Stock on a fully-diluted basis at the time the 2022 Warrant is exercised. The Company believed it was probable that the 2022 Warrant would be issued and recorded an additional Warrant liability of $7,351 during the third quarter of 2021. The 2022 Warrant was issued on April 4, 2022 with an exercise price of $0.01 and a term of ten (10) years. As of June 30, 2023 and December 31, 2022, the 2022 Warrant was exercisable for an aggregate of 1,893,744 and 1,473,726 shares of Common Stock, respectively with a per share exercise price of $0.01.
Pursuant to the Second Amendment, the Company was required to, among other things, i) obtain a term sheet for additional financing of no less than $15,000 by July 31, 2021 and ii) file a registration statement on Form S-3 registering Company securities by no later than August 31, 2021. The Company has met each of the aforementioned obligations. The form S-3 registering Company securities was filed with the Securities and Exchange Commission on August 27, 2021 and became effective on September 9, 2021.
In July 2021, the Loan Parties entered into an Amendment No. 3 to Credit Agreement (the “Third Amendment”) with the Lender and the Agent, pursuant to which, among other things, Lender obtained a standby letter of credit (as may be amended from time to time, the “Third Amendment Letter of Credit”) from Wells Fargo Bank, N.A., in the principal amount of $25,000 for the account of the Company and for the benefit of the Revolving Loan Lender (as defined below).
In December 2021, the Loan Parties entered into an Amendment No. 4 to Credit Agreement (the “Fourth Amendment”) with the Lender and the Agent, pursuant to which the principal amount of the term loan credit facility was increased by $15,000 to a total of $71,000, with such additional $15,000 (the “Delayed Draw Loan”) to be funded, at the Borrower’s option, upon the satisfaction of certain conditions precedent set forth in the Fourth Amendment. The Borrower had the option to draw on the Delayed Draw Loan through January 31, 2023. The Delayed Draw Loan, if funded, would bear the same interest rate as the original term loan.
In January 2023, the Company, certain other subsidiary guarantors of the Company, CO Finance LVS VI LLC and OC III LFE II LP (collectively, the “Loan Parties”) entered into Amendment No. 6 to Credit Agreement (the “Sixth Amendment”), with respect to the Credit Agreement. The Sixth Amendment amends the Credit Agreement to extend the date for the Company to draw on the Delayed Draw Loan of $15,000 from January 31, 2023 to March 3, 2023.
In February 2023, the Loan Parties entered into Amendment No. 7 to Credit Agreement (the “Seventh Amendment”), with respect to the Credit Agreement. The Seventh Amendment amends the Credit Agreement to extend the date for the Company to draw on the Delayed Draw Loan of $15,000 from March 3, 2023 to April 3, 2023 (“Delayed Draw Extension Deadline”). The Delayed Draw Loan expired as the Company did not draw on the Delayed Draw Loan by April 3, 2023.
In March 2023 prior to the Delayed Draw Extension Deadline, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) by and among the Company and OC III LFE II LP (the “Purchaser”) pursuant to which the Company issued 85,412 shares upon Closing of new non-convertible Series C Preferred Stock of the Company, par value $0.01 (the “Series C Preferred Stock”) at an initial stated value of $1,000 per share. Upon closing of the transactions contemplated by the Purchase Agreement on May 22, 2023 (the “Closing”), the Purchaser received a detached warrant to purchase 1,636,313 shares of Common Stock of the Company, for an exercise price equal to $3.57 (the “2023 Warrant”). See Note 9 - Mezzanine Equity and 2023 Warrant.
In March 2023, contemporaneous with the execution of the Purchase Agreement and the First Amendment to Amended and Restated Reimbursement Agreement (as defined below), the Loan Parties, the Purchaser, and the designated disbursing and collateral agent (the “Agent”) entered into Amendment No. 8 to Credit Agreement (the “Eighth Amendment”), with respect to the Credit Agreement. The Eighth Amendment amends the Credit Agreement to provide the Company the option to pay all interest during the period between signing of the Purchase Agreement and the Closing (the “Pre-Closing Period”) in kind.
Upon Closing, the Company settled $60,178 in-full all of the principal amount of the outstanding Term Loan Credit Agreement, together with all $1,727 accrued unpaid interest, fees, penalties, and other obligations under the Term Loan Credit Agreement through the issuance of the Series C Preferred Stock, resulting in a loss on extinguishment of $17,772. Any excess proceeds are to be used for general corporate purposes.
Reimbursement Agreement
Pursuant to the Third Amendment, on July 30, 2021, the Company, the Lender, Alter Domus (US) LLC, as calculation agent, and the Agent entered into a reimbursement agreement (the “Reimbursement Agreement”), pursuant to which, among other things, the Company agreed to reimburse the Agent, for the account of the Lender, in the event of any drawings under the Third Amendment Letter of Credit by the Revolving Loan Lender.
13
The Company shall make certain other payments as set forth below, so long as the Third Amendment Letter of Credit remains outstanding:
Letter of Credit Fee
The Company shall pay to Agent, for the account of Lender, an annual fee of $500, which shall be due and payable quarterly beginning on August 2, 2021, and every three months thereafter. In connection with the Closing, the Purchaser has agreed to extend the maturity date of the Third Amendment Letter of Credit for two (2) years and eliminate the Letter of Credit Fee paid by the Company.
Equity Fee
Every three months (the “Measurement Period”), commencing on August 6, 2021, the Company shall pay to the Lender or designee thereof a fee (the “Equity Fee”) payable in shares of Common Stock. The Equity Fee shall be calculated by dividing $1,000 by the volume weighted average price of the Common Stock on the Nasdaq Global Market for the ten (10) trading days ending on the last business day of the applicable Measurement Period. The Company may pay the Equity Fee in cash if certain conditions are met.
The Equity Fee shall no longer be paid once the Company has issued Equity Fees in an amount of Common Stock equal to 9.99% multiplied by the total number of shares of Common Stock outstanding as of July 30, 2021, rounded down to the nearest whole share of Common Stock, or 1,547,266 shares of Common Stock (the “Maximum Equity”). By March 2023, the Company had paid the Maximum Equity.
Cash Fee
The Company shall pay to the Agent, for the account of the Lender or a designee thereof a cash fee (the “Cash Fee”) which shall be due and payable in cash quarterly beginning on the date that the Maximum Equity has been issued and thereafter on the business day immediately succeeding the last business day of the applicable Measurement Period. The Cash Fee shall be equal to $1,000, provided that, in the quarter in which the Maximum Equity is issued, such fee shall be equitably reduced by the value of any Equity Fee issued by the Company that quarter. In connection with the Closing, the Purchaser has agreed to reduce the Cash Fee paid by the Company to $375 per quarter.
Amendment to Reimbursement Agreement
In March 2023, the Company, the Purchaser, the Agent, and the designated calculation agent entered into Amendment No. 1 to Amended and Restated Reimbursement Agreement (“First Amendment to Amended and Restated Reimbursement Agreement”), pursuant to which the parties have agreed the Letter of Credit Fee, Equity Fee or Cash Fee that would otherwise be due and payable for the Pre-Closing Period will accrue and become payable and be paid on the date the Pre-Closing Period terminates. Upon Closing, the Company paid $280 in accordance with the First Amendment to Amended and Restated Reimbursement Agreement.
Warrants
In connection with the Credit Agreement, the Company issued to an affiliate of the Lender (the “Warrantholder”) a warrant (the “2020 Warrant”), pursuant to that certain warrant acquisition agreement, dated as of October 13, 2020, by and between the Company and the Lender, to purchase a number of shares of Common Stock equal to 23% of the outstanding Common Stock on a fully-diluted basis at the time the 2020 Warrant is exercised (after giving effect to such issuance). The 2020 Warrant was issued on November 24, 2020 and is exercisable for a term of ten (10) years from the date of the issuance of the 2020 Warrant. As of June 30, 2023 and December 31, 2022, the 2020 Warrant was exercisable for an aggregate of 8,711,224 and 6,799,139 shares, respectively, of Common Stock with a per share exercise price of $0.01. The Company determined that the 2020 Warrant should be accounted for as a derivative instrument and classified as a liability on its Consolidated Balance Sheets primarily due to the instrument obligating the Company to settle the 2020 Warrant in a variable number of shares of Common Stock. The 2020 Warrant was recorded at fair value and is treated as a discount on the term loan. The discount on the associated debt is amortized over the life of the Credit Agreement and included in interest expense.
Pursuant to the Fourth Amendment and a warrant acquisition agreement, dated as of December 30, 2021, the Company issued to the Lender a warrant (the “2021 Warrant”) to purchase a number of shares of Common Stock equal to 5% of the outstanding Common Stock on a fully-diluted basis at the time the 2021 Warrant is exercised. The 2021 Warrant has an exercise price of $0.01 and a term of ten years. As of June 30, 2023 and December 31, 2022, the 2021 Warrant was exercisable for an aggregate of 1,893,744 and 1,473,726 shares of Common Stock, respectively with a per share exercise price of $0.01.
14
To the extent the Delayed Draw Loan is funded, the Company has agreed to issue to the Lender a warrant (the “3% Additional Warrant”) to purchase up to a number of shares of Common Stock equal to 3% of the outstanding Common Stock on a fully-diluted basis at the time the 3% Additional Warrant is exercised (after giving effect to such issuance). The 3% Additional Warrant, if issued, will have an exercise price of $0.01 and a term of ten years. The Additional Warrant was never issued as the Delayed Draw Loan expired undrawn on April 3, 2023.
The 2020 Warrant, 2021 Warrant, 2022 Warrant, and 2023 Warrant collectively are referred to herein as the “Warrant”. The following schedule shows the change in fair value of the Warrant as of June 30, 2023.
Warrant liability as of December 31, 2022 |
|
$ |
31,028 |
|
Warrant issued |
|
$ |
3,544 |
|
Change in fair value |
|
|
6,142 |
|
Warrant liability as of June 30, 2023 |
|
$ |
40,714 |
|
The change in fair value of the Warrant is reported on a separate line in the consolidated statement of operations.
Siena Loan and Security Agreement
In October 2020, the Company entered into a Loan and Security Agreement (the “Siena Loan Agreement”) by and among the Company, as guarantor, and certain of its subsidiaries, as borrowers (together with the Company, the “Revolving Loan Parties”), and Siena Lending Group LLC, as lender (“Revolving Loan Lender”). Pursuant to the Siena Loan Agreement, the Revolving Loan Lender provided an asset backed credit facility, in the maximum aggregate principal amount of up to $20,000 (the “Maximum Revolving Facility Amount”) consisting of revolving loans (the “Revolving Loans”), subject to certain borrowing base requirements set forth in the Siena Loan Agreement.
In July 2021, the Revolving Loan Parties and the Revolving Loan Lender entered into an Amended and Restated Loan and Security Agreement (the “Amended and Restated Loan and Security Agreement”), which amended and restated the terms and conditions of the Siena Loan Agreement, including, among other things, an increase of $25,000 to the Maximum Revolving Facility Amount.
The Amended and Restated Loan and Security Agreement has a term ending on October 8, 2023. Revolving Loans outstanding under the Amended and Restated Loan and Security Agreement bear interest, subject to the provisions of the Amended and Restated Loan and Security Agreement, at an interest rate of 2% per annum in excess of the Base Rate (as defined in the Siena Loan Agreement).
In February 2022, the Revolving Loan Parties and the Revolving Loan Lender entered into a First Amendment to Amended and Restated Loan and Security Agreement (the “First Amendment to Amended and Restated Loan and Security Agreement”), pursuant to which, among other things, the Maximum Revolving Facility Amount was increased to $35,000.
Revolving Loans outstanding under the First Amendment to Amended and Restated Loan and Security Agreement bear interest, subject to the provisions of the First Amendment to Amended and Restated Loan and Security Agreement, at a rate of 2% per annum in excess of the Base Rate (as defined in the Amended and Restated Loan and Security Agreement). Notwithstanding the foregoing, Revolving Loans made in respect of Excess Availability (as defined in the First Amendment to Amended and Restated Loan and Security Agreement) arising from clause (b) of the definition of “Borrowing Base” (as defined in the First Amendment to Amended and Restated Loan and Security Agreement) bear interest, subject to the provisions of the First Amendment to Amended and Restated Loan and Security Agreement, at a rate of 1.5% per annum in excess of the Base Rate (as defined in the Amended and Restated Loan and Security Agreement). As of June 30, 2023, the interest rate on outstanding debt under the Amended and Restated Loan and Security Agreement was 11.25% and under the First Amendment to Amended and Restated Loan and Security Agreement was 9.75%.
As of June 30, 2023, the Company had $22,293 in outstanding debt under the Siena Loan Agreement and remaining borrowing availability of $11,760. As of December 31, 2022, the Company had $33,825 in outstanding debt under the Siena Loan Agreement and remaining borrowing availability of zero. The Company incurred $1,101 in deferred financing costs related to the Siena Loan Agreement during the fourth quarter of 2020 and incurred $1,037 in additional deferred financing costs related to the Amended and Restated Loan and Security Agreement during the third quarter of 2021. The deferred financing costs are presented as an asset and amortized to interest expense on a straight-line basis over the term of the Siena Loan Agreement.
M&T Credit Agreement
15
In April 2019, FreightCar America Leasing 1, LLC, an indirect wholly-owned subsidiary of the Company (“FreightCar Leasing Borrower”), entered into a Credit Agreement (the “M&T Credit Agreement”) with M & T Bank, N.A., as lender (“M&T”), with a term that ended on April 16, 2021 (the “Term End”). Pursuant to the M&T Credit Agreement, M&T extended a revolving credit facility to FreightCar Leasing Borrower in an aggregate amount of up to $40,000 for the purpose of financing railcars to be leased to third parties. In connection with the M&T Credit Agreement, (i) FreightCar Leasing LLC, a wholly owned subsidiary of the Company and parent of FreightCar Leasing Borrower (“FreightCar Leasing Guarantor”), entered into a Guaranty Agreement (the “M&T Guaranty Agreement”) and Pledge Agreement (the “M&T Pledge Agreement”) with M&T.
The Loans outstanding under the M&T Credit Agreement are non-recourse to the assets of the Company or its subsidiaries (other than the assets of FreightCar Leasing Borrower and FreightCar Leasing Guarantor), and bear interest, accrued daily, at the Adjusted LIBOR Rate (as defined in the M&T Credit Agreement) or the Adjusted Base Rate (as defined in the M&T Credit Agreement).
Between August 2020 and April 2021, FreightCar Leasing Borrower received notices from M&T that various Events of Default (as defined in the M&T Credit Agreement) had occurred, including a notice in April 2021 that an Event of Default had occurred due to all amounts outstanding under the M&T Credit Agreement having not been paid by the Term End.
In December 2021 (the “Execution Date”), FreightCar Leasing Borrower, FreightCar Leasing Guarantor (together with FreightCar Leasing Borrower, the “Obligors”), the Company, FreightCar America Railcar Management, LLC (“FCA Management”), and M&T, entered into a Forbearance and Settlement Agreement (the “Forbearance Agreement”) with respect to the M&T Credit Agreement and its related Credit Documents (as defined in the M&T Credit Agreement), as well as certain intercompany services agreements related thereto.
Pursuant to the Forbearance Agreement, the Obligors will continue to perform and comply with all of their performance obligations (as opposed to payment obligations) under certain provisions of the M&T Credit Agreement (primarily related to information obligations and the preservation of the collateral pledged by FreightCar Leasing Borrower to M&T pursuant to the M&T Security Agreement (the “Collateral”) and all the provisions of the M&T Security Agreement.
On December 1, 2023, or sooner if requested by the Lender (the “Turnover Date”), FreightCar Leasing Borrower shall execute and deliver to M&T documents required to deliver and assign to M&T all the leased railcars and related leases serving as Collateral for the M&T Credit Agreement, and the Company shall turn over to M&T certain rents in the amount of $715 that it had previously collected as servicing agent for FreightCar Leasing Borrower.
Upon the Turnover Date and the Obligors’ performance of their respective obligations under the Forbearance Agreement, including the delivery of certain Collateral to M&T upon the Turnover Date, all Obligations (as defined in the M&T Credit Agreement) shall be deemed satisfied in full, M&T shall no longer have any further claims against the Obligors under the Credit Documents and the Credit Documents shall automatically terminate and be of no further force or effect except for the provisions thereof that expressly survive termination.
On June 30, 2023, FreightCar Leasing Borrower paid an aggregate of $4,480 under the M&T Credit Agreement and with respect to the Forbearance Agreement. The payment consisted of proceeds from the sale to a third party of certain railcars and related leases, in lieu of turning over such railcars to M&T as contemplated by the Forbearance Agreement. As part of the payment terms, it was a condition that certain lease payments be made by the current lessees of the railcars to M&T in accordance with the Forbearance Agreement, which payments were timely made. Accordingly, FreightCar Leasing Borrower’s obligations under the M&T Credit Agreement are deemed satisfied in full and the M&T Credit Agreement and all other Credit Documents (as defined in the M&T Credit Agreement), as well as the Forbearance Agreement, are terminated, resulting in a gain on extinguishment of $2,892.
As of December 31, 2022, FreightCar Leasing Borrower had $6,917 in outstanding debt under the M&T Credit Agreement, which was collateralized by leased railcars with a carrying value of $4,116.
Note 9 – Mezzanine Equity and 2023 Warrant
On March 23, 2023, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) by and among the Company and OC III LFE II LP (the “Purchaser”). On May 22, 2023, the transactions contemplated by the Purchase Agreement were consummated (the “Closing”), pursuant to which the Company issued 85,412 shares of Series C Preferred Stock, $0.01 par value per share (the “Series C Preferred Stock”), at an initial stated value of $1,000 per share, and the 2023 Warrant to purchase up to 1,636,313 shares of the Company’s outstanding Common Stock at an exercise price of $3.57. This transaction resulted in $2,506 of total issuance costs, of which $2,216 were allocated against the Series C Preferred Shares.
Preferred Stock
16
During the three and six months ended June 30, 2023, the Company settled its Term Loan Credit Agreement through the issuance of 85,412 of its authorized Series C Preferred Stock to the Purchaser pursuant to the Purchase Agreement at an initial stated and fair value of $85,412. The Series C Preferred Stock was initially stated at fair value net of $2,506 issuance costs. The Company determined the Series C Preferred Stock should be classified as Mezzanine Equity (temporary equity outside of permanent equity) since a deemed liquidation event following a change of control may require redemption of the Series C Preferred Stock that is not solely within the control of the Company.
Pursuant to the Purchase Agreement, a certificate of designation was filed with the Delaware Secretary of State in connection with the Closing (the “Certificate of Designation”) and contained rights, terms and provisions applicable to the Series C Preferred Stock. The Certificate of Designation provided, among other things, that the Series C Preferred Stock will rank senior to the Common Stock with respect to the payment of dividends and distribution of assets upon liquidation, dissolution and winding up. Dividends will accrue on the Series C Preferred Stock at a rate of 17.5% per annum (the “Dividend Rate”) on the Stated Value and Accrued Dividends (each defined in the Certificate of Designation), whether or not declared, and shall be cumulative. The Series C Preferred Stock will not participate in any dividends paid to the holders of shares of Common Stock.
The Company may redeem the outstanding Series C Preferred Stock at any time by payment of the Stated Value plus all accrued dividends (the “Redemption Price”). If the Company has not redeemed the Series C Preferred Stock on or prior to the fourth anniversary of the Closing, the Dividend Rate will increase by 0.5% for every quarter thereafter until the Series C Preferred Stock is redeemed in full. The Purchaser has the right to request the Company redeem the Series C Preferred Stock at any time after the sixth anniversary of the Closing. If the Company does not redeem the Series C Preferred Stock within six months after receipt of a redemption request from the Purchaser, the holders of the Series C Preferred Stock will be entitled to certain limited voting rights as described in the Certificate of Designation.
The Series C Preferred Stock has similar characteristics of an “Increasing Rate Security” as described by SEC Staff Accounting Bulletin Topic 5Q, Increasing Rate Preferred Stock. As a result, and as the Company has the ability to redeem the Series C Preferred Stock before the increasing Dividend Rate occurs, the discount on Series C Preferred Stock is considered an unstated dividend cost that is amortized over the period preceding commencement of the increasing Dividend Rate using the effective interest method, by charging imputed dividend cost against retained earnings, or additional paid in capital in the absence of retained earnings, and increasing the carrying amount of the Series C Preferred Stock by a corresponding amount. Accordingly, the discount is amortized over four years using the effective yield method.
2023 Warrant
At Closing, the Company issued a liability-classified warrant to purchase an aggregate of 1,636,313 shares of the Company’s Common Stock, exercisable for a term of ten years from the date of issuance with an exercise price of $3.57. The 2023 Warrant had a fair value of $3,544 upon issuance, calculated using the Black-Scholes option valuation model.
Note 10 – Accumulated Other Comprehensive Income
The changes in accumulated other comprehensive income consist of the following:
|
|
Pre-Tax |
|
|
Tax |
|
|
After-Tax |
|
|||
Three months ended June 30, 2023 |
|
|
|
|
|
|
|
|
|
|||
Pension liability activity: |
|
|
|
|
|
|
|
|
|
|||
Reclassification adjustment for amortization of net loss (pre-tax other income) |
|
$ |
36 |
|
|
$ |
- |
|
|
$ |
36 |
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|||
|
|
Pre-Tax |
|
|
Tax |
|
|
After-Tax |
|
|||
Three months ended June 30, 2022 |
|
|
|
|
|
|
|
|
|
|||
Pension liability activity: |
|
|
|
|
|
|
|
|
|
|||
Reclassification adjustment for amortization of net loss (pre-tax other income) |
|
$ |
83 |
|
|
$ |
- |
|
|
$ |
83 |
|
17
|
|
Pre-Tax |
|
|
Tax |
|
|
After-Tax |
|
|||
Six months ended June 30, 2023 |
|
|
|
|
|
|
|
|
|
|||
Pension liability activity: |
|
|
|
|
|
|
|
|
|
|||
Reclassification adjustment for amortization of net loss (pre-tax other income) |
|
$ |
77 |
|
|
$ |
- |
|
|
$ |
77 |
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|||
|
|
Pre-Tax |
|
|
Tax |
|
|
After-Tax |
|
|||
Six months ended June 30, 2022 |
|
|
|
|
|
|
|
|
|
|||
Pension liability activity: |
|
|
|
|
|
|
|
|
|
|||
Reclassification adjustment for amortization of net loss (pre-tax other income) |
|
$ |
167 |
|
|
$ |
- |
|
|
$ |
167 |
|
|
|
|
|
|
|
|
|
|
|
|||
The components of accumulated other comprehensive income consist of the following:
|
|
June 30, |
|
|
December 31, |
|
||
|
|
2023 |
|
|
2022 |
|
||
Unrecognized pension income, net of tax of $6,282 and $6,282, respectively |
|
$ |
1,099 |
|
|
$ |
1,022 |
|
Note 11 – Stock-Based Compensation
Total stock-based compensation was $(100) and $(2,754) for the three months ended June 30, 2023 and 2022, respectively and $(191) and $1,490 for the six months ended June 30, 2023 and 2022, respectively. As of June 30, 2023, there was $1,822 of unearned compensation expense related to restricted stock awards, which will be recognized over the remaining weighted average requisite service period of 22 months. As of June 30, 2023, there was $1,664 of unearned compensation related to time-vested stock options, which will be recognized over the remaining requisite service period of 25 months.
2020 and 2021 Grants of Stock Appreciation Rights
During 2020 and 2021, the Company granted 1,164,464 and 1,735,500 cash settled stock appreciation rights, respectively, to certain employees. Each stock appreciation right represents the right to receive a payment measured by the increase in the fair market value of one share of the Company’s stock from the date of grant of the stock appreciation right to the date of exercise of the stock appreciation right. Cash settled stock appreciation rights are classified as liabilities. The 2020 cash settled stock appreciation rights vest ratably over three years and have a contractual life of 10 years. Vesting of the 2021 cash settled stock appreciation rights was contingent upon the achievement of a thirty-day trailing average fair market value of a share of Common Stock of 133.3% ($3.17) or more of the exercise price per share of $2.38. When vesting of an award of stock-based compensation is dependent upon the attainment of a target stock price, the award is considered to be subject to a market condition. During the first quarter of 2021, the market condition for the 2021 cash settled stock appreciation rights was met. The 2021 cash settled stock appreciation rights vest ratably over three years and have a contractual life of 10 years. The Company measures the fair value of unvested cash settled stock appreciation rights using the Black-Scholes option valuation model and remeasures the fair value of the award each reporting period until the award is vested. Once vested the Company immediately recognizes compensation cost for any changes in fair value of cash settled stock appreciation rights until settlement. Fair value of vested cash settled stock appreciation rights represents the fair market value of one share of the Company’s stock on the measurement date less the exercise price per share. Compensation cost for cash settled stock appreciation rights is trued up each reporting period for changes in fair value pro-rated for the portion of the requisite service period rendered.
Effective May 11, 2023, the outstanding cash settled stock appreciation rights were amended to provide for such awards to be settled in shares of the Company’s Common Stock rather than in cash as they were initially structured, resulting in a modification of the classification of these awards from liability to equity. The estimated fair value of the cash settled stock appreciation rights immediately preceding the modification was $1,738, estimated using the Black-Scholes option valuation model with the following assumptions:
18
|
|
|
|
|
|
|
|
Expected |
|
Risk Free |
|
|
|
|
|
|
|
|
|
|
Expected |
|
Dividend |
|
Interest |
|
Fair Value |
|
|
Grant Year |
|
Grant Date |
|
Expected Life |
|
Volatility |
|
Yield |
|
Rate |
|
Per Award |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020 |
|
1/24/2020 |
|
3.4 years |
|
94.06% |
|
0.00% |
|
3.66% |
|
$ |
2.00 |
|
2020 |
|
11/30/2020 |
|
4.1 years |
|
89.29% |
|
0.00% |
|
3.54% |
|
$ |
1.85 |
|
2021 |
|
1/5/2021 |
|
4.2 years |
|
88.36% |
|
0.00% |
|
3.52% |
|
$ |
1.89 |
|
The estimated fair value of the cash settled stock appreciation rights was $3,212 as of June 30, 2022. Stock-based compensation for cash settled stock appreciation rights was $(636) and $(2,951) for the three months ended June 30, 2023 and 2022, respectively, and $(1,219) and $808 for the six months ended June 30, 2023 and 2022, respectively.
As of June 30, 2023, there was $167 of unearned compensation related to the cash settled stock appreciation rights, which will be recognized over the remaining requisite service period of 6 months.
Inducement Options
On June 26, 2023 (the “Grant Date”), the Company issued 300,000 inducement stock options (the “Inducement Options”) outside of The FreightCar America, Inc. 2022 Long Term Incentive Plan to one individual. The Inducement Options were issued at an exercise price of $2.73 and have a contractual life of 10 years. Vesting of the Inducement Options is contingent on the achievement of the later of (i) the first date the closing price of one share of the Company’s Common Stock is equal to or greater than 125% of the exercise price; and (ii) the vesting of one-third of the options per year for three consecutive years after, and on each anniversary of, the Grant Date.
The Company measured the fair value of the Inducement Options as of the Grant Date using a Monte Carlo Simulation Model considering the following assumptions: trading stock price as of the Grant Date of $2.74, risk-free rate of 3.65%, volatility rate of 69.81%, and a term of 10 years. As the likelihood of achieving the market condition is factored into the Monte Carlo model, the stock-based compensation for the Inducement Options will be recognized ratably over the three-year service period.
Note 12 – Employee Benefit Plans
The Company has a qualified, defined benefit pension plan (the “Plan”) that was established to provide benefits to certain employees. The Plan is frozen and participants are no longer accruing benefits. Generally, contributions to the Plan were not less than the minimum amounts required under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and not more than the maximum amount that can be deducted for federal income tax purposes. The Plan assets are held by an independent trustee and consist primarily of equity and fixed income securities.
The components of net periodic benefit cost (benefit) for the three and six months ended June 30, 2023 and 2022, are as follows:
|
|
Three Months Ended |
|
Six Months Ended |
|
|||||||||||
|
|
June 30, |
|
|
June 30, |
|
||||||||||
Pension Benefits |
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Interest cost |
|
$ |
151 |
|
|
$ |
276 |
|
|
$ |
302 |
|
|
$ |
552 |
|
Expected return on plan assets |
|
|
(86 |
) |
|
|
(617 |
) |
|
|
(167 |
) |
|
|
(1,234 |
) |
Amortization of unrecognized net income (loss) |
|
|
36 |
|
|
|
83 |
|
|
|
77 |
|
|
|
167 |
|
|
|
$ |
101 |
|
|
$ |
(258 |
) |
|
$ |
212 |
|
|
$ |
(515 |
) |
The Company made no contributions to the Company’s defined benefit pension plan for the three and six months ended June 30, 2023 and 2022. The Company expects to make no further contributions to its pension plan.
The Company also maintains qualified defined contribution plans, which provide benefits to employees based on employee contributions and employee earnings with discretionary contributions allowed.
Note 13 – Foreign Currency Forward Contracts
The Company’s operations and expenditures in its normal course of business are subject to opportunities and risks related to foreign currency fluctuations. The Company utilizes foreign currency forward contracts to protect against downward currency exposure by hedging Mexican Peso denominated expenses against the risk of variability in foreign currency exchange rates between the Mexican Peso and the U.S. Dollar.
19
During the three and six months ended June 30, 2023, the Company entered for the first time into forward contracts to hedge the Company’s anticipated and probable Mexican Peso denominated expenses against the foreign currency rate exposure. The contracts have terms between one and 12 months and require the Company to exchange currencies at agreed-upon rates at each settlement date. The counterparties to the contracts consist of a limited number of major domestic and international financial institutions. The Company classifies these contracts as cash flow hedges in accordance with ASC 815, Derivatives and Hedging.
The Company will assess the assumed effectiveness and fair value of the contracts at each reporting period. The Company records unrealized gains or losses related to changes in the fair value of the forward contracts in other comprehensive income as long as the contracts are assumed to be effective. Amounts accumulated in other comprehensive income (loss) are reclassified to the consolidated statement of operations when the hedged item impacts earnings or upon determination that the contract is no longer assumed to be effective. The amounts accumulated in other comprehensive income were minimal during the three and six months ended June 30, 2023. The Company has not recorded any realized gains or losses in earnings related to the forward contracts during the three and six months ended June 30, 2023. The Company did not enter into forward contracts in 2022.
Note 14 – Earnings Per Share
The net (loss) income available to common stockholders and weighted-average common shares outstanding are as follows:
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net (loss) income |
|
|
(18,889 |
) |
|
|
14,539 |
|
|
|
(23,926 |
) |
|
|
(11,308 |
) |
Accretion of financing fees |
|
|
(57 |
) |
|
|
- |
|
|
|
(57 |
) |
|
|
- |
|
Accrued dividends on Series C Preferred Stock |
|
|
(1,612 |
) |
|
|
- |
|
|
|
(1,612 |
) |
|
|
- |
|
Net (loss) income available to common stockholders - basic |
|
|
(20,558 |
) |
|
|
14,539 |
|
|
|
(25,595 |
) |
|
|
(11,308 |
) |
Net (loss) income available to common stockholders - diluted |
|
|
(20,558 |
) |
|
|
14,539 |
|
|
|
(25,595 |
) |
|
|
(11,308 |
) |
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average common shares outstanding |
|
|
16,974,593 |
|
|
|
15,919,436 |
|
|
|
16,883,946 |
|
|
|
15,799,456 |
|
Issuance of Warrants |
|
|
11,139,232 |
|
|
|
8,580,348 |
|
|
|
10,668,351 |
|
|
|
8,194,871 |
|
Weighted average common shares outstanding - basic |
|
|
28,113,825 |
|
|
|
24,499,784 |
|
|
|
27,552,297 |
|
|
|
23,994,327 |
|
Weighted average common shares outstanding - diluted |
|
|
28,113,825 |
|
|
|
24,499,784 |
|
|
|
27,552,297 |
|
|
|
23,994,327 |
|
The Company computes earnings per share using the two-class method, which is an earnings allocation formula that determines earnings per share for common stock and participating securities. The Company’s participating securities are its grants of restricted stock which contain non-forfeitable rights to dividends. The Company allocates earnings between both classes; however, in periods of undistributed losses, they are only allocated to common shares as the unvested restricted stock holders do not contractually participate in losses of the Company. The Company computes basic earnings per share by dividing net income allocated to common shareholders by the weighted average number of shares outstanding during the period. Warrants issued in connection with the Company's long-term debt were issued at a nominal exercise price and are considered outstanding at the date of issuance. The 2023 Warrant was issued out-of-the money and the Company will apply the treasury stock method to this warrant when computing earnings per share. Diluted earnings per share is calculated to give effect to all potentially dilutive common shares that were outstanding during the period. Weighted average diluted common shares outstanding include the incremental shares that would be issued upon the assumed exercise of stock options and the assumed vesting of nonvested share awards. For the three months ended June 30, 2023 and 2022, 5,893,935 and 1,759,997 shares, respectively, were not included in the weighted average common shares outstanding calculation as they were anti-dilutive. For the six months ended June 30, 2023 and 2022, 5,865,863 and 1,727,421 shares, respectively, were not included in the weighted average common shares outstanding calculation as they were antidilutive.
20
Note 15 – Related Parties
The following persons are owners of Fabricaciones y Servicios de México, S.A. de C.V. (“Fasemex”): Jesus Gil, VP Operations and a director of the Company; and Alejandro Gil and Salvador Gil, siblings of Jesus Gil. Fasemex owns approximately 10.8% of the outstanding shares of Common Stock as of June 30, 2023 and provides steel fabrication services to the Company. The lessors of the Company’s leased facility in Castaños are Jesus Gil, Alejandro Gil, and Salvador Gil. The Company paid $2,506 and $6,594 during the three and six months ended June 30, 2023, respectively, and $4,447 and $16,656 during the three and six months ended June 30, 2022, respectively, related to rent payment, security deposit, fabrication services and royalty payments. Distribuciones Industriales JAS S.A. de C.V. (“DI”) is owned by Alejandro Gil and Salvador Gil. The Company paid $847 and $1,797 during the three and six months ended June 30, 2023, respectively, and $563 and $1,072 during the three and six months ended June 30, 2022, respectively, to DI related to material and safety supplies. Maquinaria y Equipo de Transporte Jova S.A. de C.V. (“METJ”) is owned by Jorge Gil, another sibling of Jesus Gil. The Company paid $777 and $1,375 during the three and six months ended June 30, 2023, respectively, and $812 and $1,412 during the three and six months ended June 30, 2022, respectively, to METJ related to trucking services.
Related party asset on the condensed consolidated balance sheet of $1,308 as of June 30, 2023 includes prepaid inventory of $768 and other receivables of $540 from Fasemex. Related party accounts payable on the condensed consolidated balance sheet of $1,213 as of June 30, 2023 includes $35 payable to Fasemex, $657 payable to DI and $521 payable to METJ. Related party asset on the condensed consolidated balance sheet of $3,261 as of December 31, 2022 includes prepaid inventory of $2,014 and other receivables of $1,247 from Fasemex. Related party accounts payable on the condensed consolidated balance sheet of $3,393 as of December 31, 2022 includes $2,475 payable to Fasemex, $572 payable to DI and $346 payable to METJ.
The Warrantholder beneficially owns approximately 47.4% of the outstanding shares of Common Stock (as disclosed by the Warrantholder in its Schedule 13D/A No. 6 filed with the SEC on July 14, 2023). The Company paid $1,503 and $4,776 to the Warrantholder during the three and six months ended June 30, 2023, respectively, for term loan interest, of which $1,615 was paid in cash and $3,161 was payment in kind. Additionally, the Company did not pay equity or cash fees during the three months ended June 30, 2023 and paid $535 in equity fees and $866 in cash fees during the six months ended June 30, 2023 to the Warrantholder related to the standby letter of credit described in Note 8 – Debt Financing and Revolving Credit Facilities.
Note 16 – Income Taxes
The Company’s reported effective income tax rate was (3.1)% and 10.2% for the three months ended June 30, 2023 and 2022, respectively. The effective tax rate for the second quarter of 2023 varies from the U.S. statutory tax rate of 21% primarily due to earnings from international jurisdictions and permanent differences, predominantly Mexico, taxed at higher tax rates and a full valuation allowance in the U.S. The effective tax rate for the second quarter of 2022 was lower than the 21% U.S. statutory tax rate primarily due to earnings from international jurisdictions and permanent differences and discrete events, predominantly Mexico, taxed at higher tax rates and a full valuation allowance in the U.S.
The Company’s tax provision for interim periods is determined using an estimate of its annual effective tax rate, adjusted for discrete items. The Company’s reported effective income tax rate was (2.9)% and (20.2)% for the six months ended June 30, 2023 and 2022, respectively. The effective tax rate for the second quarter of 2023 varies from the U.S. statutory tax rate of 21% primarily due to earnings from international jurisdictions and permanent differences, predominantly Mexico, taxed at higher tax rates and a full valuation allowance in the U.S. The effective tax rate for the second quarter of 2022 was lower than the 21% U.S. statutory tax rate primarily due to earnings from international jurisdictions and permanent differences and discrete events, predominantly Mexico, taxed at higher tax rates and a full valuation allowance in the U.S.
21
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains certain forward-looking statements including, in particular, statements about our plans, strategies and prospects. We have used the words “may,” “will,” “expect,” “anticipate,” “believe,” “estimate,” “plan,” “likely,” “unlikely,” “intend” and similar expressions in this report to identify forward-looking statements. We have based these forward-looking statements on our current views with respect to future events and financial performance. However, forward-looking statements inherently involve risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements. These risks and uncertainties relate to, among other things, the cyclical nature of our business, the competitive nature of our industry, our reliance upon a small number of customers that represent a large percentage of our sales, the variable purchase patterns of our customers and the timing of completion, delivery and customer acceptance of orders, fluctuating costs of raw materials, including steel and aluminum, delays in the delivery of raw materials, the risk of lack of acceptance of our new railcar offerings, the potential financial and operational impacts of the COVID-19 pandemic, and other competitive factors. The factors listed above are not exhaustive. Other sections of this Quarterly Report on Form 10-Q include additional factors that could materially and adversely affect our business, financial condition and results of operations. New factors emerge from time to time and it is not possible for management to predict the impact of all of these factors on our business, financial condition or results of operations or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not rely on forward-looking statements as a prediction of actual results. We expressly disclaim any duty to provide updates to forward-looking statements, and the estimates and assumptions associated with them, in order to reflect changes in circumstances or expectations or the occurrence of unanticipated events except to the extent required by applicable securities laws.
OVERVIEW
You should read the following discussion in conjunction with our condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements that are based on management’s current expectations, estimates and projections about our business and operations. Our actual results may differ materially from those currently anticipated and expressed in such forward-looking statements. See “Cautionary Statement Regarding Forward-Looking Statements.”
We are a diversified manufacturer of railcars and railcar components. We design and manufacture a broad variety of railcar types for transportation of bulk commodities and containerized freight products primarily in North America. We rebuild and convert railcars and sell forged, cast and fabricated parts for all of the railcars we produce, as well as those manufactured by others. We also lease freight cars. Our primary customers are financial institutions, railroads and shippers.
Total new orders received for railcars for the six months ended June 30, 2023 were 2,341 units, consisting of 2,151 new railcars and 190 rebuilt railcars, compared to orders for 1,900 units, consisting of 1,602 new railcars and 298 rebuilt railcars for the six months ended June 30, 2022. Total backlog of unfilled orders was 3,288 units at June 30, 2023, compared to 2,445 railcars as of December 31, 2022. The estimated sales value of the backlog was $382 million and $288 million, respectively, as of June 30, 2023 and December 31, 2022. The increase in the number of orders for new railcars for the six months ended June 30, 2023 compared to the prior year period is a reflection of improvement in the railcar equipment market.
RESULTS OF OPERATIONS
Three Months Ended June 30, 2023 compared to Three Months Ended June 30, 2022
Revenues
Our consolidated revenues for the three months ended June 30, 2023 were $88.6 million compared to $56.8 million for the three months ended June 30, 2022. Manufacturing segment revenues for the three months ended June 30, 2023 were $85.7 million compared to $53.6 million for the corresponding prior year period. The $32.1 million increase in Manufacturing segment revenues was driven by an increase in the volume of railcar units delivered, as well as a favorable price mix. Railcar deliveries in the three months ended June 30, 2023 totaled 760 units, consisting of 665 new railcars and 95 rebuilt railcars, compared to 468 units in the same period of 2022, consisting of 411 new railcars and 57 rebuilt railcars. Corporate and Other revenues were $2.9 million for the three months ended June 30, 2023 compared to $3.2 million for the three months ended June 30, 2022.
22
Gross Profit
Our consolidated gross profit was $13.0 million for the three months ended June 30, 2023 compared to $6.6 million for the three months ended June 30, 2022. Manufacturing segment gross profit was $11.7 million for the three months ended June 30, 2023 compared to $5.5 million for the three months ended June 30, 2022. The $6.4 million increase in consolidated gross profit and $6.2 million increase in Manufacturing segment gross profit reflect a favorable volume variance and price mix.
Selling, General and Administrative Expenses
Consolidated selling, general and administrative expenses for the three months ended June 30, 2023 were $5.9 million compared to $4.1 million for the three months ended June 30, 2022. The $1.8 million increase in consolidated selling, general and administrative expenses for the three months ended June 30, 2023 was primarily due to a $2.7 million increase in stock-based compensation expenses, largely driven by fair value adjustments for cash-settled stock appreciation rights, offset by a $0.7 million decrease in legal expenses. Manufacturing segment selling, general and administrative expenses were $0.5 million for the three months ended June 30, 2023 and $0.6 million for the three months ended June 30, 2022. Manufacturing segment selling, general and administrative expenses for the three months ended June 30, 2023 were 0.6% of revenue, compared to 1.1% of revenue for the three months ended June 30, 2022. Corporate and Other selling, general and administrative expenses were $5.3 million for the three months ended June 30, 2023 compared to $3.5 million for the three months ended June 30, 2022. The $1.8 million increase in Corporate and Other selling, general and administrative expenses is primarily a result of the previously mentioned increase in stock-based compensation expenses and decrease in legal expenses in the current year.
Gain on Sale of Railcars Available for Lease
Gain on sale of railcars available for lease for the three months ended June 30, 2023 was $0.6 million and represented the gain on sale of 424 leased railcars with a net book value of $7.7 million. We did not sell any railcars available for lease during the three months ended June 30, 2022.
Operating Income
Our consolidated operating income for the three months ended June 30, 2023 was $7.7 million compared to a $2.5 million operating income for the three months ended June 30, 2022 driven primarily by the previously mentioned favorable volume variance and price mix, partially offset by the previously mentioned increase in selling, general and administrative expenses. Operating income for the Manufacturing segment was $11.7 million for the three months ended June 30, 2023 compared to an operating income of $4.9 million for the three months ended June 30, 2022, also reflecting the increase in railcars delivered and favorable price mix during the three months ended June 30, 2023 compared to the 2022 period. Corporate and Other operating loss was $4.0 million for the three months ended June 30, 2023 compared to $2.4 million for the three months ended June 30, 2022. The $1.6 million increase in operating loss is primarily a result of the previously mentioned increase in stock-based compensation expenses, offset by the decrease in legal expenses.
Loss on Extinguishment of Debt
Loss on extinguishment of debt for the three months ended June 30, 2023 was $14.9 million due to the settlement of the Term Loan Credit Agreement through the issuance of Series C Preferred Stock and the termination of the M&T Credit Agreement and Forbearance Agreement. There was no loss on extinguishment for the three months ended June 30, 2022.
Income Taxes
Our income tax provision was $0.6 million for the three months ended June 30, 2023 compared to $1.6 million for the three months ended June 30, 2022.
Net (Loss) Income
As a result of the changes and results discussed above, net loss was $18.9 million for the three months ended June 30, 2023 compared to net income of $14.5 million for the three months ended June 30, 2022. For the three months ended June 30, 2023, basic and diluted net loss per share was $0.73 compared to net income per share of $0.58 for the three months ended June 30, 2022.
23
Six Months Ended June 30, 2023 compared to Six Months Ended June 30, 2022
Revenues
Our consolidated revenues for the six months ended June 30, 2023 were $169.6 million compared to $150.0 million for the six months ended June 30, 2022. Manufacturing segment revenues for the six months ended June 30, 2023 were $163.3 million compared to $143.7 million for the corresponding prior year period. The $19.6 million increase in Manufacturing segment revenues was driven by an increase in the volume of railcar units delivered, as well as a favorable price mix. Railcar deliveries in the six months ended June 30, 2023 totaled 1,498 units, consisting of 1,304 new railcars and 194 rebuilt railcars, compared to 1,251 units in the same period of 2022, consisting of 848 new railcars and 403 rebuilt railcars. Corporate and Other revenues were $6.3 million for each of the six months ended June 30, 2023 and 2022.
Gross Profit
Our consolidated gross profit was $20.4 million for the six months ended June 30, 2023 compared to $16.6 million for the six months ended June 30, 2022. Manufacturing segment gross profit was $18.1 million for the six months ended June 30, 2023 compared to $14.8 million for the six months ended June 30, 2022. The $3.8 million increase in consolidated gross profit and $3.3 million increase in Manufacturing segment gross profit reflect a favorable volume variance and price mix.
Selling, General and Administrative Expenses
Consolidated selling, general and administrative expenses for the six months ended June 30, 2023 were $12.2 million compared to $14.8 million for the six months ended June 30, 2022. The $2.6 million decrease in consolidated selling, general and administrative expenses for the six months ended June 30, 2023 was primarily due to $1.7 million decrease in stock-based compensation expenses and $1.2 million decrease in legal expenses, partially offset by $0.3 million increase in Corporate related payroll expenses. Manufacturing segment selling, general and administrative expenses were $1.3 million for the six months ended June 30, 2023 and $1.4 million the six months ended June 30, 2022. Manufacturing segment selling, general and administrative expenses for the six months ended June 30, 2023 were 0.8% of revenue, compared to 1.0% of revenue for the six months ended June 30, 2022. Corporate and Other selling, general and administrative expenses were $10.9 million for the six months ended June 30, 2023 compared to $13.4 million for the six months ended June 30, 2022. The $2.5 million decrease in Corporate and Other selling, general and administrative expenses is primarily a result of the previously mentioned decreases in stock-based compensation expenses and legal expenses.
Gain on Sale of Railcars Available for Lease
Gain on sale of railcars available for lease for the six months ended June 30, 2023 was $0.6 million and represented the gain on sale of 424 leased railcars with a net book value of $7.7 million. We did not sell any railcars available for lease during the six months ended June 30, 2022.
Operating Income
Our consolidated operating income for the six months ended June 30, 2023 was $8.8 million compared to $1.9 million operating income for the six months ended June 30, 2022 driven primarily by the previously mentioned favorable volume variance and price mix, as well as the decrease in selling, general and administrative expenses. Operating income for the Manufacturing segment was $17.4 million for the six months ended June 30, 2023 compared to an operating income of $13.4 million for the six months ended June 30, 2022, reflecting the increase in railcars delivered and favorable price mix during the six months ended June 30, 2023 compared to the 2022 period. Corporate and Other operating loss was $8.6 million for the six months ended June 30, 2023 compared to $11.5 million for the six months ended June 30, 2022. The $2.9 million decrease in operating loss is primarily a result of the previously mentioned decrease in stock-based compensation expenses and legal expenses.
Loss on Extinguishment of Debt
Loss on extinguishment of debt for the six months ended June 30, 2023 was $14.9 million due to the settlement of the Term Loan Credit Agreement through the issuance of Series C Preferred Stock and the termination of the M&T Credit Agreement and Forbearance Agreement. There was no loss on extinguishment for the six months ended June 30, 2022.
24
Income Taxes
Our income tax provision was $0.7 million for the six months ended June 30, 2023 compared to $1.9 million for the six months ended June 30, 2022.
Net Loss
As a result of the changes and results discussed above, net loss was $23.9 million for the six months ended June 30, 2023 compared to $11.3 million for the six months ended June 30, 2022. For the six months ended June 30, 2023, basic and diluted net loss per share was $0.93 compared to $0.47 for the six months ended June 30, 2022.
LIQUIDITY AND CAPITAL RESOURCES
Our primary sources of liquidity are our cash and cash equivalent balances on hand and our credit and debt facilities outlined below.
Credit Agreement
In October 2020, the Company entered into a $40,000 Credit Agreement (as amended from time to time, the “Credit Agreement”) by and among the Company, as guarantor, FreightCar North America, LLC (“Borrower” and together with the Company and certain other subsidiary guarantors, collectively, the “Loan Parties”), CO Finance LVS VI LLC, as lender (the “Lender”), and U.S. Bank National Association, as disbursing agent and collateral agent (“Agent”). The $40,000 term loan under the Credit Agreement closed and was funded on November 24, 2020 (the “Closing Date”). The Company incurred $2,872 in deferred financing costs that are presented as a reduction of the long-term debt balance and amortized to interest expense over the term of the Credit Agreement.
The term loan outstanding under the Credit Agreement bears interest, at Borrower’s option and subject to the provisions of the Credit Agreement, at Base Rate (as defined in the Credit Agreement) or Eurodollar Rate (as defined in the Credit Agreement) plus the Applicable Margin (as defined in the Credit Agreement) for each such interest rate set forth in the Credit Agreement.
In May 2021, the Loan Parties entered into an Amendment No. 2 to the Credit Agreement (the “Second Amendment”) with Lender and the Agent, pursuant to which the principal amount of the Credit Agreement was increased by $16,000 to a total of $56,000 (the “Additional Loan”). The Additional Loan closed and was funded on May 17, 2021. The Company incurred $480 in deferred financing costs related to the Second Amendment which are presented as a reduction of the long-term debt balance and amortized on a straight-line basis to interest expense over the term of the Second Amendment.
Pursuant to the Second Amendment, in the event that the Additional Loan was not repaid in full by March 31, 2022, the Company was to issue to the Lender and/or a Lender affiliate, a warrant (the “2022 Warrant”) to purchase a number of shares of Common Stock equal to 5% of the Company’s outstanding Common Stock on a fully-diluted basis at the time the 2022 Warrant is exercised. The Company believed it was probable that the 2022 Warrant would be issued and recorded an additional Warrant liability of $7,351 during the third quarter of 2021. The 2022 Warrant was issued on April 4, 2022 with an exercise price of $0.01 and a term of ten (10) years. As of June 30, 2023 and December 31, 2022, the 2022 Warrant was exercisable for an aggregate of 1,893,744 and 1,473,726 shares of Common Stock, respectively with a per share exercise price of $0.01.
Pursuant to the Second Amendment, the Company was required to, among other things, i) obtain a term sheet for additional financing of no less than $15,000 by July 31, 2021 and ii) file a registration statement on Form S-3 registering Company securities by no later than August 31, 2021. The Company has met each of the aforementioned obligations. The form S-3 registering Company securities was filed with the Securities and Exchange Commission on August 27, 2021 and became effective on September 9, 2021.
In July 2021, the Loan Parties entered into an Amendment No. 3 to Credit Agreement (the “Third Amendment”) with the Lender and the Agent, pursuant to which, among other things, Lender obtained a standby letter of credit (as may be amended from time to time, the “Third Amendment Letter of Credit”) from Wells Fargo Bank, N.A., in the principal amount of $25,000 for the account of the Company and for the benefit of the Revolving Loan Lender (as defined below).
In December 2021, the Loan Parties entered into an Amendment No. 4 to Credit Agreement (the “Fourth Amendment”) with the Lender and the Agent, pursuant to which the principal amount of the term loan credit facility was increased by $15,000 to a total of $71,000, with such additional $15,000 (the “Delayed Draw Loan”) to be funded, at the Borrower’s option, upon the satisfaction of certain conditions precedent set forth in the Fourth Amendment. The Borrower had the option to draw on the Delayed Draw Loan through January 31, 2023. The Delayed Draw Loan, if funded, would bear the same interest rate as the original term loan.
25
In January 2023, the Company, certain other subsidiary guarantors of the Company, CO Finance LVS VI LLC and OC III LFE II LP (collectively, the “Loan Parties”) entered into Amendment No. 6 to Credit Agreement (the “Sixth Amendment”), with respect to the Credit Agreement. The Sixth Amendment amends the Credit Agreement to extend the date for the Company to draw on the Delayed Draw Loan of $15,000 from January 31, 2023 to March 3, 2023.
In February 2023, the Loan Parties entered into Amendment No. 7 to Credit Agreement (the “Seventh Amendment”), with respect to the Credit Agreement. The Seventh Amendment amends the Credit Agreement to extend the date for the Company to draw on the Delayed Draw Loan of $15,000 from March 3, 2023 to April 3, 2023 (“Delayed Draw Extension Deadline”). The Delayed Draw Loan expired as the Company did not draw on the Delayed Draw Loan by April 3, 2023.
In March 2023 prior to the Delayed Draw Extension Deadline, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) by and among the Company and OC III LFE II LP (the “Purchaser”) pursuant to which the Company issued 85,412 shares upon Closing of new non-convertible Series C Preferred Stock of the Company, par value $0.01 (the “Series C Preferred Stock”) at an initial stated value of $1,000 per share. Upon closing of the transactions contemplated by the Purchase Agreement on May 22, 2023 (the “Closing”), the Purchaser received a detached warrant to purchase 1,636,313 shares of Common Stock of the Company, for an exercise price equal to $3.57 (the “2023 Warrant”). See Note 9 - Mezzanine Equity and 2023 Warrant.
In March 2023, contemporaneous with the execution of the Purchase Agreement and the First Amendment to Amended and Restated Reimbursement Agreement (as defined below), the Loan Parties, the Purchaser, and the designated disbursing and collateral agent (the “Agent”) entered into Amendment No. 8 to Credit Agreement (the “Eighth Amendment”), with respect to the Credit Agreement. The Eighth Amendment amends the Credit Agreement to provide the Company the option to pay all interest during the period between signing of the Purchase Agreement and the Closing (the “Pre-Closing Period”) in kind.
Upon Closing, the Company settled $60,178 in-full all of the principal amount of the outstanding Term Loan Credit Agreement, together with all $1,727 accrued unpaid interest, fees, penalties, and other obligations under the Term Loan Credit Agreement through the issuance of the Series C Preferred Stock, resulting in a loss on extinguishment of $17,772. Any excess proceeds are to be used for general corporate purposes.
Reimbursement Agreement
Pursuant to the Third Amendment, on July 30, 2021, the Company, the Lender, Alter Domus (US) LLC, as calculation agent, and the Agent entered into a reimbursement agreement (the “Reimbursement Agreement”), pursuant to which, among other things, the Company agreed to reimburse the Agent, for the account of the Lender, in the event of any drawings under the Third Amendment Letter of Credit by the Revolving Loan Lender.
The Company shall make certain other payments as set forth below, so long as the Third Amendment Letter of Credit remains outstanding:
Letter of Credit Fee
The Company shall pay to Agent, for the account of Lender, an annual fee of $500, which shall be due and payable quarterly beginning on August 2, 2021, and every three months thereafter. In connection with the Closing, the Purchaser has agreed to extend the maturity date of the Third Amendment Letter of Credit for two (2) years and eliminate the Letter of Credit Fee paid by the Company.
Equity Fee
Every three months (the “Measurement Period”), commencing on August 6, 2021, the Company shall pay to the Lender or designee thereof a fee (the “Equity Fee”) payable in shares of Common Stock. The Equity Fee shall be calculated by dividing $1,000 by the volume weighted average price of the Common Stock on the Nasdaq Global Market for the ten (10) trading days ending on the last business day of the applicable Measurement Period. The Company may pay the Equity Fee in cash if certain conditions are met.
The Equity Fee shall no longer be paid once the Company has issued Equity Fees in an amount of Common Stock equal to 9.99% multiplied by the total number of shares of Common Stock outstanding as of July 30, 2021, rounded down to the nearest whole share of Common Stock, or 1,547,266 shares of Common Stock (the “Maximum Equity”). By March 2023, the Company had paid the Maximum Equity.
Cash Fee
26
The Company shall pay to the Agent, for the account of the Lender or a designee thereof a cash fee (the “Cash Fee”) which shall be due and payable in cash quarterly beginning on the date that the Maximum Equity has been issued and thereafter on the business day immediately succeeding the last business day of the applicable Measurement Period. The Cash Fee shall be equal to $1,000, provided that, in the quarter in which the Maximum Equity is issued, such fee shall be equitably reduced by the value of any Equity Fee issued by the Company that quarter. In connection with the Closing, the Purchaser has agreed to reduce the Cash Fee paid by the Company to $375 per quarter.
Amendment to Reimbursement Agreement
In March 2023, the Company, the Purchaser, the Agent, and the designated calculation agent entered into Amendment No. 1 to Amended and Restated Reimbursement Agreement (“First Amendment to Amended and Restated Reimbursement Agreement”), pursuant to which the parties have agreed the Letter of Credit Fee, Equity Fee or Cash Fee that would otherwise be due and payable for the Pre-Closing Period will accrue and become payable and be paid on the date the Pre-Closing Period terminates. Upon Closing, the Company paid $280 in accordance with the First Amendment to Amended and Restated Reimbursement Agreement.
Warrants
In connection with the Credit Agreement, the Company issued to an affiliate of the Lender (the “Warrantholder”) a warrant (the “2020 Warrant”), pursuant to that certain warrant acquisition agreement, dated as of October 13, 2020, by and between the Company and the Lender, to purchase a number of shares of Common Stock equal to 23% of the outstanding Common Stock on a fully-diluted basis at the time the 2020 Warrant is exercised (after giving effect to such issuance). The 2020 Warrant was issued on November 24, 2020 and is exercisable for a term of ten (10) years from the date of the issuance of the 2020 Warrant. As of June 30, 2023 and December 31, 2022, the 2020 Warrant was exercisable for an aggregate of 8,711,224 and 6,799,139 shares, respectively, of Common Stock with a per share exercise price of $0.01. The Company determined that the 2020 Warrant should be accounted for as a derivative instrument and classified as a liability on its Consolidated Balance Sheets primarily due to the instrument obligating the Company to settle the 2020 Warrant in a variable number of shares of Common Stock. The 2020 Warrant was recorded at fair value and is treated as a discount on the term loan. The discount on the associated debt is amortized over the life of the Credit Agreement and included in interest expense.
Pursuant to the Fourth Amendment and a warrant acquisition agreement, dated as of December 30, 2021, the Company issued to the Lender a warrant (the “2021 Warrant”) to purchase a number of shares of Common Stock equal to 5% of the outstanding Common Stock on a fully-diluted basis at the time the 2021 Warrant is exercised. The 2021 Warrant has an exercise price of $0.01 and a term of ten years. As of June 30, 2023 and December 31, 2022, the 2021 Warrant was exercisable for an aggregate of 1,893,744 and 1,473,726 shares of Common Stock, respectively with a per share exercise price of $0.01.
To the extent the Delayed Draw Loan is funded, the Company has agreed to issue to the Lender a warrant (the “3% Additional Warrant”) to purchase up to a number of shares of Common Stock equal to 3% of the outstanding Common Stock on a fully-diluted basis at the time the 3% Additional Warrant is exercised (after giving effect to such issuance). The 3% Additional Warrant, if issued, will have an exercise price of $0.01 and a term of ten years. The Additional Warrant was never issued as the Delayed Draw Loan expired undrawn on April 3, 2023.
The 2020 Warrant, 2021 Warrant, 2022 Warrant, and 2023 Warrant collectively are referred to herein as the “Warrant”. The following schedule shows the change in fair value of the Warrant as of June 30, 2023.
Warrant liability as of December 31, 2022 |
|
$ |
31,028 |
|
Warrant issued |
|
$ |
3,544 |
|
Change in fair value |
|
|
6,142 |
|
Warrant liability as of June 30, 2023 |
|
$ |
40,714 |
|
The change in fair value of the Warrant is reported on a separate line in the consolidated statement of operations.
Siena Loan and Security Agreement
In October 2020, the Company entered into a Loan and Security Agreement (the “Siena Loan Agreement”) by and among the Company, as guarantor, and certain of its subsidiaries, as borrowers (together with the Company, the “Revolving Loan Parties”), and Siena Lending Group LLC, as lender (“Revolving Loan Lender”). Pursuant to the Siena Loan Agreement, the Revolving Loan Lender provided an asset backed credit facility, in the maximum aggregate principal amount of up to $20,000 (the “Maximum Revolving Facility Amount”) consisting of revolving loans (the “Revolving Loans”), subject to certain borrowing base requirements set forth in the Siena Loan Agreement.
27
In July 2021, the Revolving Loan Parties and the Revolving Loan Lender entered into an Amended and Restated Loan and Security Agreement (the “Amended and Restated Loan and Security Agreement”), which amended and restated the terms and conditions of the Siena Loan Agreement, including, among other things, an increase of $25,000 to the Maximum Revolving Facility Amount.
The Amended and Restated Loan and Security Agreement has a term ending on October 8, 2023. Revolving Loans outstanding under the Amended and Restated Loan and Security Agreement bear interest, subject to the provisions of the Amended and Restated Loan and Security Agreement, at an interest rate of 2% per annum in excess of the Base Rate (as defined in the Siena Loan Agreement).
In February 2022, the Revolving Loan Parties and the Revolving Loan Lender entered into a First Amendment to Amended and Restated Loan and Security Agreement (the “First Amendment to Amended and Restated Loan and Security Agreement”), pursuant to which, among other things, the Maximum Revolving Facility Amount was increased to $35,000.
Revolving Loans outstanding under the First Amendment to Amended and Restated Loan and Security Agreement bear interest, subject to the provisions of the First Amendment to Amended and Restated Loan and Security Agreement, at a rate of 2% per annum in excess of the Base Rate (as defined in the Amended and Restated Loan and Security Agreement). Notwithstanding the foregoing, Revolving Loans made in respect of Excess Availability (as defined in the First Amendment to Amended and Restated Loan and Security Agreement) arising from clause (b) of the definition of “Borrowing Base” (as defined in the First Amendment to Amended and Restated Loan and Security Agreement) bear interest, subject to the provisions of the First Amendment to Amended and Restated Loan and Security Agreement, at a rate of 1.5% per annum in excess of the Base Rate (as defined in the Amended and Restated Loan and Security Agreement). As of June 30, 2023, the interest rate on outstanding debt under the Amended and Restated Loan and Security Agreement was 11.25% and under the First Amendment to Amended and Restated Loan and Security Agreement was 9.75%.
As of June 30, 2023, the Company had $22,293 in outstanding debt under the Siena Loan Agreement and remaining borrowing availability of $11,760. As of December 31, 2022, the Company had $33,825 in outstanding debt under the Siena Loan Agreement and remaining borrowing availability of zero. The Company incurred $1,101 in deferred financing costs related to the Siena Loan Agreement during the fourth quarter of 2020 and incurred $1,037 in additional deferred financing costs related to the Amended and Restated Loan and Security Agreement during the third quarter of 2021. The deferred financing costs are presented as an asset and amortized to interest expense on a straight-line basis over the term of the Siena Loan Agreement.
M&T Credit Agreement
In April 2019, FreightCar America Leasing 1, LLC, an indirect wholly-owned subsidiary of the Company (“FreightCar Leasing Borrower”), entered into a Credit Agreement (the “M&T Credit Agreement”) with M & T Bank, N.A., as lender (“M&T”), with a term that ended on April 16, 2021 (the “Term End”). Pursuant to the M&T Credit Agreement, M&T extended a revolving credit facility to FreightCar Leasing Borrower in an aggregate amount of up to $40,000 for the purpose of financing railcars to be leased to third parties. In connection with the M&T Credit Agreement, (i) FreightCar Leasing LLC, a wholly owned subsidiary of the Company and parent of FreightCar Leasing Borrower (“FreightCar Leasing Guarantor”), entered into a Guaranty Agreement (the “M&T Guaranty Agreement”) and Pledge Agreement (the “M&T Pledge Agreement”) with M&T.
The Loans outstanding under the M&T Credit Agreement are non-recourse to the assets of the Company or its subsidiaries (other than the assets of FreightCar Leasing Borrower and FreightCar Leasing Guarantor), and bear interest, accrued daily, at the Adjusted LIBOR Rate (as defined in the M&T Credit Agreement) or the Adjusted Base Rate (as defined in the M&T Credit Agreement).
Between August 2020 and April 2021, FreightCar Leasing Borrower received notices from M&T that various Events of Default (as defined in the M&T Credit Agreement) had occurred, including a notice in April 2021 that an Event of Default had occurred due to all amounts outstanding under the M&T Credit Agreement having not been paid by the Term End.
In December 2021 (the “Execution Date”), FreightCar Leasing Borrower, FreightCar Leasing Guarantor (together with FreightCar Leasing Borrower, the “Obligors”), the Company, FreightCar America Railcar Management, LLC (“FCA Management”), and M&T, entered into a Forbearance and Settlement Agreement (the “Forbearance Agreement”) with respect to the M&T Credit Agreement and its related Credit Documents (as defined in the M&T Credit Agreement), as well as certain intercompany services agreements related thereto.
Pursuant to the Forbearance Agreement, the Obligors will continue to perform and comply with all of their performance obligations (as opposed to payment obligations) under certain provisions of the M&T Credit Agreement (primarily related to information obligations and the preservation of the collateral pledged by FreightCar Leasing Borrower to M&T pursuant to the M&T Security Agreement (the “Collateral”) and all the provisions of the M&T Security Agreement.
28
On December 1, 2023, or sooner if requested by the Lender (the “Turnover Date”), FreightCar Leasing Borrower shall execute and deliver to M&T documents required to deliver and assign to M&T all the leased railcars and related leases serving as Collateral for the M&T Credit Agreement, and the Company shall turn over to M&T certain rents in the amount of $715 that it had previously collected as servicing agent for FreightCar Leasing Borrower.
Upon the Turnover Date and the Obligors’ performance of their respective obligations under the Forbearance Agreement, including the delivery of certain Collateral to M&T upon the Turnover Date, all Obligations (as defined in the M&T Credit Agreement) shall be deemed satisfied in full, M&T shall no longer have any further claims against the Obligors under the Credit Documents and the Credit Documents shall automatically terminate and be of no further force or effect except for the provisions thereof that expressly survive termination.
On June 30, 2023, FreightCar Leasing Borrower paid an aggregate of $4,480 under the M&T Credit Agreement and with respect to the Forbearance Agreement. The payment consisted of proceeds from the sale to a third party of certain railcars and related leases, in lieu of turning over such railcars to M&T as contemplated by the Forbearance Agreement. As part of the payment terms, it was a condition that certain lease payments be made by the current lessees of the railcars to M&T in accordance with the Forbearance Agreement, which payments were timely made. Accordingly, FreightCar Leasing Borrower’s obligations under the M&T Credit Agreement are deemed satisfied in full and the M&T Credit Agreement and all other Credit Documents (as defined in the M&T Credit Agreement), as well as the Forbearance Agreement, are terminated, resulting in a gain on extinguishment of $2,892.
As of December 31, 2022, FreightCar Leasing Borrower had $6,917 in outstanding debt under the M&T Credit Agreement, which was collateralized by leased railcars with a carrying value of $4,116.
Additional Liquidity Factors
Our restricted cash, restricted cash equivalents and restricted certificates of deposit balances were $4.2 million and $4.1 million as of June 30, 2023 and December 31, 2022, respectively. Restricted deposits of $0.3 million as of each of June 30, 2023 and December 31, 2022 relate to a customer deposit for the purchase of railcars. Restricted deposits of $3.6 million as of each of June 30, 2023 and December 31, 2022 are used to collateralize standby letters of credit with respect to performance guarantees. The standby letters of credit outstanding as of June 30, 2023 are a requirement as long as the performance guarantees are in place. Restricted deposits of $0.3 million as of June 30, 2023 and $0.2 million as of December 31, 2022 relate to an employee savings fund paid biannually in Mexico.
Based on our current level of operations and known changes in planned volume based on our backlog, we believe that our cash balances will be sufficient to meet our expected liquidity needs for at least the next twelve months. Our long-term liquidity is contingent upon future operating performance and our ability to continue to meet financial covenants under our revolving credit facilities, our Credit Agreement and any other indebtedness and the availability of additional financing if needed. We may also require additional capital in the future to fund working capital as demand for railcars increases, payments for contractual obligations, organic growth opportunities, including new plant and equipment and development of railcars, joint ventures, international expansion and acquisitions, and these capital requirements could be substantial.
Based upon our operating performance and capital requirements, we may, from time to time, be required to raise additional funds through additional offerings of our equity or debt and through long-term borrowings. There can be no assurance that such offerings or long-term debt, if needed, will be available on terms attractive to us, or at all. Furthermore, any additional equity financing may be dilutive to stockholders and debt financing, if available, may involve restrictive covenants. Our failure to raise capital if and when needed could have a material adverse effect on our results of operations and financial condition.
Cash Flows
The following table summarizes our cash flow activities for the six months ended June 30, 2023 and 2022:
|
|
2023 |
|
|
2022 |
|
||
|
|
(In thousands) |
|
|||||
Net cash (used in) provided by: |
|
|
|
|
|
|
||
Operating activities |
|
$ |
(25,576 |
) |
|
$ |
(2,396 |
) |
Investing activities |
|
|
3,402 |
|
|
|
(2,808 |
) |
Financing activities |
|
|
(3,739 |
) |
|
|
495 |
|
Total |
|
$ |
(25,913 |
) |
|
$ |
(4,709 |
) |
Operating Activities. Our net cash (used in) provided by operating activities reflects net loss adjusted for non-cash charges and changes in operating assets and liabilities. Cash flows from operating activities are affected by several factors, including fluctuations in business volume, contract terms for billings and collections, the timing of collections on our contract receivables, processing of bi-weekly payroll and associated taxes, payments to our suppliers and other operating activities.
29
As some of our customers accept delivery of new railcars in train-set quantities, variations in our sales lead to significant fluctuations in our operating profits and cash from operating activities.
Our net cash used in operating activities for the six months ended June 30, 2023 was $25.6 million compared to net cash used in operating activities of $2.4 million for the six months ended June 30, 2022. Our net cash used in operating activities for the six months ended June 30, 2023 reflects changes in working capital, primarily an increase in inventory of $25.1 million related to inventory to be used in production of railcars to be delivered during the second half of 2023. VAT receivable decreased $3.0 million as a result of recovering VAT refunds during the six months ended June 30, 2023. Our net cash used in operating activities for the six months ended June 30, 2022 reflects changes in working capital, including an increase in customer deposits of $15.4 million and a decrease in VAT receivable of $16.9 million, all of which were partially offset by increases in both accounts receivable of $13.9 million and inventory of $16.9 million.
Investing Activities. Net cash provided by investing activities for the six months ended June 30, 2023 was $3.4 million and consisted of $8.4 million proceeds from the sale of railcars available for lease, net of selling costs, offset by capital expenditures of $5.0 million related to the expansion of the Castaños Facility. Net cash used in investing activities for the six months ended June 30, 2022 was $2.8 million and consisted of capital expenditures related to the construction in progress for the Castaños Facility operations.
Financing Activities. Net cash used in financing activities for the six months ended June 30, 2023 was $3.7 million which primarily included net repayments on revolving line of credit of $16.7 million and $13.3 million proceeds from the issuance of Series C Preferred Stock, net of issuance costs. Net cash provided by financing activities for the six months ended June 30, 2022 was $0.5 million related to net borrowings on our revolving line of credit.
Capital Expenditures
Our capital expenditures were $5.0 million in the six months ended June 30, 2023, compared to $2.8 million in the six months ended June 30, 2022. We anticipate capital expenditures during 2023 to be in the range of $12.0 million to $13.0 million, primarily related to the expansion of the Castaños Facility.
30
Item 4. Controls and Procedures.
Management’s Report on Internal Control over Financial Reporting
The Company’s management evaluated, with the participation of the Company’s principal executive officer and principal financial officer, the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of June 30, 2023. Based on their evaluation, the Company’s management concluded that the Company’s disclosure controls and procedures were effective as of June 30, 2023.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting (as such term is defined in Rules 13a–15(f) and 15d–15(f) under the Exchange Act) during the quarter ended June 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II – OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time, the Company is involved in certain pending and threatened legal proceedings in the normal course of business. In the opinion of management, the Company is not aware of any such proceedings that are expected to be material to the Company’s consolidated financial condition, results of operations, or cash flows.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
Item 6. Exhibits.
3.1 |
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10.1 |
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10.2 |
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10.3 |
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10.4 |
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31.1 |
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31.2 |
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101.INS |
Inline XBRL Instance Document |
101.SCH |
Inline XBRL Taxonomy Extension Schema Document |
101.CAL |
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF |
Inline XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB |
Inline XBRL Taxonomy Extension Label Linkbase Document |
101PRE |
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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Exhibit 104 |
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101). |
32
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.
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FREIGHTCAR AMERICA, INC. |
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Date: August 7, 2023 |
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By: |
/s/ JAMES R. MEYER |
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James R. Meyer, President and Chief Executive Officer (Principal Executive Officer) |
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Date: August 7, 2023 |
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By: |
/s/ MICHAEL A. RIORDAN |
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Michael A. Riordan, Vice President, Finance, Chief Financial Officer and Treasurer (Principal Financial Officer) |
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Date: August 7, 2023 |
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By: |
/s/ JUAN CARLOS FUENTES SIERRA |
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Juan Carlos Fuentes Sierra, Corporate Controller and Chief Accounting Officer (Principal Accounting Officer) |
33
Exhibit 3.1
CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF FREIGHTCAR AMERICA, INC.
FreightCar America, Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware (the “Corporation”), DOES HEREBY CERTIFY:
Paragraph 2 of Article 5 of the Certificate of Incorporation of the Corporation is amended to read in its entirety as follows:
“5.2 Number, Term of Office and Election.
Notwithstanding the foregoing, each person elected at the annual meeting of stockholders to succeed a director previously elected by the Board of Directors pursuant to Section 5.4 shall be identified as being of the same class as the director he or she succeeds and shall be elected to hold office until the earlier of (i) the third annual meeting of stockholders after his or her election or (ii)(A) if the vacancy filled pursuant to Section 5.4 resulted from a director’s resignation, death or removal, the next annual meeting of stockholders at which the term of the director whose resignation, death or removal resulted in the vacancy had been scheduled to expire or (B) if the vacancy filled pursuant to Section 5.4 resulted from an increase in the number of directors, the next annual meeting of stockholders at which the terms of the other directors of that class are or would be scheduled to expire, in each case until his or her successor shall have been duly elected and qualified, subject to his or her earlier resignation, death or removal. Any new positions created as a result of an increase in the number of directors shall be allocated to make the classes of directors as nearly equal as possible.
Paragraph 3 of Article 5 of the Certificate of Incorporation of the Corporation is amended to read in its entirety as follows:
“5.3 Removal and Resignation. A director may be removed only for cause and at a meeting of stockholders called expressly for that purpose, upon the affirmative vote of holders of a majority of the voting power of all the then outstanding shares of capital stock entitled to vote generally in the election of directors, voting together as a single class. Except as otherwise provided by the DGCL or this Certificate of Incorporation, stockholders may not remove any director without cause. Cause for removal shall be deemed to exist only if the director whose removal is proposed has engaged in criminal conduct or has engaged in fraudulent or dishonest conduct or gross abuse of authority or discretion with respect to the Corporation. Any director may resign at any time upon written notice to the Corporation.”
Paragraph 4 of Article 5 of the Certificate of Incorporation of the Corporation is amended to read in its entirety as follows:
“5.4 Vacancies. Vacancies in the Board of Directors, including vacancies resulting from the resignation, death or removal of a director and vacancies resulting from an increase in the number of directors, shall be filled by a majority of the remaining members of the Board of Directors though less than a quorum. Each person elected by the Board of Directors to succeed a director who has died, resigned or been removed shall be identified as being of the same class as the director he or she succeeds and shall hold office until the next annual meeting of stockholders, and until his or her successor shall have been duly elected and qualified, subject to his or her earlier resignation, death or removal.
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Each person elected by the Board of Directors to fill a vacancy resulting from an increase in the number of directors shall be identified as a director of the class to which the vacancy has been allocated pursuant to Section 5.2(b) and shall be elected to hold office until the next annual meeting of stockholders, and until his or her successor shall be duly elected and qualified, subject to his or her earlier resignation, death or removal.”
IN WITNESS WHEREOF, FREIGHTCAR AMERICA, INC. has caused this certificate to be duly executed by Kevin P. Bagby, its Secretary, this 6th day of September, 2006.
FREIGHTCAR AMERICA, INC.
By: /s/ Kevin P. Bagby
Kevin P. Bagby
Vice President, Finance, Chief Financial
Officer, Treasurer and Secretary
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CERTIFICATE OF CORRECTION TO
THE CERTIFICATE OF OWNERSHIP AND MERGER OF FREIGHTCAR AMERICA, INC. INTO FCA ACQUISITION CORP.
Pursuant to Section 103(f) of the Delaware General Corporation Law (the “DGCL”), FreightCar America, Inc., a Delaware corporation (the “Corporation”), hereby certifies as follows:
FIRST: The name of the Corporation is FreightCar America, Inc.
SECOND: The date on which the Certificate of Ownership and Merger of FreightCar America, Inc. (the Corporation’s predecessor company) into FCA Acquisition Corp. (the name of which was thereupon changed to FreightCar America, Inc.) was originally filed with the Secretary of State of the State of Delaware is April 1, 2005.
THIRD: The inaccuracy or defect of said Certificate of Ownership and Merger to be corrected is that the third sentence of Section 5.2(b) of the Certificate of Incorporation attached as Exhibit A to said Certificate of Ownership and Merger incorrectly states that the term of office of directors expires at the first meeting of stockholders following their respective election to the Corporation’s Board of Directors, when it should have provided that such term expires at the third annual meeting of stockholders following their election to the Board of Directors.
FOURTH: The third sentence in Section 5.2(b) of Article V of the Certificate of Incorporation attached as Exhibit A to the Certificate of Ownership and Merger is hereby corrected to read as follows:
“At each annual meeting of stockholders the directors elected to succeed those whose terms have expired shall be identified as being of the same class as the directors they succeed and shall be elected to hold office for a term to expire at the third annual meeting of stockholders after their election, or until his or her earlier death, resignation, retirement or removal and until their respective successor shall be duly elected and qualified.”
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IN WITNESS WHEREOF, the Corporation has caused this Certificate of Correction to be executed by its duly authorized officer this 23rd day of March, 2006.
FREIGHTCAR AMERICA, INC.
By: /s/ Kevin P. Bagby
Kevin P. Bagby
Vice President, Finance, Chief Financial
Officer, Treasurer and Secretary
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CERTIFICATE OF OWNERSHIP AND MERGER OF
FREIGHTCAR AMERICA, INC.
(A Delaware corporation) INTO
FCA ACQUISITION CORP.
(A Delaware corporation)
* * * * * * *
FreightCar America, Inc., a corporation organized and existing under the laws of Delaware (the “Corporation”), does hereby certify:
FIRST: That the Corporation is incorporated pursuant to the General Corporation Law of the State of Delaware (the “DGCL”).
SECOND: That this Corporation owns all of the outstanding shares of capital stock of FCA Acquisition Corp. (the “Surviving Corporation”), a corporation incorporated pursuant to the DGCL.
THIRD: That, in accordance with Sections 141(f) and 253 of the DGCL, the Board of Directors of the Corporation determined to merge the Corporation with and into the Surviving Corporation (the “Merger”) pursuant to the following resolutions duly adopted by unanimous written consent of its members as of March 31, 2005:
RESOLVED, that the Corporation be merged with and into the Subsidiary upon the terms and conditions set forth below, and the appropriate officers of the Corporation be, and each of them hereby is, authorized and directed to execute and deliver a certificate of ownership and merger (the “Certificate of Ownership and Merger”), in the name and on behalf of the Corporation; and be it further
RESOLVED, that the Merger become effective upon the filing of the Certificate of Ownership and Merger with the Secretary of State of Delaware (the “Effective Time”), and that from and after the Effective Time, all of the property, rights, privileges and other assets of the Corporation be transferred to, and all of its obligations be assumed by, the Surviving Corporation; and be it further
RESOLVED, that the Certificate of Incorporation of the Surviving Corporation in effect immediately prior to the Effective Time be amended in its entirety as attached hereto as Exhibit A (the “Certificate of Incorporation”), and as so amended shall be the Certificate of Incorporation of the Surviving Corporation until the same shall be changed or amended as provided by the DGCL; and be it further RESOLVED, that the By-laws of the Surviving Corporation as they shall exist at the Effective Time shall be and remain the By-laws of the Surviving Corporation until the same shall be altered, amended or repealed as therein provided; and be it further
RESOLVED, that at the Effective Time, by virtue of the Merger and without the necessity of presenting certificates formerly representing shares of the Corporation’s capital stock for exchange or any other further action by the holder thereof:
RESOLVED, that upon the Effective Time, the directors of the Corporation shall serve as directors of the Surviving Corporation until their successors shall have been duly elected and qualified as provided in the Certificate of Incorporation and By- laws of the Surviving Corporation and the DGCL; and be it further
RESOLVED, that the officers of the Corporation shall serve as officers having the same titles and capacity of the Surviving Corporation until their successors shall have been duly elected and qualified as provided in the Certificate of Incorporation and By-laws of the Surviving Corporation and the DGCL; and be it further
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RESOLVED, that the name of the Surviving Corporation shall be changed to “FreightCar America, Inc.” upon the effectiveness of the Merger; and be it further RESOLVED, that the officers of the Corporation be, and each of them hereby is, severally authorized, empowered and directed to perform or to cause to be performed, in the name and on behalf of the Corporation or otherwise, such other acts as such officers or officer shall deem necessary, appropriate or desirable in order to fully effectuate the intent of the foregoing resolutions; and be it further
RESOLVED, that any acts of any officer of the Corporation which acts would have been authorized by the foregoing resolutions except that such acts were taken prior to the adoption of such resolutions, be, and each such act hereby is, severally ratified, confirmed, approved and adopted as an act in the name and on behalf of the Corporation; and be it further
RESOLVED, that a copy of this written consent be filed with the minutes of proceedings of the Corporation. FOURTH: That the Surviving Corporation shall be the surviving corporation of the Merger.
FIFTH: That the name of the Surviving Corporation shall be changed to “FreightCar America, Inc.” upon the effectiveness of the Merger.
SIXTH: The Certificate of Incorporation of the Surviving Corporation shall be amended in its entirety upon the effectiveness of the Merger to read as set forth in Exhibit A hereto and as so amended shall be the Certificate of Incorporation of the Surviving Corporation.
SEVENTH: That the Merger has been approved by the holders of at least a majority of the outstanding shares of capital stock of the Corporation in accordance with Sections 228 and 253 of the DGCL as of March 31, 2005.
[Signature Page Follows]
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IN WITNESS WHEREOF, the Corporation has caused this Certificate of Ownership and Merger to be executed by its duly authorized officers this 1st day of April, 2005.
FREIGHTCAR AMERICA, INC.
By: /s/ John E. Carroll, Jr.
Name: John E. Carroll, Jr.
Title: President and Chief Executive Officer FCA ACQUISITION CORP., a corporation organized and existing under the laws of the State of Delaware, hereby certifies as follows:
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EXHIBIT A
CERTIFICATE OF INCORPORATION OF
FCA ACQUISITION CORP.
ARTICLE I NAME
The name of the corporation is FreightCar America, Inc. (the “Corporation”).
ARTICLE II REGISTERED AGENT
The address of the Corporation’s registered office in the State of Delaware is 1209 Orange Street, Wilmington, DE 19801, County of New Castle. The name of the registered agent at such address is The Corporation Trust Company.
ARTICLE III PURPOSE
The nature of the business or purposes to be conducted or promoted by the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware, as from time to time amended (the “DGCL”). In general, the Corporation shall possess and may exercise all of the powers and privileges granted by the DGCL, any other law of the State of Delaware or this Certificate of Incorporation, together with any powers incidental thereto, insofar as such powers and privileges are necessary or convenient to the conduct, promotion or attainment of the business or purposes of the Corporation.
ARTICLE IV AUTHORIZED CAPITAL STOCK
The aggregate number of shares that the Corporation shall have authority to issue is 50,000,000 shares of Common Stock, par value $0.0l per share (the “Common Stock”), and 2,500,000 shares of Preferred Stock, par value $0.01 per share (the “Preferred Stock”). Of the 2,500,000 shares of authorized Preferred Stock, 100,000 shares will be designated Series A Voting Preferred Stock (the “Voting Preferred Stock”) and 100,000 shares of Series B Non-Voting Preferred Stock (the “Non-Voting Preferred Stock”).
The remaining 2,300,000 shares of Preferred Stock are undesignated Preferred Stock. The Board of Directors of the Corporation is hereby expressly authorized to establish from the undesignated shares of Preferred Stock, by resolution adopted and filed in the manner provided by law, one or more classes or series of Preferred Stock, to designate each such class or series and to fix the relative rights and preferences of each such class or series.
Except as otherwise restricted by this Certificate of Incorporation, the Corporation is authorized to issue, from time to time, all or any portion of the capital stock of the Corporation which may have been authorized but not issued, to such person or persons and for such lawful consideration as it may deem appropriate, and generally in its absolute discretion to determine the terms and manner of any disposition of such authorized but unissued capital stock.
Any and all such shares issued for which the full consideration has been paid or delivered shall be deemed fully paid shares of capital stock, and the holder of such shares shall not be liable for any further call or assessment or any other payment thereon.
The statement of the designations, relative rights, preferences and limitations of the shares of each class is as follows:
As long as any shares of the Voting Preferred Stock or the Non-Voting Preferred Stock are outstanding, the Corporation will not declare, pay or set aside for payment any dividends on the Voting Common Stock or the Non-Voting Common Stock or any other class of preferred capital stock, nor declare or make any other distribution upon the Voting Common Stock or the Non-Voting Common Stock, nor redeem, purchase or otherwise acquire for consideration the Voting Common Stock or the Non-Voting Common Stock if (a) the Corporation has not declared and paid all the accumulated accrued but unpaid dividends on the Voting Preferred Stock and the Non-Voting Preferred Stock, and (b) the net assets of the Corporation remaining after the transaction are less than the aggregate amount of the preferences of the outstanding shares of the Voting Preferred Stock and the Non-Voting Preferred Stock in the assets of the Corporation upon liquidation.
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ARTICLE V
THE BOARD OF DIRECTORS
(3) classes with respect to the period during which the directors shall hold office: Class I, Class II and Class III. The Class I directors shall be elected to hold office for a term to expire at the first annual meeting of stockholders to occur after the closing of the IPO; the Class II directors shall be elected to hold office for a term to expire at the second annual meeting of stockholders to occur after the closing of the IPO; and the Class III directors shall be elected to hold office for a term to expire at the third annual meeting of stockholders to occur after the closing of the IPO; in each case, until their respective successors are duly elected and qualified.
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At each annual meeting of stockholders the directors elected to succeed those whose terms have expired shall be identified as being of the same class as the directors they succeed and shall be elected to hold office for a term to expire at the first annual meeting of stockholders after their election, or until his or her earlier death, resignation, retirement or removal and until their respective successor shall be duly elected and qualified. Any new positions created as a result of the increase in the number of directors shall be allocated to make the classes of directors as nearly equal as possible.
ARTICLE VI MEETINGS OF STOCKHOLDERS
ARTICLE VII
PERSONAL LIABILITY OF DIRECTORS
No person who is or was a director of the Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director except for, and only to the extent of, liability (i) for any breach of such director’s duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions of such director not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL, or (iv) for any transaction from which such director derived any improper personal benefit.
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No amendment to or repeal or adoption of any provision of this Certificate of Incorporation inconsistent with this Article VII shall adversely affect the rights and protection afforded to a director of the Corporation under this Article VII for acts or omissions occurring prior to such amendment to or repeal or adoption of an inconsistent provision. If the DGCL hereafter is amended to authorize the further elimination or limitation of the liability of directors, then the liability of a director of the Corporation, in addition to the limitation on personal liability provided herein, shall be limited to the fullest extent permitted by the amended DGCL.
ARTICLE VIII INDEMNIFICATION
(60) days after a written claim has been received by the Corporation, except in the case of a claim for an advancement of expenses, in which case the applicable period shall be thirty (30) days, the indemnitee may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim. If successful in whole or in part in any such suit, or in a suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the indemnitee shall be entitled to be paid also the expense of prosecuting or defending such suit. In (a) any suit brought by the indemnitee to enforce a right to indemnification hereunder (but not in a suit brought by the indemnitee to enforce a right to an advancement of expenses) it shall be a defense that, and (b) any suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking the Corporation shall be entitled to recover such expenses upon a final adjudication that, the indemnitee has not met any applicable standard for indemnification set forth in the DGCL. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel or its stockholders) to have made a determination prior to the commencement of such suit that indemnification of the indemnitee is proper in the circumstances because the indemnitee has met the applicable standard of conduct set forth in the DGCL, nor an actual determination by the Corporation (including its Board of Directors, independent counsel or its stockholders) that the indemnitee has not met such applicable standard of conduct, shall create a presumption that the indemnitee has not met the applicable standard of conduct or, in the case of such a suit brought by the indemnitee, be a defense to such suit.
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In any suit brought by the indemnitee to enforce a right to indemnification or to an advancement of expenses hereunder, or by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the burden of proving that the indemnitee is not entitled to be indemnified, or to such advancement of expenses, under this Article VIII or otherwise shall be on the Corporation.
ARTICLE IX BY-LAWS
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ARTICLE X AMENDMENT
Subject to the terms hereof, the Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation.
End of Document
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CERTIFICATE OF DESIGNATION OF PREFERENCES, RIGHTS AND LIMITATIONS OF SERIES C PREFERRED STOCK
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
Pursuant to the provisions of Section 151 of the General Corporation Law of the State of Delaware (the “DGCL”), FreightCar America, Inc., a corporation organized and existing under the DGCL (hereinafter called the “Company”), in accordance with the provisions of Section 103 thereof, does hereby submit the following:
WHEREAS, the Certificate of Incorporation of the Company (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the “Certificate”) authorizes the issuance of Preferred Stock, par value $0.01 per share, of the Company in one or more series; and expressly authorizes the Board of Directors of the Company (the “Board” or “Board of Directors”), subject to limitations prescribed by the Requirements of Law, to provide, out of the unissued shares of Preferred Stock, for series of Preferred Stock, and, with respect to each such series, to establish and fix the number of shares to be included in any series of Preferred Stock and the designations, rights and preferences of the shares of such series; and
WHEREAS, on May 19, 2023, the Board of Directors approved and adopted the following Certificate of Designation for purposes of issuing Preferred Stock.
NOW THEREFORE, BE IT RESOLVED, that, pursuant to authority conferred upon the Board of Directors by the Certificate, the Board of Directors hereby creates as a series of Preferred Stock and authorizes for issuance 85,412 shares of Preferred Stock, par value $0.01 per share, of the Company, herein designated as “Series C Preferred Stock,” and hereby fixes the designations, preferences and other rights, of such shares, as follows:
SECTION 1. Designation. The shares of such series of Preferred Stock shall be classified as “Series C Preferred Stock” (the “Series C Preferred Stock”). The number of authorized shares constituting the Series C Preferred Stock shall be 85,412. Subject to the provisions of Section 9, that number from time to time may be increased or decreased (but not below the number of shares of Series C Preferred Stock then outstanding) by (a) further resolution duly adopted by the Board, or any duly authorized committee thereof, and (b) the filing of an amendment to this Certificate of Designation pursuant to the provisions of the DGCL stating that such increase or decrease, as applicable, has been so authorized.
SECTION 2. Ranking. The Series C Preferred Stock will rank, with respect to dividend rights, rights on the distribution of assets on any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company and redemption rights:
The Company’s ability to issue Parity Stock and Senior Stock shall be subject in all respects to the provisions of Section 9, and the Company shall not, and shall not be permitted to, issue any Parity Stock or Senior Stock in violation thereof. The respective definitions of Parity Stock, Senior Stock and Junior Stock shall also include any securities, rights or options exercisable or exchangeable or convertible into Parity Stock, Senior Stock or Junior Stock, as the case may be.
SECTION 3. Definitions. As used herein with respect to Series C Preferred Stock:
“Accrued Dividends” means, as of any date, with respect to any share of Series C Preferred Stock, all Dividends that have accrued on such share through the most recent Dividend Payment Date on or prior to such date pursuant to Section 4(b), whether or not declared, but that have not, as of such date, been paid in cash.
“Affiliate” means, with respect to any specified Person, any other Person, directly or indirectly, controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, “control” when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms “controlling” and “controlled” have meanings correlative to the foregoing.
“Anti-Corruption Laws” means, collectively, (a) the U.S. Foreign Corrupt Practices Act; (b) the UK Bribery Act 2010; and (c) any other applicable laws related to combatting bribery or corruption.
“Anti-Money Laundering Laws” means all applicable laws, rules, or regulations relating to terrorism, financial crime or money laundering, including without limitation the United States Bank Secrecy Act, as amended by the USA PATRIOT Act of 2001, the United States Money Laundering Control Act of 1986 (18 U.S.C. §§ 1956 and 1957), the Anti-Money Laundering Act of 2020, the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 as amended including pursuant to the Money Laundering and Terrorist Financing (Amendment) Regulations 2019, Proceeds of Crime Act 2002, as amended and the rules and regulations (including those issued by any governmental or regulatory authority) thereunder.
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“Applicable Margin” means, with respect to any Secured Debt, the applicable interest rate, either as an increase to a base interest rate (including LIBOR or SOFR) or the stand-alone interest rate.
“Bankruptcy Code” shall mean Title 11 of the United States Code entitled “Bankruptcy”, as now and hereafter in effect, or any successor statute
“Board” and “Board of Directors” has the meaning set forth in the recitals above.
“Borrowing Base” means the sum of (i) 85% of outstanding accounts receivable determined as of the closing of any applicable financing or refinancing of the Company or applicable Subsidiary borrower,
(ii) 65% of the book value of inventory as set forth on the most recent (prior to the closing of the applicable financing or refinancing) monthly balance sheet of the Company or applicable Subsidiary borrower, and (iii) 50% of the book value of fixed assets as set forth on the most recent (prior to the closing of the applicable financing or refinancing) monthly balance sheet of the Company or applicable Subsidiary borrower.
“Business Day” means a day other than a Saturday, Sunday or other day on which commercial banks in New York, New York are authorized or required by law to close.
“Capital Lease” shall mean, with respect to any Person, any lease of, or other arrangement conveying the right to use, any property by such Person as lessee that has been or should be accounted for as a capital lease on a balance sheet of such Person prepared in accordance with GAAP. For the avoidance of doubt, No operating lease (as determined in accordance with GAAP) shall be considered a Capital Lease.
“Capital Lease Obligations” mean, with respect to any Person, the obligations of such Person to pay rent or other amounts under any Capital Lease, any lease entered into as part of any Sale and Leaseback or any Synthetic Lease, or a combination thereof, which obligations are (or would be, if such Synthetic Lease or other lease were accounted for as a Capital Lease) required to be classified and accounted for as Capital Leases on a balance sheet of such Person under GAAP, and the amount of such obligations shall be the capitalized amount thereof (or the amount that would be capitalized, if such Synthetic Lease or other lease were accounted for as a Capital Lease) determined in accordance with GAAP.
“Capital Stock” means, of any Person, any and all shares of, rights to purchase, warrants or options for, or other rights exercisable, exchangeable or convertible into equity interests, or other equivalents of or interests in (however designated) equity of such Person, including any Preferred Stock.
“Certificate” has the meaning set forth in the recitals above.
“Certificate of Designation” means this Certificate of Designation of Rights, Preferences and Limitations of the Series C Preferred Stock.
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“Change of Control” means: (a) a capital reorganization or reclassification of the capital stock of the Company resulting in any Person or group of Persons other than holders of the voting securities of the Company outstanding immediately prior to such transaction, becoming the holders, directly or indirectly, of more than 50% of the combined voting power of the outstanding voting securities of the Company having the right to vote for the election of members of the Board of Directors; (b) a merger, consolidation or reorganization or other similar transaction or series of related transactions, in each case which results in the voting securities of the Company outstanding immediately prior thereto representing immediately thereafter (either by remaining outstanding or by being converted into voting securities of the surviving or acquiring entity) less than 50% of the combined voting power of the outstanding voting securities of the Company having the right to vote for the election of members of the Board of Directors of the Company or such surviving or acquiring entity outstanding immediately after such merger, consolidation or reorganization; (c) the issuance by the Company of equity securities of the Company, in a single transaction or series of related transactions, representing at least 50% of the combined voting power of the outstanding voting securities of the Company having the right to vote for the election of members of the Board of Directors; or (d) the acquisition by any “person” (together with his, her or its Affiliates) or “group” (within the meaning of Section 13(d) or 14(d) of the Exchange Act), directly or indirectly, of the beneficial ownership (as such term is defined in Rule 13d-3 promulgated under the Exchange Act) of outstanding shares of capital stock and/or other equity securities of the Company, in a single transaction or series of related transactions (including, without limitation, one or more tender offers or exchange offers), representing at least 50% of the combined voting power of the outstanding voting securities of the Company having the right to vote for the election of members of the Board of Directors; provided that a transaction (or series of related transactions) consisting solely of the issuance by the Company of equity securities of the Company, representing, at any and all times, less than 20% of the combined voting power of the outstanding voting securities of the Company, for cash consideration in a bona fide capital raising transaction shall not be considered a Change of Control.
“Close of Business” means 5:00 p.m. (New York City time). “Closing Date” means May 22, 2023.
“Code” shall mean the Internal Revenue Code of 1986, as amended (unless otherwise provided herein).
“Common Stock” means the common stock, par value $0.01 per share, of the Company. “Company” has the meaning set forth in the recitals above.
“Contractual Obligation” means, as to any Person, any provision of any material security issued by such Person or of any material agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound.
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“Disqualified Stock” means, with respect to any Person, any Equity Capital Stock that by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable or exercisable) or upon the happening of any event (other than following the occurrence of a Change of Control or other similar event described under such terms as a “change of control,” or an “asset sale” or other disposition) (i) matures or is mandatorily redeemable pursuant to a sinking fund obligation or otherwise, (ii) is convertible or exchangeable for Indebtedness or Disqualified Stock or (iii) is redeemable at the option of the holder thereof (other than following the occurrence of a Change of Control or other similar event described under such terms as a “change of control,” or an “asset sale” or other disposition), in whole or in part; provided that Equity Capital Stock issued to any Plan, or by any such Plan to any employees of the Company or any Subsidiary thereof, shall not constitute Disqualified Stock solely because it may be required to be repurchased or otherwise acquired or retired in order to satisfy applicable statutory or regulatory obligations.
“Dividend Payment Date” means March 31, June 30, September 30, and December 31 of each year, commencing on June 30, 2023 (the “Initial Dividend Payment Date”); provided that if any such Dividend Payment Date is not a Business Day, then the applicable Dividend shall be payable on the Business Day immediately preceding such Dividend Payment Date.
“Dividend Payment Period” means the period from and including the applicable Issuance Date to, but excluding, the applicable Initial Dividend Payment Date and, subsequent to such Initial Dividend Payment Date, the period from and including any Dividend Payment Date to, but excluding, the next Dividend Payment Date.
“Dividend Rate” means 17.50% per annum, or such other rate as specified in Section 4(a) and/or as may be increased pursuant to Section 6(a).
“Dividend Record Date” has the meaning set forth in Section 4(d). “Dividends” has the meaning set forth in Section 4(a).
“EBITDA” means EBITDA as reported in the Company’s quarterly financial statements published on Form 10-Q or, if not including in the Company’s quarterly financial statements, the Company’s consolidated net income or loss for such period before extraordinary items and before the cumulative effect of any change in accounting principles plus (a) the following to the extent deducted in calculating such consolidated net income or loss: (i) consolidated interest expense, (ii) all income tax expense deducted in arriving at such consolidated net income or loss, (iii) depreciation and amortization expense,
(iv) non-cash impairment of assets (tangible and intangible) and related non-cash charges, (v) charges and expenses related to stock based compensation awards, (vi) net non-cash reorganization expenses and charges and (vii) other non-recurring expenses reducing such consolidated net income or loss which do not represent a cash item in such period or any future period (including losses attributable to the sale of assets other than in the Ordinary Course of Business) and minus (b) the following to the extent included in calculating such consolidated net income or loss: (x) income tax credits for such period, (y) all gains arising in relation to the sale of assets other than in the Ordinary Course of Business and (z) all non-cash items increasing such consolidated net income or loss for such period.
“Eligible Cash” shall mean, with respect to any Person, unrestricted cash and cash equivalents of such Person in each case that is on deposit in a domestic deposit account or securities account, as applicable, that is (i) established with a depositary bank that is insured by the Federal Deposit Insurance Corporation, and (ii) not subject to any Liens other than statutory liens in favor of a depository bank arising by operation of law.
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“Environmental Law” means any and all applicable laws, rules, orders, regulations, statutes, ordinances, codes, decrees, or other legally binding requirements (including, without limitation, principles of common law) of any Governmental Authority, regulating, relating to or imposing liability or standards of conduct concerning pollution, the preservation or protection of the environment, natural resources or human or employee health and safety (as it relates to exposure to Materials of Environmental Concern), or the generation, manufacture, use, labeling, treatment, storage, handling, transportation or release of, or exposure to, Materials of Environmental Concern.
“Environmental Permits” shall mean any and all permits required under any Environmental Law. “Equity Capital Stock” means Capital Stock other than any debt securities convertible into equity
interests.
“ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time, the regulations promulgated thereunder and any successor thereto.
“ERISA Affiliate” shall mean any trade or business (whether or not incorporated) that, together with any Person, is treated as a single employer under Section 414(b) or (c) of the Code, or solely for purposes of Section 302 or 303 of ERISA or Section 412 or 430 of the Code, is treated as a single employer under Section 414 of the Code. Any former ERISA Affiliate shall continue to be considered an ERISA Affiliate within the meaning of this definition with respect to the period such entity was an ERISA Affiliate and with respect to liabilities arising after such period for which any Person could be liable under the Code or ERISA.
“ERISA Event” shall mean (a) a “reportable event” within the meaning of Section 4043(c) of ERISA and the regulations issued thereunder with respect to any Single Employer Plan (excluding those for which the provision for 30 day notice to the PBGC has been waived by regulation in effect on the Closing Date); (b) the material failure to meet the minimum funding standard of Sections 412 or 430 of the Code or Sections 302 or 303 of ERISA with respect to any Single Employer Plan, whether or not waived; (c) the filing pursuant to Section 412(c) of the Code or Section 302(c) of ERISA of an application for a waiver of the minimum funding standard with respect to any Single Employer Plan; (d) the termination of any Single Employer Plan or the withdrawal or partial withdrawal of any Person from any Single Employer Plan or Multiemployer Plan; (e) a determination that any Single Employer Plan is, or is expected to be, in “at risk” status (as defined in Section 430 of the Code or Section 303 of ERISA); (f) a determination that any Multiemployer Plan is, or is expected to be, in “critical” or “endangered” status under Section 432 of the Code or Section 305 of ERISA; (g) the receipt by any Person or any of their respective ERISA Affiliates from the PBGC or a plan administrator of any notice relating to an intention to terminate any Single Employer Plan or to appoint a trustee to administer any Single Employer Plan; (h) the adoption of any amendment to a Single Employer Plan that would require the provision of security pursuant to Section 436(f) of the Code; (i) the receipt by any Person or any of their respective ERISA Affiliates of any notice concerning the imposition of Withdrawal Liability or a determination that a Multiemployer Plan is, or is expected to be, insolvent, within the meaning of Title IV of ERISA; (j) the material failure by any Person or any of their respective ERISA Affiliates to make a required contribution to a Multiemployer Plan; (k) the occurrence of a nonexempt prohibited transaction (within the meaning of Section 4975 of the Code or Section 406 of ERISA) which could reasonably be expected to result in material liability to any Person; (l) the imposition of a Lien pursuant to Section 430(k) of the Code or Section 303(k) of ERISA or a violation of Section 436 of the Code with respect to any Single Employer Plan; (m) the assertion of a material claim (other than routine claims for benefits) against any Plan other than a Multiemployer Plan or the assets thereof, or against any Person or any of their respective ERISA Affiliates in connection with any Plan; or (n) the occurrence of an act or omission which could give rise to the imposition on any Person or any of their respective ERISA Affiliates of any material fine, penalty, tax or related charge under Chapter 43 of the Code or under Section 409, Section 502(c), (i) or (l), or Section 4071 of ERISA in respect of any Plan.
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“Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time; provided that for purposes of the definitions of Change of Control, “Exchange Act” means the Securities Exchange Act of 1934 as in effect on the Closing Date.
“GAAP” means generally accepted accounting principles in the United States of America as in effect from time to time.
“Governmental Authority” means any nation or government, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, including the European Union.
“Holder” means a Person in whose name the shares of the Series C Preferred Stock are registered, which Person shall be treated by the Company and Transfer Agent as the absolute owner of the shares of Series C Preferred Stock for the purpose of making payment and for all other purposes; provided that, to the fullest extent permitted by Requirements of Law, No Person that has received shares of Series C Preferred Stock in violation of the Securities Purchase Agreement or this Certificate of Designation shall be a Holder and the Transfer Agent shall not, unless directed otherwise by the Company, recognize any such Person as a Holder and the Person in whose name the shares of the Series C Preferred Stock were registered immediately prior to such transfer shall remain the Holder of such shares.
“Indebtedness” means, with respect to any Person on any date of determination (without duplication): (i) all obligations in respect of indebtedness of such Person for borrowed money; (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments or upon which interest payments are customarily made; (iii) all reimbursement obligations of such Person in respect of letters of credit, bankers’ acceptances or other similar instruments (the amount of such obligations being equal at any time to the aggregate then undrawn and unexpired amount of such letters of credit, bankers’ acceptances or other instruments plus the aggregate amount of drawings thereunder that have not then been reimbursed) (except to the extent such reimbursement obligations relate to trade payables and such obligations are expected to be satisfied within thirty (30) days of becoming due and payable); (iv) all Indebtedness of other Persons secured by a Lien on any asset of such Person, whether or not such Indebtedness is assumed by such Person; (v) all guarantees by such Person of Indebtedness of other Persons, to the extent so guaranteed by such Person; (vi) monetary obligations under any receivables factoring, receivable sales or similar transactions and all monetary obligations under any Capital Lease Obligations, tax ownership/operating lease, off-balance sheet financing or similar financing; (vii) the redemption, repayment or other repurchase amount of such Person with respect to any Disqualified Stock of such Person or (if such Person is a Subsidiary of the Company) Preferred Stock of such Subsidiary, but excluding, in each case, any accrued dividends (the amount of such obligation to be equal at any time to the maximum fixed involuntary redemption, repayment or repurchase price for such Equity Capital Stock, or if less (or if such Equity Capital Stock has No such fixed price), to the involuntary redemption, repayment or repurchase price therefor calculated in accordance with the terms thereof as if then redeemed, repaid or repurchased, and if such price is based upon or measured by the fair market value of such Equity Capital Stock, such fair market value shall be as determined in good faith by the Company) and (viii) all accrued interest, penalties, fees and premiums with respect to any obligations in clauses (i)-
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“IRS” shall mean the U.S. Internal Revenue Service.
“Issuance Date” means, with respect to any share of Series C Preferred Stock, the date of issuance of such share.
“Junior Stock” has the meaning set forth in Section 2(c).
“Lien” means any pledge, hypothecation, assignment, charge, deposit arrangement, encumbrance, easement, servitude, right-of-way, lien (statutory or other), mortgage, security interest, or other security arrangement and any other preference, priority, or preferential arrangement in the nature of a security interest of any kind or nature whatsoever, including any conditional sale contract or other title retention agreement, the interest of a lessor under a Capital Lease and any Synthetic Lease or other financing lease having substantially the same economic effect as any of the foregoing.
“Liquidation Event” means a liquidation, dissolution or winding up, voluntary or involuntary, of the Company or a Change of Control of the Company, except to the extent such Change of Control results from any Transfer by or to the Series C Investor or any of its Affiliates.
“LTM EBITDA” means EBITDA of the Company and its Subsidiaries on a consolidated basis for the most recently ended four fiscal quarters for which financial statements are available immediately preceding the date on which such LTM EBITDA is being calculated.
“Material Adverse Effect” means any circumstance or condition that would materially adversely affect (1) the business, operations, property or condition (financial or otherwise) of the Company and its Subsidiaries taken as a whole, (2) the validity or enforceability as to the Company of this Certificate of Designation, (3) the ability of the Company to perform its payment obligations under this Certificate of Designation or (4) the material rights or remedies (taken as a whole) of the Holders under this Certificate of Designation.
“Materials of Environmental Concern” means any material, substance or waste that is listed, regulated, or otherwise defined as hazardous, toxic, radioactive, a pollutant or a contaminant under applicable Environmental Law, or which could give rise to liability under any Environmental Laws, including but not limited to petroleum (including crude oil or any fraction thereof), petroleum by-products, toxic mold, polychlorinated biphenyls,
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ureaformaldehydeinsulation, per- or poly-fluoroalkyl substances, asbestos or asbestos-containing material.
“Multiemployer Plan” shall mean a Plan that is a “multiemployer plan” as defined in Section 3(37) or Section 4001(a)(3) of ERISA.
“Non-Compliance Event” shall mean:
or which is contained in any certificate furnished at any time by or on behalf of the Company or any of its Subsidiaries pursuant to the Securities Purchase Agreement or this Certificate of Designation shall prove to have been incorrect in any material respect on or as of the date made or deemed made and the circumstances giving rise to such misrepresentation are not altered so as to make such representation or warranty correct in all material respects by the date falling ten (10) Business Days after the date on which written notice thereof shall have been given to the Company by the Preferred Majority Holders (or, if the circumstances giving rise to such misrepresentation are not capable of alteration, on the date on which written notice thereof shall have been given to the Company by the Preferred Majority Holders);
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action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets which results in the entry of an order for any such relief which shall not have been vacated, discharged, stayed or bonded pending appeal within sixty (60) days from the entry thereof; or (4) the Company or any of its Subsidiaries shall take any corporate or other organizational action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in clause (1), (2), or (3) above; or (5) the Company or any of its Subsidiaries shall be generally unable to, or shall admit in writing its general inability to, pay its debts as they become due; or
“Notice of Optional Redemption” has the meaning set forth in Section 6(b). “Optional Redemption” has the meaning set forth in Section 6(a).
“Ordinary Course of Business” means an action taken by any Person in the ordinary course of such Person’s business that is consistent with the past customs and practices of such Person (including past practice with respect to quantity, amount, magnitude and frequency, standard employment and payroll policies and past practice with respect to management of working capital and the making of capital expenditures) and that is taken in the ordinary course of the normal day-to-day operations of such Person.
“Organizational Documents” means collectively, with respect to any Person, (i) in the case of any corporation, the certificate of incorporation (including any certificate of designation) or articles of incorporation and by-laws (or similar constitutive documents) of such Person, (ii) in the case of any limited liability company, the certificate or articles of formation or organization and operating agreement or memorandum and articles of association (or similar constitutive documents) of such Person, (iii) in the case of any limited partnership, the certificate of formation and limited partnership agreement (or similar constitutive documents) of such Person (and, where applicable, the equity holders or shareholders registry of such Person), (iv) in the case of any general partnership, the partnership agreement (or similar constitutive document) of such Person, (v) in any other case, the functional equivalent of the foregoing, and (vi) any shareholder, voting trust or similar agreement between or among any holders of Equity Capital Stock of such Person.
“Parity Stock” has the meaning set forth in Section 2(a).
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“PBGC” shall mean the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA (or any successor).
“Permitted Transferee” means with respect to each Holder, (a) any Affiliate of such Holder and (b) with respect to any Holder that is an investment fund or a vehicle of an investment fund (or investment funds), any other investment fund or vehicle of which such Holder or an Affiliate thereof serves as the general partner or discretionary manager or advisor (so long as such investment fund or vehicle was not established for the purpose of acquiring Series C Preferred Stock) and in which such Holder or Affiliate thereof retains voting and dispositive power; provided, that a portfolio company of a Holder or its Affiliates shall not be a Permitted Transferee.
“Person” means an individual, partnership, corporation, limited liability company, business trust, joint stock company, trust, unincorporated association, joint venture, Governmental Authority or other entity of whatever nature.
“Plan” shall mean any “employee benefit plan” as defined in Section 3(3) of ERISA which is sponsored, maintained or contributed to by, or required to be contributed to by, the Company or any of its respective ERISA Affiliates or with respect to which the Company or any of its respective ERISA Affiliates has or could reasonably be expected to have liability, contingent or otherwise, under ERISA.
“Preferred Majority Holders” means, at any time of determination, the Holders of a majority of outstanding shares of Series C Preferred Stock, as modified by Section 9(c).
“Preferred Stock” means, as applied to the Equity Capital Stock of any corporation or company, Equity Capital Stock of any class or classes (however designated) that by its terms is preferred as to the payment of dividends, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such corporation or company, over shares of Equity Capital Stock of any other class of such corporation or company.
“Prohibited Transferees” means with respect to each Holder, any competitor of the Company and its Subsidiaries that is in the same line of business as the Company and its Subsidiaries, in each case designated in writing by the Company to the Holders from time to time; provided, that No such update shall apply retroactively to disqualify any Transfer to the extent such Transfer was made to a party (or its Affiliates) that was not a Prohibited Transferee at the time of such Transfer. For the avoidance of doubt, a Prohibited Transferee shall only include an applicable competitor operating company and its Subsidiaries and shall not include any investor in or lender to any such operating company.
“Redemption Date” means with respect to the redemption of shares of Series C Preferred Stock pursuant to this Certificate of Designation, the date set forth in the applicable Notice of Optional Redemption in accordance with Section 6(b).
“Redemption Price” has the meaning set forth in Section 6(a).
“Requirement of Law” means, as to any Person, the certificate of incorporation and by-laws or other organizational or governing documents of such Person, and any law, statute, ordinance, code, decree, treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its material property or to which such Person or any of its material property is subject, including laws, ordinances and regulations pertaining to zoning, occupancy and subdivision of real properties; provided that the foregoing shall not apply to any non-binding recommendation of any Governmental Authority.
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“Responsible Officer” means, as to any Person, any of the following officers of such Person: (a) the chief executive officer or the president and, with respect to financial matters, the chief financial officer, the treasurer or the controller, (b) any executive vice president or, with respect to financial matters, any treasurer or controller, who has been designated in writing to the Holders as a Responsible Officer by such chief executive officer or president or, with respect to financial matters, such chief financial officer, treasurer or controller, (c) with respect to a particular matter, any other officer, to whom such matter is referred because of such officer’s knowledge of and familiarity with the particular subject and (d) with respect to Section 11 and without limiting the foregoing, the general counsel.
“Restricted Party” means any Person (a) included on one or more of the Restricted Party Lists; (b) located, organized, or ordinarily resident in a jurisdiction that is the subject of country- or territory-wide sanctions (for example, Cuba, Iran, North Korea, Syria, and the Crimea, Donetsk People’s Republic, Luhansk People’s Republic, Kherson and Zaporizhzhia regions of Ukraine); (c) owned or controlled by, or acting on behalf of, any of the foregoing; (d) with whom U.S. persons are otherwise prohibited from transacting under Sanctions and Export Control Laws; or (e) with whom any of the Company or its Subsidiaries is otherwise prohibited from dealing under applicable Sanctions and Export Control Laws.
“Restricted Party Lists” means sanctioned and other restricted party lists maintained by the United Nations, the United Kingdom, the United States, or the European Union, and any other relevant jurisdiction including but not limited to the following lists: the Specially Designated Nationals and Blocked Persons List, the Foreign Sanctions Evaders List, the Sectoral Sanctions Identifications List, and any other lists administered by OFAC, as amended from time to time; the U.S. Denied Persons List, the
U.S. Entity List, and the U.S. Unverified List, all administered by the U.S. Department of Commerce; the consolidated list of Persons, Groups and Entities Subject to EU Financial Sanctions, as implemented by the EU Common Foreign & Security Policy; and similar lists of restricted parties maintained by other relevant Governmental Authorities.
“Revolving Loan Agreement” shall mean that certain Loan and Security Agreement dated as of October 8, 2020 by and among Siena Lending Group LLC and the Company related parties thereto, as amended, restated, amended and restated, supplemented or otherwise modified from time to time.
“Sale and Leaseback” means, with respect to any Person, any arrangement to sell or transfer any real property and thereafter rent or lease such real property or other real property which such Person intends to use for substantially the same purpose or purposes as the real property being sold or transferred.
“Sale of the Company” means the first to occur of (i) any sale or transfer by the Company or its Subsidiaries of all or substantially all of the assets of the Company and its Subsidiaries on a consolidated basis, or (ii) (A) any consolidation, merger or reorganization of the Company or any of its Subsidiaries with or into any other entity or entities or (B) any sale or transfer of the Company’s or any material Subsidiaries’ equity interests by the holders thereof, as a result of which, in the case of clause (ii)
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(x) with respect to the Company, a Change of Control occurs or (y) with respect to any Subsidiary, would result in the acquisition by any “person” (together with his, her or its Affiliates) or “group” (within the meaning of Section 13(d) or 14(d) of the Exchange Act), directly or indirectly, of the beneficial ownership (as such term is defined in Rule 13d-3 promulgated under the Exchange Act) of outstanding shares of capital stock and/or other equity securities of such Subsidiary, in a single transaction or series of related transactions (including, without limitation, one or more tender offers or exchange offers), representing at least 50% of the equity interests of such Subsidiary, more than 50% of the combined voting power of such Subsidiary or otherwise results in such Persons or group of Persons controlling such Subsidiary.
“Sanctions and Export Control Laws” means any applicable law related to (a) import and export controls, including the U.S. Export Administration Regulations; (b) economic sanctions, including those administered by the Office of Foreign Assets Control of the U.S. Department of the Treasury (“OFAC”), the U.S. Department of State, the European Union, any European Union Member State, the United Nations, His Majesty’s Treasury of the United Kingdom, or any other jurisdiction applicable to any of the Company or its Subsidiaries; or (c) anti-boycott measures (in each case except to extent inconsistent with U.S. law).
“SEC” means the U.S. Securities and Exchange Commission.
“Secured Debt” means Indebtedness that is secured by any Lien of any kind upon any of the propertied or assets of the Company or any Subsidiary.
“Securities Purchase Agreement” means that certain Securities Purchase Agreement dated as of March 23, 2023, by and among the Company and the purchasers party thereto.
“Senior Stock” has the meaning set forth in Section 2(b).
“Series C Investor” means the Person who, together with its investment funds, separate accounts, and other entities owned (in whole or in part), controlled, managed, and/or advised by it or its Affiliates, held on the Closing Date the majority of the Series C Preferred Stock issued on the Closing Date, together with such Holder’s investment funds, separate accounts, and other entities owned (in whole or in part), controlled, managed, and/or advised by it or its Affiliates.
“Series C Preferred Stock” has the meaning set forth in the preamble hereto.
“Single Employer Plan” shall mean any Plan that is covered by Title IV of ERISA, but which is not a Multiemployer Plan.
“Stated Value” means, with respect to any share of Series C Preferred Stock, as of any date, $1,000 per share (adjusted as appropriate in the event of any shares or securities dividend, shares or securities sub- division, shares or securities distribution, recapitalization or combination).
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“Subsidiary” means, as to any Person, any corporation, association, partnership or other business entity of which more than 50% of the Total Voting Power of shares of Equity Capital Stock or other equity interests (including partnership interests) entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof (if any) or otherwise more than 50% of the total voting power of equity interests is at the time owned or controlled, directly or indirectly, by (i) such Person or (ii) one or more Subsidiaries of such Person.
“Synthetic Lease” means mean, as to any Person, (a) any lease (including leases that may be terminated by the lessee at any time) of any property (whether real, personal or mixed) (i) that is accounted for as an operating lease under GAAP and (ii) in respect of which the lessee retains or obtains ownership of the property so leased for U.S. federal income tax purposes or (b) (i) a synthetic, off-balance sheet or tax retention lease or (ii) an agreement for the use or possession of property (including a sale and leaseback), in each case under this clause (b), creating obligations that do not appear on the balance sheet of such Person but which, upon the application of the Bankruptcy Code or under any other bankruptcy or insolvency law of a foreign jurisdiction to such Person, would be characterized as the Indebtedness of such Person (without regard to accounting treatment).
“Total Leverage” means, with respect to any Company and its Subsidiaries for any period, the ratio of (a) all Indebtedness as of the end of such period, less the amount of Eligible Cash as of the end of such period to (b) LTM EBITDA for such period, in each case, determined on a pro forma basis for incurrence or refinancing of any applicable Unsecured Debt.
“Total Voting Power” shall mean, with respect to any entity, at the time of determination, the total number of votes which may be cast in the general election of directors of such entity (or, in the event the entity is not a corporation, the governing members, Board or other similar body of such entity).
“Transfer” means any direct or indirect sale, transfer, gift, assignment, exchange, mortgage, pledge, hypothecation, encumbrance or any other disposition (whether voluntary or involuntary) of any Series C Preferred Stock (or any interest (pecuniary or otherwise) therein or rights thereto) beneficially owned by a Person. In the event that any Holder that is a corporation, partnership, limited liability company or other legal entity (other than an individual, trust or estate) ceases to be controlled by the Person or group of Persons controlling such Holder or any Permitted Transferee or Permitted Transferees of such Person or group of Persons, such event shall be deemed to constitute a “Transfer” subject to the restrictions on Transfer contained or referenced herein. For the avoidance of doubt, any direct or indirect transfer, sale, assignment, exchange or any other disposition by a partner, member or other Holder to another Person, of any partnership or membership interest or other equity security of such Holder that does not result in the Person or group of Persons controlling such Holder or a Permitted Transferee or Permitted Transferees of such Person or group of Persons to cease to control such Holder, shall not be deemed to constitute a “Transfer” subject to the restrictions on Transfer contained or referenced herein.
“Transfer Agent” means the transfer agent and registrar of the Company with respect to the Series C Preferred Stock duly appointed from time to time.
“Unsecured Debt” means Indebtedness which is not secured by any Lien of any kind upon any of the properties or the assets of the Company or any Subsidiary.
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“Warrant” means the warrant issued pursuant to that Warrant to Purchase Common Stock, by and between the Company and OC III LFE II LP, dated May 22, 2023.
“Withdrawal Liability” shall mean any liability to a Multiemployer Plan as a result of a “complete withdrawal” or “partial withdrawal” from such Multiemployer Plan, as such terms are defined in Section 4201(b) of ERISA.
SECTION 4. Dividends.
(i) shall increase by two percent (2%) upon the occurrence of, and shall remain at 19.5% (such rate, the “Default Rate”) during the continuation of, any Non-Compliance Event and (ii) may also be increased as set forth in Section 6(a).
SECTION 5. Liquidation Rights.
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SECTION 6. Redemption at the Option of the Company; Redemption at the Option of the Holder; Other Repurchases.
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The Redemption Date selected by the Company shall be No less than ten (10) Business Days and No more than thirty (30) Business Days after the date on which the Company provides the Notice of Optional Redemption to the Holders. The Notice of Optional Redemption shall state the Redemption Date selected by the Company. Any full or partial redemption of shares of Series C Preferred Stock pursuant to Section 6(a) shall be on a pro rata basis from the Holders based on the Redemption Price of Capital Stock held by them.
this Certificate of Designation, including the right to accrue and receive any Dividends thereon as provided in Section 4 until the date on which the Company actually redeems and pays in full the Redemption Price for such shares. The Company shall reasonably promptly issue new certificates, as applicable, to reflect any unredeemed shares of Series C Preferred Stock.
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SECTION 7. Deemed Liquidation.
(B) the expected Redemption Price; and (C) the expected Deemed Liquidation Date.
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SECTION 8. Transfer of Series C Preferred Stock.
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SECTION 9. Voting; Protective Provisions.
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$3,000,000, the proceeds of which are used for general corporate overhead expenses, including professional fees and expenses and other operational expenses of the Company related to the ownership or operation of the business of the Company or any of its Subsidiaries; or (C) if (x) (1) incurrence of such Unsecured Debt is approved by the majority of the Board and (2) the Total Leverage (pro forma for such incurrence of Unsecured Debt) is less than 2.5 and (y) the proceeds from such incurrence of Unsecured Debt are used first to repay the Series C Preferred Stock;
For the avoidance of doubt, the breach of any of the foregoing covenants contained in this Section 9 shall be a Non-Compliance Event.
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SECTION 10. Board Designation Rights.
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SECTION 11. Information Rights and Inspection Rights.
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as soon as possible after a Responsible Officer of the Company knows thereof, any development or event that has had, or could reasonably be expected to have, a Material Adverse Effect, including without limitation (A) any breach or non-performance of, or any default under, a Contractual Obligation of the Company or its Subsidiaries; (B) any dispute, Proceeding or suspension between the Company or its Subsidiaries and any Governmental Authority; (C) the commencement of, or any material development in, any Proceeding affecting the Company or its Subsidiary or (D) any Proceeding by any Governmental Authority against the Company or any Subsidiary in relation to alleged or potential violations of Anti-Corruption Laws, Anti-Money Laundering Laws, or Sanctions and Export Control Laws ;
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(i) on which the Company posts such documents, or provides a link thereto on the Company’s website on the Internet at the website address specified by written notice to the Holders from time to time; or (ii) on which such documents are posted on the Company’s behalf on an Internet website or virtual data site to which each Holder has access (whether a commercial or third-party website); provided, that the Company shall notify the Holders of the posting of any information on in such website virtual datasite.
SECTION 12. Transfer Agent. The Transfer Agent shall initially be Computershare Trust Company, N.A. The Company may, in its sole discretion, appoint any other Person to serve as Transfer Agent for the Series C Preferred Stock and thereafter may remove or replace such other Person at any time. Upon any such appointment or removal, the Company shall send notice thereof to the Holders.
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SECTION 13. Replacement Certificates. If physical certificates evidencing the Series C Preferred Stock are issued, the Company shall replace any mutilated certificate at the Holder’s expense upon surrender of that certificate to the Transfer Agent. The Company shall replace certificates that become destroyed, stolen or lost at the Holder’s expense upon delivery to the Company and the Transfer Agent of evidence satisfactory to the Company and the Transfer Agent that the certificate has been destroyed, stolen or lost, together with any indemnity that may be required by the Transfer Agent and the Company.
SECTION 14. Taxes.
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SECTION 15. Compliance with Economic Sanctions, Anti-Corruption Laws, and Anti-Money Laundering Laws.
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SECTION 16. Notices. All notices referred to herein shall be in writing and, unless otherwise specified herein, all notices hereunder shall be deemed to have been given upon the earlier of receipt thereof or three (3) Business Days after the mailing thereof if sent by registered or certified mail (unless first class mail shall be specifically permitted for such notice under the terms of this Certificate of Designation) with postage prepaid, addressed: (i) if to the Company, (a) if sent by mail, to its office at FreightCar America, Inc., 2 North Riverside Plaza, Suite 1300, Chicago, Illinois 60606, Attention: General Counsel, or (b) if sent by electronic mail, to such electronic mail address as the Company shall have designated in writing to the Holders, (ii) if to any Holder, to such Holder at the address and electronic mail address of such Holder as listed in the stock record books of the Company (which, for all purposes hereunder, may include the records of the Transfer Agent) or (iii) to such other address as the Company or any such Holder, as the case may be, shall have designated by notice similarly given.
SECTION 17. Facts Ascertainable. When the terms of this Certificate of Designation refer to a specific agreement or other document to determine the meaning or operation of a provision hereof, the Company shall maintain a copy of such agreement or document at the principal executive offices of the Company and a copy thereof shall be provided free of charge to any Holder who makes a request therefor. The Company shall also maintain a written record of the Issuance Date, the number of shares of Series C Preferred Stock issued to a Holder and the date of each such issuance, the Stated Value and Accrued Dividends per share of Series C Preferred Stock and the Dividend Rate in effect from time to time and shall furnish such written record (with respect to such Holder’s shares of Series C Preferred Stock) free of charge to any Holder who makes a request therefor.
SECTION 18. Amendment; Waiver. Notwithstanding any provision in this Certificate of Designation to the contrary, any provision contained herein and any right of the Holders of Series C Preferred Stock granted hereunder may be amended or waived as to all shares of Series C Preferred Stock (and the Holders thereof) upon the written consent of the Preferred Majority Holders; provided that (i) any amendment, modification, or waiver that, by its terms, would treat any Holder or Holder, in its capacity as such, either adversely or less beneficially relative to any other Holder shall require the prior written consent of such adversely or less beneficially affected Holder and (ii) without limiting the foregoing, without the written consent of each Holder adversely affected thereby, No amendment, modification or waiver shall:
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SECTION 19. Severability. If any term of the Series C Preferred Stock set forth herein is invalid, unlawful or incapable of being enforced by reason of any rule of law or public policy, all other terms set forth herein which can be given effect without the invalid, unlawful or unenforceable term will, nevertheless, remain in full force and effect, and No term herein set forth will be deemed dependent upon any other such term unless so expressed herein.
SECTION 20. Remedies. The Company acknowledges that the obligations imposed on it in this Certificate of Designation are special, unique and of an extraordinary character, and irreparable damages, for which money damages, even if available, would be an inadequate remedy, would occur in the event that the Company does not perform the provisions of this Certificate of Designation in accordance with its specified terms or otherwise breaches such provisions. The Holders shall be entitled to seek an injunction, specific performance and other equitable relief to prevent breaches of this Certificate of Designation and to seek to enforce specifically the terms and provisions hereof, this being in addition to any other remedy to which they are entitled, at law or in equity, including without limitation money damages. All remedies available under this Certificate of Designation, under the Securities Purchase Agreement, at law, in equity or otherwise, will be deemed cumulative and not alternative or exclusive of other remedies. The exercise by any Holder of a particular remedy will not preclude the exercise of any other remedy, including by one or more actions for specific performance, in addition to any other remedies to which the Holders may be entitled.
SECTION 21. Interpretation. When a reference is made in this Certificate of Designation to an Article, a Section, Exhibit or Schedule, such reference shall be to an Article of, a Section of, or an Exhibit or Schedule to this Certificate of Designation unless otherwise indicated. Whenever the words “include,” “includes” or “including” are used in this Certificate of Designation, they shall be deemed to be followed by the words “without limitation.” The words “hereof,” “herein” and “hereunder” and words of similar import when used in this Certificate of Designation shall refer to this Certificate of Designation as a whole and not to any particular provision of this Certificate of Designation unless the context requires otherwise. The terms “or,” “any” and “either” are not exclusive.
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The word “extent” in the phrase “to the extent” shall mean the degree to which a subject or other thing extends, and such phrase shall not mean simply “if.” The word “will” shall be construed to have the same meaning and effect as the word “shall.” All terms defined in this Certificate of Designation shall have the defined meanings when used in any document made or delivered pursuant hereto unless otherwise defined therein. The definitions contained in this Certificate of Designation are applicable to the singular as well as the plural forms of such terms and to the masculine as well as to the feminine and neuter genders of such term. Any agreement, instrument or statute defined or referred to herein or in any agreement or instrument that is referred to herein means, unless otherwise specified, such agreement, instrument or statute as from time to time amended, modified or supplemented, including (in the case of agreements or instruments) by waiver or consent and (in the case of statutes) by succession of comparable successor statutes and references to all attachments thereto and instruments incorporated therein. Unless otherwise specifically indicated, all references to “dollars” or “$” shall refer to the lawful money of the United States. When calculating the period of time between which, within which or following which any act is to be done or step taken pursuant to this Certificate of Designation, the date that is the reference date in calculating such period shall be excluded (unless otherwise required by law or specified herein, if the last day of such period is not a Business Day, the period in question shall end on the next succeeding Business Day). The headings of the various subdivisions hereof are for convenience of reference only and shall not affect the interpretation of any of the provisions hereof.
SECTION 22. Expenses; Indemnity.
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SECTION 23. Renunciation under DGCL Section 122(17). It is recognized and anticipated that
(a) directors of the Company may serve as directors, officers, employees and agents of the Holders or their Affiliates or Associates (“Covered Persons”); (b) the Company, directly or indirectly, may engage in the same, similar or related lines of business as those engaged in by the Holders or their Affiliates or Associates and other business activities that overlap with or compete with those in which the Holders or their Affiliates or Associates may engage; (c) the Company may have an interest in the same areas of business opportunities as the Holders or their Affiliates or Associates; (d) the Company will derive substantial benefits from the service of Covered Persons as directors of the Company; and (e) it is in the best interests of the Company that the rights of the Company, and the duties of any Covered Persons, be determined and delineated as provided in this Section 23 in respect of any Potential Business Opportunities (as defined below).
If a director of the Company who is a Covered Person is presented or offered, or otherwise acquires knowledge of, a potential transaction or matter that may constitute or present a business opportunity for the Company or any of its Subsidiaries, in which the Company or any of its Subsidiaries could, but for the provisions of this Section 23, have an interest or expectancy (any such actual or potential transaction, matter or business opportunity, a “Potential Business Opportunity”), (i) such Covered Person will, to the fullest extent permitted by law, have No duty or obligation to refer such Potential Business Opportunity to the Company or any of its Subsidiaries or to give any notice to the Company or any of its Subsidiaries regarding such Potential Business Opportunity (or any matter related thereto), and such Covered Person shall have No duty or obligation to refrain from referring such Potential Business Opportunity to the Holders or their its Affiliates or Associates, (ii) if such Covered Person refers a Potential Business Opportunity to the Holders or their Affiliates or Associates, such Covered Person, to the fullest extent permitted by law, will not be liable to the Company, any of its Subsidiaries or any of its stockholders for any failure to refer such Potential Business Opportunity to the Company or its Subsidiaries, or for any failure to give notice to or otherwise inform the Company or any of its Subsidiaries regarding such Potential Business Opportunity or any matter related thereto, (iii) the Holders and their Affiliates and Associates may engage or invest in, independently or with others, any such Potential Business Opportunity, (iv) neither the Company nor any of its Subsidiaries shall have any right in or to such Potential Business Opportunity or to receive any income or proceeds derived therefrom, and (v) the Company shall have No interest or expectancy, and hereby specifically renounces, on behalf of itself and its subsidiaries, any interest or expectancy, in any such Potential Business Opportunity, unless all of the following conditions are satisfied: (x) such Potential Business Opportunity is presented or offered to a Covered Person solely in the Person’s capacity as a director of the Company, (y) such Potential Business Opportunity is one the Company or any of its subsidiaries is legally and contractually permitted to undertake, and (z) the Covered Person believes that the Company possesses, or would reasonably be expected to be able to possess, the resources necessary to exploit such Potential Business Opportunity.
For purposes of this Section 23, “Associate” shall have the meaning set forth in Section 203 of the DGCL.
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[Signature Page Follows]
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IN WITNESS WHEREOF, the undersigned has executed this Certificate of Designation this 19th day of May, 2023.
By: /s/ Michael Riordan Name: Michael Riordan Title: Authorized Person I, James R. Meyer, certify that:
[Signature Page to Certificate of Designation]
Exhibit 31.1
Certification of Principal Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
1. I have reviewed this Quarterly Report on Form 10-Q of FreightCar America, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
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Date: August 7, 2023 |
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By: |
/s/ JAMES R. MEYER |
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James R. Meyer |
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President and Chief Executive Officer |
Exhibit 31.2
Certification of Principal Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Michael A. Riordan, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of FreightCar America, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
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Date: August 7, 2023 |
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By: |
/s/ MICHAEL A. RIORDAN |
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Michael A. Riordan |
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Vice President, Finance, Chief Financial Officer and Treasurer |
Exhibit 32
Certification pursuant to
18 U.S.C. Section 1350,
as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report of FreightCar America, Inc. (the “Company”) on Form 10-Q for the period ending June 30, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, James R. Meyer, President and Chief Executive Officer, and Michael A. Riordan, Vice President, Finance, Chief Financial Officer and Treasurer, respectively, of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to our knowledge:
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Date: August 7, 2023 |
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By: |
/s/ JAMES R. MEYER |
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James R. Meyer |
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President and Chief Executive Officer (Principal Executive Officer) |
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Date: August 7, 2023 |
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By: |
/s/ MICHAEL A. RIORDAN |
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Michael A. Riordan |
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Vice President, Finance, Chief Financial Officer and Treasurer (Principal Financial Officer) |
A signed copy of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.