8-K

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549


                                    FORM 8-K

                                 CURRENT REPORT


                     Pursuant to Section 13 or 15(d) of the
                         Securities Exchange Act of 1934

     Date of Report (Date of earliest event reported)  December 20, 2001
                                                      ------------------

                          Atchison Casting Corporation
                          ----------------------------
            (Exact name of registrant as specified in its charter)

         KANSAS                  1-12541               48-1156578
(State or other jurisdiction   (Commission            (IRS Employer
    of incorporation)         File Number)         Identification No.)


400 South Fourth Street, Atchison, Kansas                 66002
(Address of principal executive offices)               (zip code)


Registrant's telephone number, including area code    (913) 367-2121



                                 Not applicable
          (Former name or former address, if changed since last report)

Item 5.    Other Events.

Atchison Casting Corporation announced the extension of its Credit Agreement
through June 30, 2002.

Item 7.   Financial Statements and Exhibits.

     (c)  EXHIBITS. The following exhibits are filed herewith:

     4.1  Twelfth Amendment and Forbearance Agreement dated as of December 18,
          2001 among the Company, the Banks party thereto and Harris Trust and
          Savings Bank, as Agent.

     4.2  Cash Collateral Use Agreement dated as of December 18, 2001 among the
          Company, as the borrower, its domestic subsidiaries, as guarantors, the
          Lenders party thereto, and Harris Trust and Savings Bank, as Bank
          Agent and Collateral Agent.

    99.1  Press Release dated December 20, 2001


                                        2

                                    SIGNATURE

      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 hereunto duly authorized.

      Date: December 21, 2001



                                    Atchison Casting Corporation

                                    By: /s/ Kevin T. McDermed
                                        --------------------------------
                                          Kevin T. McDermed
                                          Chief Financial Officer




                                        3

EX-4.1

                              TWELFTH AMENDMENT AND
                              FORBEARANCE AGREEMENT

         This Twelfth Amendment and Forbearance Agreement ("Agreement") is
entered into as of December 18, 2001, between Atchison Casting Corporation, a
Kansas corporation (the "Borrower"), Harris Trust and Savings Bank ("Harris"),
as Agent (Harris in such capacity being hereinafter referred to as the "Agent"),
and each Bank currently party to the Credit Agreement hereinafter identified and
defined (the term "Bank Group" as used herein to mean each Bank now and from
time to time hereafter party to the Credit Agreement and the Agent under the
Credit Agreement for such Banks).


                                   BACKGROUND

          A. The Borrower, the Banks party thereto and the Agent entered into an
Amended and Restated Credit Agreement dated as of April 3, 1998 (such Credit
Agreement, as the same has been amended, waived, or otherwise modified prior to
the date hereof, being referred to herein as the "Credit Agreement"). All
capitalized terms used herein without definition shall have the same meanings
herein as such terms have in the Credit Agreement.

          B. The Borrower and Teachers Insurance and Annuity Association of
America ("TIAA") executed and delivered that certain Note Purchase Agreement,
dated July 29, 1994 (such Note Agreement, as the same has been amended, waived
or otherwise modified prior to the date hereof, being referred to herein as the
"Note Agreement"), pursuant to which TIAA purchased $20,000,000 in aggregate
principal amount of the Borrower's 8.44% Senior Notes due July 29, 2004
("Teachers' Notes").

          C. The Borrower, TIAA, the Bank Group, and Harris entered into that
certain Intercreditor and Collateral Agency Agreement (as amended, the
"Intercreditor Agreement"), dated February 15, 2000, pursuant to which Harris
was appointed as collateral agent (Harris, in such capacity, being the
"Collateral Agent").

          D.    As of the date hereof,  the Borrower is not in compliance with
the Credit Agreement as described on Schedule I attached hereto (collectively,
the "Existing Defaults").

          E. The Borrower, Guarantors, Bank Group, TIAA and the Collateral Agent
intend to enter into a Cash Collateral Use Agreement (the "Cash Collateral Use
Agreement") to govern the use of the proceeds of the Collateral.

          F. The Borrower has requested that the Bank Group temporarily waive,
or at least temporarily forbear from enforcing its rights and remedies with
respect to, the Existing Defaults during the period (such period, as the same
may be terminated earlier pursuant to the terms hereof, being hereinafter
referred as the "Standstill Period") ending on June 30, 2002 (the "Standstill
Expiration Date"), on the terms and conditions set forth in this Agreement.

         NOW, THEREFORE, upon the mutual promises contained herein, and for
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the Borrower and the Bank Group agree as follows:

          1.    Forbearance.  Subject to the terms and conditions of this Agreement,
unless and until a Standstill Termination occurs:

               (a) Credit shall remain available under and subject to the Credit
          Agreement as modified hereby to the Borrower; and

               (b) The Bank Group will not enforce collection of the Obligations
          or enforce its Liens on the Collateral or exercise any other right or
          remedy available under the Loan Documents or otherwise against the
          Borrower or any Subsidiary by virtue of (i) the Existing Defaults and
          (ii) continued noncompliance with the covenants therein referenced.

          2.    Amendments.  Subject to the terms and conditions of this  Agreement,
unless and until a Standstill Termination occurs the Credit Agreement is hereby
amended as follows:

               (a) Section 1.1(b)(iv) of the Credit Agreement is hereby amended
          by inserting immediately at the end of the first sentence thereof the
          following:

                  ; provided that if at the time of such request the aggregate
                  Original Dollar Amount of all Revolving Loans, the aggregate
                  undrawn face amount of Letters of Credit and the aggregate
                  unpaid Reimbursement Obligations at any time exceed
                  $70,000,000 each Bank that has a temporary increase in
                  Commitments under Section 1.14 hereof shall make a Revolving
                  Loan in an amount equal to such Bank's Temporary Commitment
                  Percentage (as defined in Section 1.14).

          3. Paragraph 3 of the Eleventh Amendment and Forbearance Agreement
("Eleventh Amendment") and Paragraph 2 of the Tenth Amendment and Forbearance
Agreement ("Tenth Amendment") are hereby amended in their entirety to read as
follows:

                Maximum Exposure. During the Standstill Period, and subject to
the further provisions of this Paragraph 3, the Borrower must not at any time
permit the aggregate principal amount outstanding on the Loans (including Swing
Loans) and Letters of Credit to exceed the lesser of (i) $75,487,626.39 (as such
amount is reduced from time to time pursuant to the terms of the Credit
Agreement and this Agreement, the "Maximum Exposure Cap") and (ii) the Borrowing
Base as in effect from time to time. The Banks agree that, subject to the
further provisions of this Agreement, the temporary increase in Commitments
(shown, for convenience, on Schedule II attached hereto) under Section 1.14 of
the Credit Agreement shall continue in effect during the Standstill Period in
the percentages set forth in clause (b) of the last sentence of Section 1.14 of
the Credit Agreement. The Borrower shall immediately make such payments as are
necessary to assure that the outstanding Loans (including Swing Loans) and
Letters of Credit


                                       2

do not exceed the lesser of (i) Maximum Exposure Cap and (ii) the Borrowing Base
as in effect from time to time.

          4. Commitment Reductions. (a) On January 31, 2002 a portion of the
Commitments (and, accordingly, the Maximum Exposure Cap) shall automatically
terminate in an amount necessary, if any, so that after giving effect to such
termination, the remaining Commitments (and, accordingly, the Maximum Exposure
Cap) shall not exceed $72,487,626.39. On March 31, 2002 a portion of the
Commitments (and, accordingly, the Maximum Exposure Cap) shall automatically
terminate in an amount necessary, if any, so that after giving effect to such
termination, the remaining Commitments (and, accordingly, the Maximum Exposure
Cap) shall not exceed $70,487,626.39.

                   (b) All reductions in the Commitments required by this
         paragraph 4 shall be applied first to terminate the temporary increase
         in Commitments under Section 1.14 of the Credit Agreement of each bank
         whose Commitment was temporarily increased pro rata in accordance with
         the respective amounts of such Banks' temporary increases and then
         applied to terminate the remaining Commitments of each Bank pro rata in
         accordance with such remaining Commitments. If the aggregate principal
         amount of the outstanding Loans (including Swing Loans) and Letters of
         Credit exceed the Commitments as reduced by this paragraph 4, the
         Borrower shall immediately and without notice or demand, pay the amount
         of such excess to the Agent as a prepayment of the Loans and, if
         necessary, a prefunding of Letters of Credit (with such payment applied
         to the Obligations as required by the Credit Agreement (after giving
         effect to, among other things, this Amendment).

          5.    Paragraph 3 of the Tenth Amendment is hereby amended in its
entirety to read as follows:

                Interest and Fees.  Notwithstanding  anything in any Credit
Document to the contrary,  but subject to the further provisions of this Agreement:

                   (a) Interest shall accrue on Loans made available as Domestic
         Rate Loans (x) through the Standstill Period at the rate per annum
         determined by adding the 2% to the Domestic Rate as from time to time
         in effect (payable weekly on the first Business Day of each calendar
         week) and (y) after the Standstill Period until paid at the rate per
         annum determined by adding 4% to the Domestic Rate from time to time in
         effect.

                   (b) Accrued but unpaid interest on the Loans shall be due and
         payable on the first Business Day of each calendar week and at maturity
         (whether by acceleration or otherwise).

                   (c)     No Loan shall be advanced as a Eurocurrency Loan.

                   (d)     Section 2.1(a) of the Credit  Agreement and  paragraph
         3(e)  of the Tenth  Amendment and  Forbearance  Agreement  are each  hereby
         amended in their  entirety  to read as  follows:  [Intentionally
         Omitted].

                                       3

                   (e) In addition to any fees the Borrower is currently
         obligated to pay the Agent, the Borrower agrees to pay to the Agent for
         its own use and benefit a non-refundable agency fee of $10,000 on the
         first Business Day of each calendar month commencing with January 2,
         2002.

          6.    Asset Sales.  Paragraph 6 of the Eleventh Amendment and
Forbearance  Agreement is hereby amended in its entirety to read as follows:
[Intentionally Omitted.]

          7.    Paragraph 6 of the Eleventh  Amendment and Paragraph 4 of the
Tenth Amendment are hereby amended in their entirety to read as follows:

                Asset Sales and Reduction in Commitments. The Borrower hereby
requests that the Banks consent to the sale of certain assets of the Borrower
and its Subsidiaries from time to time as identified by category in the further
provisions of this paragraph 7 and agree to release their Liens under the
Collateral Documents on the Property so sold. Consent is hereby given to the
sale of Property and agreement is hereby made to the release of such Liens on
the Property so sold, if and only if such property is identified by category in
the further provisions of the paragraph 7 and the Agent receives, out of the
proceeds of such sale, for application to the Obligations, an amount equal to
the percentage of the net proceeds of such sale ("net proceeds" for such
purposes to mean the gross proceeds of any such sale less only those ordinary
and necessary capital gains taxes and out-of-pocket transaction expenses in each
case directly incurred and payable by the Borrower and its Subsidiaries as a
result of such sale) specified in the further provisions of this paragraph 7.
Notwithstanding the foregoing, the terms of the sale of (i) any Subsidiary or
(ii) assets (either individually or in the aggregate with other assets sold as a
group) with either a fair market value or book value in excess of $250,000 must
be approved by the Required Lenders. If the Borrower or any Subsidiary shall in
connection with any asset sale accept a note or similar instrument, an equity
interest or other non-cash compensation in lieu of cash, the Borrower or such
Subsidiary shall take all such actions reasonably requested by the Agent to
confirm that the Collateral Agent's security interest in such note, instrument,
equity interest or other non-cash compensation, as applicable, continues to be
perfected.

         A portion of the Commitments shall terminate on the Business Day on
which the Borrower or any of its Subsidiaries receives (i) the proceeds of any
sale, transfer or other disposition (whether voluntary or involuntary) by the
Borrower or any of its Subsidiaries of any asset relating to the Jahn Foundry
(other than sales, transfers or other dispositions of inventory in the ordinary
course of business), (ii) the net proceeds of any sale, transfer or other
disposition (whether voluntary or involuntary) by the Borrower or any of its
Subsidiaries of any equipment or on account of any damage, destruction or
condemnation of any equipment (other than sales, transfers or other dispositions
of equipment (A) covered by clause (i) above or (v) below, (B) with a fair
market value in excess of $50,000 that are concurrently with such sale, transfer
or other disposition replaced with equipment performing similar functions or (C)
with a fair market value of less than $50,000), (iii) the net proceeds of any
business interruption or insurance policies protecting the Borrower and its
Subsidiaries from acts and omissions of their respective past or present
officers and employees or any insurance settlements with respect thereto, (iv)
any tax refund, or (v) the net proceeds of any sale, transfer or other
disposition of any asset located at Los Angeles Die Casting Inc. or Gilmore
Industries, Inc. or any other facility that has been sold

                                       4

or closed or any real property located at facilities that have been closed or
sold or on account of any damage, destruction or condemnation of any asset
(other than sales, transfers or other dispositions of inventory in the ordinary
course of business and dispositions covered under clause (i) or (ii) above) (the
sums described in the immediately preceding clauses (i)-(v) being hereinafter
referred to as "Liquidation Proceeds"), in each case by an amount equal to the
percentage of such proceeds set forth below next to such category:

                                            COMMITMENT REDUCTION AS        PERCENT TO BE APPLIED TO TEACHER'S
          PROCEEDS CATEGORY                   A PERCENT OF PROCEEDS                     NOTE

       Clause (i) Jahn Foundry                     87.12%                               12.88%
       Clause (ii) Equipment                       87.12%                               12.88%
       Clause (iii) Insurance                      52.28%                                7.72%
       Clause (iv) Tax Refund                      43.56%                                6.44%
       Clause (v)                                  52.28%                                7.72%
       Miscellaneous Asset
       Sales

All reductions in the Commitments required by this paragraph 7 shall be applied
first to terminate the temporary increase in Commitments under Section 1.14 of
the Credit Agreement of each Bank whose Commitment was so temporarily increased
pro rata in accordance with the respective amounts of such Banks' temporary
increase and then applied to terminate the remaining Commitments of each Bank
pro rata in accordance with such remaining Commitments. If the aggregate
principal amount of the outstanding Loans (including Swing Loans) and Letters of
Credit exceed the Commitments as reduced by this paragraph 7, the Borrower shall
immediately and without notice or demand, pay the amount of such excess out of
such proceeds to the Agent as a prepayment of the Loans and, if necessary, a
prefunding of Letters of Credit (with such payment applied to the Obligations as
required by the Credit Agreement (after giving effect to, among other things,
this Amendment)).

         The Borrower covenants and agrees to enter into an amendment and
forbearance agreement with TIAA containing provisions in which it agrees to
repay TIAA a portion of the Teacher's Note in an amount not in excess of that
percentage of such proceeds as set forth above next to the applicable category.
In addition, the Borrower covenants and agrees not to amend or otherwise modify
such provision with TIAA without the prior written consent of the Required
Banks. The balance of any such proceeds (after giving effect to the repayment of
the Obligations owing the Bank Group and the Teacher's Note as required above)
(the "Excess Funds") shall be deposited with the Collateral Agent under the Cash
Collateral Use Agreement and held in a separate Cash Collateral Account (as
defined in the Cash Collateral Use Agreement). If the Borrower is in compliance
with the Minimum Cumulative EBITDA requirements contained in paragraph 11

                                       5

hereof through December 31, 2001 and provided that the Standstill Period has not
ended, the Collateral Agent is authorized to transfer the Excess Funds from the
Cash Collateral Account to the extent permitted by the Cash Collateral Use
Agreement. If the Borrower is not in compliance with the Minimum Cumulative
EBITDA requirements contained in paragraph 11 hereof through December 31, 2001
or if the Standstill Period has expired, a portion of the Commitments shall
terminate by an amount equal to 87.12% of such Excess Funds and the Collateral
Agent is directed to repay the Obligations in an amount equal to 87.12% of such
Excess Funds.

          8.    Paragraph 8 of the Eleventh  Amendment and Paragraph 9 of the
Tenth Amendment are hereby amended in their entirety to read as follows:

                Information. The Borrower and its Subsidiaries shall furnish to
the Bank Group such information as any member of the Bank Group may reasonably
request regarding the Borrower or any Subsidiary and its business, operations,
and financial condition, as and when reasonably requested by any member of the
Bank Group, and without any such request, the Borrower shall furnish to the Bank
Group:

                   (a) as soon as available, and in any event no later than 30
         days after the close of each calendar month (commencing November 2001),
         a consolidated balance sheet of the Borrower as at the close of such
         month and a consolidated income statement and consolidated statement of
         cash flows of the Borrower for the month and for the fiscal
         year-to-date then ended, each in the same form as the monthly financial
         statements currently furnished by the Borrower;

                   (b) as soon as available, and in any event no later than the
         3rd Business Day at each week a report containing weekly updates of
         sales by plant and invoices and no later than 30 days after each month
         a report containing a rolling monthly update of inventory, prepared in
         reasonable detail by the Borrower and its North American Subsidiaries
         in a form acceptable to the Agent and certified by the Borrower's chief
         financial officer;

                   (c) no later than the first Monday of each month (commencing
         with January 7, 2002) a 12-week cash flow projection for the Borrower
         and its North American Subsidiaries;

                   (d) as soon as available, and in any event not later than the
         30th day of each month an inventory certificate and an accounts
         receivable and accounts payable aging report, each prepared in
         reasonable detail by the Borrower and its North American Subsidiaries
         in a form acceptable to the Agent and certified to by the Borrower's
         chief financial officer;

                   (e) as soon as available, and in any event no later than
         January 31, 2002 a written plan detailing the Borrower's contingency
         business plan in the event the Borrower is unable to meet its Budget as
         provided in the Cash Collateral Use Agreement and a written analysis of
         the cash necessary to support the Borrower and its Subsidiaries in such
         contingency business plan through June 30, 2002, in a form acceptable
         to the Agent; and

                   (f) as soon as available, and in any event no later than the
         time periods set forth in the Credit Agreement, all other reports and
         financial information required to be delivered by the Borrower under
         Section 7.6 of the Credit Agreement.

                                       6

          9.    Reduction in Commitments.  Paragraph 7 of the Tenth  Amendment
and Forbearance  Agreement is hereby amended to the extent  necessary to provide
that the  Commitment  terminations  provided  therein  shall not apply
during the Standstill Period.

         10.    Paragraph 9 of the Eleventh  Amendment and  Paragraph 11  of the
Tenth Amendment are hereby amended in their entirety to read as follows:

                Dividends, Redemptions and Investments. Neither the Borrower nor
any Subsidiary shall declare, pay or otherwise make any dividend or other
distribution in respect of, or otherwise acquire or retire, any of its capital
stock; provided, however, that the foregoing shall neither apply to nor operate
to prevent Wholly Owned Subsidiaries from declaring and paying dividends to the
Borrower or any domestic Subsidiary during the Standstill Period. Neither the
Borrower nor any Subsidiary organized under the laws of any state of the United
States or under the laws of Canada shall make a further Investment in any
Subsidiary not organized under the laws of any state of the United States or
under the laws of Canada.

         11. Minimum Cumulative EBITDA. The Borrower shall maintain EBITDA
(which is calculated only with respect to the Borrower and its Subsidiaries
North American operations) for each period commencing on July 1, 2001 and ending
on a date set forth below at not less than the amount set forth below
immediately to the right of such period:

                                                              CUMULATIVE EBITDA MUST EQUAL OR
                              FOR PERIOD ENDED                            EXCEED:

                           July 31, 2001                                     ($839,000)
                           August 31, 2001                                     $395,000
                           September 30, 2001                                $1,628,000
                           October 31, 2001                                  $3,333,600
                           November 30, 2001                                 $5,333,400
                           December 31, 2001                                 $5,650,000
                           January 31, 2002                                  $6,650,000
                           February 28, 2002                                 $8,350,000
                           March 31, 2002                                   $10,850,000
                           April 30, 2002                                   $12,675,000
                           May 31, 2002                                     $15,000,000
                           June 30, 2002                                    $17,400,000

         12. Title Commitments. The Borrower shall supply to the Collateral
Agent at the Borrower's cost and expense no later than January 15, 2002
mortgagee's commitments of title insurance (with such specimen endorsements as
the Collateral Agent shall reasonably request) from Chicago Title Insurance
Company ("CTIC") (the "Title Commitments") pursuant to which CTIC is committed,
upon payment of the title insurance premiums, to issue title insurance policies
that will insure the validity of each mortgage and deed of trust previously
delivered by the Borrower or any Subsidiary to the Collateral Agent and its
status as a first Lien (subject to permitted Liens) on the real property
encumbered thereby which Title Commitments shall have an expiration date no
earlier than April 30, 2002.  On or prior to April 30, 2002 the Borrower


                                       7

shall at the Borrower's cost and expense obtain from CTIC an extension of the
expiration date of the Title Commitments to a date no earlier than October 31,
2002.

         13. Insurance Proceeds. The Borrower shall use reasonable efforts to
provide at the Borrower's cost and expense no later than January 15, 2002 a
first prior perfected security interest in favor of the Collateral Agent in all
business interruption and all insurance policies protecting the Borrower and its
Subsidiaries from acts and omissions of their respective past or present
officers or employees. The Borrower acknowledges and agrees that such Liens
shall be granted to the Collateral Agent for the ratable benefit of the Bank
Group and TIAA in accordance with the terms in the Intercreditor Agreement and
shall be valid and perfected Liens subject, however, to any prior Liens on such
property permitted by the Credit Agreement. The Borrower agrees to execute and
to cause its Subsidiaries to execute all such documents reasonably requested by
the Collateral Agent to provide for such pledge.

         14. GE Capital. The Borrower shall use reasonable efforts to provide at
the Borrower's cost and expense no later than January 15, 2002 a perfected
security interest in favor of the Collateral Agent in all property of the
Borrower which is currently pledged to secure the existing financing with
General Electric Capital Corporation. In addition, the Borrower shall use
reasonable efforts to provide at the Borrower's cost and expense no later than
January 15, 2002 a perfected security interest in favor of the Collateral Agent
in the real estate of the Borrower in Atchison, Kansas and St. Joseph, Missouri
commonly known respectively as the Atchison Foundry and St. Joseph Machine Shop.
The Borrower acknowledges and agrees that such Liens shall be granted to the
Collateral Agent for the ratable benefit of the Bank Group and TIAA in
accordance with the terms in the Intercreditor Agreement and shall be valid and
perfected Liens subject, however, to any prior Liens on such property permitted
by the Credit Agreement and Liens in favor of General Electric Capital
Corporation, in each case pursuant to one or more collateral documents from such
persons, each in form and substance satisfactory to the Collateral Agent.

         15. Borrowing Base Definitions. The following terms when used herein
have the following meanings: "Borrowing Base" means, as of any time it is to be
determined, (a) 80% of the net book value of Eligible Accounts plus (b) 50% of
the value of Eligible Inventory consisting of raw materials or finished goods
plus (c) 25% of Eligible Inventory consisting of work-in-process, plus (d) the
Allowable Over Advance minus (e) the aggregate principal amount outstanding
under the Teachers' Note.

          "Allowable Over Advance" means $57,000,000 plus after the sale of any
          Subsidiary, an amount equal to the positive difference, if any,
          between (i) the dollar amount of assets of such Subsidiary that was
          part of the Borrowing Base of the end of the month prior to the month
          in which such Subsidiary was sold minus (ii) amount equal to
          the sum of the Commitment reductions which resulted from such sale
          plus the amount of principal reductions on the Teacher's Note which
          resulted from such sale.

          "Eligible Account" means each account receivable of the Borrower and
          its North American Subsidiaries that: (a) arises out of the sale by
          such company of inventory delivered to and accepted by, or out of the
          rendition of services fully performed by such

                                       8

          company and accepted by, the account debtor on such account
          receivable, and in each case such account receivable otherwise
          represents a final sale; (b) is an asset of such company to which it
          has good and marketable title, is freely assignable, is subject to a
          perfected, first priority Lien in favor of the Collateral Agent, and
          is free and clear of any other Lien; (c) the account debtor thereon is
          not a Subsidiary or an affiliate of any such company; and (d) is not
          unpaid more that ninety (90) days after the original due date of the
          applicable original invoice.

         "Eligible Inventory" means all raw materials, work-in-process, and
         finished goods inventory of the Borrower and its North American
         Subsidiaries (other than packaging, crating and supplies inventory),
         provided that such inventory: (a) is an asset of such company to which
         it has good and marketable title, is freely assignable, is subject to a
         perfected, first priority Lien in favor of the Agent, and is free and
         clear of any other Lien other than Liens permitted by the Credit
         Agreement; and (b) is located in the United States or Canada.

         16. Loan Documents Remain Effective. Except as expressly set forth in
this Agreement, the Credit Documents remain unchanged and in full force and
effect. Without limiting the foregoing, the Borrower and its Subsidiaries shall
comply with all of the terms, conditions, and provisions of the Credit Documents
as modified hereby except to the extent such compliance is irreconcilably
inconsistent with the express provisions of this Agreement.

         17. Paragraph 11 of the Eleventh Amendment and Paragraph 15 of the
Tenth Amendment are hereby amended in their entirety to read as follows:

                Standstill Termination. As used in this Agreement, "Standstill
Termination" means the occurrence of the Standstill Expiration Date, or, if
earlier, the occurrence of any one or more of the following events: (a) any
Event of Default occurs other than the Existing Defaults and other than the
continued noncompliance with the covenants referenced in Schedule I; (b) any
failure (other than any failure constituting an Existing Default) by the
Borrower or any Subsidiary for any reason to comply with any term, condition, or
provision contained in this Agreement or any other Credit Document executed by
it; (c) any holder of the Teachers' Notes or any other holder of Debt in excess
of $100,000 of the Borrower or any Subsidiary shall commence any action to
accelerate such Debt or begin any enforcement action for the collection of such
Debt; (d) any forbearance or similar arrangements TIAA enters into with the
Borrower shall terminate; (e) any representation made by or on behalf of the
Borrower or any Subsidiary in this Agreement or any other Credit Document
executed by it or in any other document delivered by it pursuant thereto proves
to be incorrect or misleading in any material respect when made (other than any
such misrepresentation constituting an Existing Default); (f) the refinancing
and payment or other satisfaction of the Teachers' Notes without a corresponding
refinancing or satisfaction of the Obligations or (g) the Borrower or any
Subsidiary is in breach of any of the obligations under the Cash Collateral Use
Agreement. The occurrence of any Standstill Termination shall be deemed an Event
of Default under the Credit Agreement. Upon the occurrence of a Standstill
Termination, the Standstill Period is automatically terminated and the Bank
Group is then permitted and entitled, among other things, to enforce collection
of the
                                       9

Obligations, to enforce its liens on the Collateral, and to exercise any and all
other rights and remedies that may be available under the Loan Documents or
applicable law.

         18.    Acknowledgement of Debt;  Acknowledgement of Liens. As of the
date hereof, the following  aggregate principal amounts are outstanding on the
Revolving Loans, Swing Loans and Letters of Credit:

                                                                        AGGREGATE PRINCIPAL
                TYPE OF CREDIT:                                         AMOUNT OUTSTANDING:

                Revolving Loans                                           $67,493,208.41
                Swing Loans                                                     $0
                Letters of Credit                                          $7,228,685.00

The Borrower hereby confirms its promise to pay, and each Guarantor hereby
confirms its guaranty of repayment of, the principal of and interest on the
Obligations in accordance with the terms of the Credit Agreement, as modified by
this Agreement, without defense, set-off, counterclaim or reduction of any
nature whatsoever. The Borrower represents there are currently no Events of
Default other than the Existing Defaults. The Borrower and each Guarantor hereby
acknowledges and confirms that: (i) the Obligations will continue to be secured
by Liens on all accounts, chattel paper, instruments, documents, general
intangibles, investment property, deposits, inventory, equipment and
substantially all other assets and properties of the Borrower pursuant to the
mortgages, security agreements and other instruments and documents heretofore
executed and delivered by the Borrower and the Guarantors to or for the benefit
of the Bank Group; (ii) such mortgages, security agreements and other instrument
and documents, and the rights and remedies of the Bank Group thereunder, the
obligations of the Borrower and each Guarantor thereunder, and the Liens created
and provided for thereunder, in each case remain in full force and effect and
shall not be affected, impaired or discharged hereby; and (iii) nothing herein
contained shall in any manner affect or impair the priority of the Liens
interests created and provided for thereby as to the obligations which would be
secured thereby prior to giving effect to this Agreement.

         19. Release. In consideration of the Required Bank's execution of this
Agreement and for other good and valuable consideration, receipt of which is
hereby acknowledged, (x) the Borrower and each Guarantor hereby acknowledges
that it has no defense, counterclaim, offset, cross-complaint, claim, or demand
of any kind or nature whatsoever that can be asserted to reduce or eliminate all
or any part of its liability to pay or perform any of the Obligations, or to pay
or perform any of its other obligations with respect to any other loans or other
extensions of credit or financial accommodations made available to or for its
account by any one or more members of the Bank Group, or to seek affirmative
relief or damages of any kind or nature from the Bank Group other than the
reservation of rights set forth in Paragraph 24 hereof, and (y) the Borrower and
each Guarantor does hereby fully, unconditionally, and irrevocably forever
relieve, relinquish, release, waive, discharge, and hold harmless the Bank Group
and each of its members and each of its member's current and former
shareholders, directors, officers, employees, agents, attorneys, successors, and
assigns of and from any and all claims, debts, actions, causes of action,

                                       10

liabilities, demands, obligations, promises, acts, agreements, costs, expenses
(including but not limited to reasonable attorneys' fees) and damages of
whatsoever kind and nature, whether now known or unknown, based upon, resulting
from, arising out of, or in connection with loans or other extensions of credit
or financial accommodations made by any one or more members of the Bank Group
from time to time to or for the account of the Borrower or any Subsidiary,
including, without limitation, any Loans made under, and Letters of Credit
issued under, the Credit Agreement or in any way connected with or related to
any other instrument or document executed or delivered in connection therewith
and/or the administration or collection thereof and/or collateral therefor or
guaranties thereof.

         20. No Waiver and Reservation of Rights. The Bank Group is not waiving
the Existing Defaults, but is simply agreeing to forbear from exercising its
rights with respect to the Existing Defaults to the extent expressly set forth
in this Agreement. The Bank Group is not obligated in any way to continue beyond
the Standstill Period to forbear from enforcing its rights or remedies, and the
Bank Group is entitled to act on the Existing Defaults after the occurrence of a
Standstill Termination as if such defaults had just occurred and the Standstill
Period had never existed. The Bank Group makes no representations as to what
actions, if any, the Bank Group will take after the Standstill Period or upon
the occurrence of any Standstill Termination, an Event of Default, or an event
which with notice or lapse of time, or both, would constitute an Event of
Default, and the Bank Group must and does hereby specifically reserve any and
all rights and remedies it has (after giving effect hereto) with respect to the
Existing Defaults and each other Event of Default that may occur.

         21. Integration. This Agreement is intended by the Bank Group as a final
expression of its agreement as to the subject matter hereof and is intended as a
complete and exclusive statement of the terms and conditions of that agreement.

         22. Effectiveness. This Agreement shall take effect upon (i) its
acceptance (without modification) by the Required Banks and the Borrower on or
before December 18, 2001, in the spaces provided for that purpose below, (ii)
execution by the Guarantors of the acknowledgment attached hereto, (iii) the
Agent's receipt for the pro rata account of each Bank which executes this
Agreement of a non-refundable amendment fee of $100,000, (iv) the Agent's
receipt for its own use and benefit of a non-refundable supplemental agency fee
of $50,000 and (v) the Cash Collateral Use Agreement shall be executed and
delivered, which Cash Collateral Use Agreement shall be in form and substance
satisfactory to the Agent and the Banks. By its acceptance hereof, the Borrower
and each Guarantor hereby represents that it has duly considered the
consequences of this Agreement after consultation with counsel and such other
advisors as it deems appropriate under the circumstances, it has the necessary
power and authority to execute, deliver, and perform the undertakings contained
herein, and that the same does bind it hereto.

         23. Submission to Jurisdiction; Waiver of Jury Trial. The Borrower and
each Guarantor hereby submits to the non-exclusive jurisdiction of the United
States District Court for the Northern District of Illinois and of any Illinois
State court sitting in the City of Chicago for purposes of all legal proceedings
arising out of or relating to this Agreement, the other Loan Documents or the
transactions contemplated hereby or thereby. The Borrower and each Guarantor
irrevocably waives, to the fullest extent permitted by law, any objection which
it may
                                       11

now or hereafter have to the laying of the venue of any such proceeding
brought in such a court and any claim that any such proceeding brought in such a
court has been brought in an inconvenient forum. THE BORROWER, EACH GUARANTOR,
THE AGENT, AND EACH BANK HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY
JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY
OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.

         24. Reservation of Rights. Notwithstanding anything to the contrary in
this Agreement, the Credit Agreement or any Collateral Document, if at any time
prior to July 5, 2002, any Bank receives, directly or indirectly, proceeds from
the Burdale Financing, Liquidation Proceeds, proceeds from the sale of assets or
repayments on the intercompany note from Atchison Casting UK Limited and the
Borrower files a proceeding under Title 11 of the United States Code any time
prior to July 5, 2002, the Borrower reserved it right to contend that all of
said proceeds received by any such Bank, less any amounts reloaned to the
Borrower, are to be treated in the bankruptcy proceeding as cash collateral and
not repayments of the Loans and the Banks reserve the right to contest any such
assertion and object to any use of cash collateral or any reborrowing of any
Loans. For the avoidance of doubt this Paragraph does not affect, either
directly or indirectly, any proceeds received by National Westminster Bank plc
from the Burdale Financing as a repayment of any amounts owing to National
Westminster Bank plc by Atchison Casting UK Limited or its subsidiaries.

         25. Miscellaneous. The Borrower shall pay all costs and expenses of the
Bank Group incurred in connection with the negotiation, preparation, execution,
and delivery of this Agreement and the administration of the Loan Documents and
the transactions contemplated thereby, including the reasonable fees and
expenses of counsel to the Bank Group. This Agreement shall be governed by and
construed in accordance with Illinois law (without regard to principles of
conflicts of laws).

         This Twelfth Amendment and Forbearance Agreement is entered into
between the parties hereto as of the date and year first above written.

                                       ATCHISON CASTING CORPORATION


                                       By: /s/ Kevin T. McDermed

                                       Name: Kevin T. McDermed
                                       Title:VP & Treasurer



                                       12

                                       HARRIS TRUST AND SAVINGS BANK, in its individual
                                       capacity as a Bank and as Agent

                                       By:  /s/ Neil J. Golub
                                       Title: V.P.



                                       COMMERCE BANK, N.A.


                                       By: /s/ Dennis R. Block
                                       Title:  Senior Vice President




                                        US BANK NATIONAL ASSOCIATION (f/k/a Firstar Bank, N.A.),
                                          (f/k/a Firstar Bank, N.A. Overland park, f/k/a
                                          Firstar Bank Midwest, N.A., f/k/a Mercantile Bank)


                                        By:  /s/ Craig D. Buckley
                                        Title:  Vice President


                                        KEY BANK NATIONAL ASSOCIATION


                                        By: /s/ G. M. Adams
                                        Title: Vice Pres

                                       13

                                        COMERICA BANK


                                        By: /s/ Andrew R. Craig
                                        Title: Vice President

                                        HIBERNIA NATIONAL BANK


                                        By:
                                        Title:__________________________________


                                        NATIONAL WESTMINSTER BANK PLC

                                        Nassau Branch

                                        By: /s/ Pete Ballard
                                        Title: Head of Mid-Corporate Team
                                               Corporate Restructuring Unit


                                        New York Branch


                                        By: /s/ Pete Ballard
                                        Title: Head of Mid-Corporate Team
                                               Corporate Restructuring Unit


                                        WELLS FARGO BANK, NATIONAL ASSOCIATION
                                         (successor by merger to Norwest
                                         Bank Minnesota, N.A.)


                                        By: /s/ Calvin R. Emerson
                                        Title: Vice President



                                       14

                                   SCHEDULE I
                                EXISTING DEFAULTS

     1. Noncompliance with minimum current ratio requirement set forth in
Section 7.15(a) of the Credit Agreement.

     2. Noncompliance with the minimum Stockholder's Equity requirement set
forth in Section 7.15(b) of the Credit Agreement.

     3. Noncompliance with the maximum Consolidated Total Senior Debt to Total
Capitalization requirement set forth in Section 7.15 (c) of the Credit
Agreement.

     4. Noncompliance with the maximum Consolidated Total Senior Debt to Total
Capitalization ratio set forth in Section 7.15(d) of the Credit Agreement.

     5. Noncompliance with the minimum Fixed Charge Coverage Ratio set forth in
Section 7.15(e) of the Credit Agreement.

     6. Noncompliance with the maximum Senior Debt to EBITDA ratio set forth in
Section 7.15(f)(i) of the Credit Agreement.

     7. Noncompliance with the maximum Total Debt to EBITDA ratio set forth in
Section 7.15(f)(ii) of the Credit Agreement.

     8. Noncompliance with Section 8.1(d) of the Credit Agreement resulting from
a default under the indebtedness permitted by Section 7.16(b) of the Credit
Agreement.

     9. Noncompliance with Section 7.20 of the Credit Agreement resulting from
the $1,000,000 intercompany advance made by the Borrower to Atchison Casting UK
Limited in August, 2001.

     10. Noncompliance with the minimum EBITDA requirement set forth in Section
10 of Tenth Amendment and Forbearance.

     11. Breach of representations and warranties reaffirmed under Section
6.2(c) of the Credit Agreement in connection with extensions of additional
credit due to the noncompliance described above.

                                   SCHEDULE II
                                   COMMITMENTS



                                                 "original commitments"   "temporary increases"     Commitments
                                                  --------------------    --------------------      -----------

Harris Trust and Savings Bank                          $17,500,000.00           $2,915,301.52          $20,415,301.52

Commerce Bank, N.A.                                      9,545,454.55            1,028,929.95           10,574,384.50

Firstar Bank N.A.                                        9,545,454.55            1,028,929.95           10,574,384.50

Key Bank National Association                            9,545,454.55                    0.00            9,545,454.55

Comerica Bank                                            6,363,636.36                    0.00            6,363,636.36

Hibernia National Bank                                   6,363,636.36                    0.00            6,363,636.36

National Westminster Bank Plc                            6,363,636.36                    0.00            6,363,636.36

Wells Fargo Bank, National Association                   4,772,727.27              514,464.97            5,287,192.24
                                                        -------------             -----------           -------------

Total                                                  $70,000,000.00           $5,487,626.39          $75,487,626.39

                     GUARANTOR'S ACKNOWLEDGMENT AND CONSENT

         Each of the undersigned has heretofore executed and delivered to the
Agent and each Bank a Guaranty Agreement. Each of the undersigned hereby
consents to the Twelfth Amendment and Forbearance Agreement as set forth above
and confirms that its Guaranty Agreement and all of their respective obligations
thereunder remain in full force and effect for the benefit of all the
Obligations (as such term is defined in the Credit Agreement and in the Guaranty
Agreements, it being understood and agreed that as so defined, such term
includes the Bridge Loans). Each of the undersigned also heretofore executed and
delivered various Security Agreements. Each of the undersigned hereby
acknowledges and agrees that the Liens created and provided for by each Security
Agreement continue to secure, among other things, the Obligations (as such term
is defined in the Credit Agreement and in the Security Agreements, it being
understood and agreed that as so defined, such term includes the Bridge Loans);
and each Security Agreement and the rights and remedies of the Secured Creditors
thereunder, the obligations of each of the undersigned thereunder, and the Liens
created and provided for thereunder remain in full force and effect and shall
not be affected, impaired or discharged hereby. Nothing herein contained shall
in any manner affect or impair the priority of liens and security interests
created and provided for by the Security Agreements as to the indebtedness which
would be secured thereby prior the giving effect to the Twelfth Amendment and
Forbearance Agreement.
                                      AMITE FOUNDRY AND MACHINE, INC.
                                      PROSPECT FOUNDRY, INC.
                                      QUAKER ALLOY, INC.
                                      CANADIAN STEEL FOUNDRIES, LTD.
                                      3210863 CANADA INC.
                                      KRAMER INTERNATIONAL, INC.
                                      EMPIRE STEEL CASTINGS, INC.
                                      LAGRANGE FOUNDRY INC.
                                      THE G&C FOUNDRY COMPANY
                                      LOS ANGELES DIE CASTING INC.
                                      CASTCAN STEEL LTD.
                                      CANADA ALLOY CASTINGS, LTD.
                                      PENNSYLVANIA STEEL FOUNDRY & MACHINE COMPANY
                                      JAHN FOUNDRY CORP.
                                      INVERNESS CASTINGS GROUP, INC.
                                      DU-WEL PRODUCTS, INC.
                                      DAVIS CASTING AND ASSEMBLY, INC.
                                      CLAREMONT FOUNDRY, INC.
                                      LONDON PRECISION MACHINE & TOOL LTD.

                                      By:  /s/ Kevin T. McDermed
                                      Title: Vice President

                                      GILMORE INDUSTRIES, INC.

                                      By: /s/ Roi G. Chandy
                                      Title: Director, Special Situations

EX-4.2

                          CASH COLLATERAL USE AGREEMENT

     This CASH COLLATERAL USE AGREEMENT (this "Agreement") is made and entered
into as of December 18, 2001 by and among Atchison Casting Corporation, a Kansas
corporation (the "Borrower"), Amite Foundry and Machine, Inc., Prospect Foundry,
Inc., Quaker Alloy, Inc., Kramer International, Inc., Empire Steel Castings,
Inc, La Grange Foundry Inc., The G&C Foundry Company, Los Angeles Die Casting
Inc., Pennsylvania Steel Foundry & Machine Company, Jahn Foundry Corp.,
Inverness Castings Group, Inc., Du-Wel Products, Inc., Davis Casting and
Assembly, Inc., Claremont Foundry, Inc., Gilmore Industries, Inc. (collectively,
the "Guarantors"; the Company and the Guarantors being hereinafter referred to
collectively as the "Obligors") and Harris Trust and Savings Bank ("Harris"),
Commerce Bank, N.A., U.S. Bank National Association, Key Bank National
Association, Comerica Bank, Hibernia National Bank, National Westminster Bank
Plc, Wells Fargo Bank, National Association, N.A. (collectively, the "Banks")
and Teachers Insurance and Annuity Association of America ("TIAA"; the Banks and
TIAA being hereinafter collectively referred to as the "Lenders") and Harris in
its capacity as agent for the Banks (the "Bank Agent") and as collateral agent
for the Lenders (the "Collateral Agent").


                                   WITNESSETH:

     WHEREAS, the Obligors own and operate businesses relating to steel, iron
and die casting (collectively, the "Business");

     WHEREAS, the Borrower and the other Obligors are indebted to the Lenders as
set forth herein;

     WHEREAS, the Obligations (as hereinafter defined) of the Obligors under the
Financing Agreements (as hereinafter defined) are secured by, among other
things, a properly perfected and not otherwise voidable, valid and first lien
and security interest in substantially all of the assets, real and personal of
the Obligors, including but not limited to the inventory, accounts receivable,
notes receivable, general intangibles, fixtures, furniture, equipment and real
property of the Obligors as more fully described in the Financing Agreements and
this Agreement including Section 7 hereof (hereinafter referred to as the
"Collateral");

     WHEREAS, defaults and events of default under the Financing Agreements have
occurred and are continuing;

     WHEREAS, contemporaneously herewith the Lenders and the Obligors have
entered into certain forebearance arrangements (collectively, the "Forbearance
Agreements"), pursuant to which, among other things, the Lenders have agreed to
forebear from certain enforcement actions as to the Financing Agreements until
June 30, 2002 or such earlier date as is set forth in such Forbearance
Agreements (the "Forbearance End Date").

         WHEREAS, timely, adequate and proper notice of the occurrence of the
such defaults and events of default has been received by the Obligors or notice
has been waived by the Obligors and all grace periods applicable to cure such
defaults and events of default after receipt of such notice have expired or have
been waived by the Obligors;

         WHEREAS, due to such defaults and events of default (i) the
Obligations, including principal and interest thereon, may be declared
immediately due and payable and (ii) the Lenders are entitled to collect or
enforce the Obligations due the Lenders under the Financing Agreements and to
exercise any and all legal rights and remedies available to the Lenders;

         WHEREAS, Harris as Collateral Agent and the Lenders hold a lien upon
and security interest in the Collateral and the proceeds thereof as more fully
described in the Financing Agreements and this Agreement (As used herein, the
term "Cash Collateral" shall mean (i) the proceeds of the sale or other
disposition of any Collateral outside of the ordinary course of business,
including but not limited to the balance retained by the Obligors from any sale
pursuant to Section 7 and Section 4 of the Forbearance Agreements entered into
between the Borrower and the Banks and TIAA, respectively, and (ii) the proceeds
of any advances or intercompany note payments from Atchison Casting UK Limited);

         WHEREAS, the projections of the Obligors for any sale effort for
certain parts of the Business require significant use of Cash Collateral by the
Obligors and such use of Cash Collateral is not currently available to the
Obligors and such projections demonstrate that if the use of Cash Collateral by
the Obligors were available to the Obligors, the Obligors contend and represent
that the Lenders would be paid in full;

         WHEREAS, the Obligors have stated that any sale effort by the Obligors
is intended to be done in a manner to maximize the value of the assets, to the
extent reasonably possible, and must also be done in a manner that is acceptable
to the Lenders;

         WHEREAS, from and after the date hereof and pursuant to the terms
hereof, the Obligors will be responsible for, among other things, both
collecting the accounts receivable and sales of inventory and other cash from
operations, including cash flow generated by the operations of the Business from
and after the date of this Agreement (the "Operating Cash Collateral") and
paying the permitted operating expenses of, and capital expenditures for, the
Business from Operating Cash Collateral to the extent permitted by the budget
established by management of the Obligors and approved by the Lenders;

         WHEREAS, the Obligors require use of the Operating Cash Collateral and
may further require the use of Cash Collateral, in order to pay the specified
expenses of their ongoing operations and have requested the Lenders to consent
to such use to the extent included in the budget (prepared by management of the
Obligors and approved by the Lenders);

         WHEREAS, the Lenders desire to consent to such use of Operating Cash
Collateral and Cash Collateral, subject to the terms and conditions of this
Agreement and the Forbearance Agreements with full reservation of the Lenders'
rights, claims and interests;

                                       2

     WHEREAS, unless the context herein shall require a different meaning, all
capitalized terms used herein shall have the same meaning herein as in the
Financing Agreements;

     NOW, THEREFORE, in consideration of the foregoing promises and the mutual
consideration contained herein, the parties hereto, intending to be legally
bound, hereby agree as follows:

SECTION 1.           ACKNOWLEDGMENTS.

     Section 1.1. Acknowledgments by the Obligors. The Obligors acknowledge and
agree that on and as of the date hereof and as more fully set forth in the
Forbearance Agreements:

          (i) material defaults and events of default exist and continue to
     exist under the Financing Agreements;

          (ii) timely, adequate and proper notice of the occurrence of such
     defaults and events of default under the Financing Agreements has been
     received by the Obligors or waived by the Obligors;

          (iii) all grace periods applicable to cure such defaults and events of
     default after receipt of such notice have expired;

          (iv) each of said defaults and events of default was and is continuing
     without timely cure by the Obligors;

          (v) the filing of a Voluntary Bankruptcy (as hereinafter defined) or
     an Involuntary Bankruptcy (as hereinafter defined) as to any of the
     Obligors will constitute an Event of Default under the Financing
     Agreements;

          (vi) (1) under that certain Amended and Restated Credit Agreement
     dated as of April 3, 1998 and any amendments thereto (the "Revolving Credit
     Agreement") among the Borrower, the Banks and the Bank Agent (the Revolving
     Credit Agreement and the other documents and instruments (including that
     certain Guaranty Agreement in favor of the Bank Agent dated May 24, 1996
     and any amendments thereto executed by the Guarantors and those agreements
     evidencing liens and security interests) executed and delivered in
     connection therewith being referred to as (the "Revolving Credit
     Documents"), the Obligors are indebted without claim, defense,
     counterclaim, avoidance, recoupment or offset of any kind, in the aggregate
     amount of approximately $74,721,893.41 as of December 18, 2001, plus all
     accrued and unpaid interest (including default interest and penalties
     thereon to the extent applicable), costs, expenses and other charges
     thereon, in respect of loans, advances and other financial accommodations
     (including but not limited to letters of credit) made by the Banks to the
     Borrower in accordance with the Revolving Credit Documents (collectively,
     the "Revolving Obligations"), (2) under that certain Note Purchase
     Agreement dated as of July 29, 1994 and any amendments thereto (the "Note
     Agreement") among the Borrower and TIAA (the Note Agreement and the other
     documents and instruments (including that certain

                                       3

     Guaranty Agreement dated as of May 24, 1996 and any amendments thereto
     executed by the Guarantors in favor of TIAA as the note purchaser and those
     evidencing liens and security interests) executed and delivered in
     connection therewith being referred to as the "Note Documents"), the
     Obligors are indebted without claim, defense, counterclaim, avoidance,
     recoupment or offset of any kind, in the aggregate amount of approximately
     $11,166,537.84 as of December 18, 2001, plus all accrued and unpaid,
     interest (including default interest and penalties thereon to the extent
     applicable), costs, expenses and other charges thereon in respect of the
     notes thereunder and other financial accommodations made by the TIAA in
     accordance with the Note Documents, (3) the Obligations (as defined below)
     are fully secured by valid, enforceable and properly perfected first
     priority liens and mortgages on and security interests in the Collateral,
     and (4) the rights of the Lenders as among themselves in and to the
     Collateral are subject to and governed by that certain Intercreditor and
     Collateral Agency Agreement dated as of February 15, 2000 and any
     amendments thereto (the "Intercreditor Agreement") among the Lenders and
     Harris as Collateral Agent and acknowledged and consented to by the
     Obligors;

          (vii) the Lenders and, in particular, Harris as Collateral Agent, have
     a valid, perfected and enforceable lien upon and security interest in the
     Collateral, including the Cash Collateral and Operating Cash Collateral,
     which lien and security interest is not subject to any claims, defenses or
     set-offs by the Obligors or their respective shareholders or anyone else
     claiming by, through and under them;

          (viii) from and after the date hereof the Lenders will be a third
     party beneficiary of any agreement to sell the Business or any part thereof
     or any assets of any Obligor;

          (ix) all accounts established and maintained by the Lenders pursuant
     to Section 2 hereof shall be blocked accounts, subject to blocked account
     agreements satisfactory to Harris as Collateral Agent; and

          (x) The fair market value of the Collateral which the Lenders, through
     Harris as Collateral Agent, have a valid, senior, fully perfected
     non-avoidable security interest and lien which, as provided in the
     Collateral Documents, is a lien and security interest on substantially all
     real and personal property of the Obligors exceeds the amount of the
     Obligations (as defined below).

For purposes of this Agreement, the Revolving Credit Documents and the Note
Documents shall be collectively referred to as the "Financing Agreements"; the
obligations of the Obligors under the Financing Agreements in each case whether
now or hereafter existing or hereafter arising, due or to become due, direct or
indirect, absolute or contingent, and howsoever evidenced, held or acquired,
shall be collectively referred to as the "Obligations".


                                       4

     Section 1.2. Acknowledgments by the Obligors of the Efforts of C.D.
Mitchell &Company. Each Obligor acknowledges and agrees that on and as of the
date hereof:

          (i) The Obligors will continue to retain C.D. Mitchell &Company or
     others approved by Harris as Collateral Agent to take all action necessary
     to restructure or, if necessary, market and sell assets of the Obligors;
     and

          (ii) Each Obligor will take all necessary action to reduce or
     eliminate any unnecessary costs and expenses of the Business.

SECTION 2.           GENERAL LEDGER ACCOUNTS.

         Section 2.1. Collection Account. The Obligors have established at
Harris Trust and Savings Bank Account No. 179-856-0 for the purposes of
depositing revenues from the operation of the Business or sale of Collateral
(other than as required by Section 2.4 hereof) (hereinafter, the "Existing
Collection Account"). The Obligors shall cause to the extent not currently in
place, in a manner satisfactory to the Lenders, the Existing Collection Account
to be subject to the lien and security interest of the Collateral Agent and the
Lenders or cause the balance of the Existing Collection Account to be
transferred to one or more new accounts (hereinafter, the "New Collection
Accounts" and collectively with the Existing Collection Account which may
continue hereunder, the "Collection Account") at Harris as Collateral Agent, or
any other banks approved by Harris as Collateral Agent (collectively with the
institutions holding the Collection Accounts as any may continue hereunder, the
"Collection Account Bank"), under terms and conditions satisfactory to Harris as
Collateral Agent. For purposes of this Agreement, the use of the defined terms
Collection Account and Collection Account Bank, when stated in the singular,
shall also include the plural of such terms. The Collection Account is and shall
be entitled "Collection Account for, and Subject to the security interests of,
Harris as Collateral Agent." Subject to Section 2.4 hereof, the Obligors will
deposit, on a daily basis, all cash or cash equivalent items generated from the
operation of the Business and collection of accounts receivable or sale of
Collateral into the Collection Account. Contemporaneously with the establishment
of a Collection Account, the Obligors shall deliver a letter within three (3)
days of the date thereof to the Collateral Agent (which letter has been
acknowledged in writing by the Collection Account Bank) in form and substance
reasonably acceptable to the Collateral Agent containing the following:

          (i) an irrevocable direction from the Obligors to the Collection
     Account Bank to entitle the Collection Account as "Collection Account for,
     and Subject to the Security Interests of, Harris as Collateral Agent," and
     an acknowledgment by the Collection Account Bank that the Collection
     Account is so entitled;

          (ii) an acknowledgment by the Obligors that they have granted a
     security interest in the Collection Account to the Collateral Agent for the
     benefit of Lenders and all funds from time-to-time on deposit therein;


                                       5

          (iii) an acknowledgment by the Collection Account Bank that it holds
     the funds in the Collection Account subject to such security interest and
     as agent for the Lenders;

          (iv) an irrevocable direction from the Obligors to the Collection
     Account Bank to wire transfer prior to the end of each banking day all
     collected funds (good funds) in the Collection Account to the Safekeeping
     Account (as hereinafter defined) and to allow no other transfers or
     withdrawals from the Collection Account;

          (v) an acknowledgment by the Collection Account Bank that it has no
     right of set-off against the Collection Account, other than the right to
     set-off for checks deposited in the Collection Account which did not clear
     and customary bank charges; and

Harris as Collateral Agent may determine in its sole discretion that existing
accounts of the Obligors which are blocked accounts satisfy the requirements of
this section.

         Section 2.2. Safekeeping Account. Account No. 179-845-3 (the
"Safekeeping Account") has been established at Harris Trust and Savings Bank.
The Safekeeping Account is and shall be entitled "Operating Cash Collateral
Account for Harris Trust and Savings Bank, as Collateral Agent - Safekeeping."
The Safekeeping Account is and shall be under the sole dominion and control of
Harris as Collateral Agent. The Safekeeping Account may, at the sole discretion
of Harris as Collateral Agent, be an account already established at Harris Trust
and Savings Bank. Each Obligor hereby acknowledges and agrees:

          (i) that Harris as Collateral Agent may, at any time in its sole
     discretion and prior to any transfer in accordance with Section 4, apply
     monies in the Safekeeping Account to pay the costs, fees and expenses of
     maintaining the Collateral and to pay any and all other costs, fees and
     expenses (including attorneys' and professional advisors' fees and
     expenses) of Harris as Collateral Agent incurred under or in connection
     with administration, monitoring or enforcement of the Financing Agreements;

          (ii) that no Obligor has and shall have any rights or ownership
     interest in the Safekeeping Account or the proceeds thereof other than
     solely to the extent monies are released to the Disbursement Accounts (as
     hereinafter defined) in accordance with the terms of this Agreement; and

          (iii) that funds in the Safekeeping Account will be transferred to the
     Disbursement Accounts only in accordance with Section 4.

         Section 2.3. Disbursement Accounts. The Obligors have established at
Harris Trust and Savings Bank, the Account Nos. set forth on Exhibit C (the
"Disbursement Accounts"). The Borrower, on behalf of the Obligors, may make
withdrawals from, and sign checks with respect to, the Disbursement Accounts.
The Disbursement Accounts may, at the sole discretion of Harris as Collateral
Agent be an account that already exists at Harris Trust and Savings Bank or such
other bank acceptable to Harris as Collateral Agent with the protection, rights
and interests provided herein. Each Obligor hereby acknowledges that Harris as
Collateral Agent and the

                                       6

Lenders have a security interest in the Disbursement Accounts and all funds from
time-to-time on deposit in the Disbursement Accounts.

         Section 2.4. Cash Collateral Account. The Obligors have established at
Harris Trust and Savings Bank Account No. 179-846-1 for the purpose of
depositing Cash Collateral (the "Cash Collateral Account"). The Cash Collateral
Account is and shall be entitled "Cash Collateral Account for Harris Trust and
Savings Bank, as Collateral Agent - Proceeds." The Cash Collateral Account is
and shall be under the sole dominion and control of Harris as Collateral Agent.
The Cash Collateral Account may, at the sole discretion of Harris as Collateral
Agent, be an account already established at Harris Trust and Savings Bank. The
Obligors shall cause all Cash Collateral to be deposited in the Cash Collateral
Account. Each Obligor and the Lenders hereby acknowledges and agrees that funds
in the Cash Collateral Account will be transferred to the Disbursement Accounts
only in accordance with Section 4.

SECTION 3.           BUDGET PROCEDURES.

         Section 3.1. Operating Period Budget. Attached hereto as Exhibit B is a
cash operating budget for the Obligors, prepared by management of the Borrower
for the period from December 1, 2001 up to and including January 31, 2002 (such
operating budget along with each operating budget required to be delivered below
being herein referred to as an "Operating Period Budget"). The attached budget
reflects designated ordinary and usual expenses expected to be incurred in
connection with the operation and management of the Business and necessary to
preserve and protect the Collateral during that period including the payment of
weekly interest to TIAA and the Banks and the Obligors' obligation to make
certain mandatory principal repayments as required by the Forbearance
Agreements. The Obligors and the Lenders acknowledge and agree that such budget
is acceptable. On or prior to the last day of each fiscal month of the Borrower,
the Borrower shall deliver to the Collateral Agent a budget for the next
succeeding fiscal month of the Borrower consistent with the initial Operating
Period Budget, which budget then becomes the Operating Period Budget. The
Lenders covenant and agree to the transfer of monies from the Safekeeping
Account and the Cash Collateral Account to the Disbursement Accounts and the
Banks covenant and agree, subject to the terms of the Revolving Credit
Agreement, to transfer the proceeds of Loans to the Safekeeping Account, in each
case in accordance with the procedures established pursuant to Sections 3.2 and
4 herein with respect to all monthly budgets that are consistent with the
Operating Period Budget; provided, however, that, unless specifically agreed to
in writing in advance by Harris as Collateral Agent and the Obligors, in no
event shall Harris as Collateral Agent have any obligation to transfer monies
from the Safekeeping Account or the Cash Collateral Account to the Disbursement
Accounts for (a) any amounts which are actual expenditures on a cumulative basis
as indicated in any Statement submitted in accordance with Section 3.2 hereof in
excess of the amounts shown for any itemized individual expense or category in
the Operating Period Budget (subject to Section 4 hereof), or (b) any expense
not itemized in the Operating Period Budget.

         Section 3.2. Statement. The management of the Borrower on behalf of the
Obligors, shall submit to Harris as Collateral Agent, prior to 11:00 a.m. on the
third Business Day on each calendar month, commencing January 4, 2002, a
statement of actual expenditures for the preceding month compared to the
Operating Period Budget for the preceding month (each in the

                                       7

form of Exhibit D, a "Statement"). Harris as Collateral Agent shall only be
obligated to transfer to the Disbursement Accounts the amount reflected on the
Operating Period Budget for expenses and such other amounts Harris as Collateral
Agent may in writing approve. The first statement provided hereunder shall cover
the period from December 1, 2001 to December 31, 2001. Each Statement shall
reconcile the prior month budgeted and actual expenses. As used herein, the term
"Business Day" shall mean any day other than a Saturday or Sunday or other day
on which Banking institutions in Chicago, Illinois are authorized or required to
be closed. Each Statement shall be delivered by facsimile or by hand to:

                                    Harris Trust and Savings Bank
                                    111 West Monroe Street
                                    Chicago, Illinois  60690-0755
                                    Attention:  Neal Golub
                                    Facsimile number: 312-765-1724

                                            and

                                    James E. Spiotto
                                    Chapman and Cutler
                                    111 West Monroe Street, 18th Floor
                                    Chicago, Illinois  60603-4080
                                    Facsimile number:  (312) 561-1900

SECTION 4.           USE OF OPERATING CASH COLLATERAL.

         Section 4.1. Permitted Use. On each Business Day during the term of
this Agreement Harris as Collateral Agent shall transfer from the Safekeeping
Account (and after February 1, 2002, but only to the extent that there is no
Operating Cash Collateral on deposit in the Safekeeping Account, from the Cash
Collateral Account) to the Disbursement Accounts the amount of the request
provided by the Borrower (consistent with the Operating Period Budget) provided
that the total request for any calendar month does not exceed the aggregate
amount as set forth in the Operating Period Budget for such month subject to the
variances set forth in Section 4.1(ii) hereof; provided that as of that date,
the Lenders shall have received, in accordance with Section 3.1, the Operating
Period Budget and the Statements have been timely presented to Harris as
Collateral Agent as required by Section 3.2. Notwithstanding anything to the
contrary herein, Harris as Collateral Agent shall have no obligation to transfer
monies to the Disbursement Accounts in excess of the balance in the Safekeeping
Account and the Cash Collateral Account nor shall the Banks be obligated to
transfer monies to the Safekeeping Account if after giving effect to such
transfer the amounts outstanding under the Revolving Credit Agreement exceed the
maximum amount then available thereunder as provided in Paragraph 3 of the
Forbearance Agreement entered into on the date hereof with respect to the
Revolving Credit Agreement. The Obligors and the Lenders agree that to the
extent this Agreement is effective and not terminated, Operating Cash Collateral
and Cash Collateral shall be used to pay operating expenses to the extent it is
consistent with the Operating Period Budget for such period. In addition, the
Collateral Agent shall be free in its sole discretion to elect not to transfer
money to the Disbursement Accounts:

                                       8

          (i) for any proposed item that is not reflected in the Operating
     Period Budget;

          (ii) if on a monthly basis an actual itemized individual expense or
     category of expenditure exceeds that set forth in the Operating Period
     Budget by: (A) 25%, in the case of any individual line item and (B) 10%, in
     the aggregate amount of the Operating Period Budget; or

          (iii) upon the occurrence of the Forbearance End Date.

To the extent any proposed item is not actually paid on the date of such
request, or during the next two (2) consecutive weeks, Harris as Collateral
Agent, in its sole discretion, may elect not to transfer an amount equal to such
unpaid item. Monies shall be released from the Safekeeping Account and Cash
Collateral Account only in accordance with this Agreement. Without the prior
express written consent of Harris as Collateral Agent, the Borrower and its
management, on behalf of the Obligors, agree not to use the Cash Collateral or
Operating Cash Collateral for any expenses other than the operating expenses
shown in the applicable Operating Period Budget and to the extent approved by
Harris as Collateral Agent or for purposes for which such funds were otherwise
transferred to the Disbursement Accounts with the prior consent of Harris as
Collateral Agent. Notwithstanding anything herein to the contrary, no Obligor or
its management may use Cash Collateral or Operating Cash Collateral to commence
or prosecute any action against any Lender for any relief adverse to the
interests of any Lender or Harris as Collateral Agent, including, but not
limited to, relief for the recovery of money or the avoidance of liens, and any
such use of such proceeds shall constitute a material breach of this Agreement
which shall relieve the Lenders of any obligations hereunder. The Lenders agree,
for the purposes of this Agreement, Harris as Collateral Agent may in its sole
discretion provide consents and give approvals for the Lenders, given the
exigencies of the situation and the necessity of expedited consideration. To the
extent Operating Cash Collateral exceeds operating expenses required to be paid
under Sections 3 and 4 hereof ("Current Operating Expenses") such excess funds
shall be applied by the Lenders to reduce the Obligations so long as such excess
funds, during the period this Agreement is effective, are paid as follows: (1)
prior to the Forebearance End Date such excess funds shall be applied to the
Revolving Obligations as provided in the Revolving Credit Documents, so long as
immediately following such application the Borrower shall have the ability to
reborrow such amounts and (2) as between the Lenders, from and after the
Forebearance End Date or at such time as the Borrower shall no longer have the
ability to reborrow amounts under the Revolving Credit Documents such excess
funds shall be applied to the Obligations in accordance with Section 4 in the
Intercreditor Agreement (whether or not an "Enforcement" (as defined in the
Intercreditor Agreement) has occurred). As between the Lenders, from and after
the Forbearance End Date or at such time as the Borrower shall no longer have
the ability to reborrow amounts under the Revolving Credit Documents, Harris as
Collateral Agent shall apply the funds on deposit in the Cash Collateral Account
in accordance with Section 4 of the Intercreditor Agreement (whether or not an
"Enforcement" (as defined in the Intercreditor Agreement) has occurred). Except
as set forth above, Harris as Collateral Agent shall not apply the funds on
deposit in the Cash Collateral Account for purposes of satisfying the
obligations owed to the Lenders.


                                       9

SECTION 5.           AGREEMENTS BY THE OBLIGORS.

         Section 5.1. Historical Books and Records. Each Obligor shall maintain
all of its books, records and accounts relating to the Business, its operations
and the Collateral. Each Obligor shall promptly furnish, upon request, to all
employees and agents of the Lenders any and all historical financial reports and
information and upon reasonable notice will provide immediate, free and
unhindered access during normal business hours to any and all of such Obligor's
historical books, records and documents relating to the Business, its operations
and the Collateral.

         Section 5.2. Removal from Obligor Control or Custody. Without the prior
written consent of the Requisite Lenders (as defined below), no Obligor shall
remove or permit to be removed any tangible assets, including any equipment,
inventory, fixtures or improvements now located on the property of such Obligor
in a manner which adversely effects the rights and interests of the Collateral
Agent and the Lenders in the Collateral.

         Section 5.3. Bankruptcy of any Obligor. (a) In the event any creditor
of any Obligor shall file against any Obligor a petition for reorganization or
liquidation under Title 11 of the United States Code ("Bankruptcy Code") and an
order for relief is entered ("Involuntary Bankruptcy"), or if any creditor shall
file a petition for any reorganization, arrangement, composition, readjustment,
liquidation, or dissolution under any state act or law, or shall seek the
appointment of a trustee, receiver, liquidator, custodian or similar official
for any Obligor, or when any Obligor commences a voluntary petition seeking
reorganization, liquidation, or other relief with respect to itself or its debts
under the Bankruptcy Code ("Voluntary Bankruptcy") or under any state act or law
relating to bankruptcy, insolvency, or relief for debtors, or if any Obligor
shall seek the appointment of a trustee, receiver, liquidator, custodian or
other similar official for the Business (or any part thereof), each Obligor
covenants not to challenge the lien or security interest of the Lenders and
Harris as Collateral Agent in the Collection Account, the Safekeeping Account,
the Cash Collateral Account or the Collateral, including the Cash Collateral and
Operating Cash Collateral. The Obligors agree that the establishment of the
Collection Account, the Safekeeping Account, and the Cash Collateral Account in
accordance with Section 2 hereof, satisfies the requirements of Section 546(b)
of the Bankruptcy Code as to the Cash Collateral and Operating Cash Collateral.

         (b) Each Obligor agrees that in return for the use of Operating Cash
Collateral and Cash Collateral permitted by this Agreement, to waive and will
waive any claims under Section 506(c) of the Bankruptcy Code, if any, it may
have in consideration for the Lenders' permitted use of Cash Collateral
permitted by this Agreement to protect and preserve the Collateral and pay for
operating expenses without sufficient adequate protection.

         Section 5.4. Sale of Inventory. Each Obligor agrees that any sale of
inventory shall be on terms and conditions consistent with past business
practices and in a manner which maximizes cash flow. No Obligor shall sell
inventory unless it is assured that the terms of sale required by this Section
will be satisfied.


                                       10

SECTION 6.           STATEMENT OF MARKETING EFFORTS.

         Section 6.1. Periodic Reports of Marketing Effort. Each Obligor agrees
to and hereby instructs C.D. Mitchell and Company to provide the Lenders with a
report on the status of the sales and marketing efforts and progress in closing
the sale of the assets and without any such request shall provide periodic
updates on the status of such efforts. Each Obligor agrees to require C.D.
Mitchell and Company or any other sales agents (approved by Harris as Collateral
Agent) to provide additional updates to their reports by C.D. Mitchell and
Company as is necessary to keep Harris as Collateral Agent and the Lenders fully
informed about the sales efforts and any issues or problems that arise.

SECTION 7.           AGREEMENTS BY THE LENDERS.

         Section 7.1. Additional Security Interest, Lien, Assignment and Pledge.
Given the use of proceeds of Collateral permitted by this Agreement and the
forbearance from proceeding with remedies available to the Lenders and Harris as
Collateral Agent, each Obligor confirms that the Collateral Agent has a lien on
and to the extent such lien does not exist agrees that it hereby grants a
security interest and lien in the following assets. Each of the Obligors hereby
grants to Harris as Collateral Agent a lien on and security interest in, and
hereby assigns and pledges to Harris as Collateral Agent, all of such Obligor's
right, title and interest in and to (i) any and all assets of the Obligors, real
or personal not included in Exhibit A, if any, including but not limited to
refunds, claims, causes of action, commercial tort claims and causes, claims and
causes of action against present or past employees, officers and directors for
any negligent or wrongful action or omission (and all insurance with respect to
such acts or omissions) and any claim and cause of action against past or
present auditors for any negligent or wrongful action, right to receive payment
from any source, recoveries relating to the Obligors and the Business including
claims or proceeds or recoveries thereof for insurance for property damages
suffered (including but not limited to the Jahn Foundry), (ii) all dividends,
distributions and sums distributable or payable from, upon or in respect of such
property, (iii) all other rights or privileges incident to such property and
(iv) all proceeds and products of any of the foregoing (all of the foregoing
being herein sometimes referred to as the "Additional Collateral" and the
Additional Collateral shall be included in the definition of "Collateral"
herein). The foregoing grant of a lien and security interest in the Additional
Collateral is in addition to and supplemental of and not in substitution for the
grants already made under the Financing Agreements. This Agreement, among other
things, confirms and assures the liens and security interests heretofore granted
in favor of the Lenders and Harris as Collateral Agent under the Financing
Agreements, and nothing contained herein shall in any manner impair the validity
or priority of such liens and security interests. Each of the Obligors does
hereby further acknowledge and agree that the rights and remedies of Harris as
Collateral Agent with respect to the assignment, mortgage, pledge and security
interest in each of the Obligors' Additional Collateral made and granted hereby
are the same as those set forth in each of the Obligors' Financing Agreements,
the terms and provisions of which are incorporated by reference herein as if
fully set forth herein. Each of the Obligors agrees that it will from time to
time at the request of Harris as Collateral Agent or any Lender execute and
deliver such documents and do such acts and things as Harris as Collateral Agent
or any Lender may reasonably request in order to provide for or perfect such
liens.

                                       11

SECTION 8.           REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE OBLIGORS.

     The Obligors represent and warrant to Harris as Collateral Agent and the
Lenders as follows:

     Section 8.1. Organization, Etc. Each Obligor is duly organized and validly
existing under the laws of the State of its respective incorporation.

     Section 8.2. Authorization; No Conflict. The execution and delivery of this
Agreement and the performance by each Obligor of the obligations under this
Agreement, are within such Obligor's power, have been duly authorized and each
Obligor, to the extent reasonably practicable, will take all actions necessary
to obtain any additional authorizations that may be required by Harris as
Collateral Agent or the Lenders or otherwise deemed advisable by such Obligor,
have received all necessary governmental approval (if any shall be required),
and do not and will not contravene or conflict with any provision of law or
agreement of any Obligor or of any agreement binding upon any Obligor; and no
consent or approval of any other person or entity or of any public authority is
required as a condition to the validity of this Agreement with respect to any
Obligor.

     Section 8.3. Validity and Binding Nature. This Agreement is the legal,
valid and binding obligation of the Obligors enforceable against the Obligors in
accordance with its terms.

     Section 8.4. Payment of Taxes. The Obligors shall budget and pay all
federal, state and local taxes due and owing during the term of this Agreement.

     Section 8.5. Pending or Threatened Litigation and Contingent Liabilities.
To the best of the knowledge of the Obligors, except as disclosed in the
Borrower's 10-Q for the quarter ended September 30, 2001, no litigation
(including, without limitation, derivative actions), arbitration proceedings or
governmental proceedings are pending or threatened against any Borrower which
would, if adversely determined, materially and adversely affect the financial
condition or continued operations of the Borrower and its Subsidiaries, taken as
a whole.

     Section 8.6. Representation with Respect to True and Complete Disclosure.
To the best of each Obligor's knowledge and belief, all factual information
heretofore or contemporaneously furnished by or on behalf of any Obligor to the
Lenders for purposes of or in connection with this Agreement or any transaction
contemplated hereby is, and all other such factual information hereafter
furnished by or on behalf of any Obligor to the Lenders will be, true and
accurate (taken as a whole) in all material respects on the date as of which
such information is dated or certified and not incomplete by omitting to state
any material fact necessary to make such information (taken as a whole) not
misleading at such time.

                                       12

SECTION 9.           THIS AGREEMENT NOT A WAIVER BY THE LENDERS.

         This Agreement is not intended to operate as, and shall not be
construed as:

          (i) a waiver of any default or event of default, whether known or
     unknown, as to which all rights of the Lenders shall remain reserved;

          (ii) a waiver of any rights, remedies or causes of action of the
     Lenders; or

          (iii) an election of any particular remedy available to the Lenders.

         Nothing contained herein shall be construed as a derogation, limitation
or waiver of any rights, interest or liens granted to or vested in the Lenders
or Harris as Collateral Agent under the Financing Agreements or any related
document between any Lender and any Obligor except as expressly otherwise stated
in this Agreement. Subject to the Forbearance Agreements, each Lender
specifically reserves the right to exercise any right or remedy available to it
in law or equity or under the Financing Agreements which it deems appropriate
under the circumstances.

SECTION 10.          TERMINATION OF THIS AGREEMENT.

       (a) This Agreement (at the sole option of the Requisite Lenders (as defined
below) who in their discretion may waive any or all of the following):

          (i) shall be terminated, prior to an Involuntary Bankruptcy or a
     Voluntary Bankruptcy, upon a breach of this Agreement or a breach of the
     Forbearance Agreements by any Obligor; or

          (ii) shall automatically terminate upon an Involuntary Bankruptcy of
     any Obligor or upon the Voluntary Bankruptcy of any Obligor.

         (b) In the event of a breach of this Agreement by any Obligor prior to
or in the event of a Involuntary Bankruptcy or Voluntary Bankruptcy of any
Obligor (at the sole option of the Requisite Lenders (as defined below) who in
their discretion may waive any or all of them):

          (i) the Lenders may require additional restrictions on the use of Cash
     Collateral, including Operating Cash Collateral, other than those set forth
     herein in lieu of terminating this Agreement; and

          (ii) the Obligors shall not contest and will not assert that this
     Agreement is a consent by the Lenders to the use of Cash Collateral after
     the occurrence of any breach of this Agreement by any Obligor.

SECTION 11.      TREATMENT OF LENDERS' CLAIMS UNDER PLAN OR CASH COLLATERAL ORDER.

         In the event that the Obligors are the subject of one or more Voluntary
Bankruptcies, to the extent that the claim(s) of the Lenders cannot be paid in
full in cash as if the Lenders were a

                                       13

fully secured creditor under Section 506(b) of the Bankruptcy Code, the Lenders
shall receive the proceeds of a ss.363 Sale under the Bankruptcy Code. In
addition, no Obligor shall object to the transfer of the claim(s) of the Lenders
to a third party under and pursuant to Bankruptcy Rule 3001(e).

SECTION 12.          NOTICES.

         Notices and other communications provided for herein shall be in
writing and shall be sent by overnight courier or personal delivery to the
Obligors at: Atchison Casting Corporation, 400 South 4th Street, Atchison,
Kansas 66002, Attention: Chief Financial Officer, Fax No. 913-367-2155; and to
the Lenders and counsel for the Lenders as set forth in Section 3 or such other
address as such party may, from time-to-time designate by giving written notice
to the other party hereto. All notices and other communications given to any
party hereto in accordance with the provisions of this Agreement shall be deemed
to have been given on the date that such writing is received by the intended
recipient thereof or, in the case of overnight courier delivery, on the first
Business Day after delivery to such courier; in each case, addressed to such
party as provided in this Section 15 or in accordance with the latest unrevoked
written direction from such party.

SECTION 13.          GOVERNING LAW.

         This Agreement shall be deemed to be executed and has been delivered
and accepted in Chicago, Illinois by signing and delivering it there. Any
dispute between the parties hereto arising out of, connected with, related to,
or incidental to this Agreement, and whether arising in contract, tort, equity,
or otherwise shall be resolved in accordance with the internal laws and not the
conflicts of law provisions of the State of Illinois.

SECTION 14.          SEVERABILITY.

         In the event that any provision of this Agreement shall be invalid or
unenforceable by a court of competent jurisdiction, such holding shall not
invalidate or render unenforceable any other provision of this Agreement.

SECTION 15.          SUCCESSORS AND ASSIGNS.

         This Agreement shall be binding upon and inure to the benefit of the
Obligors and the Lenders and their respective successors and assigns. No Obligor
may assign or transfer any of its rights or obligations hereunder without the
prior written consent of the Lenders.

SECTION 16.          PRIOR AGREEMENTS.

         This Agreement represents the entire agreement of the parties with
regard to the use of Operating Cash Collateral and Cash Collateral, and the
terms of any letters and any other documentation entered into between the
Obligors and the Lenders prior to the execution of this Agreement which relate
to the use of the Operating Cash Collateral and Cash Collateral, shall be


                                     14

replaced by the terms of this Agreement except for the provisions of the Loan
Documents which are hereby affirmed subject to the provisions hereof.

SECTION 17.          FURTHER ASSURANCES.

         Whenever and so often as reasonably requested by any Lender, each
Obligor will promptly execute and deliver or cause to be executed and delivered
all such other and further instruments, documents or assurances, and promptly do
or cause to be done all such other and further things as may be necessary and
reasonably required in order to further and more fully vest in the Lenders all
rights, interests, powers, benefits, privileges and advantages conferred or
intended to be conferred by this Agreement and the Financing Documents. Whenever
and as requested by the Lenders, each Obligor will promptly execute and deliver
or cause to be executed and delivered any instrument and/or document evidencing
the Lenders' security interest in the Collection Account, the Safekeeping
Account or the Collateral, including the Cash Collateral and Operating Cash
Collateral.

SECTION 18.          MODIFICATIONS TO OPERATING PERIOD BUDGET.

         Any modifications to the Operating Period Budget shall be effective
hereunder and binding on all Lenders just as if they all had consented in
writing thereto if each of Harris as Collateral Agent, Banks holding 66 2/3% of
the Commitments under the Credit Agreement (or, if the Commitments have
terminated, 66 2/3% or more in principal amount outstanding under the Credit
Agreement), and TIAA (the "Requisite Lenders") consent in writing thereto.

SECTION 19.          COUNTERPARTS.

         This Agreement may be executed in any number of counterparts, each
which shall be deemed an original, but all of which together shall constitute
but one instrument.

SECTION 20.          AMENDMENTS, ETC.

         No provision of this Agreement may be amended, modified, terminated or
waived, and no consent to departure by any Obligor, or the Lenders therefrom
shall, in any event, be effective unless the same shall be in writing and signed
by each Obligor and the Requisite Lenders.

SECTION 21.          SECTION CAPTIONS.

         Section captions used herein are for convenience only and are not to
effect the construction of or to be taken into consideration in interpreting
this Agreement.

SECTION 22.          THE COLLATERAL AGENT.

         In acting under or by virtue of this Agreement, Harris as Collateral
Agent shall be acting for the benefit of the Lenders (including each class of
lenders) under and pursuant to the Intercreditor Agreement and shall be entitled
to all the rights, authority, privileges and

                                       15

immunities provided in Section 7 of the Intercreditor Agreement, all of which
provisions of said Section 7 are incorporated by reference herein with the same
force and effect as if set forth herein in their entirety.

         Harris as Collateral Agent hereby agrees to promptly provide each
Lender with copies of (i) all Operating Period Budgets delivered by the Borrower
in accordance with Section 3.1 hereof, (ii) all Statements provided by the
Borrower in accordance with Section 3.2 hereof, and (iii) copies of any other
notice or information received from the Borrower, to the extent reasonably
requested by any Lender.

                                       16

         IN WITNESS WHEREOF, this Agreement has been executed by a duly
authorized representative of each of the parties to it effective as of the date
written above.


                                           ATCHISON CASTING CORPORATION
                                           AMITE FOUNDRY AND MACHINE, INC.
                                           PROSPECT FOUNDRY, INC.
                                           QUAKER ALLOY, INC.
                                           KRAMER INTERNATIONAL, INC.
                                           EMPIRE STEEL CASTINGS, INC.
                                           LAGRANGE FOUNDRY INC.
                                           THE G&C FOUNDRY COMPANY
                                           LOS ANGELES DIE CASTING INC.
                                           PENNSYLVANIA STEEL FOUNDRY &MACHINE COMPANY
                                           JAHN FOUNDRY CORP.
                                           INVERNESS CASTINGS GROUP, INC.
                                           DU-WEL PRODUCTS, INC.
                                           DAVIS CASTING AND ASSEMBLY, INC.
                                           CLAREMONT FOUNDRY, INC.

                                            By  /s/ Kevin T. McDermed
                                            Title: Vice President



                                           GILMORE INDUSTRIES, INC.

                                           By  /s/ John R. Kujawa
                                           Title: President


                                           TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA

                                           By  /s/  Roi G. Chandy
                                           Title: Director, Special Situations


                                     17

                                          HARRIS TRUST AND SAVINGS BANK, in its individual
                                          capacity as a Bank, as Agent and as Collateral Agent


                                          By: /s/ Neal Golub
                                          Title: Vice President


                                          COMMERCE BANK, N.A.


                                          By: /s/ Dennis R. Block
                                          Title:  Senior Vice President


                                          U.S. BANK NATIONAL ASSOCIATION (f/k/a Firstar Bank N.A.)
                                            (f/k/a Firstar Bank Midwest, N.A.) (f/k/a Mercantile
                                             Bank)


                                          By: /s/ Craig D. Buckley
                                          Title:  Vice President


                                          KEY BANK NATIONAL ASSOCIATION


                                          By: /s/ G. M. Adams
                                          Title: Vice Pres

                                          COMERICA BANK


                                          By: /s/ Andrew R. Craig
                                          Title: Vice President

                                           HIBERNIA NATIONAL BANK


                                           By:  /s/ Tammy Angelety
                                           Title: Vice President



                                       18

                                           NATIONAL WESTMINSTER BANK PLC
                                              Nassau Branch


                                           By: /s/ Peter Ballard
                                           Title: Head of Mid-Corporate Team
                                                  Corporate Restructuring Unit

                                              New York Branch


                                           By: /s/ Peter Ballard
                                           Title: Head of Mid-Corporate Team
                                                  Corporate Restructuring Unit

                                           WELLS FARGO BANK, NATIONAL ASSOCIATION
                                             (successor by merger to Norwest
                                              Bank Minnesota, N.A.)


                                           By: /s/ Calvin R. Emerson
                                           Title: Vice President


                                       19

EX-99.1

NEWS RELEASE
- --------------------------------------------------------------------------------
                                                       CONTACT: Kevin McDermed
                                                       913 367 2121
                                                       NYSE: FDY

                     ATCHISON CASTING CORPORATION COMPLETES
                          EXTENSION OF CREDIT FACILITY

         Atchison, Kansas - December 20, 2001 - Atchison Casting Corporation
(NYSE:"FDY") today announced that it has entered into an amendment and extension
of its North American revolving credit facility with its senior lenders until
June 30, 2002. The Company had previously entered a Forbearance Agreement with
its lenders, which was set to expire this week.

          The Twelfth Amendment and Forbearance Agreement consists of a $75.5
million revolving credit facility, decreasing to $72.5 million on January 31,
2002 and to $70.5 million on March 31, 2002. Asset sales and tax refunds will be
used to reduce indebtedness. Secured by substantially all of the Company's North
American assets, loans under this credit facility will bear interest at prime
plus 2.0%. A new covenant regarding operating cash flow (minimum cumulative
earnings before interest, taxes, amortization and depreciation) has also been
added.

         "This extension will alleviate the uncertainty felt by some of our
suppliers, and allow management to focus more on operations," said Hugh H.
Aiken, CEO.

         Previously the Company announced that its U.K. subsidiary, Atchison
Casting UK Limited ("ACUK"), entered a new, three year, facility of up to 25
million British pounds (approximately $35 million U.S.), subject to certain
eligibility calculations, with Burdale Financial Limited, an affiliate of
Congress Financial Corporation. ACUK is the parent of Sheffield Forgemasters
Group Limited, the parent company of the Company's UK operations.

         ACC produces iron, steel and non-ferrous castings for a wide variety of
equipment, capital goods and consumer markets.

         This press release contains forward-looking statements that involve
risks and uncertainties. Such statements include the Company's expectations as
to future performance. Among the factors that could cause actual results to
differ materially from the forward looking statements are the following: costs
of closing foundries, success in selling Jahn Foundry and Los Angeles Die
Casting, the impact that terrorist activities on and after September 11, 2001
and any related military responses may have on the markets served by the
Company, business conditions and the state of the general economy, particularly
the capital goods industry, the strength of the U.S. dollar, British pound
sterling and the Euro, interest rates, the Company's ability to renegotiate or
refinance its lending arrangements, utility rates, the availability of labor,
the successful conclusion of union




                          ATCHISON CASTING CORPORATION
      400 SOUTH FOURTH STREET o P.O. BOX 188 o ATCHISON, KANSAS 66002-0188
                      o (913) 367-2121 o FAX (913) 367-2155

contract negotiations, the results of any litigation arising out of the accident
at Jahn Foundry, results of any litigation or regulatory proceedings arising
from the accounting irregularities at the Pennsylvania Foundry Group, the
competitive environment in the casting industry and changes in laws and
regulations that govern the Company's business, particularly environmental
regulations.















                          ATCHISON CASTING CORPORATION
      400 SOUTH FOURTH STREET o P.O. BOX 188 o ATCHISON, KANSAS 66002-0188
                     o (913) 367-2121 o FAX (913) 367-2155