<PAGE>
<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 1O-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 1996
Commission File Number 1-10772
FRUEHAUF TRAILER CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 38-2863240
- - ----------------------- ----------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
111 Monument Circle, Suite 3200, Indianapolis, Indiana 46204
- - ------------------------------------------------------------
(Address of principal executive offices)
(317) 630-3000
-------------------------------
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO
----- ------
Number of outstanding shares of common stock: 39,212,454 as
of May 14, 1996.
<PAGE>
<PAGE> 2
INDEX
FRUEHAUF TRAILER CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION Page No.
--------------------- --------
Item 1 Condensed Consolidated Financial Statements
Condensed Consolidated Statement of Operations -
Three months ended March 31, 1996 and 1995. . . 3
Condensed Consolidated Balance Sheet -
March 31, 1996 and December 31, 1995 . . . . . 4
Condensed Consolidated Statement of Cash Flows -
Three months ended March 31, 1996 and 1995. . . 6
Notes to Condensed Consolidated
Financial Statements . . . . . . . . . . . . . . 7
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . 14
PART II - OTHER INFORMATION
-----------------
Item 1 Legal Proceedings. . . . . . . . . . . . . . . 23
Item 3 Defaults Upon Senior Securities. . . . . . . . 23
Item 6 Exhibits and Reports on Form 8-K . . . . . . . 24
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . 24
- - ----------
<PAGE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
FRUEHAUF TRAILER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share amounts, unaudited)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
------------------
1996 1995
---- ----
<S> <C> <C>
Net sales. . . . . . . . . . . . . . . . . $ 90,306 $111,702
Cost of goods sold . . . . . . . . . . . . 79,601 97,509
-------- --------
Gross margin . . . . . . . . . . . . . . 10,705 14,193
Engineering, selling and
administrative expenses . . . . . . . . 12,315 12,843
Royalty income . . . . . . . . . . . . . . (691) (462)
Nonrecurring gain . . . . . . . . . . . . (3,000) --
------- -------
Income from operations. . . . . . . . . . 2,081 1,812
Other income (expense):
Interest expense . . . . . . . . . . . . (3,851) (3,354)
Equity in net income of
affiliate companies. . . . . . . . . . -- 865
Impairment in value of promissory note . . (2,143) --
Other income (expense) - net . . . . . . (273) 1,041
------- -------
Income (loss) before income taxes. . . . . (4,186) 364
Provision for income taxes . . . . . . . . 121 105
------- -------
Net income (loss). . . . . . . . . . . . $(4,307) $ 259
======= =======
Primary and fully diluted earnings (loss)
per share. . . . . . . . . . . . . . $(.11) $ .01
===== =====
Dividends per share. . . . . . . . . . . . $ -- $ --
===== =====
Weighted average common and common equivalent
shares outstanding (See Exhibit 11). . . . 39,212 31,408
====== ======
The accompanying notes are an integral part of these statements.
/TABLE
<PAGE>
<PAGE> 4
FRUEHAUF TRAILER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
----------- ------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents . . . . . . . . . $ 5,531 $ 3,804
Net receivables . . . . . . . . . . . . . . 28,707 38,589
Net inventories (See Note B). . . . . . . . 41,149 55,162
Other current assets. . . . . . . . . . . . 4,090 841
-------- --------
Total current assets. . . . . . . . . . 79,477 98,396
Restricted cash . . . . . . . . . . . . . . 1,981 1,427
Prepaid pension cost . . . . . . . . . . . . 11,868 11,757
Investments in affiliate companies . . . . . 3,441 3,441
Assets held for sale . . . . . . . . . . . . 4,116 6,986
Unamortized deferred debt issuance costs . . 6,087 6,232
Other assets . . . . . . . . . . . . . . . . 8,000 7,255
Property, plant and equipment
Property, plant and equipment . . . . . . . 32,882 32,906
Less - accumulated depreciation . . . . . . (12,282) (11,887)
-------- --------
Net property, plant and equipment. . 20,600 21,019
-------- --------
Total assets. . . . . . . . . . . . . . $135,570 $156,513
======== ========
The accompanying notes are an integral part of these statements.
/TABLE
<PAGE>
<PAGE> 5
FRUEHAUF TRAILER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET (Continued)
(in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
----------- -----------
(unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Trade accounts payable. . . . . . . . . . . . . $ 41,598 $ 51,703
Accrued compensation and benefits . . . . . . . 7,116 7,835
Accrued warranties and products liability . . . 6,505 6,876
Accrued interest payable. . . . . . . . . . . . 4,166 1,538
Other current liabilities . . . . . . . . . . . 17,716 18,224
Current portion of long-term debt (See Note C). 26,872 33,592
-------- --------
Total current liabilities . . . . . . . . . 103,973 119,768
Long-term debt, less current
portion (See Note C). . . . . . . . . . . 67,450 67,374
Postretirement benefits. . . . . . . . . . . . . 34,112 34,353
Other long-term liabilities. . . . . . . . . . . 35,365 36,041
Contingencies and litigation (See Note E). . . .
Stockholders' deficit
Common Stock $0.01 par value-authorized 60,000
shares; issued and outstanding
39,212 shares . . . . . . . . . . . . . . . 392 392
Additional paid-in capital. . . . . . . . . . . 130,244 130,244
Common stock purchase warrants. . . . . . . . . 8,892 8,892
Accumulated deficit . . . . . . . . . . . . . . (244,542) (240,235)
Foreign currency translation adjustment. . . (316) (316)
-------- --------
Total stockholders' deficit . . . . . . . . (105,330) (101,023)
-------- --------
Total liabilities and stockholders' deficit. . . $135,570 $156,513
======== ========
The accompanying notes are an integral part of these statements.
/TABLE
<PAGE>
<PAGE> 6
FRUEHAUF TRAILER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands, unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
1996 1995
---- ----
<S> <C> <C>
Operating Activities:
Net income (loss). . . . . . . . . . . . $(4,307) $ 259
Adjustments to reconcile net income (loss)
to net cash from (used in)
operating activities:
Depreciation. . . . . . . . . . . . . . 395 389
Amortization of deferred debt issuance
costs and debt discount. . . . . . 304 184
Unremitted earnings from affiliate
companies. . . . . . . . . . . . . -- (865)
Gain on sale of excess assets . . . . (37) (923)
Impairment in value of promissory note. . 2,143 --
Increase (decrease) in cash due to
changes in operating assets and liabilities:
Net receivables . . . . . . . . . 9,882 (3,163)
Net inventories . . . . . . . . . 14,013 (33)
Trade accounts payable. . . . . . (10,611) (480)
Other assets and liabilities. . . (3,008) (7,753)
------- ------
Net cash from (used in)
operating activities. . . . 8,774 (12,385)
Investing Activities:
Capital expenditures . . . . . . . . . -- (106)
Proceeds from sale of excess assets. . 494 7,648
Decrease (increase) in restricted cash (554) 4,780
------ -------
Net cash from (used in)
investing activities. . . . . (60) 12,322
Financing Activities:
Net increase (decrease) in Revolving
Credit Facility borrowings. . . . . . (6,826) 4,991
Net repayments under notes payable . . -- (77)
Principal repayments of long-term debt (161) (8,631)
------ ------
Net cash used in financing
activities. . . . . . . . . (6,987) (3,717)
------ ------
Net increase (decrease) in cash and
cash equivalents . . . . . . . . . . . 1,727 (3,780)
Cash and cash equivalents at beginning
of period . . . . . . . . . . . . . . 3,804 7,789
------ ------
Cash and cash equivalents at end
of period . . . . . . . . . . . . . $5,531 $4,009
====== ======
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE> 7
FRUEHAUF TRAILER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, unless otherwise denoted)
March 31, 1996
NOTE A - BASIS OF PRESENTATION
The accompanying condensed consolidated financial
statements of Fruehauf Trailer Corporation and
Subsidiaries ("Fruehauf" or the "Company") as of March 31,
1996 and for the three months ended March 31, 1996 have
been prepared in accordance with generally accepted
accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally
accepted accounting principles for complete financial
statements. The accompanying consolidated balance sheet
as of December 31, 1995 has been derived from the audited
consolidated financial statements as of that date.
Certain prior year amounts have been conformed to the
current year presentation.
The preparation of financial statements in conformity with
generally accepted accounting principles requires
management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the
date of the financial statements and reported amounts of
revenues and expenses during the period. Actual results
could differ from those estimates.
In the opinion of management, all adjustments considered
necessary for a fair presentation have been made. Such
adjustments consist only of those of a normal recurring
nature, other than those adjustments discussed in Note D.
Operating results for the three months ended March 31,
1996, are not necessarily indicative of the results that
may be expected for the year ending December 31, 1996.
For further information, refer to the consolidated
financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-K for the year ended
December 31, 1995 ("1995 10-K").
<PAGE>
NOTE B - INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
March 31, December
31,
1996 1995
--------
- - -----------
<S> <C> <C>
New trailers. . . . . . . . . . . . . . . $14,378 $19,324
Used trailers . . . . . . . . . . . . . . 2,284 4,288
Finished parts. . . . . . . . . . . . . . 11,805 14,923
Work-in-process and raw materials . . . . 16,281 19,926
------- -------
Gross inventories. . . . . . . . . 44,748 58,461
FIFO inventory value over LIFO costs. . . (3,599) (3,299)
------- -------
Net inventories. . . . . . . . . . $41,149 $55,162
======= =======
</TABLE>
<PAGE> 8
NOTE C - LONG-TERM DEBT
Long-term debt consisted of the following at:
<TABLE>
<CAPTION>
March 31,
December 31,
1996
1995
--------
- - -----------
<S> <C> <C>
Senior Notes bearing interest at 14.75% due April 2002
(net of unamortized debt discount of $4,001 at
March 31, 1996 and $4,094 at December 31, 1995) . . . . $58,573 $
58,480
Revolving Credit Facility bearing interest at prime
(8.25% at March 31, 1996) plus 2.5%, due May 1997 . . . 26,517
33,343
Warrant Notes bearing interest at 15% due October 1998. . 8,692
8,692
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 540
451
-------
- - --------
Total long-term debt. . . . . . . . . . . . . . . . . 94,322
100,966
Less: Current portion of long-term debt . . . . . . . . (26,872)
(33,592)
-------
- - --------
Long-term debt, less current portion . . . . . . . . $67,450 $
67,374
=======
========
</TABLE>
Balance Sheet Classification at March 31, 1996
The Company's revolving credit facility (the "Revolving
Credit Facility") imposes certain limitations on the
Company's ability to fund trailing liabilities with
borrowings under the Revolving Credit Facility. The
Company is required to measure its borrowing availability
each month end. In order to borrow under the Revolving
Credit Facility to fund trailing liabilities the following
month, the Company is currently required to maintain a
minimum borrowing availability of $10.0 million at the
previous month end. As a result of the lower than
anticipated operating performance, borrowing availability
at March 31, 1996 was less than the required minimum of
$10.0 million. The Revolving Credit Facility lender
("Congress") has continued to fund payment by the Company
of trailing liabilities as of the date of this filing and,
the Company believes that Congress will continue to lend
to the Company subject to standard borrowing availability
provisions.
The payment of trailing liabilities represents a technical
violation of the Revolving Credit Facility constituting an
event of default thereunder. Congress has granted a
limited waiver (the "Limited Waiver") whereby, among other
things, Congress has waived any noncompliance through
August 31, 1996 and continues to lend to the Company
subject to standard borrowing availability provisions.
However, the Company will be required to meet the minimum
month end borrowing availability after the expiration of
the Limited Waiver unless additional waivers are obtained.
The provisions of the Limited Waiver provide, subject to
the satisfaction of certain conditions, that the Revolving
Credit Facility will be amended to reduce the minimum
month end borrowing availability required in order to
borrow under the Revolving Credit Facility to fund
trailing liabilities to $2.5 million. However, there can
be no assurance that the conditions precedent to the
amendment of the Revolving Credit Facility will be met and
that the Company will maintain the minimum month end
borrowing availability in the future. As such, the
Company has presented the borrowings outstanding as of
March 31, 1996 pursuant to the Revolving Credit Facility
as current in the Condensed Consolidated Balance Sheet.
Interest on the Company's senior secured notes (the
"Senior Notes") is payable semiannually on May 1 and
November 1 on each year. The Company has not as yet made
the required May 1, 1996 interest payment. The indenture
(the "Indenture") governing the issuance of the Senior
Notes provides for a 30 day grace period before such
default constitutes an Event of Default (as defined in the
Indenture). Upon the occurrence of an Event of Default,
the holders of the Senior Notes have the right to declare
the entire principal of the Senior Notes due and payable.
The Company has implemented a number of initiatives to
address its near term liquidity constraints, as well as
the ability to make the required May 1, 1996 interest
payment within the 30 day grace period. See Note F -
"Management's Action Plan and Outlook" for further
discussion. Given that the Senior Notes were not callable
by the holders at March 31, 1996, the Company has
presented the Senior Notes as noncurrent in the Condensed
Consolidated Balance Sheet at March 31, 1996. However,
there can be no assurance that the Company will be able to
make the required May 1, 1996 interest payment within the
grace period.
<PAGE>
<PAGE> 9
A default under the Revolving Credit Facility and the
Indenture, absent acceleration, does not constitute an
event of default under the Company's unsecured promissory
notes due October 1998 (the "Warrant Notes").
Accordingly, Warrant Notes have been classified as
noncurrent in the Condensed Consolidated Balance Sheet at
March 31, 1996.
Limitations on Use of Proceeds from the Sale of
Assets Held for Sale
The terms of the Indenture and Revolving Credit Facility
impose certain limitations on the use of proceeds from
asset sales. The Indenture divides all of the Company's
properties and assets into two categories: "core" assets
and "non-core" assets. The Indenture defines (i)
"non-core" assets generally as (a) the Company's equity
interests in SESR, Henred Fruehauf and Nippon Fruehauf
Company, Ltd., (b) the Company's interest in certain real
property located in Germany, and (c) all of the Company's
assets currently held for sale other than the Indianola,
Iowa facility, and (ii) "core" assets generally as any
other fixed asset or property of the Company. The first
$7.5 million of net proceeds from the sale of "non-core"
assets were required to be used to reduce borrowings under
the Revolving Credit Facility. The Indenture provides
that, subject to the right of Congress to obtain net
proceeds from the sale of "non-core" assets in certain
circumstances up to a certain maximum, 85% of the net
proceeds from the sale of "non-core" assets must be used
by the Company to make an offer to repurchase the Senior
Notes at par with the balance of any such proceeds to be
retained by the Company. The Indenture also requires that
all proceeds received upon the sale of a limited number of
other assets be used entirely to make an offer to
repurchase the Senior Notes at par. The Indenture also
provides that any net proceeds from the sale of "core"
assets must be either (i) reinvested by the Company in an
investment in capital expenditures or acquisitions of
assets not classified as current assets, in each case
substantially related to the design, manufacture or sale
of truck trailers or components or (ii) used to make an
offer to repurchase the Senior Notes at par or, in certain
circumstances to be applied to certain reserves to
permanently reduce indebtedness under the Revolving Credit
Facility.
NOTE D - MATERIAL NONRECURRING ADJUSTMENTS
On February 10, 1995, Jacksonville Shipyards, Inc., a
wholly-owned subsidiary of the Company ("Jacksonville"),
completed the sale of substantially all of its remaining
real estate in three separate transactions. With respect
to one purchaser, the proceeds from the sale of
Jacksonville's properties consisted of an interest bearing
promissory note in the principal amount of approximately
$3.8 million, secured by a mortgage on the underlying
property, and assumption of liabilities related to the
property. The purchaser recently defaulted on payments of
principal and interest on the promissory note. In an
effort to realize value from the promissory note,
Jacksonville has sought a buyer of the promissory note and
related mortgage interest. After extensive discussions
with a prospective buyer of the promissory note, the
discussions were terminated due to certain issues
unrelated to the proposed economic terms. As a result of
the termination of such discussions, on May 8, 1996
Jacksonville initiated a foreclosure proceeding on the
real property securing the promissory note. The
prospective buyer has indicated its desire to continue
discussions whereby the prospective buyer would purchase
the real property after completion of the foreclosure.
Such discussions, including the proposed economic terms,
indicate that the entire carrying amount of the promissory
note may not be recoverable. As such, Jacksonville
recorded a non-cash impairment write-down of approximately
$2.1 million in the first quarter of 1996 to reflect the
diminution in value of the promissory note and underlying
real property.
The Company recognized a gain of $3.0 million in connection
with the settlement of litigation.
<PAGE> 10
NOTE E - CONTINGENCIES AND LITIGATION
Litigation
In December 1992, a class action complaint was filed on
behalf of all persons who purchased the Company's Common
Stock during the period June 28, 1991 through December 4,
1992 against the Company, Terex, certain of the Company's
present and former officers and Directors, and certain of
the underwriters in the Company's initial public offering
(the "IPO") in the United States District Court for the
Eastern District of Michigan, Southern Division, seeking
unspecified compensatory and punitive damages. A related
action against the Company's former auditors, Deloitte &
Touche LLP ("Deloitte & Touche"), was subsequently filed
on behalf of the same persons, and the cases have been
consolidated for some purposes.
Discussions held among the Company, on behalf of itself
and certain of its present and former Directors and
officers, Terex, the underwriter defendants, and the
plaintiffs resulted in a settlement of the litigation as
to all defendants other than Deloitte & Touche. Formal
settlement documentation was approved by the District
Court on August 17, 1995. The settlement terms require
the Company, as its share of the settlement, to (a) pay
$0.1 million in cash to a settlement fund, (b) issue a
note or notes with a value of $3.3 million, and (c)
issue warrants for the purchase of 325,000 shares of
Common Stock. To the extent such warrants do not have an
agreed upon value at issuance of $0.9 million, the Company
must issue additional notes in the amount of the
difference. The Company paid $0.1 million into the
settlement fund in the second quarter of 1995 and the
Company is currently in the process of attempting to
develop the specific terms of the notes and warrants. The
Company has experienced difficulties in negotiating terms
acceptable to the Company. As such, there can be no
assurance that the Company and the plaintiffs will reach
an agreement with respect to the terms and conditions of
the notes and warrants.
The Company is involved in other various legal proceedings
which have arisen in the normal course of business. Most
of these legal proceedings involve products liability or
other various claims for which the Company is principally
self-insured. In addition, certain of the Company's
former maritime operations are one of a number of
defendants in legal proceedings wherein the plaintiffs
claim to have been damaged by exposure to asbestos fibers
and silica dust. The Company has reviewed the products
liability and other cases that have arisen in the normal
course of Company's business. The Company evaluates the
possible impact of this litigation, including the
uncertainties as to the timing of expenditures for
settlements and/or bonding on appeal, on the Company in
light of current circumstances. Although the Company has
established reserves for loss contingencies based on
available information, it is reasonably possible that such
estimates will change in the near future and the Company
is at risk of being obligated to pay substantial damages
to claimants.
The Company had litigation reserves totaling $12.2 million
at March 31, 1996. However, the Company's present
liquidity situation may make settlements in one or more of
these cases difficult. Existing or potential judgments
against the Company in one or more of these cases could
require expenditures of funds beyond the Company's
available cash resources and could, depending on their
size, result in the violation of certain covenants
contained in the Revolving Credit Facility. In the event
that judgments require the expenditure of funds beyond the
Company's available resources or result in covenant
violations that are not waived or otherwise cured, those
judgments could have a material adverse effect on the
Company. In the event that any litigation is settled by
the issuance of additional equity securities, there may be
an adverse effect on earnings per share. In December
1995, the Company reached a settlement of a product
liability suit whereby the Company will be required, as
part of the settlement, to issue 500,000 shares of Common
Stock during 1996.
The Company settled its previously announced litigation
against Deloitte & Touche on April 24, 1996, which
settlement by its terms is confidential.
Environmental Matters
The Company has facilities at numerous geographic
locations which are subject to a range of federal, state
and local environmental laws and regulations. Compliance
with these laws has, and will, require expenditures on a
continuing basis. The Company and/or Jacksonville has
been identified as a "Potentially Responsible Party" at
<PAGE> 11
several multi-party Superfund sites, and has also
identified environmental exposures at certain other sites
not designated as Superfund sites. The Company and/or
Jacksonville is currently participating in administrative
or court proceedings involving a number of sites. Many of
the proceedings are at a preliminary stage, and the total
costs of remediation, the timing and extent of remedial
actions which may be required, and the amount of the
Company's liability with respect to these sites cannot
presently be estimated. When it is possible to make
reasonable estimates of the Company's liability with
respect to such matters, a provision is recorded. When it
is possible to estimate a range of liability but
management is unable to determine the amount within the
range that is the best estimate, a provision is recorded
for the minimum amount of the range. The Company's
reserve for Superfund sites and other environmental
contingencies totaled $12.8 million at March 31, 1996 at
the sites for which the Company has been able to make
estimates. Based upon the many factors that impact the
Company's ultimate costs of remediation, it is reasonably
possible that such estimates will change in the near
future. The amount of possible loss, if any, in excess of
the amounts recorded cannot presently be estimated. If
the amount of payments required with respect to these
sites exceeds the Company's available cash resources,
there could be a material adverse effect on the Company.
Even if these liabilities do not otherwise impact the
Company, incremental environmental reserve requirements,
if any, in excess of current reserves could have a
material adverse effect on results of a particular period.
Other
In March 1994, the SEC initiated a formal investigation of
the Company. The SEC investigated whether the Company
violated certain aspects of the federal securities laws by
filing annual and quarterly reports containing financial
statements that did not comply with generally accepted
accounting principles.
The Internal Revenue Service (the "Service") is in the
early stages of examination of the Company's federal
income tax return for the period July 14, 1989 through
December 31, 1989. The Company believes that most of the
positions taken in the return are supportable based upon
the underlying facts. However, should the Service propose
any adjustments, the impact should be substantially
mitigated as the Company has significant net operating
loss carrybacks and carryforwards available. In the event
that any proposed adjustments would require expenditure of
funds beyond the Company's available cash resources, those
adjustments could have a material adverse effect on the
Company.
The United States Department of Labor ("DOL") has alleged
that the Company's former Chairman, Randolph W. Lenz;
Terex Corporation, the Company's former parent; and the
Company violated certain provisions of the Employee
Retirement Income Security Act of 1974. The Company
understands that the DOL has not brought suit at this
time; however, the DOL has set forth its settlement
requirements in this matter. Such proposed settlement
would require Lenz to enter into a Consent Judgment where
Lenz would be required to pay a sum estimated to be in
excess of $2.8 million to the Terex Corporation Master
Retirement Plan Trust and that Lenz enable the Master
Trust to reverse its acquisition of another asset by
selling it to Lenz. The Company currently does not
believe that the allegations made by the DOL will have a
material adverse effect on the Company.
NOTE F - MANAGEMENT'S ACTION PLAN AND OUTLOOK
The ability of the Company to meet ongoing debt service
requirements, including the scheduled May 1, 1996 interest
payment on the Senior Notes, to meet cash funding
requirements, including trailing liabilities, and to
otherwise satisfy its obligations to its vendors and
lenders from cash solely provided by operations has been
adversely affected by the reduced retail market demand in
the trailer industry and resultant lower than anticipated
operating performance. The Company has not as yet
made the required May 1, 1996 interest payment on
the Senior Notes. The the Indenture provides for
a 30-day grace period before such default constitutes an
Event of Default. Upon the occurrence of an Event of
Default, the holders of the Senior Notes have the right to
declare the entire principal of the Senior Notes due and
payable. In response to such liquidity constraints, the
Company: (i) has implemented a working capital reduction
program, (ii) is exploring potential alternatives to fund
the payment of trailing liabilities with the financial
assistance of a party potentially liable for certain of
the Company's trailing liabilities and (iii) is exploring
various alternatives designed to maximize the amount of
<PAGE> 12
borrowing availability that can be supported by the
current asset base. The Company has also been exploring
other alternatives to restructure the Company's capital
structure, including, but not limited to, discussions with
other trailer manufacturers as to possible consolidations
or other potential strategic investments and the sale of
non-strategic assets.
During the three months ended March 31, 1996, the Company
reduced its investment in operating working capital
(defined as net receivables and net inventories less trade
accounts payable) by approximately $13.3 million. This
reduction in operating working capital was the result of
(i) focused efforts to improve days sales outstanding of
trade receivables and inventory turns, (ii) the reduced
production levels experienced during the first quarter of
1996 and (iii) an increase in days payables outstanding.
The increase in the days payables outstanding, however,
has increased the level of trade accounts payable past
normal terms and has affected material flow to the
Company's operating locations. The Company has proposed
to its suppliers that they agree to "standstill" with
respect to past due accounts payable. The initial
supplier response has been favorable, however, there can
be no assurance that all suppliers will comply or for how
long with the Company's proposed terms.
On April 19, 1996, the Company entered into a letter
agreement (the "K-H Letter Agreement") with K-H
Corporation, a Delaware Corporation ("K-H"), pursuant to
which, among other things, K-H agreed to purchase an
initial $5.5 million interest, and agreed to purchase an
additional $1.0 million interest upon successful
completion of the Consent Solicitation (as hereinafter
defined), in the Revolving Credit Facility (the
"Funding"). As part of the K-H Letter Agreement, K-H
received five-year warrants to purchase 2,000,000 shares
of the Company's common stock for an exercise price of
$2.50 per share. The initial funding was consummated on
April 25, 1996 and resulted in an expansion of the
Company's liquidity under its Revolving Credit
Agreement. As a result of the initial funding and other
cash conservation measures, borrowing availability under
the Revolving Credit Facility totaled approximately
$13.8 million as of May 1, 1996. The K-H Letter Agreement
contemplates, subject to successful completion of the Consent
Solicitation, the incurrence of additional indebtedness
subordinated to the indebtedness represented by the Senior
Notes through future financing arrangements with K-H or
one of its affiliates and the grant by the Company of
security interests subordinate to those of the holders of
the Senior Notes to secure such arrangements. As part of
the Funding, Congress agreed to waive its right to a
portion of the proceeds of the Foreign Sale (as
hereinafter defined) subject to certain conditions,
including receipt of approval of the holders of the Senior
Notes for an amendment to the Intercreditor Agreement
described below.
In addition, the Company has entered into a non-binding
letter of intent (including related amendments, the
"Letter of Intent") with a third party for the sale (the
"Foreign Sale") of certain of the Company's foreign assets
for $20 million, subject to adjustment. The Foreign Sale
would consist of (i) the Company's interest in Societe
Europeene de Semi-Remorques, S.A., a French corporation,
(ii) certain stock or other ownership interests owned by
Fruehauf International Limited, a wholly-owned subsidiary
of the Company ("FIL"), excluding Fruehauf de Mexico, S.A.
de C.V., (iii) the Company and FIL's interests in the
trademark and technology license agreements currently
operative outside North America (including without
limitation, all of the Company's and FIL's rights to any
fees payable under any such existing agreements and any
renewals thereof that may be made in the future), and (iv)
all of the Company's interest in the trademark "Fruehauf"
outside North America. In addition, the Letter of Intent
also contemplates a put-call arrangement between the
Company and the proposed purchaser in the Foreign Sale
involving the shares of Deutsche-Fruehauf Holding
Corporation and/or related entities. The arrangement for
such shares should generate between $1.0 million and $5.0
million of additional cash proceeds to the Company. Under
the Revolving Credit Facility and the Indenture, the net
cash proceeds of the Foreign Sale would generally be
applied to certain reserves under the Revolving Credit
Facility and to repurchase Senior Notes with the Company
receiving a limited portion of the proceeds. As part of
the Consent Solicitation, the Company has proposed that
the net cash proceeds from the Foreign Sale be applied as
follows: (i) the May 1, 1996 interest payment
(approximately $4.6 million) would be paid to the holders
of the Senior Notes, (ii) one-half of the remaining net
cash proceeds would be deposited with the Trustee under
the Indenture to be held in trust for the holders of the
Senior Notes and used to make an asset sale offer to
repurchase Senior Notes and (iii) the remaining net cash
proceeds would be paid to the Company for application to
the Revolving Credit Facility but not applied to the asset
sale reserve (the "Asset Sale Reserve") or used to
increase the permanent reserve (the "Permanent Reserve")
under the Revolving Credit Facility. These proceeds would
thus increase the Company's borrowing availability under
the Revolving Credit Facility.
<PAGE> 13
In connection with the proposed Foreign Sale and the
execution of the K-H Letter Agreement, the Company and
Congress entered into the Limited Waiver, pursuant to which,
among other things, Congress has waived the provisions of
the Revolving Credit Facility to permit the Foreign Sale
to occur. One of the conditions to the effectiveness of
the Limited Waiver in relation to the Foreign Sale is that
the trustee (the "Trustee") under the Indenture enter into
an amendment to the intercreditor agreement by and among
Congress and the Trustee (the "Intercreditor Agreement"):
(i) permitting the portion of the net cash proceeds of the
Foreign Sale which are paid to Congress to be applied as
set forth in the paragraph above, (ii) providing that any
failure by Congress to apply or otherwise increase the
Asset Sale Reserve or the Permanent Reserve will not limit
Congress's ability or right to apply future net cash
proceeds from asset sales to the Asset Sale Reserve or
Permanent Reserve, and (iii) an amendment by Congress and
the Company to the Revolving Credit Facility permitting
such application and such ability.
The Limited Waiver also contemplates an additional
amendment to the Intercreditor Agreement pursuant to which
the Asset Sale Reserve would be reduced to zero and the
Permanent Reserve would be immediately increased by the
amount of the Asset Sale Reserve, currently, $1.8 million,
and the proceeds of any future asset sale - up to a
maximum of $7.5 million would be applied to the Permanent
Reserve. Such an amendment also requires the consent of
the holders of the Senior Notes.
In accordance with the terms of the Limited Waiver, the
Company also anticipates that the Revolving Credit
Facility will be amended to add a new covenant pursuant to
which the Company would agree to generate net cash
proceeds of asset sales in an amount sufficient to cause
the Permanent Reserve to be at least $6.0 million as of
December 31, 1996, and $7.5 million as of March 31, 1997.
Simultaneously with such an amendment, Congress will waive
all such past defaults of the covenant in the Revolving
Credit Facility regarding the payment of trailing
liabilities and to amend such covenant to reduce the
required month-end availability under the Revolving Credit
Facility for payment of trailing liabilities from $10.0
million to $2.5 million.
The Company mailed a consent solicitation statement (the
"Consent Solicitation Statement") to the holders of the
Senior Notes on May 3, 1996. The Consent Solicitation
Statement, accompanied with the consent form, are referred
to collectively as the Consent Solicitation. Discussions
between the Company and the holders of the Senior Notes
concerning the proposals set forth in the Consent
Solicitation Statement are continuing.
There can be no assurance that the Foreign Sale will occur
on the basis of the current proposed terms or any other
terms satisfactory to the Company, nor can there be
assurance that the holders of the Senior Notes will
consent to the nonconforming use of the net cash proceeds
of the Foreign Sale. However, should the Company complete
the Foreign Sale substantially in the current proposed
form and the holders of the Senior Notes consent in favor
of the matters discussed above, the Company's near term
liquidity would be enhanced which would give the Company
a period of time to pursue a strategic transaction. The
Company has hired Oppenheimer & Co., Inc. to assist the
Company in this process. If the foreign asset sale is not
completed on a timely basis or if the holders of the
Senior Notes do not consent to the proposals set forth in
the Consent Solicitation Statement, the Company may not
have sufficient liquidity both to make the May 1 interest
payment on the Senior Notes and operate its business. In
these circumstances, the Company (i) would not expect to
make such interest payment and would, thus, be in default
of its obligations under the Senior Notes, and (ii) may be
forced to seek the protection of the bankruptcy laws.
Although it would be the intention of management of the
Company to seek reorganization under chapter 11 of the
Bankruptcy Code, there is no certainty that a successful
reorganization would be achieved and therefore liquidation
might occur.
<PAGE>
<PAGE> 14
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company's results of operations, liquidity, resolution
of material contingencies and outlook are subject to a
number of factors, some of which are outside the control
of the Company, as are set forth on page 3 of the
Company's Annual Report on Form 10-K for the year ended
December 31, 1995.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1996 versus March 31, 1995
Sales
The Company generated sales of $90.3 million during the
first three months of 1996 compared to $111.7 million for
the corresponding 1995 period. The table below is a
comparison of net sales by product line for the three
months ended March 31, 1996 and 1995 (in millions of
dollars):
<TABLE>
<CAPTION>
March 31, March 31,
1996 1995
-------- -------
<S> <C> <C>
New trailers. . . . . . . . . . . . . $58.2 $ 71.8
Used trailers . . . . . . . . . . . . 6.0 8.8
Replacement parts and accessories . . 17.8 19.6
Service . . . . . . . . . . . . . . . 5.6 6.0
International . . . . . . . . . . . . 2.7 5.5
----- ------
$90.3 $111.7
===== ======
</TABLE>
The Company's level of new trailer sales is largely
dependent on production levels and market demand. The
Company continued to experience the effects of the
significantly reduced retail demand in the new trailer
industry throughout the first quarter of 1996 and the
related additional constraints on the Company's liquidity.
The cancellation activity experienced by the Company in
the first quarter of 1996 resulted in lower than
anticipated near term scheduled deliveries to support near
term anticipated production levels. In response to the
reduced near term scheduled deliveries, the Company
suspended its third shift at its Fort Madison, Iowa ("Fort
Madison") assembly plant effective February 26, 1996.
This action followed workforce reductions at its Scott
County, Tennessee ("Scott County") assembly plant during
the third and fourth quarters of 1995. More recently to
conserve cash and balance its production schedule, the
Company idled Fort Madison for a week. Production has
resumed at Fort Madison, however, production levels into
the second quarter of 1996 at Fort Madison, as well as
Scott County are substantially below production levels
experienced in the first half of 1995.
Domestic new trailer production for the first quarter of
1996 totaled approximately 3,000 as compared to
approximately 4,500 for the first quarter of 1995.
Domestic new trailer unit sales totaled approximately
3,300 and 4,500 for the three months ended March 31, 1996
and 1995, respectively, reflective of the reduced retail
market demand. In addition, the Company's Mexican
subsidiary revenue sources continue to be adversely
affected by the poor economic conditions in the Republic
of Mexico. The Company has also experienced increased
price sensitivity on new trailer orders during the first
quarter of 1996.
Replacement parts/service sales and used trailer sales for
the three months ended March 31, 1996 decreased by $2.2
million and $2.8 million, respectively, over the
comparable 1995 period. The decreased sales levels are
primarily attributable to the Company's lower than planned
liquidity levels and resultant impact on availability of
replacement parts and used trailers to fill orders.
The Company's Mexican trailer manufacturing subsidiary
experienced a sharp decrease in Mexican domestic sales
volume from $2.8 million for the first three months of
1995 to $1.4 million for the first three months of 1996.
<PAGE> 15
Mexican domestic sales have been adversely impacted by the
depressed Mexican economy throughout 1995 and continuing
in 1996. Management believes that the Mexican currency
devaluation and concerns as to the rate of inflation in
Mexico will likely continue to affect the level of capital
goods expenditures by Mexican business for local
consumption and, therefore, will likely continue to affect
the level of Fruehauf de Mexico's new trailer sales to
Mexican customers. In part to offset the anticipated slow
growth in Mexican domestic new trailer sales, Fruehauf de
Mexico has increased its level of production through the
assembly of certain of the United States operations' new
trailer production requirements. Export sales from the
Company's United States operations of wholesale parts and
components for the first three months of 1996 totaled $1.3
million compared to export sales of $2.7 million for the
first three months of 1995.
Gross Margin
The Company's consolidated gross margin decreased to $10.7
million for the first three months of 1996 from $14.2
million for the first three months of 1995. This decrease
is primarily the result of the decreased sales volumes, as
discussed above. The gross margin percentage for the
first three months of 1996 declined to 11.9% as compared
to 12.7% for the first three months of 1995. The
Company's gross margin percentages have deteriorated in
recent months due to reduced absorption of fixed overhead
costs resulting from lower production levels, unfavorable
labor variances and increasing price sensitivity on new
trailer orders.
The lower gross margin percentage is also attributable to
lower replacement parts gross margin percentages. The
Company's efforts to maintain and recapture market share
in the wholesale and aftermarket parts businesses have
included incentive pricing. Such incentive pricing,
together with a modest change in sales mix to lower margin
replacement parts, has resulted in lower replacement parts
gross margin percentages.
Engineering, Selling and Administrative Expenses
Engineering, selling and administrative expenses decreased
to $12.3 million for the first three months of 1996 from
$12.8 million for the three months ended March 31, 1995.
The decrease in engineering, selling and administrative
expenses is primarily attributable to cost containment
measures taken at all the Company's locations and lower
professional fees due to the completion of the restatement
during the first quarter of 1995, offset, in part, by
costs associated with the reimbursement of K-H in
connection with the assumption agreement entered into at
the time of the Fruehauf acquisition in 1989
(approximately $0.5 million).
The Company recognized a gain of $3.0 million in connection
with the settlement of litigation.
Income from Operations
Income from operations for the three months ended March
31, 1996 was $2.1 million compared to $1.8 million for the
first three months of 1995. Excluding the impact of the
$3.0 million litigation settlement, the decrease in income
from operations is primarily attributable to decreased
sales volumes and resultant lower gross margin dollars,
partially offset by the decreased engineering, selling and
administrative expenses and higher royalty income. These
conditions giving rise to the reduced operating results will
likely continue to have an adverse effect on sales, operating
results and liquidity during the second quarter of 1996.
Other Income (Expense)
Interest expense was $3.9 million for the three months
ended March 31, 1996 compared to $3.4 million for the
three months ended March 31, 1995. This increase in
interest expense is primarily attributable to the increase
in interest rate on the Company's term debt. The interest
rate on the Company's term loans under its former bank
credit facility was prime rate, as defined, plus a margin
of 2.25%. The interest rate on the term loans pursuant to
the former bank credit facility increased from 11% at
December 30, 1994 to 11.25% at May 3, 1995, at which time
they were exchanged for the Senior Notes bearing interest
at 14.75% per annum. The increase in interest expense
<PAGE> 16
resulting from the interest rate on the Senior Notes was
offset, in part, by the repurchase of $11.5 million of
Senior Notes during the fourth quarter of 1995. In
addition to the impact of the Senior Notes interest,
interest expense for the first three months of 1996 was
higher due to slightly higher average borrowings under the
Revolving Credit Facility.
The Company's share of net income of affiliate companies,
accounted for using the equity method, was $0.9 million
for the three months ended March 31, 1995. The equity in
net income of affiliate companies related solely to the
Company's South African affiliate, Henred Fruehauf. In
September 1995, the Company sold a portion of its
investment in Henred Fruehauf which reduced the Company's
ownership percentage from 25% to 5%. Upon consummation of
the sale transaction, the Company discontinued the
application of the equity method of accounting as the
Company's ownership percentage was reduced to 5%. Under
the cost method, the Company will only record income to
the extent dividends are received that are distributed
from Henred Fruehauf's accumulated earnings.
On February 10, 1995, Jacksonville completed the sale of
substantially all of its remaining real estate in three
separate transactions. With respect to one purchaser, the
proceeds from the sale of Jacksonville's properties
consisted of an interest bearing promissory note in the
principal amount of approximately $3.8 million, secured by
a mortgage on the underlying property, and assumption of
liabilities related to the property. The purchaser
recently defaulted on payments of principal and interest
on the promissory note. In an effort to realize value
from the promissory note, Jacksonville has sought a buyer
of the promissory note and related mortgage interest.
After extensive discussions with a prospective buyer of
the promissory note, the discussions were terminated due
to certain issues unrelated to the proposed economic
terms. As a result of the termination of such
discussions, on May 8, 1996 Jacksonville initiated a
foreclosure proceeding on the real property securing the
promissory note. The prospective buyer has indicated its
desire to continue discussions whereby the prospective
buyer would purchase the real property after the
completion of the foreclosure. Such discussions,
including the proposed economic terms, indicate that the
entire carrying amount of the promissory note may not be
recoverable. As such, Jacksonville recorded a non-cash
impairment write-down of approximately $2.1 million in the
first quarter of 1996 to reflect the diminution in value
of the promissory note and underlying real property.
The Company recognized a gain on the sale of excess assets
of approximately $0.1 million during the three months
ended March 31, 1996 as compared to a gain of
approximately $0.9 million during the three months ended
March 31, 1995. Other income for the three months ended
March 31, 1995 also includes other miscellaneous amounts
including finance and interest income of approximately
$0.3 million. Other expense for the three months ended
March 31, 1995 also includes a waiver and amendment fee of
approximately $0.4 million charged by the lenders under
the former bank credit facility. In addition, other
expense for the three months ended March 31, 1996 and
March 31, 1995 includes approximately $0.5 million related
to the accretion of interest on workers compensation and
postretirement obligations of closed maritime operations.
LIQUIDITY AND CAPITAL RESOURCES
Discussion of Cash Flows
The Company's cash and cash equivalents totaled $5.5
million and $3.8 million at March 31, 1996 and December
31, 1995, respectively. Cash and cash equivalents
represent funds received through the Company's cash
concentration system not yet applied to reduce borrowings
under the Revolving Credit Facility. The provisions of
the Indenture require the Company in certain circumstances
to offer to repurchase Senior Notes out of proceeds of
asset sales. Such amounts are held in escrow by the
Indenture trustee during the tender period. Also, the
Company is required to deposit certain amounts in
restricted cash accounts as security for certain
obligations. Accordingly, restricted cash of $2.0 million
and $1.4 million at March 31, 1996 and December 31, 1995,
respectively, is excluded from cash and cash equivalents
and is presented as a separate noncurrent caption on the
Condensed Consolidated Balance Sheet.
<PAGE> 17
Operating Activities
After considering changes in assets and liabilities, the
Company generated cash from operating activities of $8.8
million during the three months ended March 31, 1996 and
used cash for operating activities of $12.4 million during
the three months ended March 31, 1995. Cash generated
from operating activities during the three months ended
March 31, 1996 principally related to a reduction in
operating working capital (defined as net receivables and
net inventories less trade accounts payable) of $13.3
million, offset by operating losses and the funding of
trailing liabilities. The reduction in operating working
capital was the result of (i) focused efforts to improve
days sales outstanding of trade receivables and inventory
turns, (ii) a reduction in the run rate of the business as
a result of the reduced production levels experienced
during the first quarter of 1996 and (iii) an increase in
the days payables outstanding with the Company's trade
suppliers. See further discussion under "Management's
Action Plan and Outlook" below.
Cash used for operating activities during the three months
ended March 31, 1995 principally related to (i)
receivables ($3.2 million), (ii) recognition of deferred
revenue resulting from certain advance deposits received
in the latter part of 1994 on new trailer orders ($4.8
million), (iii) settlement of liabilities principally
funded by excess asset sale proceeds during the three
months ended March 31, 1995 ($0.9 million), including
liabilities such as property taxes and accrued interest on
the Fresno mortgage, and (iv) the funding of trailing
liabilities and the Company's restructuring efforts. The
cash used for operating activities in the first three
months of 1995 was largely funded by borrowings pursuant
to the Revolving Credit Facility and the portion of the
excess asset sale proceeds retained by the Company
pursuant to the former bank credit facility.
The Company has expended and continues to expend
substantial amounts of cash flow to service certain
liabilities related to the former maritime business,
closed facilities and certain other liabilities, as well
as restructuring activities. As of March 31, 1996, other
current liabilities, noncurrent postretirement benefits
and other long-term liabilities of approximately $17.7
million, $34.1 million and $35.4 million, respectively,
were included in the Company's Condensed Consolidated
Balance Sheet. Trailing liabilities associated with the
former maritime business and other closed facilities
include workers compensation, postretirement benefits,
environmental, products liability and certain other
litigation, the cost of maintaining closed facilities and
certain other matters are included in such captions in the
Condensed Consolidated Balance Sheet. Although the
Company believes that the majority of such anticipated
costs are nonrecurring and reserves for such loss
contingencies have been established based upon available
information, the Company will be required to expend
substantial amounts of cash over the next several years to
service such trailing liabilities. While the Company is
exploring various alternatives to minimize the funding
necessitated by such liabilities, the Company projects
that it will be required to expend approximately $6
million for the remainder of 1996 and $4 million in 1997,
with annual funding requirements continuing to decline
thereafter. The Company will be required to fund a
substantial amount of such liabilities with cash to be
generated by future operations.
As discussed previously, borrowing availability under the
Revolving Credit Facility at March 31, 1996 was less than
the required minimum of $10.0 million. Congress has
granted the Limited Waiver whereby, among other things,
Congress has waived any noncompliance through August 31,
1996 and continues to lend to the Company subject to
standard borrowing availability provisions. However, the
Company will be required to meet the minimum month end
borrowing availability after the expiration of the limited
waiver unless additional waivers are obtained. The
provisions of the Limited Waiver provide, subject to the
satisfaction of certain conditions, that the Revolving
Credit Facility will be amended to reduce the minimum
month end borrowing availability required in order to
borrow under the Revolving Credit Facility to fund
trailing liabilities to $2.5 million. However, there can
be no assurance that the conditions precedent to the
amendment of the Revolving Credit Facility will be met and
that the Company will maintain the minimum month end
borrowing availability in the future. Should Congress
prohibit the payment of trailing liabilities after the
expiration of the Limited Waiver, the Company would be
forced to discontinue payment of trailing liabilities or
commit a technical default. The Company currently has
outstanding letters of credit in the amount of $7.4
million which generally serve as collateral for certain
trailing liabilities included in the Condensed
Consolidated Balance Sheet. Should the Company
discontinue the payment of trailing liabilities,
beneficiaries of the letters of credit would have the
ability to draw on the letters of credit. Draws on
<PAGE> 18
letters of credit constitute loans under the Revolving
Credit Facility. While other trailing liabilities are not
secured by letters of credit, nonpayment of such trailing
liabilities would likely have a material adverse effect on
the Company.
Investing Activities
During the first three months of 1996, the Company sold
property, plant and equipment and other excess assets with
proceeds totaling $0.5 million. Excess assets sale
proceeds in the corresponding period of 1995 totaled $7.6
million. The Company made no capital expenditures during
the first three months of 1996 compared to capital
expenditures of $0.1 million during the first three months
of 1995.
Financing Activities
The Company had net repayments under the Revolving Credit
Facility of approximately $6.8 million during the three
months ended March 31, 1996 and net borrowings of $5.0
million during the three months ended March 31, 1995.
Outstanding borrowings pursuant to the Revolving Credit
Facility totaled $26.5 million at March 31, 1996.
The Company repaid term debt pursuant to the former bank
credit facility of approximately $4.7 million during the
three months ended March 31, 1995. The majority of the
term debt payments were funded from restricted cash
balances at December 31, 1994.
The Company sold its former Fresno, California facility
during the first quarter of 1995 and extinguished the
outstanding principal balance of approximately $3.5
million of the Fresno mortgage with a portion of the
proceeds. The Company's short-term notes payable related
solely to the Company's Mexican subsidiary. The
short-term notes payable were retired in January 1995.
Non-Cash Transactions
In February 1996, the Company completed the sale of its
former Kearny, New Jersey branch. Consideration consisted
of $0.3 million in cash and a five-year interest bearing
promissory note in the amount of $2.4 million. This sale
resulted in no gain on disposition.
In February 1995, Jacksonville completed the sale of
substantially all of its remaining real estate in three
separate transactions. Proceeds from Jacksonville's sale
of its properties were approximately $7.5 million
consisting of cash of $1.6 million, an interest bearing
promissory note from one of the purchasers in the
principal amount of approximately $3.8 million and
assumption of liabilities related to the properties of
approximately $2.1 million.
Management's Action Plan and Outlook
The ability of the Company to meet ongoing debt service
requirements, including the scheduled May 1, 1996 interest
payment on the Senior Notes, to meet cash funding
requirements, including trailing liabilities, and to
otherwise satisfy its obligations to its vendors and
lenders from cash solely provided by operations has been
adversely affected by the reduced retail market demand in
the trailer industry and resultant lower than anticipated
operating performance. The Company has not as yet made
the required May 1, 1996 interest payment on the Senior
Notes. The Indenture provides for a 30-day grace period
before such default constitutes an Event of Default. Upon
the occurrence of an Event of Default, the holders of the
Senior Notes have the right to declare the entire
principal of the Senior Notes due and payable. In
response to such liquidity constraints, the Company: (i)
has implemented a working capital reduction program, (ii)
is exploring potential alternatives to fund the payment of
trailing liabilities with the financial assistance of a
party potentially liable for certain of the Company's
trailing liabilities and (iii) is exploring various
alternatives designed to maximize the amount of borrowing
availability that can be supported by the current asset
base. The Company has also been exploring other
alternatives to restructure the Company's capital
structure, including, but not limited to, discussions with
other trailer manufacturers as to possible consolidations
or other potential strategic investments and the sale of
non-strategic assets.
<PAGE> 19
During the three months ended March 31, 1996, the Company
reduced its investment in operating working capital
(defined as net receivables and net inventories less trade
accounts payable) by approximately $13.3 million. This
reduction in operating working capital was the result of
(i) focused efforts to improve days sales outstanding of
trade receivables and inventory turns, (ii) the reduced
production levels experienced during the first quarter of
1996 and (iii) an increase in days payables outstanding.
The increase in the days payables outstanding, however,
has increased the level of trade accounts payable past
normal terms and has affected material flow to the
Company's operating locations. The Company has proposed
to its suppliers that they agree to "standstill" with
respect to past due accounts payable. The initial
supplier response has been favorable, however, there can
be no assurance that all suppliers will comply or for how
long with the Company's proposed terms.
On April 19, 1996, the Company entered into the K-H Letter
Agreement, pursuant to which, among other things, K-H
agreed to purchase an initial $5.5 million interest, and
agreed to purchase an additional $1.0 million interest
upon successful completion of the Consent Solicitation, in
the Revolving Credit Facility. As part of the K-H Letter
Agreement, K-H received five-year warrants to purchase
2,000,000 shares of the Company's common stock for an
exercise price of $2.50 per share. The initial funding
was consummated on April 25, 1996 and resulted in an
expansion of the Company's liquidity under its Revolving
Credit Facility. As a result of the initial funding and
other cash conservation measures, borrowing availability
under the Revolving Credit Facility totaled approximately
$13.8 million as of May 1, 1996. The K-H Letter Agreement
contemplates, subject to successful completion of the Consent
Solicitation, the incurrence of additional indebtedness
subordinated to the indebtedness represented by the Senior
Notes through future financing arrangements with K-H or
one of its affiliates and the grant of by the Company of
security interests subordinate to those of the holders
of the Senior Notes to secure such arrangements. The
purpose of any such arrangements would be to assist in
resolving certain of the Company's trailing liabilities.
As part of the Funding, Congress agreed to waive its right
to a portion of the proceeds of the Foreign Sale subject
to certain conditions, including receipt of approval of
the holders of the Senior Notes for an amendment to the
Intercreditor Agreement described below.
In addition, the Company has entered into the Letter of
Intent with a third party for the Foreign Sale for $20
million, subject to adjustment. The Foreign Sale would
consist of (i) the Company's interest in Societe Europeene
de Semi-Remorques, S.A., a French corporation, (ii)
certain stock or other ownership interests owned by FIL,
excluding Fruehauf de Mexico, S.A. de C.V., (iii) the
Company and FIL's interests in the trademark and
technology license agreements currently operative outside
North America (including without limitation, all of the
Company's and FIL's rights to any fees payable under any
such existing agreements and any renewals thereof that may
be made in the future), and (iv) all of the Company's
interest in the trademark "Fruehauf" outside North
America. In addition, the Letter of Intent also
contemplates a put-call arrangement between the Company
and the proposed purchaser in the Foreign Sale involving
the shares of Deutsche-Fruehauf Holding Corporation and/or
related entities. The arrangement for such shares should
generate between $1.0 million and $5.0 million of
additional cash proceeds to the Company. Under the
Revolving Credit Facility and the Indenture, the net cash
proceeds of the Foreign Sale would generally be applied to
certain reserves under the Revolving Credit Facility and
to repurchase Senior Notes with the Company receiving a
limited portion of the proceeds. As part of the Consent
Solicitation, the Company has proposed that the net cash
proceeds from the Foreign Sale be applied as follows: (i)
the May 1, 1996 interest payment (approximately $4.6
million) would be paid to the holders of the Senior Notes,
(ii) one-half of the remaining net cash proceeds would be
deposited with the Trustee under the Indenture to be held
in trust for the holders of the Senior Notes and used to
make an asset sale offer to repurchase Senior Notes and
(iii) the remaining net cash proceeds would be paid to the
Company for application to the Revolving Credit Facility
but not applied to the Asset Sale Reserve or used to
increase the Permanent Reserve under the Revolving Credit
Facility. These proceeds would thus increase the
Company's borrowing availability under the Revolving
Credit Facility.
In connection with the proposed Foreign Sale and the
execution of the K-H Letter Agreement, the Company and
Congress entered the Limited Waiver, pursuant to which,
among other things, Congress has waived the provisions of
the Revolving Credit Facility to permit the Foreign Sale
to occur. One of the conditions to the effectiveness of
the Limited Waiver in relation to the Foreign Sale is that
the Trustee under the Indenture enter into an amendment to
the Intercreditor Agreement: (i) permitting the portion
of the net cash proceeds of the Foreign Sale which are
paid to Congress to be applied as set forth in the
paragraph above, (ii) providing that any failure by
Congress to apply or otherwise increase the Asset Sale
Reserve or the Permanent Reserve will not limit Congress's
ability or right to apply future net cash proceeds from
asset sales to the Asset Sale Reserve or Permanent
Reserve, and (iii) an amendment by Congress and the
<PAGE> 20
Company to the Revolving Credit Facility permitting such
application and such ability.
The Limited Waiver also contemplates an additional
amendment to the Intercreditor Agreement pursuant to which
the Asset Sale Reserve would be reduced to zero and the
Permanent Reserve would be immediately increased by the
amount of the Asset Sale Reserve, currently, $1.8 million,
and the proceeds of any future asset sale - up to a
maximum of $7.5 million would be applied to the Permanent
Reserve. Such an amendment also requires the consent of
the holders of the Senior Notes.
In accordance with the terms of the Limited Waiver, the
Company also anticipates that the Revolving Credit
Facility will be amended to add a new covenant pursuant to
which the Company would agree to generate net cash
proceeds of asset sales in an amount sufficient to cause
the Permanent Reserve to be at least $6.0 million as of
December 31, 1996, and $7.5 million as of March 31, 1997.
Simultaneously with such an amendment, Congress will waive
all such past defaults of the covenant in the Revolving
Credit Facility regarding the payment of trailing
liabilities and to amend such covenant to reduce the
required month-end availability under the Revolving Credit
Facility for payment of trailing liabilities from $10.0
million to $2.5 million.
The Company mailed the Consent Solicitation Statement to
the holders of the Senior Notes on May 3, 1996.
Discussions between the Company and the holders of the
Senior Notes concerning the proposals set forth in the
Consent Solicitation Statement are continuing.
There can be no assurance that the Foreign Sale will occur
on the basis of the current proposed terms or any other
terms satisfactory to the Company, nor can there be
assurance that the holders of the Senior Notes will
consent to the nonconforming use of the net cash proceeds
of the Foreign Sale. However, should the Company complete
the Foreign Sale substantially in the current proposed
form and the holders of the Senior Notes consent in favor
of the matters discussed above, the Company's near term
liquidity would be enhanced which would give the Company
a period of time to pursue a strategic transaction. The
Company has hired Oppenheimer & Co., Inc. to assist the
Company in this process. If the foreign asset sale is not
completed on a timely basis or if the holders of the
Senior Notes do not consent to the proposals set forth in
the Consent Solicitation Statement, the Company may not
have sufficient liquidity both to make the May 1 interest
payment on the Senior Notes and operate its business. In
these circumstances, the Company (i) would not expect to
make such interest payment and would, thus, be in default
of its obligations under the Senior Notes, and (ii) may
be forced to seek the protection of the bankruptcy laws.
Although it would be the intention of management of the
Company to seek reorganization under chapter 11 of the
Bankruptcy Code, there is no certainty that a successful
reorganization would be achieved and therefore liquidation
might occur.
STATUS OF MATERIAL CONTINGENCIES
Litigation
In December 1992, a class action complaint was filed on
behalf of all persons who purchased the Company's Common
Stock during the period June 28, 1991 through December 4,
1992 against the Company, Terex, certain of the Company's
present and former officers and Directors, and certain of
the underwriters of the IPO in the United States District
Court for the Eastern District of Michigan, Southern
Division, seeking unspecified compensatory and punitive
damages. A related action against the Company's former
auditors, Deloitte & Touche, was subsequently filed on
behalf of the same persons, and the cases have been
consolidated for some purposes.
Discussions held among the Company, on behalf of itself
and certain of its present and former Directors and
officers, Terex, the underwriter defendants, and the
plaintiffs resulted in a settlement of the litigation as
to all defendants other than Deloitte & Touche. Formal
settlement documentation was approved by the District
Court on August 17, 1995. The settlement terms require
the Company, as its share of the settlement, to (a) pay
$0.1 million in cash to a settlement fund, (b) issue a
note or notes with a value of $3.3 million, and (c)
issue warrants for the purchase of 325,000 shares of
<PAGE> 21
Common Stock. To the extent such warrants do not have an
agreed upon value at issuance of $0.9 million, the Company
must issue additional notes in the amount of the
difference. The Company paid $0.1 million into the
settlement fund in the second quarter of 1995 and the
Company is currently in the process of attempting to
develop the specific terms of the notes and warrants. The
Company has experienced difficulties in negotiating terms
acceptable to the Company. As such, there can be no
assurance that the Company and the plaintiffs will reach
an agreement with respect to the terms and conditions of
the notes and warrants.
The Company is involved in other various legal proceedings
which have arisen in the normal course of business. Most
of these legal proceedings involve products liability or
other various claims for which the Company is principally
self-insured. In addition, certain of the Company's
former maritime operations are one of a number of
defendants in legal proceedings wherein the plaintiffs
claim to have been damaged by exposure to asbestos fibers
and silica dust. The Company has reviewed the products
liability and other cases that have arisen in the normal
course of the Company's business. The Company evaluates
the possible impact of this litigation, including the
uncertainties as to the timing of expenditures for
settlements and/or bonding on appeal, on the Company in
light of current circumstances. Although the Company has
established reserves for loss contingencies based on
available information, it is reasonably possible that such
estimates will change in the near future and the Company
is at risk of being obligated to pay substantial damages
to claimants.
The Company had litigation reserves totalling $12.2
million at March 31, 1996. However, the Company's present
liquidity situation may make settlements in one or more of
these cases difficult. Existing or potential judgments
against the Company in one or more of these cases could
require expenditures of funds beyond the Company's
available cash resources and could, depending on their
size, result in the violation of certain covenants
contained in the Revolving Credit Facility. In the event
that judgments require the expenditure of funds beyond the
Company's available resources or result in covenant
violations that are not waived or otherwise cured, those
judgments could have a material adverse effect on the
Company. In the event that any litigation is settled by
the issuance of additional equity securities, there may be
an adverse effect on earnings per share. In December
1995, the Company reached a settlement of a product
liability suit whereby the Company will be required, as
part of the settlement, to issue 500,000 shares of Common
Stock during 1996.
Environmental Matters
The Company has facilities at numerous geographic
locations, which are subject to a range of federal, state
and local environmental laws and regulations. Compliance
with these laws has, and will, require expenditures on a
continuing basis. The Company and/or Jacksonville has
been identified as a "Potentially Responsible Party" at
several multi-party Superfund sites, and has also
identified environmental exposures at certain other sites
not designated as Superfund sites. The Company and/or
Jacksonville is currently participating in administrative
or court proceedings involving a number of sites. Many of
the proceedings are at a preliminary stage, and the total
costs of remediation, the timing and extent of remedial
actions which may be required, and the amount of the
Company's liability with respect to these sites cannot
presently be estimated. When it is possible to make
reasonable estimates of the Company's liability with
respect to such matters, a provision is recorded. When it
is possible to estimate a range of liability but
management is unable to determine the amount within the
range that is the best estimate, a provision is recorded
for the minimum amount of the range. The Company's
reserve for Superfund sites and other environmental
contingencies totaled $12.8 million at March 31, 1996
relating to sites for which the Company has been able to
make estimates. Based upon the many factors that impact
the Company's ultimate costs of remediation, it is
reasonably possible that such estimates will change in the
near future. The amount of possible loss, if any, in
excess of the amounts recorded cannot presently be
estimated. If the amount of payments required with
respect to these sites exceeds the Company's available
cash resources, there could be a material adverse effect
on the Company. Even if these liabilities do not
otherwise impact the Company, incremental environmental
reserve requirements, if any, in excess of current
reserves could have a material adverse effect on results
of a particular period.
<PAGE> 22
Other
In March 1994, the SEC initiated a formal investigation of
the Company. The SEC investigated whether the Company
violated certain aspects of the federal securities laws by
filing annual and quarterly reports containing financial
statements that did not comply with generally accepted
accounting principles.
The Service is in the early stages of examination of the
Company's federal income tax return for the period July
14, 1989 through December 31, 1989. The Company believes
that most of the positions taken in the return are
supportable based upon the underlying facts. However,
should the Service propose any adjustments, the impact
should be substantially mitigated as the Company has
significant net operating loss carrybacks and
carryforwards available. In the event that any proposed
adjustments would require expenditure of funds beyond the
Company's available cash resources, those adjustments
could have a material adverse effect on the Company.<PAGE>
<PAGE> 23
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
Not applicable.
Item 3 - Defaults Upon Senior Securities
The Revolving Credit Facility imposes certain limitations
on the Company's ability to fund trailing liabilities with
borrowings under the Revolving Credit Facility. The
Company is required to measure its borrowing availability
each month end. In order to borrow under the Revolving
Credit Facility to fund trailing liabilities the following
month, the Company is required to maintain a minimum
borrowing availability of $10.0 million the previous month
end. As a result of the lower than anticipated operating
performance, borrowing availability at March 31, 1996 was
less than the required minimum of $10.0 million. While
Congress has continued to fund trailing liabilities as of
this date, the payment of trailing liabilities constitutes
an event of default under the Revolving Credit Facility.
Congress has granted the Limited Waiver whereby, among
other things, the lender has waived any noncompliance
through August 31, 1996 and continues to lend to the
Company subject to standard borrowing availability
provisions. The provisions of the Limited Waiver provide,
subject to the satisfaction of certain conditions, that
the Revolving Credit Facility will be amended to reduce
the minimum month end borrowing availability required in
order to borrow under the Revolving Credit Facility to
fund trailing liabilities to $2.5 million. However, there
can be no assurance that the conditions precedent to the
amendment of the Revolving Credit Facility will be met and
that the Company will maintain the minimum month end
borrowing availability in the future. However, the
Company will be required to meet the minimum month end
borrowing availability after the expiration of the limited
waiver unless additional waivers are obtained. There can
be no assurance that the Company will maintain the minimum
month end borrowing availability in the future.
Interest on the Company's Senior Notes is payable
semiannually on May 1 and November 1 on each year. The
Company has not as yet made the required May 1, 1996
interest payment. The Indenture provides for a 30-day
grace period before such default constitutes an Event of
Default (as defined in the Indenture). Upon the
occurrence of an Event of Default, the holders of the
Senior Notes have the right to declare the entire
principal of the Senior Notes due and payable. For
further discussion, see Note F - "Management's Action Plan
and Outlook" in the Condensed Consolidated Financial
Statements and Item 2 - "Management's Discussion and
Analysis of Financial Condition and Results of Operations
- - -- Liquidity and Capital Resources -- Management's Action
Plan and Outlook."
<PAGE>
<PAGE> 24
Item 6 - Exhibits and Reports on Form 8-K
(a) The following exhibits have been filed as part of
this Form 10-Q:
Exhibit
No. Exhibit
- - ----- -----------------------------------------------
4.33 Fourth Amendment, dated as of April 19, 1996, to
Accounts Financing Agreement [Security
Agreement], dated August 20, 1993, between
Congress Financial Corporation (Central) and
Fruehauf Trailer Corporation
4.34 Limited Waiver, dated as of April 19, 1996, by
and between Fruehauf Trailer Corporation and
Congress Financial Corporation (Central)
4.35 Working Capital Term Note, dated as of April 19,
1996, payable to the order of Congress
Financial Corporation (Central), in the
principal amount of $5,500,000, due May 1,
1997
4.36 Note Purchase and Assignment Agreement, dated as
of April 19, 1996, by and between Congress
Financial Corporation (Central) and K-H
Corporation
4.37 Subordination Agreement, dated as of April 25,
1996, by and between K-H Corporation and
Congress Financial Corporation (Central)
4.38 Warrant Agreement, dated as of April 25, 1996,
by and between Fruehauf Trailer Corporation
and K-H Corporation
4.39 Warrant Certificate to purchase 2,000,000 shares
of Common Stock issued by Fruehauf Trailer
Corporation to K-H Corporation
10.18 Letter Agreement, dated as of April 19, 1996, by
and between K-H Corporation and Fruehauf
Trailer Corporation
10.19 Indemnification Agreement, dated as of April 25,
1996, by and between Fruehauf Trailer
Corporation and K-H Corporation
10.20 Release Agreement, dated as of April 25, 1996,
by and between Fruehauf Trailer Corporation,
Fruehauf International Limited, Fruehauf
Corporation, M.J. Holdings, Inc., The Mercer
Co., Deutsche-Fruehauf Holding Corporation,
Fruehauf Holdings Corp., FGR, Inc.,
Jacksonville Shipyards, Inc., E.L. Devices,
Inc., Maryland Shipbuilding and Drydock
Company and K-H Corporation
11 Computation of Earnings (Loss) per Share
27 Financial Data Schedule
(b) Reports on Form 8-K
-------------------
On April 18, 1996, the Company filed a Current Report
on Form 8-K under Item 5 regarding the status of increased
borrowing availability, the potential sale of foreign
assets and an operations update.<PAGE>
<PAGE> 25
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly
authorized.
FRUEHAUF TRAILER CORPORATION
----------------------------
(Registrant)
Date: May 15, 1996 /s/ Timothy J. Wiggins
----------------------------
Timothy J. Wiggins
Executive Vice President and
Chief Financial Officer (Duly
Authorized Officer)
Date: May 15, 1996 /s/ Gregory G. Fehr
----------------------------
Gregory G. Fehr
Corporate Controller
(Principal Accounting
Officer)
FOURTH AMENDMENT TO ACCOUNTS FINANCING
AGREEMENT [SECURITY AGREEMENT]
This FOURTH AMENDMENT TO ACCOUNTS FINANCING
AGREEMENT [SECURITY AGREEMENT] (the "Fourth Amendment")
is entered into as of April 19, 1996 by and between
FRUEHAUF TRAILER CORPORATION, a Delaware corporation
("Debtor") and CONGRESS FINANCIAL CORPORATION (CENTRAL),
an Illinois corporation ("Congress").
R E C I T A L S:
WHEREAS, Debtor and Congress are parties to
that certain Accounts Financing Agreement [Security
Agreement] (the "Accounts Financing Agreement"), that
certain Inventory and Equipment Security Agreement
Supplement to Accounts Financing Agreement [Security
Agreement] (the "Security Agreement"), that certain
Rider No. 1 to Accounts Financing Agreement [Security
Agreement] and Inventory and Equipment Security
Agreement Supplement to Accounts Financing Agreement
[Security Agreement] (the "Rider") and that certain
letter regarding Inventory Loans (the "Inventory Letter
Agreement"), each dated as of August 20, 1993 (the "Loan
Date") (collectively, as amended, restated, supplemented
or otherwise modified from time to time, the "Loan
Agreement");
WHEREAS, Debtor has requested that Congress
consent to the refinancing of part of the revolving loan
facility through the use of a working capital term note
(the "Working Capital Term Note"); and
WHEREAS, in connection with the Working
Capital Term Note, Congress has required that Debtor
enter into this Fourth Amendment upon the terms and
conditions contained herein.
NOW, THEREFORE, in consideration of the
premises contained herein, and for other good and
valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereby agree
as follows:
<PAGE> 2
I. Amendments to the Accounts Financing Agreement
Section 1. Defined Terms. When used herein and in the
Loan Documents, the following terms shall have the
following meanings:
1.1 "Indenture Test Amount" at any time shall
mean the amount by which (a) the sum of: (i) 85% of the
Net Amount of Eligible Accounts, (ii) 65% of the Net
Amount of Approved Nondomestic Accounts, (iii) 70% of
the value of Eligible Inventory consisting of new and
used trailer inventory of the Debtor and its
Subsidiaries (as defined in the Indenture) and (iv) 50%
of the remaining Eligible Inventory exceeds (b) the sum
of: (i) the reserves described in Sections 2.1(b)(v),
(vi), (vii), (viii), (ix) and (x) plus (ii) the
outstanding principal balance of the Working Capital
Term Note, plus (iii) $7,500,000 minus the Maximum
Deficiency Amount (as defined in the Intercreditor
Agreement) at such time.
1.2 "Transfer Event" shall mean a sale or other
transfer of the Working Capital Term Note by Congress to
any third party.
1.3 "Term Loan Documents" shall have the meaning
ascribed to it in the Working Capital Term Note.
1.4 "Term Loan Obligations" shall have the
meaning ascribed to it in the Working Capital Term Note.
1.5 "Working Capital Term Note" shall mean that
certain promissory note dated April 19, 1996, in the
principal amount of $5,500,000 executed by Debtor under
and pursuant to the Accounts Financing Agreement, as
amended, in favor of Congress in exchange for and in
refinancing of and to repay an equivalent amount of
indebtedness outstanding under the revolving loan
facility thereunder.
1.6 "Working Capital Term Note Reserve" shall
mean $5,500,000; provided, however, that at all times
after a Transfer Event or the repayment of the Working
Capital Term Note, the Working Capital Term Note Reserve
shall immediately be reduced to $0.
<PAGE> 2
Section 2. Other Amendments. Immediately upon the
execution of this Fourth Amendment, the Loan Agreement
is further amended as follows:
2.1 Amendments to the Accounts Financing Agreement
(a) Definitions. The following
definitions are amended as follows:
(i) The definition of "Loan
Documents" is hereby amended to add the language
"including without limitation, the Term Loan Documents,
provided, however, that at all times after a Transfer
Event, the Term Loan Documents shall not constitute Loan
Documents hereunder but shall continue to be "Congress
Loan Documents" under the Intercreditor Agreement."
(ii) The definition of "Obligations"
is hereby amended to add the language "including the
Term Loan Obligations until such time as a Transfer
Event shall occur, provided, however, that at all times
after a Transfer Event, none of the Term Loan
Obligations shall constitute an Obligation hereunder but
that such Term Loan Obligations shall continue to be
"Congress Obligations" under the Intercreditor Agreement
(it being agreed and understood that (A) at all times
after a Transfer Event the Term Loan Obligations shall
not be entitled to the benefit of the liens on the
Collateral created by the Loan Documents and (B) at all
times after a Transfer Event, the Obligations shall
continue to be entitled to the benefit of the liens on
the Collateral created by the Loan Documents).
<PAGE> 3
(b) Section 2.1 of the Accounts Financing
Agreement is amended and restated to read in its
entirety as follows:
"Congress shall, in its discretion,
make loans to Debtor from time to time, at Debtor's
request, of up to an amount (the "Section 2.1 Amount")
equal to the lesser of the Indenture Test Amount at such
time or (a) the amount by which the sum of: (i) up to
eighty-five percent (85%) of the Net Amount of Eligible
Accounts; (ii) up to fifty percent (50%) of the Net
Amount of Approved Nondomestic Accounts (or such lesser
percentage thereof as you shall in your sole discretion
determine from time to time); and (iii) up to the
applicable percentages of value of Eligible Inventory
under the letter re: Inventory of even date herewith
(such sum is referred to herein as the "Borrowing Base")
exceeds (b) the following reserves: (i) $2,500,000
before the First Reduction Date (as defined in the
Intercreditor Agreement); (ii) $8,750,000 on and after
the First Reduction Date and before the Second Reduction
Date (as defined in the Intercreditor Agreement); (iii)
$11,875,000 on and after the Second Reduction Date and
before the Third Reduction Date (as defined in the
Intercreditor Agreement); (iv) $12,500,000 on and after
the Third Reduction Date; (v) an amount equal to the
aggregate amount of all outstanding Letter of Credit
Accommodations at such time; (vi) the Asset Sale Reserve
at such time; (vii) the Permanent Reserve at such time;
(viii) 120% of the aggregate amount of Accounts subject
to a security interest in favor of Associates; (ix) the
Working Capital Term Note Reserve at such time; and (x)
such other reserves as Congress may from time to time
require. In addition, Debtor shall reimburse Congress
for any and all payments made by Congress to the Trustee
pursuant to Section 4(e) of the Intercreditor Agreement
and all such payments made by Congress to the Trustee
shall constitute additional loans to Debtor pursuant to
Section 2.1 of the Accounts Financing Agreement.
Congress and Debtor hereby irrevocably agree that if the
Transfer Event does not occur on or before April 26,
1996, at Congress' option, Congress may issue an Advance
under the Loan Agreement in order to repay the Working
Capital Term Note."
<PAGE> 4
(b) Section 2.3 is hereby amended to add
the language "minus (v) the outstanding balance of the
Working Capital Term Note at such time" immediately
before the period in the last line of the first sentence
thereof.
(c) Article 2 is hereby further amended by
adding a new Section 2.6 at the end thereof as follows:
2.6 Working Capital Term Note.
The Debtor shall issue to Congress the Working Capital
Term Note in exchange for and in refinancing of and to
repay an amount outstanding under revolving loans made
pursuant to Section 2.1 of this Agreement equal to the
principal amount of the Working Capital Term Note. In
addition, Debtor shall execute and deliver the Term Loan
Documents as defined in the Working Capital Term Note.
Prior to the Transfer Event, obligations pursuant to,
under or in connection with the Working Capital Term
Note shall be an Obligation entitled to the benefits of
the liens on the Collateral created by the Loan
Documents, and, at all times after the Transfer Event,
none of the obligations pursuant to, under or in
connection with the Working Capital Term Note shall be
an Obligation hereunder (it being agreed and understood
that at all times after the Transfer Event, the
Obligations shall not be entitled to the benefit of the
liens on the Collateral created by the Loan Documents).
2.2 Amendments to Rider
(a) Section 8 of the Rider is hereby
amended by deleting the period at the end of Section
8(d) and inserting "; or" in its place and immediately
following Section 8(d) and new Section 8(e) which shall
read as follows: "upon the occurrence of any Event of
Default under the Working Capital Term Note which is not
waived by the holder thereof."
(b) Section 6 of the Rider is hereby
amended by adding new Section 6(nn) thereto, immediately
following Section 6(mm) thereof, which shall read in its
entirety as follows:
"(nn) On a daily basis, and so long as the Working
Capital Term Note is outstanding, Debtor shall provide
Congress with the current values of all Collateral and
the calculation of the Indenture Test Amount.
<PAGE> 5
Section 3. Conditions to Effectiveness of Fourth
Amendment. The effectiveness of this Fourth Amendment is
subject to the satisfaction of the following conditions
precedent:
3.1 Documents.
(a) Fourth Amendment. Debtor shall have duly
executed and delivered this Fourth Amendment.
(b) Working Capital Term Note and Other Loan
Documents. Debtor and each of the Subsidiaries shall
have executed all such documents, including without
limitation, the "Term Loan Financing Agreements" (as
defined in the Working Capital Term Note), in form and
substance satisfactory to Congress, as have been
requested by Congress.
3.2 No Default, etc. Congress shall have received an
officer's certificate from Debtor dated as of the date
hereof, certifying as to matters set forth in Sections
4.2 and 4.9 of this Fourth Amendment.
3.3 No Injunction. No law or regulation shall have
been adopted, no order, judgment or decree of any
governmental authority shall have been issued, and no
litigation shall be pending or threatened, which in the
reasonable judgment of Congress would enjoin, prohibit
or restrain, or impose or result in the imposition of
any material adverse condition upon, the execution,
delivery or performance by Debtor or any of the
Subsidiaries of the Loan Documents, the making or
repayment of the Advances or the consummation of the
transactions effected pursuant to the terms of the Loan
Documents.
3.4 Evidence of Agreement to Purchase Working Capital
Term Note. Congress shall have reached an agreement
with a purchaser, acceptable to Congress and Debtor, for
the purchase and sale of the Working Capital Term Note
on terms and conditions acceptable to Congress.
3.5 Legal Opinions. Congress shall have received a
favorable legal opinion, dated as of the date hereof, of
Jones, Day, Reavis & Pogue, counsel to Debtor and the
Subsidiaries, in form and substance satisfactory to
Congress.
3.6 Additional Matters. Congress shall have received
such other certificates, opinions, documents and
instruments relating to the obligations or the
transactions contemplated hereby and by the Loan
Documents as may have been reasonably requested by
Congress, and all corporate and other proceedings and
all other documents (including, without limitation, all
documents referred to herein and not appearing herein
and exhibits hereto) and all legal matters in connection
with the transactions contemplated hereby and by the
Loan Documents shall be reasonably satisfactory in form
and substance to Congress.
Section 4. Representations and Warranties. In order to
induce Congress to enter into this Fourth Amendment,
Debtor represents and warrants to Congress, upon the
effectiveness of this Fourth Amendment, which
representations and warranties shall survive the
execution and delivery of this Fourth Amendment, that:
<PAGE> 6
4.1 Due Incorporation; etc. Debtor and each of the
Subsidiaries is a corporation duly incorporated, validly
existing and in good standing under the laws of its
jurisdiction of incorporation, and has all requisite
authority to conduct its business in each jurisdiction
in which its business is conducted.
4.2 No Default; etc. No Default or Event of Default
has occurred and is continuing after giving effect to
this Fourth Amendment or would result from the execution
or delivery of this Fourth Amendment or the consummation
of the transactions contemplated hereby.
4.3 Corporate Power and Authority; Authorization.
Debtor has the corporate power and authority to execute,
deliver and carry out the terms and provisions of this
Fourth Amendment and the Loan Documents to which it is a
party and each Subsidiary has the corporate power and
authority to execute, deliver and carry out the terms
and provisions of each of the Loan Documents to which it
is a party and the execution and delivery by Debtor and
each of the Subsidiaries, and the performance by Debtor
and each of the Subsidiaries of its obligations
hereunder and the Loan Documents to which it is a party,
have been duly authorized by all requisite corporate
action by Debtor and each of the Subsidiaries.
4.4 Execution and Delivery. Debtor has duly executed
and delivered this Fourth Amendment. Debtor and each of
the Subsidiaries has duly executed and delivered each
Loan Document to which it is a party.
4.5 Enforceability. The Loan Agreement, as amended by
this Fourth Amendment, and each other Loan Document to
which Debtor is a party, each constitutes a legal, valid
and binding obligation of Debtor and each Loan Document
to which a Subsidiary is a party constitutes a legal
valid and binding obligation of such Subsidiary,
enforceable against Debtor and each Subsidiary, as
applicable, in accordance with its respective terms,
except as enforcement may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors' right generally,
and by general principles of equity.
4.6 No Conflicts; etc. Neither the execution, delivery
or performance by Debtor of this Fourth Amendment, nor
compliance by Debtor with the terms and provisions
hereof, nor the execution, delivery and performance by
each Subsidiary of each Loan Document to which it is a
party, nor compliance with each Subsidiary with the
terms and provisions thereof (i) will contravene any
applicable provision of any law, statute, rule,
regulation, order, writ, injunction or decree of any
court or governmental instrumentality or (ii) will
conflict or be inconsistent with, or result in any
breach of, any of the terms, covenants, conditions or
provisions of, or constitute a default under, or result
in the creation or imposition of (or the obligation to
create or impose) any Lien upon any property or assets
owned by it pursuant to the terms of any indenture,
mortgage, deed of trust, agreement or other instrument
to which the Debtor and/or a Subsidiary is a party or by
which the Debtor and/or a Subsidiary or any of their
respective property or assets is bound or to which the
Debtor and/or a Subsidiary of Debtor may be subject, or
(iii) will violate any provision of Debtor's and/or any
Subsidiary's certificate of incorporation or by-laws.
<PAGE> 7
4.7 Consents; etc. Other than the filing of mortgages
and deeds of trust and the Uniform Commercial Code
financing statements which have been executed and
delivered to Congress on or before the date of the
Fourth Amendment, no order, consent, approval, license,
authorization, or validation of, or filing, recording or
registration with or exemption by, any governmental or
public body or authority, or any subdivision thereof, is
required to authorize, or is required in connection with
the execution, delivery and performance of this Fourth
Amendment or the consummation of any of the transactions
contemplated hereby.
4.8 Foreign Subsidiaries. No foreign subsidiary has
guaranteed all or any of the obligations of Debtor.
4.9 Representations and Warranties. All of the
representations and warranties contained in the Loan
Agreement and in the other Loan Documents (other than
those which speak expressly only as of a different date)
are true and correct as of the date of this Fourth
Amendment after giving effect to this Fourth Amendment.
Section 5. Miscellaneous.
5.1 Effect; Ratification. The amendments set forth
herein are effective solely for the purposes set forth
herein and shall be limited precisely as written, and
shall not be deemed to (i) be a consent to any
amendment, waiver or modification of any other term or
condition of the Loan Agreement or of any other Loan
Document or (ii) prejudice any right or rights that
Congress may now have or may have in the future under or
in connection with the Loan Agreement or any other Loan
Document. Each reference in the Loan Agreement to "this
Agreement", "herein", "hereof" and words of like import
and each reference in the other Loan Documents to the
Loan Agreement shall mean the Loan Agreement as amended
hereby. This Fourth Amendment shall be construed in
connection with and as part of the Loan Agreement and
all terms, conditions, representations, warranties,
covenants and agreements set forth in the Loan Agreement
and each other Loan Document, except as herein amended
or waived, are hereby ratified and confirmed and shall
remain in full force and effect.
5.2 Costs and Expenses. Debtor shall pay to Congress
on demand all reasonable out-of-pocket costs, expenses,
filing fees and taxes paid or payable in connection with
the preparation, negotiation, execution, delivery,
recording, administration, collection, liquidation,
enforcement and defense of the Obligations, Congress's
rights in the Collateral, this Fourth Amendment, the
Loan Agreement, the other Loan Documents and all other
documents related hereto or thereto, including any
amendments, supplements or consents which may hereafter
be contemplated (whether or not executed) or entered
into in respect hereof and thereof, including, but not
limited to: (a) all costs and expenses of filing or
recording (including Uniform Commercial Code financing
statement filing taxes and fees, documentary taxes,
intangibles taxes and mortgage recording taxes and fees,
if applicable); (b) costs and expenses and fees for
title insurance and other insurance premiums,
environmental audits, surveys, assessments, engineering
reports and inspections, appraisal fees and search fees;
(c) costs and expenses of remitting loan proceeds,
collecting checks and other items of payment; (d)
charges, fees or expenses charged by any bank or issuer
<PAGE> 8
in connection with the Letter of Credit Accommodations;
(e) costs and expenses of preserving and protecting the
Collateral; (f) costs and expenses paid or incurred in
connection with obtaining payment of the Obligations,
enforcing the security interests and liens of Congress,
selling or otherwise realizing upon the Collateral, and
otherwise enforcing the provisions of this Fourth
Amendment, the Loan Agreement and the other Loan
Documents or defending any claims made or threatened
against Congress arising out of the transactions
contemplated hereby and thereby (including, without
limitation, preparations for and consultations
concerning any such matters); (g) all out-of-pocket
expenses and costs heretofore and from time to time
hereafter incurred by Congress during the course of
periodic field examinations of the Collateral and
Debtor's operations, plus a per diem charge at the rate
of $600 per person per day for Congress's examiners in
the field and office; and (h) the fees and disbursements
of counsel (including legal assistants) to Congress in
connection with any of the foregoing.
5.3 Certain Waivers; Release. (i) Debtor, for itself
and any successor (including any trustee or debtor in
possession in a case under the Bankruptcy Code), hereby
knowingly, voluntarily, intentionally and irrevocably
waives (to the extent permitted by applicable law) any
right which it may have upon the commencement of a case
under the Bankruptcy Code to (a) seek enforcement of the
automatic stay provided under Section 362 of the
Bankruptcy Code to prohibit Congress from exercising
such remedies as it may deem appropriate under the Loan
Documents in respect of the Collateral, (b) oppose any
motion or application brought by Congress seeking relief
from the automatic stay provided under Section 362 of
the Bankruptcy Code in respect of all or any portion of
the Collateral, (c) file any motion or application
seeking to obtain credit pursuant to Section 364(d) of
the Bankruptcy Code or (d) object to or otherwise seek
to disallow or subordinate any of the Obligations.
(ii) Although Debtor does not believe that
it has any claims against Congress, it is willing to
provide Congress with a general and total release of all
such claims in consideration of the extensions and other
benefits which Debtor will receive pursuant to this
Fourth Amendment. Accordingly, Debtor, for itself, each
of its Subsidiaries and any successor (including any
trustee or debtor in possession in a case under the
Bankruptcy Code) of Debtor or such Subsidiary, hereby
knowingly, voluntarily, intentionally and irrevocably
releases and discharges Congress and its respective
officers, directors, agents and counsel (each a
"Releasee") from any and all actions, causes of action,
suits, sums of money, accounts, reckonings, bonds,
bills, specialties, covenants, contracts, controversies,
agreements, promises, variances, trespasses, damages,
judgments, extents, executions, losses, liabilities,
costs, expenses, debts, dues, demands, obligations or
other claims of any kind whatsoever, in law, admiralty
or equity, which Debtor or any of its Subsidiaries ever
had, now have or hereafter can, shall or may have
against any Releasee for, upon or by reason of any
matter, cause or thing whatsoever from the beginning of
the world to the date of this Fourth Amendment.
5.4 Effectiveness. This Fourth Amendment shall
immediately become effective as of the date first
written above upon (i) the receipt by Congress of duly
executed counterparts of this Fourth Amendment from
Debtor and (ii) the satisfaction or written waiver of
each condition precedent contained in Section 3 hereof.
<PAGE> 9
5.5 Counterparts. This Fourth Amendment may be
executed in any number of counterparts, each such
counterpart constituting an original but all together
constitute one and the same instrument.
5.6 Severability Any provision contained in this
Fourth Amendment that is held to be inoperative,
unenforceable or invalid in any jurisdiction shall, as
to that jurisdiction, be inoperative, unenforceable or
invalid without affecting the remaining provisions of
this Fourth Amendment in that jurisdiction or the
operation, enforceability or validity of that provision
in any other jurisdiction.
5.7 GOVERNING LAW. THIS FOURTH AMENDMENT SHALL BE
GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE
WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have
executed this Fourth Amendment as of the date first
above written.
FRUEHAUF TRAILER CORPORATION
By: /s/ Timothy J. Wiggins
-----------------------
Title: Excutive Vice President
and Chief Financial Officer
CONGRESS FINANCIAL
CORPORATION (CENTRAL)
By: /s/ Thomas C. Lannon
---------------------
Title: Vice President
LIMITED WAIVER
This LIMITED WAIVER (this "Waiver") is dated
as of April 19, 1996 and is by and between Fruehauf
Trailer Corporation ("Debtor") and Congress Financial
Corporation (Central) ("Congress").
R E C I T A L S
WHEREAS, Debtor and Congress are parties to
that certain Accounts Financing Agreement [Security
Agreement], that certain Inventory and Equipment Security
Agreement Supplement to Accounts Financing Agreement
[Security Agreement], that certain Rider No. 1 to Accounts
Financing Agreement [Security Agreement] and Inventory and
Equipment Security Agreement Supplement to Accounts
Financing Agreement [Security Agreement] (the "Rider") and
that certain letter regarding Inventory Loans, each dated
as of August 20, 1993 and each as amended by that certain
First Amendment to Accounts Financing Agreement [Security
Agreement] entered into as of April 4, 1994 by and between
Debtor and Congress and that certain Second Amendment to
Accounts Financing Agreement [Security Agreement] and
Waiver entered into as of April 12, 1994 by and between
Debtor and Congress, that certain Third Amendment to
Accounts Financing Agreement [Security Agreement] entered
into as of May 1, 1995 by and between Debtor and Congress
and that certain Fourth Amendment to Accounts Financing
Agreement [Security Agreement] entered into as of the date
hereof by and between Debtor and Congress (collectively,
as amended, restated, supplemented or otherwise modified
from time to time, the "Loan Agreement;" capitalized terms
used and not defined herein shall have the meanings
assigned to them in the Loan Agreement); and
WHEREAS, the Debtor has requested that
Congress waive certain provisions of the Loan Agreement
relating to the payment of trailing liabilities.
NOW, THEREFORE, in consideration of the
foregoing and the agreements contained herein, the parties
hereto hereby agree as follows:
Section 1. Limited Waiver. Upon the payment by Debtor to
Congress of a $25,000 waiver fee (which waiver fee shall
be due and payable, and fully earned, upon execution of
this Waiver), effective as of the date hereof and until
and including, and only until and including, the earlier
of (a) the Waiver Expiration Date or (b) the time at which
the proceeds of Asset Sales (other than the Foreign Sale),
which occur on or after March 1, 1996, of Non-Core Assets
exceeds $350,000, Congress hereby waives any Event of
Default which has occurred or may occur solely as a result
of noncompliance by the Debtor with clause (i) of the
<PAGE>
<PAGE> 2
proviso in Section 6(bb)(b) of the Rider (and/or solely as
a result of the failure of the Debtor to notify Congress
of the Debtor's noncompliance with clause (i) of the
proviso in Section 6(bb)(b) of the Rider). In addition,
effective as of the date hereof and until and including,
and only until and including, August 31, 1996, Congress
hereby waives the provisions of the Loan Agreement to the
extent, and only to the extent, necessary to permit the
Foreign Sale to occur strictly in accordance with the
definition of Foreign Sale. As used herein, (i) "Waiver
Expiration Date" shall mean August 31, 1996; provided,
however, that upon the payment of a waiver fee of $10,000
(which fee shall be fully earned as of the date it is
paid) for each extension of the then current "Waiver
Expiration Date", the then current Waiver Expiration Date
shall be extended to the last day of the calendar month
immediately following the calendar month during which the
then current Waiver Expiration Date occurs (provided that
in no event shall the Waiver Expiration Date be extended
(a) beyond March 31, 1997 or (b) unless the Permanent
Reserve is at least $6,000,000 as of December 31, 1996,
beyond December 31, 1996), (ii) "Foreign Assets" shall
mean (a) all of the capital stock of, or all or
substantially all of the assets of, Fruehauf International
Limited ("FIL") and all of Debtor's equity interest in
Societe Europeane de Semi-Remorque S.A. ("SESR") but
excluding Fruehauf de Mexico and (b) certain of Debtor's
and FIL's licenses, technology fees and intellectual
property rights outside North American, and (iii) "Foreign
Sale" shall mean the sale of the Foreign Assets by Debtor
or FIL, as the case may be, to one or more purchasers in
a transaction which is completed no later than August 31,
1996 and in which (a) Debtor receives not less than
$23,000,000 in cash (before deducting fees and expenses
associated with such transaction) on account of the
Foreign Assets, (b) at least a majority of the holders of
Debtor's Noteholder Debt shall have consented to the
retention by Debtor (for application to the revolving
loans) of not less than 50% of the amount described in
clause (i) above after deduction of the fees and expenses
described in such clause even if Debtor is required to
utilize a portion of the amount so retained to fund the
scheduled May 1, 1996 interest payment in respect of the
Noteholder Debt, (c) Debtor receives, after all payments
to or for the benefit of the holders of the Noteholder
Debt and all payments for fees and expenses associated
with such transaction, not less than $7,500,000 of cash
that is used to repay the revolving loans (and remains
available to Debtor for working capital purposes and does
not increase the Asset Sale Reserve or the Permanent
Reserve) and (d) the Trustee and the Collateral Agent have
entered into an amendment to the Intercreditor Agreement
(in form and substance reasonably satisfactory to
Congress) to provide that (1) the proceeds of the sale of
the Foreign Assets which are paid to Congress shall not be
applied to, or otherwise increase, the Asset Sale Reserve
or the Permanent Reserve and such failure to apply or
otherwise use such proceeds shall not limit or otherwise
affect Congress' ability or right to require the proceeds
of other Asset Sales to be paid to Congress to be applied
to, or otherwise increase, the Asset Sale Reserve or the
Permanent Reserve in accordance with the terms of the
Intercreditor Agreement and/or the Loan Agreement and (2)
Congress may amend Section 13 and/or 14 of the Rider to
<PAGE> 3
the extent necessary to (A) allow the proceeds of the sale
of the Foreign Assets to be paid to Congress and not be
applied to, or otherwise increase, the Asset Sale Reserve
or the Permanent Reserve and (B) provide that such payment
and failure to apply, or otherwise use such proceeds, to
increase the Asset Sale Reserve or the Permanent Reserve
shall not limit or otherwise affect Congress' ability or
right to require the proceeds of other Asset Sales to be
paid to Congress to be applied to, or otherwise increase,
the Asset Sale Reserve or the Permanent Reserve in
accordance with the terms of the Intercreditor Agreement
and/or the Loan Agreement (and upon receipt of such
amendment, Congress and Debtor shall enter into the
amendment to the Loan Agreement as permitted and described
in this clause (2)).
Section 2. Limitation of Waivers.
(a) The waivers set forth in Section
1 hereof are effective for the purposes set forth herein
and shall be limited precisely as written and shall not be
deemed to (i) be a consent to any amendment, waiver or
modification of any other term or condition of any Loan
Document or (ii) otherwise prejudice any right or remedy
which Congress may now have or may have in the future
under or in connection with any Loan Document.
(b) This Waiver shall be construed in
connection with and as part of the Loan Documents and all
terms, conditions, representations, warranties, covenants
and agreements set forth in the Loan Documents, except as
herein waived, are hereby ratified and confirmed and shall
remain in full force and effect.
Section 3. Representations and Warranties. In order to
induce Congress to enter into this Waiver, the Debtor
represents and warrants to Congress, upon the
effectiveness of this Waiver, which representations and
warranties shall survive the execution and delivery of
this Waiver, that:
3.1 Due Incorporation, etc. The Debtor is
a corporation duly incorporated, validly existing and in
good standing under the laws of its jurisdiction of
incorporation, and has all requisite authority to conduct
its business in each jurisdiction in which its business is
conducted.
3.2 Corporate Power and Authority;
Authorization. The Debtor has the corporate power and
authority to execute, deliver and carry out the terms and
provisions of this Waiver and the execution and delivery
by the Debtor of this Waiver have been duly authorized by
all requisite corporate action by the Debtor.
3.3 Execution and Delivery. The Borrower
has duly executed and delivered this Waiver.
<PAGE> 4
3.4 Enforceability. This Waiver and each
other Loan Document to which Debtor is a party constitutes
the legal, valid and binding obligation of the Borrower,
enforceable against the Borrower in accordance with its
respective terms, except as enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the enforcement of creditors' right
generally, and by general principles of equity.
3.5 No Conflicts, etc. Neither the
execution, delivery or performance by the Borrower of this
Waiver, nor compliance by the Borrower with the terms and
provisions hereof, (i) will contravene any applicable
provision of any law, statute, rule, regulation, order,
writ, injunction or decree of any court or governmental
instrumentality, or (ii) will conflict or be inconsistent
with, or result in any breach of, any of the terms,
covenants, conditions or provisions of, or constitute a
default under, or result in the creation or imposition of
(or the obligation to create or impose) any Lien upon any
property or assets owned by it pursuant to the terms of
any indenture, mortgage, deed of trust, agreement or other
instrument to which it is a party or by which it or any of
its property or assets is bound or to which it may be
subject or (iii) will violate any provision of its
certificate of incorporation or by-laws.
3.6 Consents, etc. No order, consent,
approval, license, authorization, or validation of, or
filing, recording or registration with, or exemption by,
any governmental or public body or authority, or any
subdivision thereof, is required to authorize, or is
required in connection with the execution, delivery and
performance of this Waiver or the consummation of any of
the transactions contemplated hereby.
3.7 Representations and Warranties. All of
the representations and warranties contained in the Loan
Agreement and in the other Loan Documents (other than
those which speak expressly only as of a different date)
are true and correct as of the date hereof after giving
effect to this Waiver.
Section 4. Miscellaneous.
4.1 Amendment. If the Intercreditor
Application Amendment is executed and delivered by each of
the Trustee and the Collateral Agent (i) Congress and
Debtor shall enter into the Application Amendment and (ii)
Congress shall execute a limited waiver pursuant to which
Congress shall waive any and all Events of Default which
have occurred solely as a result of the noncompliance by
the Debtor with clause (i) of the proviso in Section
6(bb)(b) of the Rider (and/or solely as a result of the
failure of the Debtor to notify Congress of the Debtor
noncompliance with clause (i) of the proviso in Section 6
(bb)(b) of the Rider). In addition, on the first day of
each month to occur (i) after Congress executes and
delivers the waiver described in clause (ii) and (ii)
after August 31, 1996, if the amount of the Permanent
Reserve is less than $7,500,000, Debtor shall pay Congress
a waiver fee of $10,000 (which waiver fee shall be fully
<PAGE> 5
earned and payable as of each such first day of each such
month). As used herein, (i) "Intercreditor Application
Amendment" shall mean an amendment to the Intercreditor
Agreement pursuant to which the Intercreditor Agreement is
amended to provide that (a) the Asset Sale Reserve shall
be immediately reduced to zero and the Permanent Reserve
shall be immediately increased by the amount of the Asset
Sale Reserve immediately prior to such reduction, (b) all
Net Cash Proceeds of any Asset Sale of Collateral (1)
shall, to the extent that the sum of (A) the amount of
such proceeds plus (B) the Permanent Reserve, would not
exceed the $7,500,000, be paid to Congress for application
to the Obligations in such order as Congress in its sole
discretion shall elect (and at such time the amount of
such payment shall be credited to the Permanent Reserve
and the Permanent Reserve shall be increased by such
amount), (2) the remainder, if any, after making the
payments described in (1) above shall be paid to the
Trustee for application in accordance with the Indenture
until all Noteholder Debt has been paid in full and (3)
the remainder, if any, after making the payments described
in (1) and (2) above shall be paid to Congress for
application to the Obligations in such order as Congress
in its sole discretion shall elect, and (c) Congress may
enter into Application Amendment, and (ii) "Application
Amendment" shall mean an amendment to the Loan Agreement
which (a) amends and restates the definition of Required
Month End Availability to read Required Month End
Availability shall mean $2,500,000," (b) adds a new
covenant to the Loan Agreement pursuant to which Debtor
shall covenant and agree to generate Net Cash Proceeds of
Asset Sales in an amount sufficient to cause the Permanent
Reserve to be at least (a) $6,000,000 as of December 31,
1996 and (b) $7,500,000 as of March 31, 1997, (c) amends
Section 13 of the Rider so that Section 13 of the Rider is
substantially similar to Section 4 of the Intercreditor
Agreement (as amended by the Intercreditor Application
Amendment).
4.2 Effectiveness. This Waiver shall
immediately become effective as of the date first written
above upon receipt by Congress of duly executed coun-
terparts of this Waiver from the Debtor and Congress.
4.3 Counterparts. This Waiver may be
executed in any number of counterparts, each such
counterpart constituting an original but all together one
and the same instrument.
4.4 Severability. Any provision contained
in this Waiver which that is held to be inoperative, unen-
forceable or invalid in any jurisdiction shall, as to that
jurisdiction, be inoperative, unenforceable or invalid
without affecting the remaining provisions of this
amendment in that jurisdiction or the operation,
enforceability or validity of that provision in any other
jurisdiction.
<PAGE> 6
4.5 GOVERNING LAW. THIS WAIVER SHALL BE
GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE
WITH, THE INTERNAL LAWS OF THE STATE OF ILLINOIS.
IN WITNESS WHEREOF, the parties hereto have
executed this Waiver as of the date first above written.
FRUEHAUF TRAILER CORPORATION
By: /s/ Timothy J. Wiggins
-----------------------
Title: Executive Vice President
and Chief Executive
Officer
CONGRESS FINANCIAL
CORPORATION (CENTRAL)
By: /s/ Thomas C. Lannon
----------------------
Title: Vice President
WORKING CAPITAL TERM NOTE
April 19, 1996
FOR VALUE RECEIVED, Fruehauf Trailer Corporation
("Borrower") promises to pay to the order of Congress
Financial Corporation (Central) (together with its
successors and assigns, "Lender") the principal sum of
Five Million, Five Hundred Thousand Dollars ($5,500,000)
together with interest on the outstanding balance
thereof at the rate provided for herein on the dates and
upon the terms set forth herein.
Recitals
A. Borrower and Lender are the parties to that
certain Accounts Financing Agreement [Security
Agreement] (the "Accounts Financing Agreement"), that
certain Inventory and Equipment Security Agreement
Supplement to Accounts Financing Agreement [Security
Agreement], that certain Rider No. 1 to Accounts
Financing Agreement [Security Agreement], that certain
Inventory and Equipment Security Agreement Supplement to
Accounts Financing Agreement [Security Agreement] and
that certain letter regarding Inventory Loans, each
dated as of August 20, 1993 and each as amended by that
certain First Amendment to Accounts Financing Agreement
[Security Agreement] entered into as of April 4, 1994 by
and between Borrower and Lender, that certain Second
Amendment to Accounts Financing Agreement [Security
Agreement] and Waiver entered into as of April 12, 1994
by and between Borrower and Lender, that certain Third
Amendment to Accounts Financing Agreement [Security
Agreement] entered into as of May 1, 1995 by and between
Borrower and Lender and that certain Fourth Amendment to
Accounts Financing Agreement [Security Agreement] (the
"Fourth Amendment") entered into as of even date
herewith by and between Borrower and Lender
(collectively, as amended, restated, supplemented or
otherwise modified from time to time, the "Loan
Agreement"), and the other Loan Documents, as defined in
the Loan Agreement (all such Loan Documents, together
with the Loan Agreement, in each case as in existence
prior to the execution of this Term Note or any other
amendment executed on or after the date hereof,
collectively, the "Revolving Loan Documents").
Capitalized terms used herein and not otherwise defined
herein shall have the meanings set forth in the Loan
Agreement.
B. Lender is a party to that certain First Amended
and Restated Intercreditor Agreement (the "Intercreditor
Agreement") entered into as of May 1, 1995 by and among
Lender, IBJ Schroder Bank & Trust Company ("IBJS"), as
indenture trustee and Collateral Agent (as that term is
defined in the Intercreditor Agreement), and certain
other parties.
<PAGE> 2
C. Borrower is a party to that certain Indenture (the
"Indenture") dated as of May 1, 1995 by and between
Borrower and IBJS, as trustee.
D. Borrower has requested and Lender has agreed to
convert a portion of the revolving loans currently
outstanding pursuant to the Revolving Loan Documents to
a term loan to Borrower, with such refinancing to be
upon the terms and subject to the conditions set forth
in this Term Note.
E. The term loan to be made under this Term Note will
replace and be a refinancing of a portion of the
obligations of Borrower under the Revolving Loan
Documents, and, prior to the occurrence of a Transfer
Event, as hereinafter defined, will be entitled to the
benefits of all collateral and other security with
respect thereto.
THEREFORE, in consideration of the mutual
conditions and agreements set forth herein, and for
other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties
hereto agree as follows:
SECTION 1. DEFINITIONS
All terms used herein which are defined in Article
1 or Article 9 of the Uniform Commercial Code shall have
the meanings given therein unless otherwise defined in
this Term Note. All references to the plural herein
shall also mean the singular and to the singular shall
also mean the plural. All references to Borrower and
Lender pursuant to the definitions set forth in the
recitals hereto, or to any other person herein, shall
include their respective successors and assigns. The
words "hereof", "herein", "hereunder", "this Term Note"
and words of similar import when used in this Term Note
shall refer to this Term Note as a whole and not any
particular provision of this Term Note and as this Term
Note now exists or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced.
Any accounting term used herein unless otherwise defined
in this Term Note shall have the meaning customarily
given to such term in accordance with GAAP. For
purposes of this Term Note, the following terms shall
have the respective meanings given to them below:
1.1 "Accounts" shall have the meaning set forth
in Section 4 hereof.
1.2 "Average Book Availability" shall mean, for
any period, the arithmetic mean of the Book Availability
for each day in such period.
<PAGE> 3
1.3 "Book Availability" shall mean, at any time,
the amount, as determined by Lender and maintained on
its books and records in accordance with and pursuant to
the terms of the Loan Agreement, equal to the Section
2.1 Amount (as defined in the Fourth Amendment as in
effect on the date hereof), minus the amount of all then
outstanding and unpaid Obligations (but not including
for this purpose the then outstanding principal amount
of the Term Loan).
1.4 "Cash Flow Projections" shall mean detailed
cash flow projections for the Borrower, made in good
faith and in conformity with Borrower's existing
business practices and, to the extent applicable, GAAP,
in sufficient detail to permit the calculation of
Average Book Availability, for at least the next ninety
(90) day period.
1.4 "Collateral" shall have the meaning set
forth in Section 4 hereof.
1.5 "Equipment" shall have the meaning set forth
in Section 4 hereof.
1.6 "Event of Default" shall mean the occurrence
or existence of any event or condition described in
Section 8.1 hereof.
1.7 "Excess Availability" shall mean, as of any
Permitted Principal Reduction Assessment Date, the
lesser of (i) Book Availability on such date minus the
sum of (a) the aggregate amount of all Specified
Payables on such date; plus (b) accruals for any tax
liabilities that are or will be due and payable within
the next ninety (90) days; plus (c) accruals for any
Specified Liabilities, to the extent not included in (a)
or (b) above, that are or will be due and payable during
the next twelve (12) month period or (ii) Average Book
Availability for the ninety (90) day period ending on
such date.
1.8 "GAAP" shall mean generally accepted
accounting principles in the United States of America as
in effect from time to time as set forth in the opinions
and pronouncements of the Accounting Principles Board
and the American Institute of Certified Public
Accountants and the statements and pronouncements of the
Financial Accounting Standards Boards which are
applicable to the circumstances as of the date of
determination.
1.9 "Income Projections" shall mean detailed net
income projections for the Borrower for the next twelve
(12) month period, made in good faith and in conformity
with Borrower's existing business practices and, to the
extent applicable, GAAP.
1.10 "Inventory" shall have the meaning set forth
in Section 4 hereof.
<PAGE> 4
1.11 "Obligor" shall mean any guarantor,
endorser, acceptor, surety or other person liable on or
with respect to the Term Loan Obligations or who is the
owner of any property which is security for the Term
Loan Obligations, other than Borrower.
1.12 "Permitted Principal Reduction Assessment
Date" shall mean July 31, 1997, and each October 31,
January 31, April 30 and July 31 thereafter until such
time as the Term Loan is repaid in full.
1.13 "Permitted Principal Reduction Payment Date"
shall mean August 10, 1997 and each November 10,
February 10, May 10 and August 10 thereafter until such
time as the Term Loan is repaid in full.
1.14 "Person" or "person" shall mean any
individual, sole proprietorship, partnership,
corporation (including, without limitation, any
corporation which elects subchapter S status under the
Internal Revenue Code of 1986, as amended), business
trust, unincorporated association, joint stock
corporation, trust, joint venture or other entity or any
government or any agency or instrumentality or political
subdivision thereof.
1.15 "Prime Rate" shall mean the rate from time
to time publicly announced by CoreStates Bank, N.A., or
its successors and assigns, at its office in
Philadelphia, Pennsylvania, as its prime rate, whether
or not such announced rate is the best rate available at
such bank.
1.16 "Records" shall have the meaning set forth
in Section 4 hereof.
1.17 "Specified Liabilities" shall mean all
liabilities for taxes, assessments, royalty payments,
insurance, contractual bonus arrangements, term debt
principal amortization (other than the Term Loan) or
capital expenditures, which are or will be due and
payable by Borrower, which will require a payment of at
least One Hundred Thousand Dollars ($100,000) over the
next twelve (12) month period and which are not
reasonably expected to be funded from third party
sources.
1.18 "Specified Payables" shall mean, at any
specified date, the then outstanding and unpaid trade
payables of Borrower which are more than ten (10) days
past due as of the preceding Business Day except for any
such payables which (i) are identified to Congress
Financial Corporation (Central) and approved for
purposes of exclusion from this definition by Congress
Financial Corporation (Central) as being excluded from
"Specified Payables" (which approval shall not be
unreasonably withheld) and (ii) are either (a) not being
paid because of unresolved disputes with respect
thereto, or (b) not being paid because of agreements
with the obligee of the payable which permit the
deferral of payment.
<PAGE> 5
1.19 "Term Loan" shall have the meaning set forth
in Section 2.1 hereof.
1.20 "Term Loan Financing Agreements" shall mean,
collectively, this Term Note, any additional working
capital term note issued to Congress Financial
Corporation (Central), the proceeds of which are used to
refinance an equivalent portion of the revolving loans
made pursuant to the Revolving Loan Documents, all of
the documents identified in Exhibit "A" hereto and any
agreement, document, instrument or amendment to any of
the foregoing documents at any time hereafter which are
executed and/or delivered by Borrower or any Obligor in
favor of Lender in its capacity as holder of this Term
Note.
1.21 "Term Loan Obligations" shall mean the Term
Loan and all other obligations, liabilities and
indebtedness of every kind, nature and description owing
by Borrower to Lender and/or its affiliates pursuant to
any or all of the Term Loan Financing Agreements,
including principal, interest, charges, fees, costs and
expenses, however evidenced, whether as principal,
surety, endorser, guarantor or otherwise, whether now
existing or hereafter arising, whether arising before,
during or after the initial or any renewal term of this
Term Note or after the commencement of any case with
respect to Borrower under the United States Bankruptcy
Code or any similar statute (including, without
limitation, the payment of interest and other amounts
which would accrue and become due but for the
commencement of such case), whether direct or indirect,
absolute or contingent, joint or several, due or not
due, primary or secondary, liquidated or unliquidated,
secured or unsecured, and however acquired by Lender.
1.22 "Transfer Documents" shall mean (i) that
certain Note Purchase and Assignment Agreement, dated as
of April 19, 1996, by and between Congress Financial
Corporation (Central) and K-H Corporation (the "Note
Purchase Agreement"), (ii) that certain Subordination
Agreement, dated as of April 25, 1996, by and between
Congress Financial Corporation (Central) and K-H
Corporation (the "Subordination Agreement") and (iii)
any assignment of any or all of the Term Loan Financing
Agreements executed in connection with the Note Purchase
Agreement or the Subordination Agreement.
1.23 "Transfer Event" shall mean a sale or other
transfer of this Term Note by Congress Financial
Corporation (Central) to any third party, which shall
then become a "Lender" hereunder.
SECTION 2. CREDIT FACILITIES
<PAGE> 6
2.1 Term Loan. Subject to, and upon the terms and
conditions contained herein, Lender has on the date
first above set forth made a loan (the "Term Loan") to
Borrower in the principal amount of Five Million, Five
Hundred Thousand Dollars ($5,500,000), the proceeds of
which have been used to reduce and refinance an
equivalent portion of the revolving loans heretofore
made pursuant to the Revolving Loan Documents. Upon
repayment, the Term Loan, to the extent of such
repayment, may not be reborrowed.
2.2 Repayment of Term Loan. Except as provided in
Sections 2.3, 2.4 and 8.2 hereof, the then outstanding
principal amount of the Term Loan shall be due and
payable on May 1, 1997.
2.3 Extension of Term Loan. In the event Congress
Financial Corporation (Central) extends the term of the
Loan Agreement, then the term of the Term Loan shall be
automatically extended until the earlier of (a) May 1,
1999, and (b) the extended maturity date of the Loan
Agreement. In the event the term of the Term Loan is so
extended, Borrower shall be obligated to pay the
outstanding principal balance at such extended maturity
date and to make a principal payment to Lender in the
amount of Two Hundred Fifty Thousand Dollars ($250,000),
for application to the Term Loan (each such payment
hereinafter referred to as a "Permitted Principal
Reduction Payment"), on each Permitted Principal
Reduction Payment Date on which each of the following
conditions is met:
(i) the Excess Availability as of the
immediately preceding Permitted Principal Reduction
Assessment Date was at least Two Million, Five Hundred
Thousand Dollars ($2,500,000);
(ii) the most recently delivered Cash Flow
Projections show that, after the making of such
Permitted Principal Reduction Payment, the Borrower will
still be able to maintain an Average Book Availability
of at least Two Million, Five Hundred Thousand Dollars
($2,500,000) for the ninety (90) day period commencing
on the first day following the immediately preceding
Permitted Principal Reduction Assessment Date;
(iii) Borrower had a positive net income
for the ninety (90) day period immediately preceding
such Permitted Principal Reduction Assessment Date, as
shown in the income statement delivered by Borrower
pursuant to section 2.8 of this Term Note; and
(iv) the most recently delivered Income
Projections show that Borrower is expected to have a
positive net income for the ninety (90) day period
commencing on the first day following the immediately
preceding Permitted Principal Reduction Assessment Date.
If, on any Permitted Principal Reduction Payment Date,
any of the foregoing conditions has not been satisfied,
such Permitted Principal Reduction Payment shall not
thereafter become payable if such condition is satisfied
subsequent to such Permitted Principal Reduction Payment
Date.
<PAGE> 7
2.4 Accelerated Prepayment. The entire principal
balance of the Term Loan shall be immediately due and
payable (i) prior to the occurrence of a Transfer
Event, on the date that the revolving loan made pursuant
to the Revolving Loan Documents is terminated by
Borrower in accordance with the terms of the Revolving
Loan Documents, or (ii) if a Transfer Event does not
occur on or prior to April 26, 1996.
2.5 Interest
(a) Pre-Default Rate. Borrower shall pay to
Lender interest on the outstanding principal amount of
the Term Loan Obligations at the rate of two and
one-half percent (2%) per annum in excess of the Prime
Rate.
(b) Post-Default Rate. Borrower shall pay to
Lender interest on the outstanding principal amount of
the Term Loan Obligations, at Lender's option, without
notice, at a rate equal to two percent (2%) per annum in
excess of the pre-default rate set forth above (i)
whenever the default rate is imposed on Borrower's
outstanding Obligations pursuant to the Revolving Loan
Documents, or (ii) following the occurrence of a
Transfer Event, from the date of the occurrence of an
Event of Default hereunder, and for so long as such
Event of Default is continuing as determined by Lender.
All interest accruing hereunder on and after the date of
any Event of Default or termination or non-renewal
hereof shall be payable on demand.
( c ) Payment of Interest. Accrued interest shall
be due and payable in arrears no later than the first
day of each month during which any of the Term Loan
Obligations remain outstanding and unpaid. Interest
shall be calculated on the basis of a three hundred
sixty (360) day year and actual days elapsed. The
interest rate shall increase or decrease by an amount
equal to each increase or decrease in the Prime Rate
effective on the first day of the month after any change
in such Prime Rate is announced based on the Prime Rate
in effect on the last day of the month in which any such
change occurs. In no event shall charges constituting
interest payable by Borrower to Lender exceed the
maximum amount or the rate permitted under any
applicable law or regulation, and if any part or
provision of any of the Term Loan Financing Agreements
is in contravention of any such law or regulation, such
part or provision shall be deemed amended to conform
thereto. If any interest payment or any other amount
due and payable under any of the Term Loan Financing
Agreements cannot be paid pursuant to the terms of the
<PAGE> 8
Transfer Documents, then such interest payment or other
amount shall be deemed not to be due and payable under
such Term Loan Financing Agreement until such time as
payment thereof is permitted under the Transfer
Documents, and no Event of Default shall result from the
failure of Borrower or any Obligor to pay such interest
payment or other amount until such time as permitted
under the Transfer Documents. Interest shall accrue at
the applicable rate on any Term Loan Obligation that
cannot be paid pursuant to the preceding sentence of
this Section 2.5(c) from the date on which such Term
Loan Obligation would have first become due and payable
under such Term Loan Financing Agreement but for this
Section 2.5(c) until the date on which such Term Loan
Obligation is actually paid.
2.6 Payments. Borrower shall make all payments to
Lender on the Term Loan Obligations free and clear of,
and without deduction or withholding for or on account
of, any setoff, counterclaim, defense, duties, taxes,
levies, imposts, fees, deductions, withholding,
restrictions or conditions of any kind. If after
receipt of any payment of, or proceeds applied to the
payment of, any of the Term Loan Obligations, Lender is
required to surrender or return such payment to any
Person for any reason, then the Term Loan Obligations
intended to be satisfied by such payment shall be
reinstated and continue and this Term Note shall
continue in full force as if such payment had not been
received by Lender. Borrower shall be liable to pay to
Lender, and does indemnify and hold Lender harmless for
the amount of any payments surrendered or returned.
This Section 2.6 shall remain effective notwithstanding
any contrary action which may be taken by Lender in
reliance upon such payment. This Section 2.6 shall
survive the termination or non-renewal of this Term
Note.
2.7 Instructions on Loan Disbursement and Use of
Proceeds. Lender is authorized to make the Term Loan
upon the execution hereof and Borrower shall use the
proceeds of the Term Loan only to pay down an equivalent
portion of Borrower's obligations in connection with the
loans extended pursuant to Section 2.1 of the Loan
Agreement.
2.8 Reporting Obligations. Borrower shall deliver
to Lender quarterly, and no fewer than five (5) days
before each Permitted Principal Reduction Assessment
Date, the following (i) the Cash Flow Projections, (ii)
an income statement prepared in accordance with GAAP
reflecting the results of operations for the preceding
ninety (90) day period, and (iii) the Income
Projections.
2.9 Term Loan Subject to Intercreditor Agreement and
Transfer Documents. This Term Note and the other Term
Loan Financing Agreements are subject to the terms of
the Intercreditor Agreement and, when executed, the
Transfer Documents.
<PAGE> 9
SECTION 3. ACKNOWLEDGMENT OF SECURITY INTEREST
Borrower acknowledges that, prior to the
occurrence of a Transfer Event, the Term Loan
Obligations are included within the term "Obligations"
as such term is defined in the Revolving Loan Documents,
and that the Term Loan Obligations are therefore secured
by the liens, security interests and other security
granted in the Revolving Loan Documents and the other
collateral documents related thereto. After the
occurrence of a Transfer Event, the Term Loan
Obligations shall not be included within the term
"Obligations" as defined in the Revolving Loan Documents
(but shall continue to be "Congress Obligations" under
the Intercreditor Agreement), and shall not be secured
by the liens, security interests or other security
granted in the Revolving Loan Documents or the other
collateral documents related thereto.
SECTION 4. GRANT OF SECURITY INTEREST
In addition to the security interest acknowledged
in the preceding section, and to further secure payment
and performance of all Term Loan Obligations, Borrower
hereby grants to Lender a continuing security interest
in, a lien upon, and a right of set off against, and
hereby assigns to Lender as security (all of which shall
be applicable to any Lender holding this Term Note), the
following property and interests in property, whether
now owned or hereafter acquired or existing, and
wherever located (collectively, the "Collateral"):
All present and future (a) accounts,
contract rights, general intangibles, chattel paper,
documents, letters of credit and instruments, as such
terms are defined in the Uniform Commercial Code,
including, without limitation, all obligations for the
payment of money arising out of Borrower's sale, lease
or other disposition of goods or other property or
rendition of services (collectively, the "Accounts");
(b) moneys, securities and other property and the
proceeds thereof, now or hereafter held or received by,
or in transit to, Lender from or for Borrower, whether
for safekeeping, pledge, custody, transmission,
collection or otherwise, and all of Borrower's deposits
(general or special), balances, sums and credits with
Lender at any time existing; (c) all of Borrower's
right, title and interest, and all of Borrower's rights,
remedies, security and liens, in, to and in respect of
the Accounts and other Collateral, including, without
limitation, rights of stoppage in transit, replevin,
repossession and reclamation and other rights and
remedies of an unpaid vendor, lienor or secured party,
guaranties or other contracts of suretyship with respect
to the Accounts, deposits or other security for the
obligation of any debtor or obligor in any way obligated
on or in connection with any Account (an "Account
Debtor"), and credit and other insurance; (d) all of
Borrower's right, title and interest in, to and in
respect of all goods relating to, or which by sale have
resulted in, Accounts, including, without limitation,
all goods described in invoices, documents, contracts or
instruments with respect to, or otherwise representing
<PAGE> 10
or evidencing, any Accounts or other Collateral,
including without limitation, all returned, reclaimed or
repossessed goods; (e) all deposit accounts; (f) all
books, records, ledger cards, computer programs, and
other property and general intangibles evidencing or
relating to the Accounts and any other Collateral or any
Account Debtor, together with the file cabinets or
containers in which the foregoing are stored
(collectively, the "Records"); (g) all other general
intangibles of every kind and description, including
without limitation, trade names and trademarks, and the
goodwill of the business symbolized thereby, patents,
copyrights, licenses and Federal, State and local tax
refund claims of all kinds; (h) all of Borrower's
equipment, including, without limitation, machinery,
equipment, office equipment and supplies, computers and
related equipment, furniture, furnishings, tools,
tooling, jigs, dies, fixtures, manufacturing implements,
fork lifts, trucks, trailers, motor vehicles and other
equipment (collectively, the "Equipment"); and (i) all
proceeds of the foregoing, in any form, including,
without limitation, any claims against third parties for
loss or damage to or destruction of any or all of the
foregoing;
and
all of Borrower's inventory, including without
limitation: raw materials, work in process, parts,
components, assemblies, supplies and materials used or
consumed in Borrower's business, finished goods, and all
other inventory of whatever kind or nature, wherever
located, whether now owned or hereafter existing or
acquired by Borrower ("Inventory"), including without
limitation, all wrapping, packaging, advertising,
shipping materials, and all other goods consumed in
Borrower's business, all labels and other devices, names
or marks affixed or to be affixed thereto for purposes
of selling or of identifying the same or the seller or
manufacturer thereof and all of Borrower's right title
and interest therein and thereto; all books, records,
documents, other property and general intangibles at any
time relating to the Inventory; all goods, wares and
merchandise, finished or unfinished, held for sale or
lease or furnished or to be furnished under contracts of
service; all goods returned to or repossessed by
Borrower; and all products and proceeds of the
foregoing, in any form, including, without limitation,
insurance proceeds and any claims against third parties
for loss or damage to or destruction of any or all of
the foregoing.
The Collateral also includes all
replacements, additions, accessions, substitutions,
repairs, proceeds and products relating thereto or
therefrom, and all document ledger sheets and files of
Borrower relating thereto. Proceeds hereunder include
(i) whatever is now or hereafter received by Borrower
upon the sale, exchange, collection or other disposition
of any item of Collateral, whether such proceeds
<PAGE> 11
constitute inventory, accounts, accounts receivable,
general intangibles, instruments, securities, credits,
documents, letters of credit, chattel paper, documents
of title, warehouse receipts, leases, deposit accounts,
money, contract rights, goods or equipment; (ii) any
such items which are now or hereafter acquired by
Borrower with any proceeds of Collateral hereunder; and
(iii) any insurance now or hereafter payable by reason
of loss or damage to any item of Collateral or any
proceeds thereof.
SECTION 5. COLLATERAL COVENANTS
5.1 Inventory Covenants. (a) Borrower shall not
remove any Inventory from the locations referenced in
Section 6.3 hereof, without the prior written consent of
Lender, except for sales of Inventory in the ordinary
course of Borrower's business and except to move
Inventory directly from one location referenced in
Section 6.3 hereof to another such location; (b) upon
Lender's request, Borrower shall, at its expense, no
more than once in any twelve (12) month period, but at
any time or times as Lender may request on or after an
Event of Default, deliver or cause to be delivered to
Lender written reports or appraisals as to the Inventory
in form, scope and methodology acceptable to Lender and
by an appraiser acceptable to Lender, addressed to
Lender or upon which Lender is expressly permitted to
rely; (c) Borrower shall produce, use, store and
maintain the Inventory, with all reasonable care and
caution and in accordance with applicable standards of
any insurance and in conformity with applicable laws
(including, but not limited to, the requirements of the
Federal Fair Labor Standards Act of 1938, as amended,
and all rules, regulations and orders related thereto);
(d) Borrower assumes all responsibility and liability
arising from or relating to the production, use, sale or
other disposition of the Inventory; (e) Borrower shall
not sell Inventory to any customer on approval, or any
other basis which entitles the customer to return or may
obligate Borrower to repurchase such Inventory; (f)
Borrower shall keep the Inventory in good and marketable
condition; and (g) Borrower shall not, without prior
written notice to Lender, acquire or accept any
Inventory on consignment or approval. In addition, the
representations and warranties contained in Sections 6.5
and 6.6 of the Accounts Financing Agreement are
incorporated herein by reference.
5.2 Equipment Covenants. (a) Borrower shall, at
its expense, at any time or times as Lender may request
on or after an Event of Default, deliver or cause to be
delivered to Lender written reports or appraisals as to
the Equipment in form, scope and methodology acceptable
to Lender and by an appraiser acceptable to Lender; (b)
Borrower shall keep the Equipment in good order, repair,
running and marketable condition (ordinary wear and tear
excepted); (c) Borrower shall use the Equipment, with
<PAGE> 12
all reasonable care and caution and in accordance with
applicable standards of any insurance and in conformity
with all applicable laws; (d) the Equipment is and shall
be used in Borrower's business and not for personal,
family, household or farming use; (e) Borrower shall not
remove any Equipment from the locations referenced in
Section 6.3 hereof, except to the extent necessary to
have any Equipment repaired or maintained in the
ordinary course of the business of Borrower or to move
Equipment directly from one location referenced in
Section 6.3 hereof to another such location and except
for the movement of motor vehicles used by or for the
benefit of Borrower in the ordinary course of business;
(f) the Equipment is now and shall remain personal
property and Borrower shall not permit any of the
Equipment to be or become a part of or affixed to real
property; and (g) Borrower assumes all responsibility
and liability arising from the use of the Equipment.
5.3 Power of Attorney. Borrower hereby irrevocably
designates and appoints Lender (and all persons
designated by Lender) as Borrower's true and lawful
attorney-in-fact, and authorizes Lender, in Borrower's
or Lender's name, to: (a) at any time an Event of
Default or event which with notice or passage of time or
both would constitute an Event of Default exists (i)
demand payment of Accounts; (ii) enforce payment of
Accounts by legal proceedings or otherwise; (iii)
exercise all of Borrower's rights and remedies to
collect any Account or other Collateral; (iv) sell or
assign any Account or other Collateral upon such terms,
for such amount and at such time or times as the Lender
deems advisable; (v) settle, adjust, compromise, extend
or renew an Account; (vi) discharge and release any
Account; (vii) prepare, file and sign Borrower's name on
any proof of claim in bankruptcy or other similar
document against an account debtor; (viii) notify the
post office authorities to change the address for
delivery of Borrower's mail to an address designated by
Lender, and open and dispose of all mail addressed to
Borrower; and (ix) do all acts and things which are
necessary, in Lender's determination, to fulfill
Borrower's obligations under the Term Loan Financing
Agreements and (b) at any time (i) take control in any
manner of any item of payment of proceeds thereof; (ii)
have access to any lockbox or postal box into which
Borrower's mail is deposited; (iii) endorse Borrower's
name upon any items of payment or proceeds thereof and
deposit the same in Lender's account for application to
the Term Loan Obligations; (iv) endorse Borrower's name
upon any chattel paper, document, instrument, invoice,
or similar document or agreement relating to any Account
or any goods pertaining thereto or any other Collateral;
(v) sign Borrower's name on any verification of Accounts
and notices thereof to account debtors and (vi) execute
in Borrower's name and file any UCC financing statements
or amendments thereto. Borrower hereby releases Lender
and its officers, employees and designees from any
liabilities arising from any act or acts under this
power of attorney and in furtherance thereof, whether of
omission or commission, except as a result of Lender's
own gross negligence or wilful misconduct as determined
pursuant to a final non-appealable order of a court of
competent jurisdiction.
<PAGE> 13
5.4 Right to Cure. Lender may, at its option, (a)
cure any default by Borrower under any agreement with a
third party or pay or bond on appeal any judgment
entered against Borrower, (b) discharge taxes, liens,
security interests or other encumbrances at any time
levied on or existing with respect to the Collateral and
(c) pay any amount, incur any expense or perform any act
which, in Lender's judgment, is necessary or appropriate
to preserve, protect, insure, maintain, enforce and
collect the Collateral and the rights of Lender with
respect thereto. All amounts so expended shall
constitute Term Loan Obligations and shall be repayable
by Borrower on demand. Lender shall be under no
obligation to effect such cure, payment or bonding and
shall not, by doing so, be deemed to have assumed any
obligation or liability of Borrower. Any payment made
or other action taken by Lender under this Section 5.4
shall be without prejudice to any right to assert an
Event of Default hereunder and to proceed accordingly.
5.5 Access to Premises. From time to time as
requested by Lender, at the cost and expense of
Borrower, (a) Lender or its designee shall have complete
access to all of Borrower's premises during normal
business hours and after notice to Borrower, or at any
time and without notice to Borrower if an Event of
Default exists, for the purposes of inspecting,
verifying and auditing the Collateral and all of
Borrower's books and records, including, without
limitation, the Records, and (b) Borrower shall promptly
furnish to Lender such copies of such books and records
or extracts therefrom as Lender may request, and (c)
Lender or its designee may use during normal business
hours such of Borrower's personnel, equipment, supplies
and premises as may be reasonably necessary for the
foregoing and if an Event of Default exists for the
collection of Accounts and realization of other
Collateral.
SECTION 6. REPRESENTATIONS AND WARRANTIES
Borrower hereby represents and warrants to Lender
the following (which shall survive the execution and
delivery of this Term Note), the truth and accuracy of
which are a condition to the making of the Term Loan:
6.1 Corporate Existence, Power and Authority;
Nature of Obligation. Borrower is a corporation duly
organized and in good standing under the laws of its
state of incorporation and is duly qualified as a
foreign corporation and in good standing in all states
or other jurisdictions where the nature and extent of
the business transacted by it or the ownership of assets
<PAGE> 14
makes such qualification necessary, except for those
jurisdictions in which the failure to so qualify would
not have a material adverse effect on Borrower's
financial condition, results of operation or business or
the rights of Lender in or to any of the Collateral.
The execution, delivery and performance of this Term
Note and the other Term Loan Financing Agreements and
the transactions contemplated hereunder and thereunder
are all within Borrower's corporate powers, have been
duly authorized and are not in contravention of law or
the terms of Borrower's certificate of incorporation,
by-laws or other organizational documentation, or the
Indenture, any indenture, agreement or undertaking to
which Borrower is a party or by which Borrower or its
property are bound. The Term Loan Financing Agreements
constitute legal, valid and binding obligations of
Borrower enforceable in accordance with their respective
terms. The Term Loan Obligations incurred by Borrower
pursuant to this Term Note and the other Term Loan
Financing Agreements shall constitute "Refinancing
Debt," as that term is defined in the Indenture, and
shall also constitute "Congress Obligations," as that
term is defined in the Intercreditor Agreement.
6.2 Financial Statements and Filings; No Material
Adverse Change. All financial statements relating to
Borrower which have been or may hereafter be delivered
by Borrower to Lender or filed with the Securities and
Exchange Commission are or will be prepared in
accordance with GAAP and fairly present the financial
condition and the results of operation of Borrower as at
the dates and for the periods set forth therein. Except
as disclosed in any interim financial statements
furnished by Borrower to Lender prior to the date of
this Term Note, there has been no material adverse
change in the assets, liabilities, properties and
condition, financial or otherwise, of Borrower, since
the date of the most recent audited financial statements
furnished by Borrower to Lender prior to the date of
this Term Note.
6.3 Chief Executive Office; Collateral Locations.
The chief executive office of Borrower and Borrower's
Records concerning Accounts are located only at the
address set forth in the Revolving Loan Documents and
its only other places of business and the only other
locations of Collateral, if any, are the addresses set
forth in the Revolving Loan Documents, subject to the
right of Borrower to establish new locations in
accordance with Section 7.2 hereof. The Revolving Loan
Documents correctly identify any of such locations which
are not owned by Borrower and set forth the owners
and/or operators thereof, and to the best of Borrower's
knowledge, the holders of any mortgages on such
locations.
6.4 Status of Liens; Title to Properties. The
security interests and liens granted to Lender under the
Term Loan Financing Agreements constitute valid and,
upon the filing of appropriate financing statements,
mortgages and deeds of trust, perfected liens and
<PAGE> 15
security interests in and upon the Collateral subject
only to the liens permitted under Section 7.8 hereof.
In addition, prior to the occurrence of a Transfer
Event, (i) the Term Loan Obligations are included within
the term "Obligations," as such term is defined in the
Revolving Loan Documents, and (ii) the Term Loan
Obligations are secured by the liens, security interests
and other security granted in the Revolving Loan
Documents and the other collateral documents related
thereto. Borrower has good and marketable title to all
of its properties and assets subject to no liens,
mortgages, pledges, security interests, encumbrances or
changes of any kind, except those granted to Lender and
such others as are specifically permitted under Section
7.8 hereof.
6.5 Litigation. Except as previously disclosed to
Lender, there are no judgments outstanding against
Borrower, there is no present investigation by any
governmental agency pending, or to the best of
Borrower's knowledge threatened, against or affecting
Borrower, its assets or business and there is no action,
suit, proceeding or claim by any Person pending, or to
the best of Borrower's knowledge threatened, against
Borrower or its assets or goodwill, or against or
affecting any transactions contemplated by the Term Loan
Financing Agreements, which if adversely determined with
respect to it would result in any material adverse
change in the assets, business or prospects of Borrower
or which would impair the ability of Borrower to perform
its obligations hereunder or under any of the other Term
Loan Financing Agreements to which it is a party, or of
Lender to enforce this Term Note or any of the other
Term Loan Financing Agreements or realize upon the
Collateral.
6.6 Compliance with Other Agreements and Applicable
Laws. Borrower is not in default under, or in violation
of any of the terms of, any agreement, contract,
instrument, lease or other commitment to which it is a
party or by which it or any of its assets are bound.
Borrower is in compliance in all material respects with
all applicable provisions of laws, rules, regulations,
licenses, permits, approvals and orders of any foreign,
Federal, State or local governmental authority.
6.7 Accuracy and Completeness of Information.
All information furnished by or on behalf of Borrower in
writing to Lender in connection with this Term Note or
any of the other Term Loan Financing Agreements or any
transaction contemplated hereby or thereby is and will
be true and correct in all material respects on the date
as of which such information is dated or certified and
does not omit and will not omit any material fact
necessary in order to make such information not
misleading. No event or circumstance has occurred which
has had or could reasonably be expected to have a
material adverse affect on the business, assets or
prospects of Borrower, which has not been fully and
accurately disclosed to Lender in writing.
<PAGE> 16
6.8 Survival of Warranties; Cumulative. All
representations and warranties contained in this Term
Note and the other Term Loan Financing Agreements shall
survive the execution and delivery of this Term Note and
the other Term Loan Financing Agreements, and shall be
conclusively presumed to have been relied on by Lender
as of the date of this Term Note regardless of any
investigation made or information possessed by Lender.
The representations and warranties set forth herein
shall be cumulative and in addition to any other
representations or warranties which Borrower shall now
or hereafter give, or cause to be given, to Lender.
SECTION 7. AFFIRMATIVE AND NEGATIVE COVENANTS
7.1 Maintenance of Existence. Borrower shall at all
times preserve, renew and keep in full, force and effect
its corporate existence and rights and franchises with
respect thereto and maintain in full force and effect
all permits, licenses, trademarks, tradenames,
approvals, authorizations, leases and contracts
necessary to carry on the business as presently or
proposed to be conducted. Borrower shall give Lender
thirty (30) days prior written notice of any proposed
change in its corporate name, which notice shall set
forth the new name and Borrower shall deliver to Lender
a copy of the amendment to the Certificate of
Incorporation of Borrower providing for the name change
certified by the Secretary of State of the jurisdiction
of incorporation of Borrower as soon as it is available.
7.2 New Collateral Locations. Borrower may open
any new location within the continental United States
provided Borrower (a) gives Lender thirty (30) days
prior written notice of the intended opening of any such
new location and (b) executes and delivers, or causes to
be executed and delivered, to Lender such agreements,
documents, and instruments as Lender may deem reasonably
necessary or desirable to protect its interests in the
Collateral at such location, including, without
limitation, UCC financing statements.
7.3 Compliance with Laws, Regulations, Etc. Borrower
shall, at all times, comply in all material respects
with all laws, rules, regulations, licenses, permits,
approvals and orders applicable to it and duly observe
all requirements of any Federal, State or local
governmental authority.
7.4 Payment of Taxes and Claims. Borrower shall
duly pay and discharge all taxes, assessments,
contributions and governmental charges upon or against
it or its properties or assets, except for taxes the
validity of which are being contested in good faith by
appropriate proceedings diligently pursued and available
to Borrower and with respect to which adequate reserves
have been set aside on its books.
<PAGE> 17
7.5 Insurance. Borrower shall, at all times,
maintain with financially sound and reputable insurers
insurance with respect to the Collateral against loss or
damage and all other insurance of the kinds and in the
amounts customarily insured against or carried by
corporations of established reputation engaged in the
same or similar businesses and similarly situated. Said
policies of insurance shall be satisfactory to Lender as
to form, amount and insurer. Borrower shall furnish
certificates, policies or endorsements to Lender as
Lender shall require as proof of such insurance, and, if
Borrower fails to do so, Lender is authorized, but not
required, to obtain such insurance at the expense of
Borrower. All policies shall provide for at least
thirty (30) days prior written notice to Lender of any
cancellation or reduction of coverage and that Lender
may act as attorney for Borrower in obtaining, and at
any time an Event of Default exists, adjusting,
settling, amending and canceling such insurance.
Borrower shall cause Lender to be named as a loss payee
and an additional insured (but without any liability for
any premiums) under such insurance policies and Borrower
shall obtain non-contributory lender's loss payable
endorsements to all insurance policies in form and
substance satisfactory to Lender. Such lender's loss
payable endorsements shall specify that the proceeds of
such insurance shall be payable to Lender as its
interests may appear and further specify that Lender
shall be paid regardless of any act or omission by
Borrower or any of its affiliates. At its option,
Lender may apply any insurance proceeds received by
Lender at any time to the cost of repairs or replacement
of Collateral and/or to payment of the Term Loan
Obligations, whether or not then due, in any order and
in such manner as Lender may determine or hold such
proceeds as cash collateral for Borrowers' obligations
pursuant to the Term Loan Financing Agreements.
7.6 Financial Statements and Other Information
(a) Borrower shall keep proper books and records in
which full and true entries shall be made of all
dealings or transactions of or in relation to the
Collateral and the business of Borrower in accordance
with GAAP and Borrower shall furnish or cause to be
furnished to Lender: (i) within forty-five (45) days
after the end of each fiscal month, monthly unaudited
financial statements (including balance sheets,
statements of income and loss and statements of
shareholders' equity), all in reasonable detail, fairly
presenting the financial position and the results of
Borrower's operations as of the end of such fiscal
month; (ii) within ninety (90) days after the end of
each fiscal year, audited financial statements of
Borrower (including balance sheets, statements of income
and loss, statements of cash flow and statements of
shareholders' equity), and the accompanying notes
thereto, all in reasonable detail, fairly presenting the
financial position and the results of Borrower's
operations as of the end of such fiscal year, together
with the opinion of independent certified public
<PAGE> 18
accountants, which accountants shall be an independent
accounting firm selected by Borrower and reasonably
acceptable to Lender, that such financial statements
have been prepared in accordance with GAAP, and present
fairly the results of operations and financial condition
of Borrower for the fiscal year then ended.
(b) Borrower shall promptly notify Lender in writing
of the details of (i) any loss, damage, investigation,
action, suit, proceeding or claim relating to the
Collateral or any other property which is security for
the Term Loan Obligations or which would result in any
material adverse change in Borrower's business,
properties, assets, goodwill or condition, financial or
otherwise, and (ii) the occurrence of any Event of
Default or event which, with the passage of time or
giving of notice or both, would constitute an Event of
Default.
( c )Borrower shall promptly after the sending or
filing thereof furnish or cause to be furnished to
Lender copies of all reports which Borrower sends to its
stockholders generally and copies of all reports and
registration statements which Borrower files with the
Securities and Exchange Commission, any national
securities exchange or the National Association of
Securities Dealers, Inc.
(d) Borrower shall furnish or cause to be furnished to
Lender such budgets, forecasts, projections and other
information respecting the Collateral and the business
of Borrower, as Lender may, from time to time,
reasonably request. Lender is hereby authorized to
deliver a copy of any financial statement or any other
information relating to the business of Borrower to any
court or other government agency or to any participant
or assignee or prospective participant or assignee.
Borrower hereby irrevocably authorizes and directs all
accountants or auditors to deliver to Lender, at
Borrower's expense, copies of the financial statements
of Borrower and any reports or management letters
prepared by such accountants or auditors on behalf of
Borrower and to disclose to Lender such information as
they may have regarding the business of Borrower. Any
documents, schedules, invoices or other papers delivered
to Lender may be destroyed or otherwise disposed of by
Lender one (1) year after the same are delivered to
Lender, except as otherwise designated by Borrower to
Lender in writing.
7.7 Sale of Assets, Consolidation, Merger,
Dissolution, Etc. Borrower shall not, directly or
indirectly, (a) merge into or with or consolidate with
any other Person or permit any other Person to merge
into or with or consolidate with it, (b) sell, assign,
lease or transfer to any other Person, abandon or
otherwise dispose of any stock or indebtedness or any of
its assets to any other Person (except as expressly
permitted in the Revolving Loan Documents or the
Indenture), (c) form or acquire any subsidiaries, (d)
wind up, (e) liquidate, (f) dissolve or (g) agree to do
any of the foregoing.
<PAGE> 19
7.8 Encumbrances. Borrower shall not create, incur,
assume or suffer to exist any security interest,
mortgage, pledge, lien or other encumbrance of any
nature whatsoever on any of its assets or properties,
including, without limitation, the Collateral, except as
permitted by the Revolving Loan Documents, the Indenture
or any of the other Term Loan Financing Agreements.
7.9 Dividends and Redemptions. Borrower shall not,
directly or indirectly, declare or pay any dividends on
account of any shares of any class of capital stock of
Borrower now or hereafter outstanding, or set aside or
otherwise deposit or invest any sums for such purpose,
or redeem, retire, defease, purchase or otherwise
acquire any shares of any class of capital stock (or set
aside or otherwise deposit or invest any sums for such
purpose) for any consideration other than common stock
or apply or set apart any sum, or make any other
distribution (by reduction of capital or otherwise) in
respect of any such shares or agree to do any of the
foregoing, except as permitted under the Revolving Loan
Documents.
7.10 Transactions with Affiliates. Borrower shall
not enter into any transaction for the purchase, sale or
exchange of property or the rendering of any service to
or by any affiliate, except in the ordinary course of
and pursuant to the reasonable requirements of
Borrower's business and upon fair and reasonable terms
no less favorable to Borrower than Borrower would obtain
in a comparable arm's length transaction with an
unaffiliated person.
7.11 Costs and Expenses. Borrower shall pay to
Lender on demand all costs, expenses, filing fees and
taxes paid or payable in connection with the
preparation, negotiation, execution, delivery,
recording, administration, collection, liquidation,
enforcement and defense of Lender's rights in the
Collateral, this Term Note, the other Term Loan
Financing Agreements and all other documents related
hereto or thereto, including any amendments, supplements
or consents which may hereafter be contemplated (whether
or not executed) or entered into in respect hereof or
thereto, including, but not limited to: (a) all costs
and expenses of filing or recording (including Uniform
Commercial Code financing statement filing taxes and
fees, documentary taxes, intangibles taxes and mortgage
recording taxes and fees, if applicable); (b) all title
insurance and other insurance premiums, appraisal fees
and search fees; (c) costs and expenses of preserving
and protecting the Collateral; (d) costs and expenses
paid or incurred in connection with obtaining payment of
Borrower's obligations pursuant to the Term Loan
Financing Agreements, enforcing the security interests
and liens of Lender, selling or otherwise realizing upon
the Collateral, and otherwise enforcing the provisions
<PAGE> 20
of the Term Loan Financing Agreements or defending any
claims made or threatened against Lender arising out of
the transactions contemplated hereby or thereby
(including, without limitation, preparations for and
consultations concerning any such matters); and (e) the
fees and disbursements of counsel (including legal
assistants) to Lender in connection with any of the
foregoing.
7.12 Further Assurances. At the request of Lender at
any time and from time to time, Borrower shall, at its
expense, duly execute and deliver, or cause to be duly
executed and delivered, such further agreements,
documents and instruments, and do or cause to be done
such further acts as may be necessary or proper to
evidence, perfect, maintain and enforce the security
interests and the priority thereof in the Collateral and
to otherwise effectuate the provisions or purposes of
the Term Loan Financing Agreements. Lender may at any
time and from time to time request a certificate from an
officer of Borrower remaking, as of the date of such
certificate, the representations and warranties set
forth in this Term Note or any of the other Term Loan
Financing Agreements. Where permitted by law, Borrower
hereby authorizes Lender to execute and file one or more
UCC financing statements signed only by Lender.
SECTION 8. EVENTS OF DEFAULT AND REMEDIES
8.1 Events of Default. The occurrence or existence
of any one or more of the following events are referred
to herein individually as an "Event of Default", and
collectively as "Events of Default":
(a) Borrower (i) fails to pay when due any
amount due and owing pursuant to the Term Loan Financing
Agreements, (ii) breaches any of the terms, covenants,
conditions or provisions contained in any of the Term
Loan Financing Agreements and such breach is not cured
within fifteen (15) Business Days after it occurs, or
(iii) prior to the occurrence of a Transfer Event, fails
to pay when due any amount due and owing pursuant to any
of the Revolving Loan Documents or fails to perform any
of the terms, covenants, conditions or provisions
contained in any of the Revolving Loan Documents;
(b) any representation, warranty or
statement of fact made by Borrower to Lender either (i)
in the Term Loan Financing Agreements or (ii) prior to
the occurrence of a Transfer Event, in any of the
Revolving Loan Documents, shall when made be false or
misleading in any material respect;
( c ) any Obligor revokes, terminates or
fails to perform any of the terms, covenants, conditions
or provisions of any guarantee, endorsement or other
agreement of such party in favor of Lender; or
<PAGE> 21
(d) Borrower or any Obligor becomes
insolvent (however defined or evidenced), makes an
assignment for the benefit of creditors, makes or sends
notice of a bulk transfer or calls a meeting of its
creditors or principal creditors;
(e) a case or proceeding under the
bankruptcy laws of the United States of America now or
hereafter in effect or under any insolvency,
reorganization, receivership, readjustment of debt,
dissolution or liquidation law or statute of any
jurisdiction now or hereafter in effect (whether at law
or in equity) is filed against Borrower or any Obligor
or all or any part of its properties and such petition
or application is not dismissed within thirty (30) days
after the date of its filing or Borrower or any Obligor
shall file any answer admitting or not contesting such
petition or application or indicates its consent to,
acquiescence in or approval of, any such action or
proceeding or the relief requested is granted sooner;
(f) a case or proceeding under the
bankruptcy laws of the United States of America now or
hereafter in effect or under any insolvency,
reorganization, receivership, readjustment of debt,
dissolution or liquidation law or statute of any
jurisdiction now or hereafter in effect (whether at law
or equity) is filed by Borrower or any Obligor or for
all or any part of its property;
(g) prior to the occurrence of a Transfer
Event, there shall have occurred an Event of Default, as
defined in the Loan Agreement, under any of the
Revolving Loan Documents; or
(h) Congress Financial Corporation
(Central) accelerates the obligations of Borrower under
the Revolving Loan Documents.
8.2 Remedies
(a) At any time an Event of Default exists or
has occurred and is continuing, Lender shall have all
rights and remedies provided in (i) the Term Loan
Financing Agreements, (ii) the Uniform Commercial Code,
(iii) any other applicable law and (iv) prior to the
occurrence of a Transfer Event, the Revolving Loan
Documents, all of which rights and remedies may be
exercised without notice to or consent by Borrower,
except as such notice or consent is expressly provided
for hereunder or required by applicable law. All
rights, remedies and powers granted to Lender hereunder,
under any of the Term Loan Financing Agreements, the
Uniform Commercial Code or other applicable law, are
cumulative, not exclusive and enforceable, in Lender's
discretion, alternatively, successively, or concurrently
<PAGE> 22
on any one or more occasions, and shall include, without
limitation, the right to apply to a court of equity for
an injunction to restrain a breach or threatened breach
by Borrower of any of the Term Loan Financing Agreements
or any of the Revolving Loan Documents. Lender may, at
any time or times, proceed directly against Borrower to
collect any amount which Borrower is obligated to pay
pursuant to the Term Loan Financing Agreements without
prior recourse to the Collateral.
(b) Without limiting the foregoing, at any time
an Event of Default exists or has occurred and is
continuing, Lender may, in its discretion and without
limitation (i) accelerate the payment of and demand
immediate payment to Lender of (x) all Term Loan
Obligations (provided, that, upon the occurrence of any
Event of Default described in Sections 8.1(e) and
8.1(f), all Term Loan Obligations shall automatically
become immediately due and payable) and, (y) prior to
the occurrence of a Transfer Event, all obligations
arising pursuant to the Revolving Loan Documents, (ii)
with or without judicial process or the aid or
assistance of others, enter upon any premises on or in
which any of the Collateral may be located and take
possession of the Collateral or complete processing,
manufacturing and repair of all or any portion of the
Collateral, (iii) require Borrower, at Borrower's
expense, to assemble and make available to Lender any
part or all of the Collateral at any place and time
designated by Lender, (iv) collect, foreclose, receive,
appropriate, setoff and realize upon any and all
Collateral, (v) remove any or all of the Collateral from
any premises on or in which the same may be located for
the purpose of effecting the sale, foreclosure or other
disposition thereof or for any other purpose, (vi) sell,
lease, transfer, assign, deliver or otherwise dispose of
any and all Collateral (including, without limitation,
entering into contracts with respect thereto, public or
private sales at any exchange, broker's board, at any
office of Lender or elsewhere) at such prices or terms
as Lender may deem reasonable, for cash, upon credit or
for future delivery, with Lender having the right to
purchase the whole or any part of the Collateral at any
such public sale, all of the foregoing being free from
any right or equity of redemption of Borrower, which
right or equity of redemption is hereby expressly waived
and released by Borrower. If any of the Collateral is
sold or leased by Lender upon credit terms or for future
delivery, the Term Loan Obligations shall not be reduced
as a result thereof until payment therefor is finally
collected by Lender. If notice of disposition of
Collateral is required by law, five (5) days prior
notice by Lender to Borrower designating the time and
place of any public sale or the time after which any
private sale or other intended disposition of Collateral
is to be made, shall be deemed to be reasonable notice
thereof and Borrower waives any other notice. In the
event Lender institutes an action to recover any
Collateral or seeks recovery of any Collateral by way of
prejudgment remedy, Borrower waives the posting of any
bond which might otherwise be required.
<PAGE> 23
( c ) Lender may apply the cash proceeds of
Collateral actually received by Lender from any sale,
lease, foreclosure or other disposition of the
Collateral to payment of the Term Loan Obligations, in
whole or in part and in such order as Lender may elect,
whether or not then due. Borrower shall remain liable
to Lender for the payment of any deficiency with
interest at the highest rate provided for herein and all
costs and expenses of collection or enforcement,
including attorneys' fees and legal expenses.
SECTION 9. JURY TRIAL WAIVER; OTHER WAIVERS
AND CONSENTS; GOVERNING LAW
9.1 Governing Law; Choice of Forum; Service of
Process; Jury Trial Waiver
(a) The validity, interpretation and enforcement of
this Term Note and any dispute arising out of the
relationship between the parties hereto, whether in
contract, tort, equity or otherwise, shall be governed
by the internal laws (as opposed to the conflicts of law
provisions) of the State of New York.
(b) Borrower and Lender irrevocably consent and submit
to the non-exclusive jurisdiction of the Federal and
State courts sitting in New York County, New York and
waive any objection based on venue or forum non
conveniens with respect to any action instituted
therein, and agree that any dispute arising out of the
relationship between any such persons or the conduct of
any such persons in connection with this Term Note or
otherwise shall be heard only in the courts described
above (except that Lender shall have the right to bring
any action or proceeding against Borrower or its
property in the courts of any other jurisdiction which
Lender deems necessary or appropriate in order to
realize on the Collateral).
( c ) Borrower hereby waives personal service of any
and all process upon it and consents that all such
service of process may be made by registered mail
(return receipt requested) directed to its address set
forth on the signature pages hereof and service so made
shall be deemed to be completed five (5) days after the
same shall have been so deposited in the U.S. mails, or,
at Lender's option, by service upon CT Corporation, whom
Borrower irrevocably appoints as its agent for the
purpose of accepting service of process within the State
of New York. In addition, Lender agrees promptly to
forward by registered mail any process so served upon
such agent to Borrower at its address set forth on the
signature pages hereof. Borrower hereby consents to
service of process as aforesaid. Within thirty (30)
days after such service, Borrower shall appear in answer
to such process, failing which Borrower shall be deemed
in default and judgment may be entered by Lender against
Borrower for the amount of the claim and other relief
requested.
<PAGE> 24
(d) BORROWER AND LENDER EACH HEREBY WAIVES ANY RIGHT
TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE
OF ACTION (i) ARISING UNDER THIS TERM NOTE OR (ii) IN
ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE
DEALINGS OF THE PARTIES HERETO OR EITHER OF THEM IN
RESPECT TO THIS TERM NOTE OR THE TRANSACTIONS RELATED
HERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER
ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR
OTHERWISE. BORROWER AND LENDER EACH HEREBY AGREES AND
CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF
ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY
AND THAT ANY OF THEM MAY FILE A COPY OF THIS TERM NOTE
WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE
PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY
JURY.
(e) Nothing in this Section 9.1 shall affect the
rights of Lender to serve legal process in any other
manner permitted by law or affect the rights of Lender
to bring any action or proceeding against Borrower or
its property in the courts of any other jurisdiction.
(f) Lender shall not have any liability to Borrower
(whether in tort, contract, equity or otherwise) for
losses suffered by Borrower in connection with, arising
out of, or in any way related to the transactions or
relationships contemplated by the Term Loan Financing
Agreements, or any act, omission or event occurring in
connection therewith, unless it is determined by a final
and non-appealable judgment or court order binding on
Lender, that the losses were the result of acts or
omissions constituting gross negligence or willful
misconduct. In any such litigation, Lender shall be
entitled to the benefit of the rebuttable presumption
that it acted in good faith and with the exercise of
ordinary care in the performance by it of the terms of
the Term Loan Financing Agreements.
9.2 Waiver of Notices. Borrower hereby expressly
waives demand, presentment, protest and notice of
protest and notice of dishonor with respect to any and
all instruments and commercial paper, included in or
evidencing any of the obligations of Borrower pursuant
to the Term Loan Financing Agreements or the Collateral,
and any and all other demands and notices of any kind or
nature whatsoever with respect to Borrower's
obligations, the Collateral and the Term Loan Financing
Agreements, except such as are expressly provided for
therein. No notice to or demand on Borrower which
Lender may elect to give shall entitle Borrower to any
other or further notice or demand in the same, similar
or other circumstances.
<PAGE> 25
9.3 Amendments and Waivers. Neither this Term Note,
any of the other Term Loan Financing Agreements nor any
provision hereof or thereof shall be amended, modified,
waived or discharged orally or by course of conduct, but
only by a written agreement signed by an authorized
officer of Lender. Lender shall not, by any act, delay,
omission or otherwise be deemed to have expressly or
impliedly waived any of its rights, powers and/or
remedies unless such waiver shall be in writing and
signed by an authorized officer of Lender. Any such
waiver shall be enforceable only to the extent
specifically set forth therein. A waiver by Lender of
any right, power and/or remedy on any one occasion shall
not be construed as a bar to or waiver of any such
right, power and/or remedy which Lender would otherwise
have on any future occasion, whether similar in kind or
otherwise.
9.4 Waiver of Counterclaims. Borrower waives all
rights to interpose any claims, deductions, setoffs or
counterclaims of any nature (other then compulsory
counterclaims) in any action or proceeding with respect
to this Term Note, any of the other Term Loan Financing
Agreements, the Collateral or any matter arising
therefrom or relating hereto or thereto.
9.5 Indemnification. Borrower shall indemnify, defend
and hold Lender, and its directors, agents, employees
and counsel, harmless from and against any and all
losses, claims, damages, liabilities, deficiencies,
judgments, penalties or expenses imposed on, incurred by
or asserted against any of them in connection with any
litigation, investigation, claim or proceeding commenced
or threatened related to the negotiation, preparation,
execution, delivery, enforcement, performance or
administration of the Term Loan Financing Agreements or
any undertaking or proceeding related to any of the
transactions contemplated thereby or any act, omission
to act, event or transaction related or attendant
thereto, including, without limitation, amounts paid in
settlement, court costs, and the fees and expenses of
counsel. To the extent that the undertaking to
indemnify, pay and hold harmless set forth in this
Section may be unenforceable because it violates any law
or public policy, Borrower shall pay the maximum portion
which it is permitted to pay under applicable law to
Lender in satisfaction of indemnified matters under this
Section 9.5. The foregoing indemnity shall survive the
payment of the Term Loan Obligations and the termination
of the Term Loan Financing Agreements. All of the
foregoing costs and expenses shall be part of Borrower's
obligations in connection with the Term Loan and secured
by the Collateral.
SECTION 10. GENERAL PROVISIONS
10.1 Notices. All notices, requests and demands
hereunder shall be in writing and (a) made to Lender at
its address set forth below and to Borrower at its chief
executive office or to such other address as either
party may designate by written notice to the other in
<PAGE> 26
accordance with this provision, and (b) deemed to have
been given or made: if delivered in person, immediately
upon delivery; if by telex, telegram or facsimile
transmission, immediately upon sending and upon
confirmation of receipt; if by nationally recognized
overnight courier service with instructions to deliver
the next Business Day, one (1) Business Day after
sending; and if by certified mail, return receipt
requested, five (5) days after mailing.
10.2 Partial Invalidity. If any provision of this
Term Note or any of the other Term Loan Financing
Agreements is held to be invalid or unenforceable, such
invalidity or unenforceability shall not invalidate this
Term Note or such other Term Loan Financing Agreement as
a whole, but this Term Note or such other Term Loan
Financing Agreement, as appropriate, shall be construed
as though it did not contain the particular provision
held to be invalid or unenforceable and the rights and
obligations of the parties shall be construed and
enforced only to such extent as shall be permitted by
applicable law.
10.3 Successors and Transfers. The Term Loan
Financing Agreements shall be binding upon and inure to
the benefit of and be enforceable by Lender, Borrower
and their respective successors and assigns, except that
Borrower may not assign its rights under any of the Term
Loan Financing Agreements without the prior written
consent of Lender. Congress Financial Corporation
(Central) may, after notice to Borrower, assign its
rights and delegate its obligations under the Term Loan
Financing Agreements and further may assign, or sell
participations in, all or any part of the Term Loan
Financing Agreements or any other interest herein to
another financial institution or other person, in which
event, the assignee or participant shall have, to the
extent of such assignment or participation, the same
rights and benefits as it would have if it were the
Lender hereunder, except as otherwise provided herein or
by the terms of such assignment or participation.
Following the occurrence of a Transfer Event, (i) the
rights, remedies, and obligations of the parties
provided in this Term Note and the other Term Loan
Financing Agreements may be subject to the terms of an
intercreditor agreement executed by Congress Financial
Corporation (Central) and any assignee, transferee or
purchaser of Lender's interest in, and obligations under
and pursuant to, this Term Note and (ii) Lender may,
after notice to Borrower, assign its rights and delegate
its obligations under the Term Loan Financing Agreements
in their entirety, but not in part, to another financial
institution or other person. Upon any such assignment
and delegation, the assigning and delegating lender
shall, to the extent of such assignment and delegation,
without the need for any further action, be released
from its obligations hereunder.
<PAGE> 27
10.4 Entire Agreement. This Term Note, together with
the other Term Loan Financing Agreements and any
supplements hereto or thereto, and any instruments or
documents delivered or to be delivered in connection
herewith or therewith represents the entire agreement
and understanding concerning the subject matter hereof
and thereof between the parties hereto, and supersede
all other prior agreements, understandings, negotiations
and discussions, representations, warranties,
commitments, proposals, offers and contracts concerning
the subject matter hereof, whether oral or written.
[Signature page follows]
<PAGE>
IN WITNESS WHEREOF, Borrower has caused these
presents to be duly executed and delivered as of the day
and year first above written.
BORROWER
FRUEHAUF TRAILER CORPORATION
By:/s/ Timothy J. Wiggins
-----------------------
Title:Executive Vice President
CHIEF EXECUTIVE OFFICE:
111 Monument Circle
Suite 3200
Indianapolis, Indiana 46204
Accepted and Agreed:
CONGRESS FINANCIAL CORPORATION
(CENTRAL)
By: /s/ Thomas C. Lannon
----------------------
Title: Vice President
Address:
100 South Wacker Drive, Suite 1940
Chicago, Illinois 60606
<PAGE> A-1
EXHIBIT A
Additional Term Loan Financing Agreements
1. Working Capital Term Note by Fruehauf and accepted
by Congress
2. Note Purchase and Assignment Agreement by and
between Congress and K-H Corporation ("K-H") and
accepted by Fruehauf
3. Subordination Agreement by and between Congress and
K-H and acknowledged by Fruehauf and its subsidiaries
4. Assignment Agreement by K-H and accepted by Congress
5. Pledge Agreement executed by Fruehauf in favor of
Congress, together with the following Schedules attached
thereto:
Schedule I -- Pledged Stock (none)
Schedule II -- Pledged Notes
6. Pledge Agreement executed by Maryland Shipbuilding &
Drydock Company in favor of Congress, together with the
following Schedules attached thereto:
Schedule I -- Pledged Stock
Schedule II -- Pledged Notes
7. Pledge Agreement executed by Jacksonville Shipyards,
Inc. in favor of Congress, together with the following
Schedules attached thereto:
Schedule I -- Pledged Stock
Schedule II -- Pledged Notes
8. Pledge Agreement executed by Fruehauf International
Limited in favor of Congress, together with the
following Schedules attached thereto:
Schedule I -- Pledged Stock
Schedule II -- Pledged Notes
9. Guarantee in favor of Congress executed by:
a. FGR, Inc.
b. Fruehauf Corporation
c. Maryland Shipbuilding & Drydock Company
d. The Mercer Co.
e. Fruehauf International Limited
f. Deutsche-Fruehauf Holding Corporation
g. Jacksonville Shipyards, Inc.
h. M.J. Holdings, Inc.
<PAGE> A-2
10. Trademark Security Agreement executed by Fruehauf
in favor of Congress
11. Patent Collateral Assignment executed by Fruehauf
in favor of Congress
12. Copyright Security Agreement executed by Fruehauf
in favor of Congress
13. Guarantor General Security Agreement executed by
each of the Subsidiaries named below in favor of
Congress, together with the following Schedules attached
thereto:
Schedule 4.1 -- Subsidiaries
Schedule 4.3 -- Collateral Locations
Schedule 4.4 -- Priority of Liens
Schedule 4.6 -- Litigation
Schedule 5.9 -- Indebtedness
Schedule 5.10 -- Loans, Investments,
Guaranties
a. FGR, Inc.
b. Fruehauf Corporation
c. Maryland Shipbuilding & Drydock
Company
d. The Mercer Co.
e. Fruehauf International Limited
f. Deutsche-Fruehauf Holding
Corporation
g. Jacksonville Shipyards, Inc.
h. M.J. Holdings, Inc.
14. Mortgages/Deeds of Trust by and between Fruehauf
and Congress in favor of Congress for each of the
properties listed on Annex 1 attached hereto
15. UCC-1 Financing Statements filed against Fruehauf
in favor of Congress with the offices of the Secretaries
of State and County Clerks (or equivalent) listed on
Annex 2 attached hereto
16. UCC Fixture Filings filed against Fruehauf in favor
of Congress with the offices of the County Clerks (or
equivalent) listed on Annex 1 attached hereto
<PAGE> A-3
Annex 1
Morgan County, Alabama
Morgan County, Alabama
Maricopa County, Arizona
Pulaski County, Arkansas
Fresno County, California
San Bernardino, California <F1><F2>
Yolo County, California
Denver County, Colorado
Dade County, Florida
DeKalb County, Georgia
Lee County, Iowa
Polk County, Iowa
Caddo Parish, Louisiana
Independent City of St. Louis
Yellowstone County, Montana
Hudson County, New Jersey <F1><F2>
Bernalillo County, New Mexico
Davidson County, North Carolina
Mecklenberg County, North Carolina
Allen County, Ohio
Franklin County, Ohio
Pike County, Ohio
Multnomah County, Oregon
Allegheny County, Pennsylvania
Lackawanna County, Pennsylvania
Dauphin County, Pennsylvania <F1><F2>
Philadelphia County, Pennsylvania
Spartanburg County, South Carolina
Shelby County, Tennessee
Bexar County, Texas
Dallas County, Texas
Harris County, Texas
Lubbock County, Texas <F1><F2>
Tarrant County, Texas <F1><F2>
Botetourt County, Virginia
Independent City of Richmond, Virginia
King County, Washington
Spokane County, Washington
Kanawha County, West Virginia
<F1> mortgage/deed of trust was terminated, so one will
not be prepared for this property
<F2> fixture filing was terminated, so one will not be
prepared for this property
<PAGE> A-4
Annex 2
Alabama Secretary of State
Arizona Secretary of State
Arkansas Secretary of State
Pulaski County, Arkansas
California Secretary of State
Colorado Secretary of State
Florida Secretary of State
DeKalb County, Georgia
Fulton County, Georgia
Indiana Secretary of State
Iowa Secretary of State
Parish of Caddo, Louisiana
Parish of Bossier, Louisiana
Michigan Secretary of State
Minnesota Secretary of State
Missouri Secretary of State
Independent City of St. Louis, Missouri
St. Louis County, Missouri
Montana Secretary of State
Nebraska Secretary of State
New Jersey Secretary of State
New Mexico Secretary of State
North Carolina Secretary of State
Mecklenburg County, North Carolina
Ohio Secretary of State
Allen County, Ohio
Delaware County, Ohio
Fairfield County, Ohio
Franklin County, Ohio
Pike County, Ohio
Van Wert County, Ohio
Oklahoma County, Oklahoma
Oregon Secretary of State
Pennsylvania Secretary of State
Allegheny County, Pennsylvania
Dauphin County, Pennsylvania
Fayette County, Pennsylvania
Indiana County, Pennsylvania
Lackawanna County, Pennsylvania
Philadelphia County, Pennsylvania
South Carolina Secretary of State
Tennessee Secretary of State
Texas Secretary of State
Virginia Secretary of State
Independent City of Richmond, Virginia
Independent City of Roanoke, Virginia
Washington Department of Licensing
West Virginia Secretary of State
Wisconsin Secretary of State
NOTE PURCHASE AND ASSIGNMENT AGREEMENT
This Note Purchase and Assignment Agreement
("Agreement") dated as of April 19, 1996 is made with
respect to that certain Working Capital Term Note
executed by Fruehauf Trailer Corporation ("Borrower"), a
copy of which is attached hereto as Exhibit A (the "Term
Note"). Unless otherwise specified, all capitalized
terms used herein without definition shall have the
respective meanings given such terms in the Term Note.
CONGRESS FINANCIAL CORPORATION (CENTRAL) ("Assignor")
and K-H Corporation ("Assignee") agree as follows:
1. Effective as of April 25, 1996 (the "Settlement
Date") Assignor hereby sells and assigns to Assignee,
and Assignee hereby purchases and assumes from Assignor,
without recourse and without any representations or
warranties (except as expressly set forth in Paragraph 3
below), all of Assignor's right, title and interest (the
"Assigned Interest") in and to all of Assignor's rights
and obligations under the Term Note and all of the other
documents listed on Annex I hereto (the "Assigned
Documents") as of the date hereof, and in each case,
subject to the provisions of the Intercreditor Agreement
and Subordination Agreement (both as defined below).
2. Subject to the remaining provisions of this
Paragraph, effective as of the Settlement Date, Assignor
hereby sells and assigns to Assignee, and Assignee
hereby purchases and assumes from Assignor, without
recourse and without any representations or warranties,
all of Assignor's right, title and interest in and to
all of Assignor's rights and obligations under that
certain First Amended and Restated Intercreditor
<PAGE> 2
Agreement dated as of May 1, 1995 (the "Intercreditor
Agreement") by and between Assignor and IBJ Schroder
Bank and Trust Company as indenture trustee and
collateral agent (in both such capacities, the
"Trustee"), but solely to the extent that such rights
and obligations relate to the Term Note and not to the
Revolving Loan Documents. Notwithstanding the
foregoing, until the Senior Obligations (as defined in
the Subordination Agreement) are Paid in Full (as
defined in the Subordination Agreement), and all
financing arrangements under the Congress Loan Documents
(as defined in the Subordination Agreement) have expired
or been terminated, (a) Assignee shall not, and shall
not be entitled to, exercise any rights, remedies,
powers or privileges under the Intercreditor Agreement
(whether or not any of such rights, remedies, powers or
privileges relate to or otherwise affect the Term Note
or the other Assigned Documents), (b) Assignor shall be
entitled in its sole discretion to exercise in good
faith any and all rights, remedies, powers and
privileges or to take any other action under the
Intercreditor Agreement on behalf of itself and/or
Assignee, (and Assignee hereby irrevocably grants
Assignor a power of attorney to exercise in good faith
any such rights, remedies, powers and privileges or to
take any such other action on behalf of Assignee, which
power of attorney shall be coupled with an interest),
and Assignor shall have no obligation or liability
(whether contractual, fiduciary or otherwise, and
whether now existing or hereafter arising) to Assignee
in connection with any exercise of or failure to
exercise in good faith any such rights, remedies, powers
or privileges or any other action or omission taken in
good faith under the Intercreditor Agreement or any of
the Assigned Documents, (c) Assignee, in its capacity as
holder of the Term Note, shall not contact or otherwise
communicate with the Trustee or any Noteholders (as
defined in the Intercreditor Agreement) without the
prior consent of Assignor, which consent shall not be
<PAGE> 3
unreasonably withheld, (d) Assignee shall not be
entitled to receive any payments or proceeds of
Collateral (as defined in the Intercreditor Agreement)
remitted under or in connection with the Intercreditor
Agreement and shall hold in trust and remit promptly to
Assignor any such payments or Collateral proceeds
received at any time by Assignee, and (e) promptly upon
the request of Assignor, made in good faith, Assignee
shall take any action or execute and deliver any
agreements, instruments, lien releases, termination
statements or other documents which, in Assignor's
judgment, Assignee, as assignee of Assignor, is required
to take or execute and deliver, as the case may be,
under or in connection with the Intercreditor Agreement.
3. Assignor (i) represents and warrants that it is
the legal and beneficial owner of the Assigned Interest
being assigned by it hereunder and that such Assigned
Interest is free and clear of any adverse claim (except
that such Assigned Interest is subject to the provisions
of the Intercreditor Agreement); (ii) makes no
representation or warranty and assumes no responsibility
with respect to any statements, warranties or
representations made in or in connection with the
Assigned Documents or the Intercreditor Agreement or the
execution, legality, validity, enforceability,
genuineness, completeness, sufficiency or value of the
Term Note or any other Assigned Documents or the
collectability of the obligations thereunder or any
other warranty and assumes no responsibility with
respect to the financial condition of Borrower or any
Obligor or the performance or observance by Borrower or
any Obligor of any of their respective obligations under
the Assigned Documents, the Intercreditor Agreement or
any other instrument or document furnished pursuant
thereto.
<PAGE> 4
4. Assignee (i) confirms that it has received a copy
of the Assigned Documents, the Intercreditor Agreement
and such other documents and information as it has
deemed appropriate to make its own credit analysis and
decision to enter into this Assignment Agreement; (ii)
agrees that it will, independently and without reliance,
as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking
action under the Assigned Documents; and (iii) agrees
that it will perform in accordance with their terms all
of the obligations of Assignor under the Assigned
Documents, which obligations have been assumed by
Assignee pursuant to this Assignment Agreement.
5. Assignee acknowledges that it has received proper
assignments of each of the Assigned Documents and that
it shall be solely responsible for recording, at its own
expense and in its sole discretion, any and all of the
Assigned Documents. Assignor agrees that it shall
execute such additional assignments as Assignee may
reasonably request.
6. Assignor and Assignee hereby appoint each other as
their respective agent for purposes of perfecting any of
their respective liens on Collateral which may at any
time come into their respective control or possession.
Notwithstanding anything to the contrary in the Assigned
Documents, Assignee hereby agrees that Assignor shall
remain named as the loss payee on behalf of both
Assignee and Assignor on any insurance policies that
currently name Assignor as loss payee with respect to
the Collateral, and that Assignor shall, as between
Assignor and Assignee, have the sole authority to and be
entitled to enter into on behalf of itself and on behalf
of Assignee any settlements with any insurers issuing
such policies, and that Assignor shall have any and all
right to receive and retain any proceeds of any such
insurance policies until the Senior Obligations have
been Paid in Full (as such terms are defined in the
Subordination Agreement).
<PAGE> 5
7. This Agreement shall become effective on the date
that the parties hereto execute and deliver a
Subordination Agreement substantially in the form
attached hereto as Exhibit B ("Subordination
Agreement").
8. Assignee hereby agrees that if, at any time after
the date of this Agreement, Congress executes waivers
and/or consents or deems Borrower or any Obligor to be
in compliance with respect to one or more provisions of
any or all of the Revolving Loan Documents (except to
the extent such provisions govern payment obligations to
Assignor), then Assignee will be deemed to have waived
and/or consented to the same extent under the
corresponding provision or provisions of the applicable
Term Loan Financing Agreement(s) (except to the extent
such provisions govern payment obligations to Assignee).
Assignee further agrees to execute such corresponding
written waivers or consents as Assignor may reasonably
request.
9. Following the Settlement Date, Assignee shall,
within three (3) business days of receipt from Borrower,
convey to Assignor any and all financial information and
projections received from Borrower pursuant to Section
2.8 of the Term Note. Following the Settlement Date,
Assignor shall, upon request by Assignee, notify
Assignee as to the amount of Excess Availability
calculated by Assignor as of the requested date.
<PAGE> 6
10. From and after the Settlement Date, Borrower
shall make all payments under the Term Note (including,
without limitation, all payments of principal and
interest and expenses (if applicable) with respect
thereto) to Assignee. On the Settlement Date, the
Borrower shall pay Assignor all accrued and unpaid
interest in respect of the Term Note through and
including the Settlement Date, and Assignee shall pay to
Assignor the sum of $5,500,000 against delivery to
Assignee of the Term Note endorsed to the order of
Assignee.
11. Assignor may charge the revolving loan account
of Borrower for interest accruing on the Term Note for
the period ending on the Settlement Date. After the
Settlement Date, to the extent that Assignee receives
interest payments from Borrower on account of the Term
Loan Obligations, simultaneously with such interest
payment by Borrower to Assignee, Assignor shall be
entitled to receive from Assignee a payment of one half
percent (1/2%) of the outstanding principal amount of
Term Loan Obligations owing under the Term Note during
the period for which such interest payment was made
("Additional Purchase Price"). Upon receipt by Assignee
of any interest payment by Borrower on account of the
Term Loan Obligations, Assignee shall promptly remit to
Assignor the corresponding amount of Additional Purchase
Price due to Assignor pursuant to this Paragraph 11.
12. Assignee's agreement to purchase the Term Note
is part of Borrower's plan to increase its liquidity.
Another part of such plan is the sale, in one or more
related transactions, by Borrower of Fruehauf
International Limited (the "Sale") under circumstances
where Borrower would be entitled to retain a larger
portion of the sale proceeds than are permitted under
<PAGE> 7
the terms of the Indenture, dated as of May 1, 1995,
between Borrower and IBJ Schroder Bank & Trust Company,
as trustee (the "Indenture"). In recognition of this
plan, Assignor hereby agrees to issue a Limited Waiver
in the form attached hereto as Exhibit C.
13. Notwithstanding anything to the contrary
contained herein, Assignee shall not be obligated to
purchase and assume the Assigned Interest unless and
until the conditions precedent set forth in the letter
agreement between Borrower and Assignee dated April 19,
1996 have been satisfied and/or waived and the other
transactions set forth in such letter which are to occur
concurrent with such purchase have occurred. In
addition, in the event that the purchase and assumption
of the Assigned Interest does not occur on or prior to
April 29, 1996, Borrower shall pay to Assignor an agent
working payment of $ 25,000 and a $ 50,000 group working
payment (each of which payments, if payable in
accordance with the terms hereof, shall be fully earned
and payable as of the close of business on April 29,
1996).
14. THIS ASSIGNMENT AGREEMENT SHALL BE GOVERNED BY,
AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE
INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO CONFLICTS OF LAWS PRINCIPLES.
<PAGE> S-2
IN WITNESS WHEREOF, the parties have
hereunto set their hands as of the day and year first
written above.
CONGRESS FINANCIAL CORPORATION (CENTRAL)
By: /s/ Thomas C. Lannon
----------------------
Address for Notices:
100 South Wacker Drive
Suite 1940
Chicago, IL 60606
Attn: or
William Bloom
K-H CORPORATION
By: /s/ Fred J. Chapman
---------------------
Treasurer
Address for Notices:
c/o Treasurer
672 Delaware Avenue
Buffalo, New York 14209
<PAGE> S-2
Fruehauf Trailer Corporation hereby accepts,
and acknowledges receipt of a copy of, the foregoing
Note Purchase and Assignment Agreement (the "Assignment
Agreement") as of April 19, 1996, and agrees to be bound
by its terms, and without limiting the generality of the
foregoing, agrees that from and after the Settlement
Date (as such term is defined in the Assignment
Agreement), Assignor shall have no obligations or
liabilities under the Assigned Documents (as such term
is defined in the Assignment Agreement) and that all
payments (except for interest accruing on or before the
Settlement Date) made by Borrower pursuant to the
Assigned Documents after the Settlement Date shall be
made to Assignee (as such term is defined in the
Assignment Agreement).
FRUEHAUF TRAILER CORPORATION
By: /s/ Timothy J. Wiggins
-----------------------
Its: Executive Vice President
<PAGE> A-1
ANNEX I TO NOTE PURCHASE AND ASSIGNMENT AGREEMENT
Additional Term Loan Financing Agreements
1. Working Capital Term Note by Fruehauf and accepted
by Congress
2. Note Purchase and Assignment Agreement by and
between Congress and K-H Corporation ("K-H") and
accepted by Fruehauf
3. Subordination Agreement by and between Congress and
K-H and acknowledged by Fruehauf and its subsidiaries
4. Assignment Agreement by K-H and accepted by Congress
5. Pledge Agreement executed by Fruehauf in favor of
Congress, together with the following Schedules attached
thereto:
Schedule I -- Pledged Stock (none)
Schedule II -- Pledged Notes
6. Pledge Agreement executed by Maryland Shipbuilding &
Drydock Company in favor of Congress, together with the
following Schedules attached thereto:
Schedule I -- Pledged Stock
Schedule II -- Pledged Notes
7. Pledge Agreement executed by Jacksonville Shipyards,
Inc. in favor of Congress, together with the following
Schedules attached thereto:
Schedule I -- Pledged Stock
Schedule II -- Pledged Notes
8. Pledge Agreement executed by Fruehauf International
Limited in favor of Congress, together with the
following Schedules attached thereto:
Schedule I -- Pledged Stock
Schedule II -- Pledged Notes
9. Guarantee in favor of Congress executed by:
a. FGR, Inc.
b. Fruehauf Corporation
c. Maryland Shipbuilding & Drydock Company
d. The Mercer Co.
e. Fruehauf International Limited
f. Deutsche-Fruehauf Holding Corporation
g. Jacksonville Shipyards, Inc.
h. M.J. Holdings, Inc.
<PAGE> A-2
10. Trademark Security Agreement executed by Fruehauf
in favor of Congress
11. Patent Collateral Assignment executed by Fruehauf
in favor of Congress
12. Copyright Security Agreement executed by Fruehauf
in favor of Congress
13. Guarantor General Security Agreement executed by
each of the Subsidiaries named below in favor of
Congress, together with the following Schedules attached
thereto:
Schedule 4.1 -- Subsidiaries
Schedule 4.3 -- Collateral Locations
Schedule 4.4 -- Priority of Liens
Schedule 4.6 -- Litigation
Schedule 5.9 -- Indebtedness
Schedule 5.10 -- Loans, Investments,
Guaranties
a. FGR, Inc.
b. Fruehauf Corporation
c. Maryland Shipbuilding & Drydock
Company
d. The Mercer Co.
e. Fruehauf International Limited
f. Deutsche-Fruehauf Holding Corporation
g. Jacksonville Shipyards, Inc.
h. M.J. Holdings, Inc.
14. Mortgages/Deeds of Trust by and between Fruehauf
and Congress in favor of Congress for each of the
properties listed on Annex I-A attached hereto
15. UCC-1 Financing Statements filed against Fruehauf
in favor of Congress with the offices of the Secretaries
of State and County Clerks (or equivalent) listed on
Annex I-B attached hereto
16. UCC Fixture Filings filed against Fruehauf in favor
of Congress with the offices of the County Clerks (or
equivalent) listed on Annex I-A attached hereto
<PAGE> A-3
Annex I-A
Morgan County, Alabama
Morgan County, Alabama
Maricopa County, Arizona
Pulaski County, Arkansas
Fresno County, California
San Bernardino, California <F1><F2>
Yolo County, California
Denver County, Colorado
Dade County, Florida
DeKalb County, Georgia
Lee County, Iowa
Polk County, Iowa
Caddo Parish, Louisiana
Independent City of St. Louis
Yellowstone County, Montana
Hudson County, New Jersey <F1><F2>
Bernalillo County, New Mexico
Davidson County, North Carolina
Mecklenberg County, North Carolina
Allen County, Ohio
Franklin County, Ohio
Pike County, Ohio
Multnomah County, Oregon
Allegheny County, Pennsylvania
Lackawanna County, Pennsylvania
Dauphin County, Pennsylvania <F1><F2>
Philadelphia County, Pennsylvania
Spartanburg County, South Carolina
Shelby County, Tennessee
Bexar County, Texas
Dallas County, Texas
Harris County, Texas
Lubbock County, Texas <F1><F2>
Tarrant County, Texas <F1><F2>
Botetourt County, Virginia
Independent City of Richmond, Virginia
King County, Washington
Spokane County, Washington
Kanawha County, West Virginia
<F1> mortgage/deed of trust was terminated, so one will
not be prepared for this property
<F2> fixture filing was terminated, so one will not be
prepared for this property
<PAGE> A-4
Annex I-B
Alabama Secretary of State
Arizona Secretary of State
Arkansas Secretary of State
Pulaski County, Arkansas
California Secretary of State
Colorado Secretary of State
Florida Secretary of State
DeKalb County, Georgia
Fulton County, Georgia
Indiana Secretary of State
Iowa Secretary of State
Parish of Caddo, Louisiana
Parish of Bossier, Louisiana
Michigan Secretary of State
Minnesota Secretary of State
Missouri Secretary of State
Independent City of St. Louis, Missouri
St. Louis County, Missouri
Montana Secretary of State
Nebraska Secretary of State
New Jersey Secretary of State
New Mexico Secretary of State
North Carolina Secretary of State
Mecklenburg County, North Carolina
Ohio Secretary of State
Allen County, Ohio
Delaware County, Ohio
Fairfield County, Ohio
Franklin County, Ohio
Pike County, Ohio
Van Wert County, Ohio
Oklahoma County, Oklahoma
Oregon Secretary of State
Pennsylvania Secretary of State
Allegheny County, Pennsylvania
Dauphin County, Pennsylvania
Fayette County, Pennsylvania
Indiana County, Pennsylvania
Lackawanna County, Pennsylvania
Philadelphia County, Pennsylvania
South Carolina Secretary of State
Tennessee Secretary of State
Texas Secretary of State
Virginia Secretary of State
Independent City of Richmond, Virginia
Independent City of Roanoke, Virginia
Washington Department of Licensing
West Virginia Secretary of State
Wisconsin Secretary of State
SUBORDINATION AGREEMENT
THIS SUBORDINATION AGREEMENT ("Agreement")
is made and entered into as of April 25, 1996 by and
between the undersigned, K-H Corporation, (together with
its successors and assignees, "K-H"), and Congress
Financial Corporation (Central) (together with its
successors and assignees, "Congress"). Capitalized
terms used herein which are not defined herein are used
herein as such terms are defined in that certain
Accounts Financing Agreement [Security Agreement] (the
"Accounts Financing Agreement"), that certain Inventory
and Equipment Security Agreement Supplement to Accounts
Financing Agreement [Security Agreement] (the "Inventory
and Equipment Supplement"), that certain Rider No. 1 to
Accounts Financing Agreement [Security Agreement] and
Inventory and Equipment Security Agreement Supplement to
Accounts Financing Agreement [Security Agreement] (the
"Rider") and that certain letter regarding Inventory
Loans, each dated as of August 20, 1993 and each as
amended by that certain First Amendment to Accounts
Financing Agreement [Security Agreement] entered into as
of April 4, 1994 by and between Borrower and Congress,
that certain Second Amendment to Accounts Financing
Agreement [Security Agreement] and Waiver entered into
as of April 12, 1994 by and between Borrower and
Congress, that certain Third Amendment to Accounts
Financing Agreement [Security Agreement] entered into as
of May 1, 1995 by and between Borrower and Congress, and
that certain Fourth Amendment to Accounts Financing
Agreement [Security Agreement] entered into as of April
19, 1996 (the "Fourth Amendment") (as hereinafter
amended, restated or otherwise modified from time to
time, the "Loan Agreement") with Fruehauf Trailer
Corporation, a Delaware corporation ("Fruehauf").
Notwithstanding anything else in this Agreement, except
as expressly provided in Section 13, all of the
provisions of this Agreement that refer to K-H apply
only to K-H or any assignee in its capacity as holder of
Subordinated Debt.
WITNESSETH:
WHEREAS, pursuant to that certain Note
Purchase and Assignment Agreement dated as of April 19,
1996 ("Assignment Agreement") between Congress and K-H,
Congress assigned all of its right, title and interest
to (i) that certain Working Capital Term Note dated
April 19, 1996 in the total principal amount of Five
Million Five Hundred Thousand Dollars ($5,500,000)
(together with any instrument(s) which may hereafter be
substituted therefor under the terms of any agreement
between Borrower and K-H, and any note(s) evidencing any
other indebtedness of Borrower hereafter acquired by K-H
from Congress, collectively, are hereinafter referred to
as the "Term Note"), (ii) the other Assigned Documents
(as defined in the Assignment Agreement) and (iii) the
Intercreditor Agreement (as defined in the Assignment
Agreement) to the extent Congress' interest in the
Intercreditor Agreement relates to the Term Note and
except as otherwise provided in the Assignment
Agreement.
<PAGE> 2
WHEREAS, Borrower is indebted to Congress as
a result of loans made and to be made by Congress to
Borrower pursuant to the Loan Agreement and other loan
and security documents relating thereto;
WHEREAS, K-H acknowledges that the loans or
other extensions of any financial accommodation or
credit to Borrower by Congress is of value to K-H; and
WHEREAS, the Assignment Agreement requires
the execution and delivery of this Agreement as a
condition to the sale of the Term Note to K-H;
AGREEMENT
NOW, THEREFORE, for good and valuable
consideration, the receipt and sufficiency of which are
hereby acknowledged by K-H, and in order to induce
Congress, at its option, now or from time to time
hereafter, to make loans or extend credit or any other
financial accommodations to or for the benefit of
Borrower; or to grant such renewals or extensions
thereof as Congress may deem advisable; and to better
secure Congress in respect of the foregoing, K-H hereby
agrees with Congress as hereinafter set forth.
As used herein the following terms shall
have the meanings set forth below:
"Affiliate" shall mean, with respect to any
Person, any other Person directly or indirectly
controlling or controlled by or under direct or indirect
common control with such Person.
"Bankruptcy Code" shall mean Title 11 of the
United States Code (11 U.S.C. Section 101 et. seq.) or any
replacement or supplemental federal statute dealing with
the bankruptcy of debtors.
"Borrower" shall mean Fruehauf and any
successor or assign of Fruehauf, including, without
limitation, a receiver, trustee or debtor-in-possession
of or for Fruehauf.
"Collateral" shall mean all Property or
interests in Property of Borrower or any Subsidiary now
or hereafter securing all or any portion of the Senior
Obligations and all Proceeds of such Property or
interests in such Property.
"Congress Loan Documents" shall mean the
Loan Agreement and all documents, instruments,
guaranties, notes, security agreements, mortgages, deeds
of trust and other agreements executed in connection
therewith or delivered pursuant thereto, in each case as
the same may be amended, supplemented, amended and
restated or otherwise modified from time to time;
provided that the term Congress Loan Documents shall not
include any K-H Loan Documents other than the
Intercreditor Agreement.
<PAGE> 3
"Congress Purchase Price" shall mean, on the
date (if any) on which K-H shall purchase the applicable
Senior Obligations pursuant to Section 14 hereof, the
sum of the outstanding principal balance of all Senior
Obligations, plus all accrued interest, fees,
indemnities and other amounts included in such Senior
Obligations which are owing as of such date, plus all
early termination fees, prepayment fees or similar
amounts which would be payable to Congress if Borrower
were prepaying such Senior Obligations in full and
terminating the Congress Loan Documents on such date,
plus a reserve equal to 110% of the aggregate amount of
all contingent Senior Obligations (including, without
limitation, all Letter of Credit Accommodations, as
defined in the Loan Agreement), as reasonably estimated
by Congress.
"Enforcement Blockage Condition" shall mean
any of the events, conditions or circumstances set forth
in clauses (i), (ii) or (iv) of the first sentence of
Section 2 hereof.
"Indebtedness" shall mean, with respect to
any Person, (a) all indebtedness of such Person for
borrowed money or for the deferred purchase price of
Property or services (other than trade liabilities
incurred in the ordinary course of business and payable
in accordance with customary practices) or which is
evidenced by a note, bond, debenture or similar
instrument, (b) all capitalized lease obligations of
such Person, (c) all obligations of such Person in
respect of letters of credit, banker's acceptances or
similar obligations issued or created for the account of
such Person, (d) liabilities of such Person in respect
of foreign currency hedging arrangements and in respect
of interest rate protection or hedging arrangements
entered into by such Person to fix the floating interest
rate or float the fixed interest rate of any
indebtedness or obligations, (e) all guaranties and
other obligations of any kind of such Person with
respect to Indebtedness and obligations of other Persons
of the type described in this definition and (f) all
liabilities secured by any Lien on any Property owned by
such Person even though such Person has not assumed or
otherwise become liable for the payment thereof.
"K-H Loan Documents" shall mean (i) all of
the Assigned Documents (as such term is defined in the
Assignment Agreement), and, to the extent of its
interest therein, the Intercreditor Agreement, (ii) any
note evidencing any indebtedness of Borrower which is
hereafter acquired by K-H from Congress, and (iii) all
other documents, instruments, guaranties, notes,
security agreements, mortgages, deeds of trust and other
agreements executed after the date hereof in favor of
K-H as holder of the Term Note (including any note
referenced in clause (ii)), in each case as the same may
be amended, supplemented, amended and restated or
otherwise modified from time to time.
<PAGE> 4
"Lien" shall mean any mortgage, pledge,
security interest, lien, encumbrance or other charge of
any kind or Property.
"Outer Standstill Date" shall mean the
earlier of (i) the date on which the Senior Obligations
are Paid in Full and completely performed and all
financing arrangements under the Congress Loan Documents
with respect to the Senior Obligations have expired or
been terminated and (ii) the later of (A) the maturity
date of the Term Note, as extended, if at all, pursuant
to Section 2.3 thereof, and (B) if any Events of Default
under the Congress Loan Documents have occurred and are
continuing as of such maturity date, the thirtieth day
after the earliest date on which any such Event of
Default first occurred or the date on which such Event
of Default is cured or waived in writing if earlier than
such thirtieth day, and (C) if the maturity date of the
Term Note has not been extended pursuant to Section 2.3
thereof to May 1, 1999, the first date on which no
Enforcement Blockage Condition exists.
"Paid in Full" or "Payment in Full" means,
with respect to the Senior Obligations as of a
particular date, the payment in full in cash on such
date of all Senior Obligations then due and payable
(including, without limitation, the outstanding
principal amount of all Senior Obligations, and all
accrued interest, fees, indemnities and other amounts
then due and payable under the Congress Loan Documents)
plus a cash collateral reserve equal to 110% of the
aggregate amount of all contingent Senior Obligations
(including, without limitation, all Letter of Credit
Accommodations) as reasonably estimated by Congress.
"Permitted Payments" shall mean (i) any
regularly scheduled payments of interest on or after the
due date thereof and only to the extent and in the
amounts expressly provided in the K-H Loan Documents (as
in effect on the date hereof or as hereafter amended
with the prior written consent of Congress) and (ii) any
Permitted Principal Reduction Payments (as defined in
the Term Note as in effect on the date hereof or as
hereafter amended with the prior written consent of
Congress) on or after the due date thereof and only to
the extent and in the amounts expressly provided in the
Term Note (as in effect on the date hereof or as
hereafter amended with the prior written consent of
Congress). Permitted Payments may only be made to K-H
to the extent expressly provided in Section 2 of this
Agreement.
"Person" shall mean an individual,
partnership, corporation, company, association, trust or
unincorporated organization, and a government or agency
or political subdivision thereof.
"Proceeds" shall mean and include all
"proceeds" as such term is defined in the UCC, whether
now existing or hereafter acquired, or acquired before
or after the commencement of any bankruptcy case.
<PAGE> 5
"Property" shall mean any interest in any
kind of property or asset, whether real, personal or
mixed, or tangible or intangible.
"Protective Advances" shall mean (i) all
advances, costs, expenses and attorneys' and other
professionals' fees, whensoever made, advanced or
incurred by Congress in connection with the Senior
Obligations (including, without limitation, all
insurance-related, storage, maintenance and other
payments respecting any Collateral which Borrower or any
Subsidiary is required to make under any of the Congress
Loan Documents) (ii) costs, expenses, attorneys' and
other professionals' fees and expenses and all other
amounts for which Borrower or any Subsidiary is
obligated to reimburse Congress under any of the
Congress Loan Documents; (iii) advances, costs,
expenses, attorneys' and other professionals' fees and
expenses and other amounts which are advanced or
incurred by Congress in connection with any liquidation
or disposition of any Collateral by Borrower or any
Subsidiary; (iv) all advances, costs, expenses,
attorneys' and other professionals' fees and expenses
and other amounts which are advanced or incurred by
Congress in respect of any environmental laws and as to
which Congress is entitled to be reimbursed or
indemnified pursuant to any of the Congress Loan
Documents; (v) all advances made by Congress, in its
sole discretion, for payment of any federal excise taxes
or sales taxes owing by Borrower or any Subsidiary, (vi)
all advances made by Congress, in its sole discretion,
for payment of accrued and unpaid wages, salaries,
commissions, vacation, sick leave or other fringe
benefits (including payroll taxes with respect thereto)
to employees of the Borrower or any Subsidiary as of the
date on which Congress terminates the Loan Agreement,
and (vii) all advances made by Congress, in its sole
discretion, for payment of any liabilities or
obligations of Borrower or any Subsidiary as to which
Congress or any officers or directors of Borrower or any
Subsidiary could be assessed personal liability if such
liabilities or obligations are not otherwise satisfied
or discharged.
"Senior Obligations" shall mean any and all
obligations, liabilities and indebtedness of every kind,
nature and description owing by Borrower or any
Subsidiary to Congress and/or its Affiliates, including
principal, interest, charges, fees, indemnities, costs
and expenses, however evidenced, whether as principal,
surety, endorser, guarantor or otherwise, arising under
the Congress Loan Documents, whether now existing or
hereafter arising, whether arising before, during or
after the initial or any renewal term of the Congress
Loan Documents or after the commencement of any
bankruptcy case, including, without limitation, (i) the
payment of post-petition interest, costs of enforcement
or preservation or protection of any Collateral
(including attorneys' fees and expenses), and any and
all other amounts which would accrue and become due but
for the commencement of any bankruptcy case or the
operation of any provision (including Section 506(b)) of
or doctrine with respect to the Bankruptcy Code, even if
<PAGE> 6
such post-petition amounts are disallowed in any
bankruptcy case, (ii) any and all Protective Advances,
and (iii) advances made to or claims against Borrower or
any Subsidiary pursuant to or with respect to any cash
collateral usage, financing or extension of credit
provided to Borrower or any Subsidiary by Congress
pursuant to Sections 363 or 364 of the Bankruptcy Code),
in the case of each of the foregoing clauses whether
direct or indirect, absolute or contingent, joint or
several, due or not due, primary or secondary,
liquidated or unliquidated, secured or unsecured, and
however acquired by Congress; provided however, that
Senior Obligations shall not include any Subordinated
Debt. Any Obligations (as defined in the Loan
Agreement) that are incurred in violation of Section 11
hereof shall not constitute Senior Obligations.
"Subordinated Debt" shall mean any and all
obligations, liabilities and indebtedness of every kind,
nature and description owing by Borrower or any
Subsidiary to K-H under the K-H Loan Documents,
including principal, interest, charges, fees,
indemnities, costs and expenses, however evidenced,
whether as principal, surety, endorser, guarantor or
otherwise, whether now existing or hereafter arising,
whether arising before, during or after the initial or
any renewal term of the K-H Loan Documents or after the
commencement of any bankruptcy case.
"Subsequent Triggering Notice" shall mean
any Triggering Notice delivered after the first
Triggering Notice delivered pursuant to this Agreement.
"Subsidiary" shall mean any corporation,
partnership or other entity as to which Borrower shall
at the time, directly or indirectly though a subsidiary
or other Affiliate, (i) have sufficient voting power to
entitle it to elect immediately or to have had elected a
majority of the board of directors or similar governing
body of such corporation, partnership or other entity,
or (ii) own 50% or more of the equity interests issued
by such corporation, partnership or other entity.
"Triggering Notice" shall mean a written
notice from Congress to K-H stating that (a) an Event of
Default under the Loan Agreement has occurred and is
continuing and (b) either (i) Congress intends to
accelerate or demand payment of the Senior Obligations,
and/or foreclose its security interests in or repossess
any Collateral, and/or commence an orderly liquidation
of any substantial portion of the Collateral or (ii) the
Borrower intends to commence or has commenced an orderly
liquidation of any substantial portion of the
Collateral.
* "UCC" shall mean the Uniform Commercial Code
as in effect in the State of New York from time to time.
<PAGE> 7
1. Standby; Subordination; Subrogation. The
payment and performance of the Subordinated Debt is
hereby subordinated to the Senior Obligations and except
as provided in Section 3 hereof, K-H will not ask,
demand, accelerate, sue for, take or receive from
Borrower or any Subsidiary by setoff or in any other
manner, or otherwise exercise any rights or remedies in
respect of, the whole or any part of the Subordinated
Debt which may now or hereafter be owing by Borrower or
any Subsidiary and will not take any negotiable
instruments evidencing such amounts, nor any security
(including guaranties and third party credit support)
for any of the foregoing except as provided in the K-H
Loan Documents (as now in effect or as hereafter amended
with the prior written consent of Congress), unless and
until all such Senior Obligations (whether now existing
or hereafter arising and whether arising before or after
the Borrower or any Subsidiary or the Borrower's or any
Subsidiary's estate becomes the subject of proceedings
under the Bankruptcy Code or whether such Senior
Obligations are acquired outright, conditionally or as
collateral security from another by Congress), shall
have been Paid in Full and completely performed and all
financing arrangements under the Congress Loan Documents
with respect to the Senior Obligations have expired or
been terminated. Notwithstanding the date, manner or
order of attachment or perfection of any such Lien or
any provisions of the UCC or any other applicable law or
judicial decision or the Congress Loan Documents or the
K-H Loan Documents, and regardless of whether Congress
or K-H holds possession of any or all of the Collateral,
and regardless of any invalidity, unenforceability or
lack of perfection of any of the Senior Obligations or
any of the Subordinated Debt or any of the Liens
securing same, all Liens, rights and interests of or in
favor of K-H securing any of the Subordinated Debt,
whether now or hereafter howsoever existing, in any
Property of Borrower or any Subsidiary or the Proceeds
thereof or any other Property securing any of the Senior
Obligations or any of the Subordinated Debt, shall be
and hereby are subordinated to the Liens, rights and
interest of Congress in such Property. K-H shall have
no right to possession of any such Property or to
foreclose or otherwise realize upon or exercise any
rights or remedies in respect of any such Property,
whether by judicial action or otherwise, with respect to
the Subordinated Debt, unless and until all of the
Senior Obligations shall have been Paid in Full and
completely performed and all financing arrangements
under the Congress Loan Documents with respect to the
Senior Obligations have expired or been terminated. K-H
also hereby agrees that, regardless of whether any of
the Senior Obligations are secured or unsecured, except
with respect to Permitted Payments, Congress shall be
subrogated for K-H with respect to K-H's claims against
Borrower or any Subsidiary under the K-H Loan Documents
and K-H's rights, liens and security interests, if any,
in any of the Property of Borrower or any Subsidiary or
any of the Proceeds thereof to secure the Subordinated
Debt until all of the Senior Obligations have been Paid
in Full and completely performed and all financing
arrangements under the Congress Loan Documents with
respect to the Senior Obligations have expired or been
terminated. In the event, in connection with the
disposition of any Collateral which secures any or all
of the Senior Obligations and the Subordinated Debt,
<PAGE> 8
Congress releases any of its Liens on such Collateral,
K-H shall thereupon execute and deliver to Congress (or
if Congress so requests, to Borrower or the applicable
Subsidiary) such termination statements and releases as
Congress shall reasonably request to release K-H's Lien
against such Property. K-H acknowledges and agrees
that, to the extent the terms and provisions of this
Agreement are inconsistent with the K-H Loan Documents,
the K-H Loan Documents shall be deemed to be subject to
this Agreement. To the extent there are any
inconsistencies between the terms of this Agreement and
those of the Term Note and/or the Note Purchase
Agreement, the terms of this Agreement shall control.
2. Permitted Payments. Notwithstanding the
provisions of Section 1 of this Agreement, unless (i) an
Event of Default under Section 8.1(a)(i) or (d) of the
Accounts Financing Agreement (in the case of any Event
of Default under Section 8.1(d) thereof, only to the
extent such Event of Default relates to the Borrower)
has occurred and has not been cured or waived by
Congress in writing (regardless of whether a Triggering
Notice is then in effect), (ii) a Triggering Notice has
been delivered to K-H and is then in effect, (iii) a
Default or Event of Default under the Congress Loan
Documents or an Advance in excess of the amounts
otherwise available to Borrower under the Loan Agreement
would result therefrom or (iv) K-H has breached any
provision of this Agreement in any material respect and
such breach has not been cured or waived by Congress in
writing, Borrower may make any Permitted Payment to K-H.
Any Triggering Notice delivered by Congress shall remain
in effect until (i) all Events of Default on which such
Triggering Notice is based have been cured or waived in
writing by Congress, and no other Default or Event of
Default has occurred and is then continuing or (ii) one
hundred and thirty-five days shall have elapsed after
the delivery of such Triggering Notice, and either (A)
Congress has not accelerated the Senior Obligations or
commenced the orderly liquidation of a substantial
portion of the Collateral or otherwise commenced in any
material respect the exercise of any of its rights and
remedies under the Congress Loan Documents to obtain
repayment of the Senior Obligations or (B) the Borrower
has not commenced the orderly liquidation of a
substantial portion of the Collateral; provided,
however, that if all of the Events of Default on which
such Triggering Notice is based occurred during the
pendency of any prior Triggering Notice and were relied
on by Congress (either as a matured Event of Default or
an unmatured Default) to extend the effectiveness of any
such prior Triggering Notice, then the aforesaid 135 day
period shall commence from the earliest date on which
Congress first relied on any such Event of Default
(either as a matured Event of Default or an unmatured
Default) in extending the effectiveness of any such
prior Triggering Notice. Notwithstanding anything to
the contrary in this Agreement, Congress' right to
deliver a Triggering Notice shall be subject to the
following limitations:
<PAGE> 9
(i) no Triggering Notice may be based on
any Event of Default which occurred before the date of
delivery of any prior Triggering Notice and of which
Congress then had actual knowledge;
(ii) no Event of Default under Section
8.1(e) of the Accounts Financing Agreement may serve as
the basis for a Triggering Notice unless (A) in the case
of the first Triggering Notice which is based on an
Event of Default under Section 8.1(e) of the Accounts
Financing Agreement, such Event of Default consists of a
material adverse change in Borrower's business, assets
or condition (financial or otherwise) from the date of
the Fourth Amendment, and (B) in the case of any
Subsequent Triggering Notice delivered by Congress, such
Event of Default is based on events or other
circumstances occurring after the delivery of the
immediately preceding Triggering Notice which is based
on an Event of Default under Section 8.1(e) of the
Accounts Financing Agreement and such Event of Default
consists of a material adverse change in Borrower's
business, assets or condition (financial or otherwise)
which has occurred since the date of such prior
Triggering Notice; and
(iii) No Event of Default under Section
8.1(f) of the Accounts Financing Agreement may serve as
the basis for any Subsequent Triggering Notice unless it
is based on events or other circumstances occurring
after the delivery of the immediately preceding
Triggering Notice.
Solely for the purposes of this Section and not for any
other purpose, any failure of Congress to waive any
Default or Event of Default shall not preclude a
determination that such Default or Event of Default has
been cured.
3. Enforcement Rights. Except with the prior
written consent of Congress or as specifically provided
in subsections (a) through (c) below, on or before the
Outer Standstill Date, and at any time after Congress
has accelerated the Senior Obligations or has commenced
the orderly liquidation of a substantial portion of the
Collateral or has otherwise commenced in any material
respect the exercise of any of its rights and remedies
under the Congress Loan Documents to obtain repayment of
the Senior Obligations, K-H shall not, and shall not be
entitled to, exercise (and, if applicable, shall
discontinue any exercise of) any right or remedy in
respect of the Subordinated Debt or enforce or otherwise
realize on any Lien on any Property of the Borrower or
any Subsidiary or any other Property securing any
portion of the Subordinated Debt or otherwise take any
action against Borrower or any Subsidiary or any
Property of Borrower or any Subsidiary or any other
Property securing any portion of the Subordinated Debt,
in each case with respect to its rights and remedies
under the K-H Loan Documents.
<PAGE> 10
Notwithstanding the foregoing provisions of
this Section 3:
(a) If the Senior Obligations have been
accelerated by Congress and remain due and payable, K-H
may exercise any right under the K-H Loan Documents (as
in effect on the date hereof or as hereafter amended
with the prior written consent of Congress) to
accelerate the Subordinated Debt.
(b) In the event Congress commences any
judicial proceedings in connection with the exercise of
its rights and remedies under the Congress Loan
Documents, K-H may intervene in such proceedings to the
extent permitted by applicable law and the K-H Loan
Documents (as in effect on the date hereof or as
hereafter amended with the prior written consent of
Congress); provided, however, that (i) K-H shall not,
directly or indirectly, in such proceedings or otherwise
(A) oppose or otherwise dispute Congress' right to
exercise in good faith such rights or remedies through
such proceedings or Congress' right to seek the relief
sought by Congress in such proceedings or (B) seek in
good faith any relief which is inconsistent with the
relief sought by Congress in good faith or with any of
the provisions of this Agreement, and (ii) in such
proceedings, K-H shall enforce its applicable rights and
remedies and otherwise act in such manner as Congress
directs in accordance with commercially reasonable
standards.
(c) If (i) the Borrower fails to make a
Permitted Payment which is permitted to be paid pursuant
to this Agreement, (ii) K-H thereafter notifies Congress
in writing of Borrower's failure to make such Permitted
Payment, and (iii) at any time after Congress' receipt
of such written notice, Congress makes a revolving loan,
the proceeds of which are not used to make the Permitted
Payment or to pay any Congress Obligations or other
amounts required to be paid to Congress under the
Congress Loan Documents, then K-H may exercise any
available rights and remedies under the K-H Loan
Documents (as in effect on the date hereof or as
hereafter amended with the prior written consent of
Congress), other than rights and remedies relating to
any Collateral, for the purpose of obtaining payment of
such Permitted Payment.
4. Subordinated Debt Owed Only to K-H. K-H
warrants and represents that K-H has not previously
assigned any interest in the Subordinated Debt or any
Liens in connection therewith, that no other person,
firm or corporation owns an interest in the Subordinated
Debt or security therefor other than K-H (whether as
joint holders of the Subordinated Debt, participants or
<PAGE> 11
otherwise) and that the entire Subordinated Debt is
owing only to K-H and covenants that the entire
Subordinated Debt shall continue to be owing only to K-H
and all security therefor shall continue to be held
solely for the benefit of K-H unless assigned in
accordance with the terms of this Agreement.
5. Lender Priority. In the event of any
distribution, division, or application, partial or
complete, voluntary or involuntary, by operation of law
or otherwise, of all or any part of the Property of
Borrower or any Subsidiary or the proceeds thereof to
the creditors of Borrower or any Subsidiary or
readjustment of the Senior Obligations and Subordinated
Debt of Borrower or any Subsidiary (whether by reason of
liquidation, bankruptcy, arrangement, receivership,
assignment for the benefit of creditors, any marshalling
of liens or assets or any other action or proceeding
involving the readjustment of all or any part of the
Senior Obligations or the Subordinated Debt), or upon
the dissolution or other winding up of Borrower's or any
Subsidiary's business, or upon the sale of all or
substantially all of Borrower's or any Subsidiary's
assets, or upon any disposition or liquidation by or on
behalf of Congress of any Collateral or other Property
of the Borrower or any Subsidiary, then, and in any such
event, (i) Congress shall be entitled to receive Payment
in Full of any and all of the Senior Obligations then
owing prior to the payment of all or any part of the
Subordinated Debt, and (ii) any payment or distribution
of any kind or character, whether in cash, securities or
other Property, which shall be payable or deliverable
upon or with respect to any or all of the Subordinated
Debt shall be paid or delivered directly to Congress for
application on any of the Senior Obligations, due or not
due, until such Senior Obligations shall have first been
Paid in Full and completely performed.
6. Grant of Authority to Congress. In the
event of the occurrence of any event described in
Section 5 above, and in order to enable Congress to
enforce Congress' rights hereunder in any of the
aforesaid actions or proceedings, Congress is hereby
irrevocably authorized and empowered, in Congress'
discretion, to make and present for and on behalf of K-H
such proofs of claims against Borrower and/or any
Subsidiary on account of the Subordinated Debt or other
motions or pleadings as Congress may deem expedient or
proper and to vote such proofs of claims in any such
proceeding and to receive and collect any and all
dividends or other payments or disbursements made
thereon in whatever form the same may be paid or issued
and to apply the same on account of any of the Senior
Obligations. K-H irrevocably authorizes and empowers
Congress to demand, sue for, collect and receive each of
the aforesaid payments and distributions described in
Section 5 above and give acquittance therefor and to
file claims and take such other actions, in Congress'
own name or in the name of K-H or otherwise, as Congress
may deem necessary or advisable for the enforcement of
this Agreement. To the extent that payments or
distributions are made in Property other than cash, K-H
authorizes Congress to sell such Property to such buyers
<PAGE> 12
and on such terms as Congress, in Congress' reasonable
discretion, shall determine. K-H will execute and
deliver to Congress such powers of attorney, assignments
and other instruments or documents, including notes and
stock certificates (together with such assignments or
endorsements as Congress shall deem necessary), as may
be requested by Congress in order to enable Congress to
enforce any and all claims upon or with respect to any
or all of the Subordinated Debt and to collect and
receive any and all payments and distributions which may
be payable or deliverable at any time upon or with
respect to the Subordinated Debt, all for Congress' own
benefit. Following Payment in Full and complete
performance of the Senior Obligations, Congress will
remit to K-H, to the extent of K-H's interest therein,
all dividends or other payments or distributions paid to
and held by Congress in excess of the Senior
Obligations.
7. Payments Received by K-H. Except for
Permitted Payments received by K-H in accordance with
the provisions of Section 2 above, should any payment or
distribution or security or instrument or proceeds
thereof be received by K-H upon or with respect to the
Subordinated Debt prior to the Payment in Full and
complete performance of all of the Senior Obligations
and termination or expiration of all financing
arrangements under the Congress Loan Documents with
respect to the Senior Obligations, K-H shall receive and
hold the same in trust, as trustee, for the benefit of
Congress, and shall forthwith deliver the same to
Congress, in precisely the form received (except for the
endorsement or assignment of K-H where necessary), for
application on any of the Senior Obligations, due or not
due, and, until so delivered, the same shall be held in
trust by K-H as the Property of Congress. In the event
of the failure of K-H to make any such endorsement or
assignment to Congress, Congress, or any of its officers
or employees, is hereby irrevocably authorized to make
the same.
8. Instrument Legend. Any instrument
evidencing any of the Subordinated Debt (including,
without limitation, the Term Note), or any portion
thereof, will, on the date hereof or promptly hereafter,
be inscribed with a legend conspicuously indicating that
payment thereof is subordinated to the claims of
Congress pursuant to the terms of this Agreement, and
(i) a copy thereof will be delivered to Congress on the
date hereof, and (ii) the original of any such
instrument will be immediately delivered to Congress
upon request therefor by Congress after the occurrence
of an Event of Default to the extent reasonably
necessary for Congress to enforce its rights under this
Agreement or to protect, enforce or perfect its interest
in the K-H Loan Documents or K-H's interest in the
collateral. Any instrument evidencing any of the
Subordinated Debt, or any portion thereof, which is
hereafter executed by Borrower or any Subsidiary, will,
on the date thereof, be inscribed with the aforesaid
legend and a copy thereof will be delivered to Congress
on the date of its execution or within five (5) business
days thereafter, and the original thereof will be
delivered as and when described hereinabove.
<PAGE> 13
9. Reimbursements for Expenses from Borrower.
K-H agrees that until the Senior Obligations have been
Paid in Full and completely performed and all financing
arrangements under the Congress Loan Documents with
respect to the Senior Obligations have expired or been
terminated, K-H will not, directly or indirectly, accept
or receive the benefit of any remuneration or
reimbursement for expenses (other than attorneys' fees
and expenses payable by Borrower in connection with the
closing(s) of the assignment of the Term Note) from or
on behalf of Borrower or any Subsidiary pursuant to or
in connection with the K-H Loan Documents.
10. Continuing Nature of Subordination. This
Agreement shall be effective and may not be terminated
or otherwise revoked by K-H until the Senior Obligations
shall have been Paid in Full and completely performed
and all financing arrangements under the Congress Loan
Documents with respect to the Senior Obligations have
expired or been terminated. In the event K-H shall have
any right under applicable law or otherwise to terminate
or revoke this Agreement, which right cannot be waived,
such termination or revocation shall not be effective
until written notice of such termination or revocation,
signed by K-H, is actually received by Congress' officer
responsible for such matters. In the absence of the
circumstances described in the immediately preceding
sentence, this is a continuing agreement of
subordination and Congress may continue, at any time and
without notice to K-H, to extend credit or other
financial accommodations and loan monies to or for the
benefit of Borrower or any Subsidiary on the faith
hereof. Any termination or revocation described
hereinabove shall not affect this Agreement in relation
to (a) any of the Senior Obligations which arose prior
to receipt thereof, (b) any of the Senior Obligations
which represent Protective Advances or interest on
Senior Obligations, or (c) any of the Senior Obligations
created after receipt thereof, if such Obligations were
incurred through extensions of credit by Congress under
the Congress Loan Documents in an aggregate outstanding
principal amount not (exclusive of Protective Advances
or interest on Senior Obligations) to exceed the amounts
set forth in the last two sentences of Section 11
hereof. If, in reliance on this Agreement Congress
makes loans or other Advances to or for the benefit of
Borrower or any Subsidiary or takes other action under
any of the Congress Loan Documents after such aforesaid
termination or revocation by K-H but prior to the
receipt by Congress of said written notice as set forth
above, the rights of Congress shall be the same as if
such termination or revocation had not occurred; and, in
any event, no obligation of K-H hereunder shall be
affected pursuant to this Section 10 by the death,
incapacity or written revocation of K-H or any other
subordinated party, pledgor, endorser, or guarantor, if
any.
<PAGE> 14
11. Additional Agreements Between Congress and
Borrower. Except as expressly set forth in this Section
and Section 16 hereof, Congress, at any time and from
time to time, either before or after any such aforesaid
notice of termination or revocation, may enter into such
agreement or agreements with Borrower or any Subsidiary
as Congress may deem proper, extending the time of
payment of or renewing or otherwise altering the terms
of all or any of the Senior Obligations or affecting the
security underlying any or all of the Senior
Obligations, and may exchange, sell, release, surrender
or otherwise deal with any such security, without in any
way thereby impairing or affecting this Agreement.
Notwithstanding the foregoing but subject to the
immediately following sentence, Congress shall not make
any extensions of credit which cause the outstanding
principal balance of the Senior Obligations (exclusive
of interest on Senior Obligations and Protective
Advances) to exceed (i) at any time the sum of (A) the
difference between the Maximum Credit and the then
outstanding principal balance of the Term Note plus (B)
$6.5 million or (ii) for any period of more than 14
consecutive days the sum of (A) the difference between
the Maximum Credit and the then outstanding principal
balance of the Term Note plus (B) $2.5 million or (iii)
at any time during any two week period immediately
following any period of 14 consecutive days during which
the outstanding principal balance of the Senior
Obligations (exclusive of interest on Senior Obligations
and Protective Advances) exceeds the amount specified in
clause (ii), the difference between the Maximum Credit
and the then outstanding principal balance of the Term
Note. Congress shall be conclusively entitled to rely
on, and assume the accuracy and completeness of, any
borrowing base certificates, inventory or other
collateral reports or other documents prepared by
Borrower or any Subsidiary in connection with the
Congress Loan Documents, and Congress shall not be
deemed to have breached its covenant in the immediately
preceding sentence to the extent Congress made any
extensions of credit in excess of the levels specified
in the immediately preceding sentence in reliance on
such certificates, reports or other documents.
12. Undersigned's Waivers. All of the Senior
Obligations shall be deemed to have been made or
incurred in reliance upon this Agreement. K-H expressly
waives all notice of the acceptance by Congress of the
subordination and other provisions of this Agreement and
all other notices not specifically required pursuant to
the terms of this Agreement whatsoever, and K-H
expressly waives reliance by Congress upon the
subordination and other agreements as herein provided.
K-H agrees that Congress has made no warranties or
representations with respect to the due execution,
legality, validity, completeness or enforceability of
any of the Congress Loan Documents, or the
collectability of the Senior Obligations, that Congress
shall be entitled to manage and supervise its loans,
extensions of credit or other financial accommodations
to Borrower in accordance with applicable law and
Congress' usual practices, modified from time to time as
<PAGE> 15
Congress deems appropriate in its sole discretion under
the circumstances, without regard to the existence of
any rights that K-H may now or hereafter have in or to
any of the Property of Borrower or any Subsidiary, and
that Congress shall have no liability to K-H for, and
waives any claim which K-H may now or hereafter have
against, Congress arising out of any and all actions
which Congress, in good faith and without gross
negligence, takes or omits to take (including, without
limitation, actions with respect to the creation,
perfection or continuation of Liens in the Collateral
and other security for the Senior Obligations, actions
with respect to the occurrence of an Event of Default,
actions with respect to the foreclosure upon, sale,
release, or depreciation of, or failure to realize upon,
any of the Collateral and actions with respect to the
collection of any claim for all or any part of the
Senior Obligations from any account debtor, guarantor or
any other party) with respect to any of the Congress
Loan Documents or any other agreement related thereto or
to the collection of the Senior Obligations or the
valuation, use, protection or release of the Collateral
and/or other security for the Senior Obligations.
13. Bankruptcy Issues. If Borrower or any
Subsidiary or Borrower's or any Subsidiary's estate
becomes the subject of a bankruptcy case under the
Bankruptcy Code and if Congress desires to permit the
use of cash collateral or to provide financing to
Borrower or any Subsidiary under either Section 363 or
Section 364 of the Bankruptcy Code, K-H agrees that
adequate notice of such financing to K-H, in its
capacity as a holder of the Subordinated Debt, shall
have been provided if K-H received notice two (2)
business days prior to the entry of any order approving
such cash collateral usage or financing. Notice of a
proposed financing or use of cash collateral shall be
deemed given upon the sending of such notice by
telegraph, telecopy or hand delivery to K-H at the
address indicated below. All allocations of payments
between Congress, in its capacity as holder of the
Congress Obligations, and K-H, in its capacity as holder
of the Subordinated Debt, shall continue to be made
after the filing of a petition under the Bankruptcy Code
on the same basis that the payments were to be allocated
prior to the date of such filing. On behalf of itself
(in any capacity) and its Affiliates, K-H hereby
consents to, and waives any objections to (or any right
to object to), and agrees to cause its Affiliates not to
object to, the entry of any interim or final order
entered in any such bankruptcy case approving any use of
cash collateral permitted by Congress or financing
provided by Congress so long as (i) the interim order
contains terms substantially similar to (or less
favorable to Congress than) those in the April 11, 1996
draft Interim Order (1) Authorizing
Debtors-In-Possession To Incur Post-Petition Secured
Indebtedness, (2) Granting Security Interests And
Priority Pursuant To 11 U.S.C. Section 364, (3)
Modifying Automatic Stay And (4) Setting Further Hearing
and (ii) the final order contains terms substantially
similar to (or less favorable to Congress than) those in
the aforesaid draft Interim Order except that the
provisional findings of fact, conclusions of law and
<PAGE> 16
decretal provisions in the Interim Order shall not be
provisional and shall instead be binding on all
creditors, equity interest holders and other parties in
interest. In its capacity as the holder of the
Subordinated Debt, K-H agrees that in any bankruptcy
case of which Borrower or any Subsidiary is the subject,
it will not, without the prior written consent of
Congress, (i) assert any right it may have to adequate
protection of its interest in any Property of the
Borrower or any Subsidiary, (ii) seek any relief from
the automatic stay of Section 362 of the Bankruptcy
Code, or (iii) object to any aspect of Congress' claims
in such bankruptcy case or otherwise take any position
inconsistent with Congress' position in such bankruptcy
case. In its capacity as holder of the Subordinated
Debt, K-H waives any objection, claim or defense K-H may
now or hereafter have arising out of the election by
Congress, in any bankruptcy case under the Bankruptcy
Code, of the application of Section 1111(b)(2) of the
Bankruptcy Code, and notwithstanding any such election
by Congress, Congress shall be entitled to have all of
the Senior Obligations Paid in Full from any and all
Property of the Borrower or any Subsidiary prior to any
payment or distribution made in respect of any
Subordinated Debt. To the extent that Congress receives
payments on, or proceeds of Collateral for, any of the
Senior Obligations which are subsequently invalidated,
declared to be fraudulent or preferential, set aside
and/or required to be repaid to a trustee, receiver or
any other party under any bankruptcy law, state or
federal law, common law, or equitable cause, then, to
the extent of such payment or proceeds received, the
Senior Obligations, or part thereof, intended to be
satisfied shall be revived and continue in full force
and effect as if such payments or proceeds had not been
received by Congress. Nothing in this Paragraph 13
shall limit K-H's right to take any action as, or to
recommend any action to, a member of any committee in
any such bankruptcy case.
14. K-H Purchase Option. Subject to the
provisions of this Section 14, if (a) the outstanding
amount of the Subordinated Debt exceeds the outstanding
amount of the Senior Obligations and (b) either (i) an
Event of Default (as defined in the Term Note) has
occurred and is continuing or (ii) an interest or
principal payment is due and payable, or would have been
due and payable but for Section 2.5(c) of the Term Note,
to K-H under the K-H Loan Documents but has not been,
and is not permitted to be, paid under the provisions of
this Agreement, then K-H shall have the option, but not
the obligation, to purchase from Congress all of its
right, title and interest in and to the Senior
Obligations and the Liens securing the same except for
Congress' indemnification and other reimbursement rights
under the Congress Loan Documents and the right to
receive all charges, fees and expenses thereunder in
connection with the Letter of Credit Accommodations. To
exercise such option, K-H must, within ten (10) days of
the simultaneous occurrence of the conditions set forth
in clauses (a) and (b) of this Section 14, give Congress
written notice of its intent to exercise such option and
<PAGE> 17
specify the date (which shall be at least three (3)
business days but not more than seven (7) business days
after Congress receives such notice) of such purchase
and, on such specified date, pay to Congress, in
immediately available funds, an amount equal to the
Congress Purchase Price on the date of such payment,
without any representations or warranties from or
recourse against Congress. Upon the termination or
expiration of any contingency as to which any reserve
was paid to Congress as part of the Congress Purchase
Price, the unused amount of the reserve related to such
contingency shall be returned to K-H.
15. Congress' Waivers. No waiver shall be
deemed to be made by Congress of its rights hereunder,
unless the same shall be in writing signed on behalf of
Congress and each waiver, if any, shall be a waiver only
with respect to the specific instance involved and shall
in no way impair the rights of Congress or the
obligations of K-H to Congress in any other respect at
any other time.
16. Modifications. K-H shall not, without the
prior written consent of Congress, amend or otherwise
modify any of the K-H Loan Documents. Congress shall
not, without the prior written consent of K-H, amend or
otherwise modify the Congress Loan Documents (i) to
increase the Maximum Credit or (ii) to increase the
advance rates above the percentages set forth in the
definition of Indenture Test Amount set forth in the
Fourth Amendment.
17. Information Concerning Financial Condition
of Borrower. K-H hereby assumes responsibility for
keeping itself informed of the financial condition of
Borrower and each Subsidiary, any and all endorsers and
any and all guarantors of the Senior Obligations and of
all other circumstances bearing upon the risk of
nonpayment of the Senior Obligations and/or Subordinated
Debt that diligent inquiry would reveal, and K-H hereby
agrees that Congress shall have no duty to advise K-H of
information known to Congress regarding such condition
or any such circumstances. In the event Congress, in
Congress' sole discretion, undertakes, at any time or
from time to time, to provide any such information to
K-H, Congress shall be under no obligation (i) to
provide any such information to K-H on any subsequent
occasion, or (ii) to undertake any investigation not a
part of Congress' regular business routine and shall be
under no obligation to disclose any information which
Congress wishes to maintain confidential. K-H hereby
agrees that all payments received by Congress may be
applied, reversed, and reapplied, in whole or in part,
to any of the Senior Obligations, as Congress, in
Congress' sole discretion, deems appropriate and assents
to any extension or postponement of the time of payment
of the Senior Obligations or to any other indulgence
with respect thereto, to any substitution, exchange or,
in connection with any disposition, the release of
Collateral or any other security which may at any time
secure the Senior Obligations and to the addition or
release of any other Person primarily or secondarily
liable therefor.
<PAGE> 18
18. No Offset. In the event K-H at any time
purchases goods or services from Borrower or any
Subsidiary, K-H hereby irrevocably agrees that it shall
pay for such goods or services in cash or cash
equivalents in accordance with the terms of such
purchases and shall not deduct from or setoff against
any amounts billed to K-H by Borrower or such Subsidiary
in connection with such purchases any amounts K-H claims
are due to it with respect to the Subordinated Debt and
that the non-monetary terms and conditions of any such
purchases shall be not more favorable to K-H than
arms'-length terms and conditions made available by
Borrower or such Subsidiary to third parties.
19. Notices. Unless otherwise provided herein,
all notices required or desired to be given hereunder
shall be deemed validly given or delivered: if by hand,
telex, telegram or facsimile, immediately upon sending;
if by Federal Express, Express Mail or any other
overnight delivery service, one (1) day after dispatch;
and if mailed by certified mail, return receipt
requested, five (5) days after mailing. All notices,
requests and demands are to be given or made to Congress
or K-H at the following addresses:
Congress Financial
Corporation (Central)
100 South Wacker Drive
Suite 1940
Chicago, Illinois 60606
Attention: Mr. William Bloom
with a copy to:
Latham & Watkins
233 South Wacker Drive
Suite 5800 Sears Tower
Chicago, Illinois 60606
Attention: Mr. Donald L. Schwartz
K-H Corporation
c/o Treasurer
672 Delaware Avenue
Buffalo, New York 14209
20. Severability. Wherever possible, each
provision of this Agreement shall be interpreted in such
manner as to be effective and valid under applicable
law, but if any provision of this Agreement shall be
prohibited by or invalid under applicable law, such
provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the
remainder of such provision or the remaining provisions
of this Agreement.
21. Headings. The headings contained in this
Agreement are and shall be without substantive meaning
or content of any kind whatsoever and are not a part of
the agreement between the parties hereto.
<PAGE> 19
22. Authority. K-H hereby certifies that it has
all necessary authority to grant the subordination
evidenced hereby and to execute this Agreement on behalf
of K-H.
23. Binding Effect. This Agreement shall be
immediately binding upon K-H and its successors and
assigns, and shall inure to the benefit of the
successors and assigns of Congress, and no other Person
shall have any rights under this Agreement, whether as a
third party beneficiary or otherwise.
24. Restrictions on Pledges, Assignments and
Participations.
(a) K-H shall not pledge its rights under
this Agreement, or any other K-H Documents to any
Person, and any attempted pledge in violation of this
Section 24 shall be void ab initio.
(b) K-H shall not assign or sell
participations in its rights or obligations under this
Agreement or any other K-H Documents or in or to the
Collateral or any other security for the Subordinated
Debt to any other Person without prior written consent
of Congress which shall not be unreasonably withheld so
long as such proposed assignee is reasonably acceptable
to Congress.
(c) Without the consent of K-H: (i)
Congress may sell further participations in the Senior
Obligations to any Person under one or more separate
agreements without in any way affecting any of the
rights and obligations of the parties to this Agreement,
and (ii) Congress may assign all or any portion of its
interest in the Senior Obligations to any Person.
(d) No assignment made by K-H or Congress
in violation of this Section 24 shall release K-H or
Congress from its obligations and liabilities under this
Agreement.
25. GOVERNING LAW; SUBMISSION TO JURISDICTION;
WAIVER OF JURY TRIAL; WAIVER OF DAMAGES. (a) THIS
AGREEMENT SHALL BE GOVERNED BY AND INTERPRETED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK AND
ANY DISPUTE ARISING OUT OF, CONNECTED WITH, RELATED TO,
OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN
K-H AND CONGRESS IN CONNECTION WITH THIS AGREEMENT, AND
WHETHER ARISING IN CONTRACT, TORT, EQUITY OR OTHERWISE,
SHALL BE RESOLVED IN ACCORDANCE WITH THE INTERNAL LAWS
(AS OPPOSED TO THE CONFLICTS OF LAWS PROVISIONS) AND
DECISIONS OF THE STATE OF NEW YORK.
(b) EXCEPT AS PROVIDED IN THE NEXT
PARAGRAPH, K-H AND CONGRESS AGREE THAT ALL DISPUTES
BETWEEN THEM ARISING OUT OF, CONNECTED WITH, RELATED
TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED
BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT, AND
<PAGE> 20
WHETHER ARISING IN CONTRACT, TORT, EQUITY, OR OTHERWISE,
SHALL BE RESOLVED ONLY BY STATE OR FEDERAL COURTS
LOCATED IN NEW YORK, NEW YORK, BUT K-H AND CONGRESS
ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE
TO BE HEARD BY A COURT LOCATED OUTSIDE OF NEW YORK, NEW
YORK. K-H WAIVES IN ALL DISPUTES ANY OBJECTION THAT IT
MAY HAVE TO THE LOCATION OF THE COURT CONSIDERING THE
DISPUTE INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO
THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON
CONVENIENS.
(c) K-H AGREES THAT CONGRESS SHALL HAVE
THE RIGHT, TO THE EXTENT PERMITTED BY APPLICABLE LAW, TO
PROCEED AGAINST K-H OR ITS PROPERTY IN A COURT IN ANY
LOCATION REASONABLY SELECTED IN GOOD FAITH TO ENABLE
CONGRESS TO REALIZE ON SUCH PROPERTY, OR TO ENFORCE A
JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF
CONGRESS. K-H AGREES THAT IT WILL NOT ASSERT ANY
PERMISSIVE COUNTERCLAIMS IN ANY PROCEEDING BROUGHT BY
CONGRESS TO REALIZE ON SUCH PROPERTY, OR TO ENFORCE A
JUDGMENT OR OTHER COURT ORDER IN FAVOR OF CONGRESS. K-H
WAIVES ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF
THE COURT IN WHICH CONGRESS HAS COMMENCED A PROCEEDING
DESCRIBED IN THIS PARAGRAPH INCLUDING, WITHOUT
LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR
BASED ON THE GROUNDS OF FORUM NON CONVENIENS.
(d) EACH OF K-H AND CONGRESS WAIVES ANY
RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY
DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR
OTHERWISE ARISING OUT OF, CONNECTED WITH, RELATED TO OR
INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM
IN CONNECTION WITH THIS AGREEMENT. INSTEAD, ANY
DISPUTES RESOLVED IN COURT WILL BE RESOLVED IN A BENCH
TRIAL WITHOUT A JURY.
(e) K-H (I) AGREES THAT CONGRESS SHALL
HAVE NO LIABILITY TO K-H (WHETHER SOUNDING IN TORT,
CONTRACT OR OTHERWISE) FOR LOSSES SUFFERED BY K-H IN
CONNECTION WITH, ARISING OUT OF, OR IN ANY WAY RELATED
TO, THE TRANSACTIONS CONTEMPLATED AND THE RELATIONSHIP
ESTABLISHED BY THIS AGREEMENT, OR ANY ACT, OMISSION OR
EVENT OCCURRING IN CONNECTION THEREWITH, UNLESS IT IS
DETERMINED BY A JUDGMENT OF A COURT THAT IS BINDING ON
CONGRESS, (WHICH JUDGMENT SHALL BE FINAL AND NOT SUBJECT
TO REVIEW ON APPEAL), THAT SUCH LOSSES WERE THE RESULT
OF ACTS OR OMISSIONS ON THE PART OF CONGRESS,
CONSTITUTING WILLFUL MISCONDUCT, GROSS NEGLIGENCE, BAD
FAITH, OR KNOWING VIOLATIONS OF LAW AND (II) WAIVES,
RELEASES AND AGREES NOT TO SUE UPON ANY CLAIM AGAINST
CONGRESS (WHETHER SOUNDING IN TORT, CONTRACT OR
OTHERWISE), EXCEPT A CLAIM BASED UPON WILLFUL
MISCONDUCT, GROSS NEGLIGENCE, BAD FAITH, OR KNOWING
VIOLATIONS OF LAW. WHETHER OR NOT SUCH DAMAGES ARE
RELATED TO A CLAIM THAT IS SUBJECT TO THE WAIVER
EFFECTED ABOVE AND WHETHER OR NOT SUCH WAIVER IS
EFFECTIVE, CONGRESS SHALL NOT HAVE ANY LIABILITY WITH
RESPECT TO, AND K-H HEREBY WAIVES, RELEASES AND AGREES
NOT TO SUE UPON ANY CLAIM FOR, ANY SPECIAL, INDIRECT,
CONSEQUENTIAL OR PUNITIVE DAMAGES SUFFERED BY K-H IN
CONNECTION WITH, ARISING OUT OF, OR IN ANY WAY RELATED
TO THE TRANSACTIONS CONTEMPLATED OR THE RELATIONSHIP
ESTABLISHED BY THIS AGREEMENT, OR ANY ACT, OMISSION OR
<PAGE> 21
EVENT OCCURRING IN CONNECTION THEREWITH, UNLESS IT IS
DETERMINED BY A JUDGMENT OF A COURT THAT IS BINDING ON
CONGRESS (WHICH JUDGMENT SHALL BE FINAL AND NOT SUBJECT
TO REVIEW ON APPEAL), THAT SUCH DAMAGES WERE THE RESULT
OF ACTS OR OMISSIONS ON THE PART OF CONGRESS,
CONSTITUTING WILLFUL MISCONDUCT, GROSS NEGLIGENCE, BAD
FAITH, OR KNOWING VIOLATIONS OF LAW.
[Signature Page Follows]
<PAGE> S-1
IN WITNESS WHEREOF, this instrument has been
signed and sealed this 25th day of April, 1996.
K-H CORPORATION
By: /s/ Fred J. Chapman
------------------
Title: Treasurer
Acknowledged and accepted in
Chicago, Illinois this 25th day
of April, 1996.
CONGRESS FINANCIAL CORPORATION (Central)
By: /s/ Thomas Lannon
-------------------
Title: Vice President
<PAGE> S-2
Each of FRUEHAUF TRAILER CORPORATION and the
undersigned direct and indirect subsidiaries of Fruehauf
Trailer Corporation, hereby accepts, and acknowledges
receipt of a copy of, and agrees to be bound by, the
foregoing Subordination Agreement (the "Agreement") this
25th day of April, 1996, and, without limiting the
generality of the foregoing, further agrees and
acknowledges, jointly and severally, as follows:
1. Each of the undersigned will not pay any amount
due under any of the K-H Loan Documents (this term and
all other capitalized terms used and not otherwise
defined herein shall have the respective meanings given
such terms in the Agreement) or grant any security
therefor, except as the Agreement provides.
2. The breach by K-H of any of the provisions of the
Agreement shall constitute an "Event of Default" under
and as defined in the Congress Loan Documents.
3. Congress shall be entitled, but not obligated, to
make any Permitted Payment on behalf of the Borrower to
K-H or to cure any event of default under any of the K-H
Loan Documents, and each of the undersigned shall be,
jointly and severally, obligated to reimburse and
indemnify Congress, upon demand, for all payments made
or other obligations incurred by Congress in exercising
any such cure rights, and all such reimbursement and
indemnification obligations shall constitute part of the
"Obligations" under and as defined in the Loan Agreement
and shall be secured by the Collateral.
4. The terms of this Agreement shall not give any
undersigned any substantive rights vis-a-vis Congress
and/or K-H. If Congress and/or K-H shall enforce its
rights or remedies in violation of the terms of this
Agreement, the undersigned shall not use such violation
as a defense to the enforcement by any of the foregoing
Persons of any of their respective rights and remedies
under the Congress Loan Documents or the K-H Loan
Documents, as applicable, and shall not assert such
violation as a counterclaim or basis for setoff or
recoupment against Congress and/or K-H.
FRUEHAUF TRAILER CORPORATION
By: /s/ Timothy J. Wiggins
------------------------
Title: Executive Vice President
FGR, INC.
By: /s/ Timothy J. Wiggins
-----------------------
Title: Executive Vice President
<PAGE> S-3
FRUEHAUF CORPORATION
By: /s/ Timothy J. Wiggins
------------------------
Title: Executive Vice President
MARYLAND SHIPBUILDING &
DRYDOCK COMPANY
By: /s/ Timothy J. Wiggins
------------------------
Title: Executive Vice President
THE MERCER CO.
By: /s/ Timothy J. Wiggins
------------------------
Title: Executive Vice President
DEUTSCHE-FRUEHAUF HOLDING
CORPORATION
By: /s/ Timothy J. Wiggins
------------------------
Title: Executive Vice President
FRUEHAUF HOLDINGS CORP.
By: /s/ Timothy J. Wiggins
------------------------
Title: Executive Vice President
FRUEHAUF INTERNATIONAL LIMITED
By: /s/ Timothy J. Wiggins
------------------------
Title: Executive Vice President
<PAGE> S-4
M.J. HOLDINGS, INC.
By: /s/ Timothy J. Wiggins
------------------------
Title: Executive Vice President
E.L. DEVICES, INC.
By:
------------------------
Title:
__________________________________________________________
WARRANT AGREEMENT
between
FRUEHAUF TRAILER CORPORATION
and
K-H CORPORATION
__________________
Dated as of April 25, 1996
__________________________________________________________
<PAGE>
<PAGE>
TABLE OF CONTENTS
SECTION Page
SECTION 1. Certain Defined Terms; Representations
of Initial Holder .................. 1
1.1 Certain Defined Terms ........... 1
1.2 Representations of Initial
Holder ...................... 2
SECTION 2. Form of Warrant; Execution;
Registration ....................... 3
2.1. Form of Warrant; Execution of
Warrants .................... 3
2.2. Registration ................ 3
SECTION 3. Transfer and Exchange of Warrants .... 4
SECTION 4. Term of Warrants; Exercise of Warrants;
Compliance with Government Regulations;
Redemption ....................... 4
4.1. Term of Warrants ............ 4
4.2. Exercise of Warrants ........ 5
4.3. Compliance with Government
Regulations; Qualification under
the Securities Laws ...... 6
4.4 Redemption .................. 7
SECTION 5. Payment of Taxes ................... 8
SECTION 6. Mutilated or Missing Warrant
Certificates......................... 9
SECTION 7. Reservation of Warrant Shares ...... 9
SECTION 8. Stock Exchange Listings ............ 10
SECTION 9. Adjustment of Exercise Price; Number of
Warrant Shares and Shares of Capital
Stock Warrants Are Exercisable Into..10
9.1. Mechanical Adjustments ...... 10
-i-
<PAGE>
(a) Adjustment for Change in
Capital Stock .... 10
(b) Adjustment for Rights
Issue ............. 11
(c) Adjustment for Other
Distributions ..... 11
(d) Adjustment for Common Stock
Issue ............ 13
(e) Current Market Price; Price
Per Share ........ 14
(f) When De Minimis Adjustment
May Be Deferred .. 16
(g) Other Dilutive Events ... 16
(h) Adjustment in Exercise
Price ............ 17
(i) When No Adjustment
Required ......... 17
(j) Shares of Common Stock . 17
(k) Expiration of Rights, etc. 18
9.2. Voluntary Adjustment by the
Company ................... 18
9.3. Notice of Adjustment ........ 18
9.4. Preservation of Purchase Rights upon
Merger or Consolidation .. 19
9.5. No Impairment of Holder's
Rights ................... 19
9.6. Statement on Warrants ....... 20
SECTION 10. Fractional Interests................ 20
SECTION 11. No Rights as Stockholders; Notices to
Holders .......................... 20
SECTION 12. SEC Registration ..................... 22
12.1. SEC Restrictions ............ 22
12.2. Certificates To Bear Legends.. 22
-ii-
<PAGE>
12.3. Registration Statements ..... 23
(a)(I) Demand Registration 23
(a)(II) Piggyback Registration
Rights ............... 24
(b) Restrictions on Public Sale by
the Company and Others.. 25
12.4. Certain Agreements of Holders..26
12.5. Underwritten Registrations .. 26
12.6. Registration Procedures ..... 27
12.7. Registration Expenses ....... 33
12.8. Indemnification ............. 34
(a) Indemnification by the
Company .............. 34
(b) Indemnification by Holders of
Registrable Securities..36
(c) Conduct of Indemnification
Proceedings ........ 37
(d) Contribution .......... 38
(e) Other Indemnities ..... 39
12.9. Rule 144 ..................... 39
SECTION 13. Payments in U.S. Currency ........... 39
SECTION 14. Identity of Transfer Agent .......... 40
SECTION 15. Notices ............................. 40
SECTION 16. Furnishing Information .............. 40
SECTION 17. Supplements and Amendments .......... 41
SECTION 18. Successors .......................... 41
SECTION 19. APPLICABLE LAW ...................... 41
SECTION 20. Benefits of this Agreement .......... 41
-iii-
<PAGE>
SECTION 21. Counterparts ........................ 41
SECTION 22. Captions ............................ 41
Signature ......................................... 42
Exhibit A Form of Warrant Certificate ......... A-1
-iv-
<PAGE>
INDEX OF DEFINED TERMS
Defined Term Section
- - ------------ -------
Act ............................ 1.1
Agreement ...................... Recitals
Assets ......................... 9.1(c)(i)
Cashless Exercise .............. 4.2
Cashless Exercise Ratio ........ 4.2
Common Stock ................... Recitals
Company ........................ Recitals
Convertible Securities ......... 9.1(c)(i)
Current Market Price ........... 9.1(e)
DTC ............................ 12.6(i)
Exchange Act ................... 12.6(a)
Exercise Period................. 4.1
Exercise Price ................. 4.2
Holders ........................ Recitals
Indemnified Party .............. 12.8(a)
Inspector ...................... 12.6(n)
Minimum Market Price ........... 4.4(a)
NASD ........................... 1.1
NASDAQ ......................... 9.1(e)(i)
Number of Shares ............... 9.1(e)(ii)
Price Per Share ................ 9.1(e)(ii)
Proceeds ....................... 9.1(e)(ii)
Prospectus ..................... 1.1
Redemption Election Date ....... 1.1
Redemption Notice .............. 4.4(b)
Redemption Payment Date ........ 4.4(b)
Redemption Price ............... 4.4(a)
Registrable Securities ......... 1.1
Registration Statement ......... 1.1
Rights ......................... 9.1(b)
SEC ............................ 1.1
Securities ..................... 9.1(d)
Shares of Common Stock ......... 9.1(j)
Transfer Agent ................. 7
Transfer Restricted Securities.. 1.1
Trustee ........................ 9.1(c)(ii)
Warrant ........................ Recitals
Warrant Certificates ........... 2.1
Warrant Register ............... 2.2
Warrant Shares ................. Recitals
-v-
<PAGE>
WARRANT AGREEMENT ("this Agreement"), dated as
of April 25, 1996, between FRUEHAUF TRAILER CORPORATION,
a Delaware corporation (together with any successors, the
"Company"), and K-H CORPORATION, a Delaware corporation
(the "Initial Holder").
WHEREAS, the Initial Holder has made a loan to
the Company and has agreed, subject to certain conditions
to make an additional loan (collectively, the "Term
Loan"); and
WHEREAS, the Company proposes to issue
2,000,000 Warrants (each a "Warrant," together the
"Warrants") for the purchase of an aggregate (subject to
adjustment as herein provided) of 2,000,000 shares of its
common stock, par value $.01 per share (the "Common
Stock"), pursuant to the Letter Agreement, dated April 19,
1996 (as amended, supplemented, restated or otherwise
modified from time to time, the "Agreement"), by and among
the Company and the Initial Holder of the Warrants and as
further consideration for the Term Loan. Subject to
Section 9 hereof, each Warrant entitles the holder thereof
to purchase one share of Common Stock. The shares of
Common Stock deliverable upon exercise of the Warrants are
referred to herein as the "Warrant Shares."
NOW, THEREFORE, in consideration of the
foregoing and for the purpose of defining the terms and
provisions of the Warrants and the respective rights and
obligations thereunder of the Company and the registered
owners of the Warrants and any security into which they
may be exchanged (the "Holders"), the parties hereby agree
as follows:
SECTION 1. Certain Defined Terms;
Representations of Initial Holder.
1.1. Certain Defined Terms.
"Act" means the Securities Act of 1933, as
amended from time to time, and the rules and regulations
of the SEC promulgated thereunder.
"Business Day" means a day other than (a) a
Saturday or Sunday, (b) any day on which banking
institutions located in the City of New York, New York are
required or authorized by law or local proclamation to
close or (c) a day on which the New York Stock Exchange is
closed.
<PAGE> 2
"NASD" means the National Association of
Securities Dealers, Inc.
"Prospectus" means the prospectus included in
any Registration Statement, as amended or supplemented by
any prospectus supplement with respect to the terms of the
offering of any portion of the Registrable Securities
covered by the Registration Statement and by all other
amendments and supplements to the prospectus, including
post-effective amendments and all material incorporated by
reference in such prospectus.
"Redemption Election Date" means the date of
receipt by the Holders of the written direction of the
Company referred to in Section 4.4(b) hereof.
"Registrable Securities" means the Warrants,
the Warrant Shares and any other securities issued or
issuable with respect to the Warrants or the Warrant
Shares by way of a stock dividend or stock split or in
connection with a combination of shares, recapitalization,
merger, consolidation or other reorganization, provided
that a security ceases to be a Registrable Security when
it is no longer a Transfer Restricted Security.
"Registration Statement" means any registration
statement of the Company filed with the SEC under the Act
which covers the transfer of Registrable Securities
pursuant to the provisions of this Agreement, including
the Prospectus, amendments and supplements to such
Registration Statement, including post-effective
amendments, and all exhibits and all material incorporated
by reference in such Registration Statement.
"SEC" means the Securities and Exchange Commission.
"Transfer Restricted Securities" means a
Warrant or Warrant Share, until such Warrant or Warrant
Share (i) has been transferred under the Act in accordance
with a Registration Statement covering it or (ii) is sold
pursuant to Rule 144 under the Act.
1.2. Representations of Initial Holder.
The Initial Holder hereby represents and
warrants to the Company as follows:
(a) The Initial Holder has been afforded (i)
the opportunity to ask such questions as it has deemed
necessary of, and to recieve answers from, representatives
of the Company concerning the Warrants and the merits and
risks of investing in the Warrants and (ii) access to
information about the Company and the Company's financial
condition, results of operations, business, properties,
management and prospects, sufficient to enable it to
evaluate its investment in the Warrants.
<PAGE> 3
(b) The Initial Holder represents that the
Initial Holder will hold the Warrants for its own account
for investment and not with a view to distribution except
in compliance with the Act. The Initial Holder
acknowledges that the Warrants have not been registered
under the Act or the securities laws of any state, and
this Agreement is being made in reliance upon an exemption
from registration under the Act for an offer and sale of
securities that does not involve a public offering.
(c) The Initial Holder is an accredited
investor within the meaning of Rule 501(a) of Regulation
D promulgated under the Act.
SECTION 2. Form of Warrant; Execution;
Registration.
2.1. Form of Warrant; Execution of Warrants.
The certificates evidencing the Warrants (the "Warrant
Certificates") shall be in registered form only and shall
be in the form set forth as Exhibit A hereto. The Warrant
Certificates shall be signed on behalf of the Company by
its Chairman of the Board, President or one of its Vice
Presidents. The signature of any such officers on the
Warrant Certificates may be manual or facsimile.
Any Warrant Certificate may be signed on
behalf of the Company by any person who, at the actual
date of the execution of such Warrant Certificate, shall
be a proper officer of the Company to sign such Warrant
Certificate, although at the date of the execution of this
Warrant Agreement any such person was not such officer.
Each Warrant Certificate shall be dated the
date it is executed by the Company either upon initial
issuance or upon division, exchange, substitution or
transfer.
2.2. Registration. The Warrant Certificates
shall be numbered and shall be registered on the books of
the Company (the "Warrant Register") as they are issued.
The Company shall be entitled to treat the registered
owner of any Warrant as the owner in fact thereof for all
purposes and shall not be bound to recognize any equitable
or other claim to or interest in such Warrant on the part
of any other person.
<PAGE> 4
SECTION 3. Transfer and Exchange of Warrants.
Subject to Sections 4.4(c), 11 and 12 hereof and the
receipt of such documentation as the Company may
reasonably reQuire, the Company shall from time to time
register the transfer of any outstanding Warrants upon the
records to be maintained by it for that purpose, upon
surrender of the Certificate or Certificates evidencing
such Warrants duly endorsed or accompanied (if so required
by it) by a written instrument or instruments of transfer
in form reasonably satisfactory to the Company, duly
executed by the registered Holder or Holders thereof or by
the duly appointed legal representative thereof or by a
duly authorized attorney. Subject to the terms of this
Agreement, each Warrant Certificate may be exchanged for
another Warrant Certificate or Certificates entitling the
Holder thereof to purchase a like aggregate number of
Warrants Shares as the Warrant Certificate or Certificates
surrendered then entitle such Holder to purchase. Any
Holder desiring to exchange a Warrant Certificate or
Certificates shall make such request in writing delivered
to the Company and shall surrender, duly endorsed or
accompanied (if so required by the Company) by a written
instrument or instruments of transfer in form reasonably
satisfactory to the Company, the Warrant Certificate or
Certificates to be so exchanged. Upon registration of
transfer, the Company shall issue and deliver by certified
mail a new Warrant Certificate or Certificates to the
persons entitled thereto.
No service charge shall be made for any
exchange or registration of transfer of a Warrant
Certificate or of Warrant Certificates, but the Company
may require payment of a sum sufficient to cover any stamp
tax or other tax or other governmental charge that is
imposed in connection with any such exchange or
registration of transfer.
SECTION 4. Term of Warrants; Exercise of
Warrants; Compliance with Government Regulations;
Redemption.
4.1. Term of Warrants. Subject to the terms
of this Agreement, each Holder shall have the right, which
may be exercised at any time from 9:00 a.m., New York City
time, on April 25, 1996 to 5:00 p.m., New York City time,
on April 25, 2001 (the "Exercise Period"), to receive from
the Company the number of Warrant Shares which the Holder
may at the time be entitled to receive upon exercise of
such Warrants and the Warrant Shares issued to a Holder
upon exercise of its Warrants shall be duly authorized,
validly issued, fully paid, nonassessable and not subject
to any preemptive rights. Each Warrant not exercised
prior to the expiration of the Exercise Period shall
become void, and all rights thereunder and all rights in
respect thereof under this Agreement shall cease as of
such time.
<PAGE> 5
4.2. Exercise of Warrants. During the
Exercise Period, each Holder may, subject to this
Agreement, exercise from time to time some or all of the
Warrants evidenced by its Warrant Certificate(s) by (i)
surrendering to the Company such Certificate(s) with the
form of election to purchase on the reverse thereof duly
filled in and signed, and (ii) paying to the Warrant Agent
for the account of the Company a purchase price of $2.50
per Warrant Share, as such may theretofore have been
adjusted pursuant to Section 9 hereof (the "Exercise
Price"), for the number of Warrant Shares in respect of
which such Warrants are exercised. Warrants shall be
deemed exercised on the date such Warrant Certificate(s)
are surrendered to the Company and (unless such exercise
is a Cashless Exercise) tender of payment of the Exercise
Price is made. Payment of the aggregate Exercise Price
shall be made in cash by wire transfer of immediately
available funds to the Company or by certified or official
bank check or checks to the order of the Company or by any
combination thereof. Notwithstanding the above, a Warrant
may also be exercised solely by the surrender of the
Warrant Certificate, and without the payment of the
Exercise Price in cash, for such number of Warrant Shares
equal to the product of (1) the number of Warrant Shares
for which such Warrant is exercisable with payment of the
Exercise Price as of the date of exercise and (2) the
Cashless Exercise Ratio. For purposes of this Agreement,
the "Cashless Exercise Ratio" shall equal a fraction, the
numerator of which is the excess of the Current Market
Price per share of Common Stock on the date of exercise
(calculated as set forth in Section 9.1(e) hereof) over
the Exercise Price per share of Common Stock of the
Warrant as of the date of exercise and the denominator of
which is the Current Market Price per share of Common
Stock on the date of exercise (calculated as set forth in
Section 9.1(e) hereof). An exercise of a Warrant in
accordance with the immediately preceding sentences is
herein called a "Cashless Exercise." Upon surrender of a
Warrant Certificate evidencing more than one Warrant in
connection with the Holder's option to elect a Cashless
Exercise, such Holder shall specify the number of Warrants
to be exercised pursuant to such Cashless Exercise, and
the number of Warrant Shares deliverable upon such
Cashless Exercise shall be equal to the number of Warrant
Shares for which such Warrants are so exercised,
multiplied by the Cashless Exercise Ratio. All provisions
of this Agreement shall be applicable with respect to a
Cashless Exercise of less than the full number of Warrants
evidenced by the surrendered Warrant Certificate.
<PAGE> 6
Upon the exercise of any Warrants in
accordance with this Agreement, the Company shall issue
and cause to be delivered with all reasonable dispatch,
and in any event within five (5) Business Days thereafter,
to or upon the written order of the Holder and in such
name or names as the Holder may designate, a certificate
or certificates for the number of full Warrant Shares
issuable upon the exercise of such Warrants and shall take
such other actions at its sole expense as are necessary to
complete the exercise of the Warrants (including, without
limitation, payment of any cash with respect to fractional
interest required under Section 10 hereof). The
certificate or certificates representing such Warrant
Shares shall be deemed to have been issued and any person
so designated to be named therein shall be deemed to have
become a holder of record of such Warrant Shares as of the
date the Warrants are exercised hereunder. Each Warrant
Share, when issued upon exercise of the Warrants, will be
duly authorized, validly issued, fully paid and
nonassessable and will not have been issued in violation
of any preemptive rights.
In the event that less than all of the
Warrants evidenced by a Warrant Certificate are exercised,
the Holder thereof shall be entitled to receive a new
Warrant Certificate or Certificates as specified by such
Holder evidencing the remaining Warrant or Warrants, and
the Company shall issue and deliver the required new
Warrant Certificate or Certificates evidencing such
remaining Warrant or Warrants pursuant to the provisions
of this Section 4.2 and of Section 3 hereof.
4.3. Compliance with Government Regulations;
Qualification under the Securities Laws. (a) The Company
covenants that if any shares of Common Stock required to
be reserved for purposes of exercise of Warrants require,
under any federal or state law or applicable governing
rule or regulation or any national securities exchange,
registration with or approval of any governmental
authority, or listing on any such national securities
exchange, before such shares may be issued upon exercise
the Company will, unless the Company has received an
opinion of counsel to the effect that such registration is
not then permitted by such laws, in good faith and as
expeditiously as possible use its best efforts to cause
such shares to be duly so registered or approved, or
listed on such national securities exchange, as the case
may be, provided that in no event shall such shares of
Common Stock be issued, and the exercise of all Warrants
shall be suspended, and the Holders promptly notified in
writing of such suspension, for the period during which
such registration, approval or listing is required but not
in effect, provided, further, that the Exercise Period
shall be extended one day for each day (or portion
thereof) that any such suspension is in effect.
Notwithstanding the foregoing, any suspension resulting
solely from a failure to list the shares of Common Stock
shall be effective for a period not to exceed 90 days and
the Company shall take all necessary steps so the listing
of such shares shall not be necessary. The Company shall
have no right to redeem the Warrants pursuant to Section
4.4 hereof so long as any such suspension is in effect or
if the Company is unable to comply fully with its
obligations under Sections 3 and 4.2 hereof.
<PAGE> 7
(b) The Company will register or otherwise
qualify the shares of Common Stock issuable upon exercise
of the Warrants pursuant to the provisions of the Act, and
pursuant to applicable state securities laws.
4.4. Redemption.
(a) Subject to the limitations set forth
below and in Section 4.3(a) hereof, the Company shall have
the right to redeem all (but not less than all) of the
Warrants, at a price equal to $.01 per Warrant (the
"Redemption Price"), at any time (i) after the third
anniversary of the date hereof and prior to the fourth
such anniversary, provided that the Current Market Price
per share of Common Stock on the Redemption Election Date
(calculated as set forth in Section 9.1(e) hereof) (the
"Minimum Market Price") is at least equal to 181.8% of the
Exercise Price in effect on the Redemption Election Date
and (ii) on and after the fourth anniversary of the date
hereof and prior to the fifth such anniversary, provided
that the Minimum Market Price is at least equal to 209.0%
of the Exercise Price in effect on the Redemption Election
Date.
(b) The right of redemption set forth in
Section 4.4(a) shall be exercisable upon prior written
irrevocable (except as provided in this paragraph (b))
notice (the "Redemption Notice") of the Company to the
Holders, which written direction shall set forth the date
to be fixed as the redemption date (the "Redemption
Payment Date") and shall be given to the Holders not less
than one hundred five (105) days prior to the Redemption
Payment Date nor more than one hundred twenty (120) days
prior to the Redemption Payment Date sent by first-class
U.S. mail, postage prepaid, certified or registered mail,
return receipt requested, at its address as the same shall
appear on the Warrant Register. The Redemption Notice
shall specify (i) the Redemption Price, (ii) the
Redemption Payment Date, (iii) the place where the Warrant
Certificates shall be delivered, (iv) that subject to the
terms of this Agreement, the right to exercise or transfer
<PAGE> 8
the Warrant shall terminate at 5:00 p.m. (New York City
time) on the Business Day immediately preceding the
Redemption Payment Date, and (v) that after the Redemption
Payment Date, all rights of the Holders in the Warrants,
except the right to receive the Redemption Price, shall
cease and terminate and the Warrants shall no longer be
deemed outstanding or in effect. No failure to mail such
notice nor any defect therein or in the mailing thereof
shall affect the validity of the proceedings for such
redemption except as to a Holder to whom notice was not
mailed or whose notice was defective. Within two (2) days
after the Redemption Election Date, the Company shall
deliver to the Holders a certificate signed by the
Chairman of the Board, the President, an Executive Vice
President, a Vice President, the Treasurer or the
Controller of the Company setting forth in reasonable
detail the computations of the Minimum Market Price and
the Exercise Price pursuant to clause (i) or (ii), as
applicable, of Section 4.4(a) hereof. If the Holders
shall not have received such certificate within such time,
the redemption that was requested in such written
direction shall automatically be cancelled without any
further act or deed of the Company. On and after the
Redemption Payment Date, all rights of the Holders in the
Warrants, except the right to receive the Redemption
Price, shall cease and terminate and the Warrants shall no
longer be deemed outstanding or in effect. On or before
the Redemption Payment Date, the Holders shall deliver to
the Company their Warrant Certificates evidencing the
Warrants. If any Holder shall fail to so deliver its
Warrant Certificates, the Company shall have the right to
cancel Warrants evidenced by such Warrant Certificates
upon its books and pay to the Holder the Redemption Price
for such Warrants. The Warrants so cancelled shall for all
purposes be considered to have been redeemed as provided
herein. The Redemption Price for each Warrant so redeemed
shall be paid by the Company in cash or by check on the
Redemption Payment Date to the registered Holder of such
Warrant as set forth in the Warrant Register.
(c) Subject to compliance with the terms
hereof, any Warrantholder whose Warrant is to be redeemed
may transfer the Warrant to a third party, and may
exercise the Warrant, up to 5:00 p.m., New York City time,
on the Business Day immediately preceding the Redemption
Payment Date.
SECTION 5. Payment of Taxes. The Company
will pay all documentary stamp and other like taxes, if
any, attributable to the initial issuance and delivery of
Warrant Shares upon the exercise of Warrants, provided
that the Company shall not be required to pay any tax or
taxes which may be payable in respect of any transfer
involved in the issue or delivery of any Warrant Shares in
a name other than that of the Holder of the Warrants being
exercised.
<PAGE> 9
SECTION 6. Mutilated or Missing Warrant
Certificates. In the event that any Warrant Certificate
shall be mutilated, lost, stolen or destroyed, the Company
shall issue and deliver in exchange and substitution for
and upon cancellation of the mutilated Warrant Certificate
or in lieu of and substitution for the Warrant Certificate
lost, stolen or destroyed, a new Warrant Certificate of
like tenor and representing an equivalent right or
interest, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or
destruction of such Warrant Certificate and an indemnity
or bond, if requested by the Company also reasonably
satisfactory to it. An applicant for such a substitute
Warrant Certificate shall also comply with such other
reasonable procedures as the Company may reasonably
require.
SECTION 7. Reservation of Warrant Shares.
There have been reserved, and the Company shall at all
times keep reserved, out of its authorized Common Stock,
free of all preemptive rights, a number of shares of
Common Stock sufficient to provide for the exercise of the
rights of purchase represented by the outstanding
Warrants. The transfer agent for the Common Stock and
every subsequent or other transfer agent for any shares of
the Company's capital stock issuable upon the exercise of
the Warrants (each, a "Transfer Agent") will be and are
hereby irrevocably authorized and directed at all times to
reserve such number of authorized shares as shall be
required for such purpose. The Company will keep a copy
of this Agreement on file with each Transfer Agent. The
Company will supply the Transfer Agent with duly executed
stock certificates for Warrant Shares required to honor
outstanding Warrants upon exercise thereof in accordance
with the terms of this Agreement. The Company covenants
that all Warrant Shares which may be issued upon exercise
of Warrants are or will be duly authorized and will, upon
issuance thereof as provided herein, be validly issued,
fully paid, nonassessable and free of preemptive rights
and free of all taxes, liens, charges, encumbrances and
security interests. The Company will supply its Transfer
Agents with duly executed stock certificates for such
purposes and will itself provide or otherwise make
available any cash which may be payable as provided in
Section 10 hereof. The Company will furnish to its
Transfer Agent a copy of all notices of adjustments and
certificates related thereto, transmitted to each Holder
pursuant to Section 9.3 hereof.
<PAGE> 10
Before taking any action which would cause an
adjustment pursuant to Section 9 reducing the Exercise
Price, the Company will take any and all corporate action
which may be necessary in order that the Company may
validly and legally issue fully paid and nonassessable
Warrant Shares at the Exercise Price as so adjusted.
SECTION 8. Stock Exchange Listings. The
Company shall use its best efforts to list the Warrant
Shares on each national securities exchange on which the
Common Stock may at any time be listed, if any, subject to
official notice of issuance upon the exercise of the
Warrants, and shall use its best efforts to maintain such
listing, so long as any of the Common Stock shall be so
listed. Any such listing and inclusion shall be at the
Company's sole expense.
SECTION 9. Adjustment of Exercise Price;
Number of Warrant Shares and Shares of Capital Stock
Warrants Are Exercisable Into. The number and kind of
securities purchasable upon the exercise of each Warrant,
and the Exercise Price, shall be subject to adjustment
from time to time upon the happening of certain events, as
hereinafter described.
9.1. Mechanical Adjustments. The number of
Warrant Shares purchasable upon the exercise of each
Warrant and the Exercise Price shall be subject to
adjustment as follows:
(a) Adjustment for Change in Capital Stock.
In case the Company shall (i) pay a dividend on its
outstanding shares of Common Stock in shares of Common
Stock or make a distribution of shares of Common Stock on
its outstanding shares of Common Stock, (ii) subdivide its
outstanding shares of Common Stock, (iii) combine its
outstanding shares of Common Stock into a smaller number
of shares of Common Stock, (iv) make a distribution on its
outstanding shares of Common Stock in shares of its
capital stock other than Common Stock, or (v) issue, by
reclassification of its shares of Common Stock, other
securities of the Company (including any such
reclassification in connection with a consolidation or
merger in which the Company is the surviving entity), the
number of Warrant Shares purchasable upon exercise of each
<PAGE> 11
Warrant immediately prior thereto shall be adjusted so
that the Holder of each Warrant shall be entitled to
receive the kind and number of Warrant Shares or other
securities of the Company which such Holder would have
owned or have been entitled to receive upon the happening
of any of the events described above had such Warrant been
exercised immediately prior to the happening of such event
or any record date with respect thereto. If a Holder is
entitled to receive shares of two or more classes of
capital stock of the Company pursuant to the foregoing
upon exercise of Warrants, the allocation of the adjusted
Exercise Price between such classes of capital stock shall
be determined reasonably and in good faith by the Board of
Directors of the Company. After such allocation, the
exercise privilege and the Exercise Price with respect to
each class of capital stock shall thereafter be subject to
adjustment on terms substantially identical to those
applicable to Common Stock in this Section 9. An
adjustment made pursuant to this paragraph (a) shall
become effective immediately after the record date for
such event or, if none, immediately after the effective
date of such event. Such adjustment shall be made
successively whenever such an event is made.
(b) Adjustment for Rights Issue. In case the
Company shall issue rights, options or warrants
(collectively, "Rights") to all holders of its outstanding
Common Stock entitling them to subscribe for or purchase
shares of Common Stock at a Price Per Share (as defined in
paragraph (e) below) which is lower at the record date
mentioned below than the then Current Market Price (as
defined in paragraph (e) below) per share of Common Stock,
the number of Warrant Shares thereafter purchasable upon
the exercise of each Warrant shall be determined by
multiplying the number of Warrant Shares theretofore
purchasable upon exercise of each Warrant by a fraction,
the numerator of which shall be the number of shares of
Common Stock outstanding on the date of issuance of such
Rights plus the additional Number of Shares (as defined in
paragraph (e) below) of Common Stock offered for
subscription or purchase in connection with such Rights
and the denominator of which shall be the number of shares
of Common Stock outstanding on the date of issuance of
such Rights plus the number of shares which the aggregate
Proceeds (as defined in paragraph (e) below) received or
receivable by the Company upon exercise of such Rights
would purchase at the Current Market Price per share of
Common Stock at such record date. Such adjustments shall
be made whenever Rights are issued, and shall become
effective immediately after the record date for the
determination of shareholders entitled to receive Rights.
(c) Adjustment for Other Distributions. (i)
In case the Company shall distribute to all holders of its
shares of Common Stock (x) evidences of its indebtedness
or assets (excluding cash dividends or distributions
payable out of the consolidated net income of the Company
earned after the date hereof (as determined in accordance
with generally accepted accounting principles as in effect
<PAGE> 12
immediately prior to such event) and dividends or
distributions referred to in paragraph (a) above) or (y)
Rights (excluding those referred to in paragraph (b)
above) or convertible, exchangeable or exercisable
securities (collectively, "Convertible Securities")
containing the right to subscribe for or purchase debt
securities or assets or securities of the Company (such
assets and securities as set forth in clauses (x) and (y)
above, collectively, "Assets"), then in each case the
number of Warrant Shares thereafter purchasable upon the
exercise of each Warrant shall be determined by
multiplying the number of Warrant Shares theretofore
purchasable upon the exercise of each Warrant by a
fraction, the numerator of which shall be the Current
Market Price per share of Common Stock on the date of such
distribution and the denominator of which shall be such
Current Market Price per share of Common Stock less the
fair value as of such record date as determined reasonably
and in good faith by the Board of Directors of the Company
of the portion of the Assets applicable to one share of
Common Stock. Such adjustment shall be made whenever any
such distribution is made, and shall become effective on
the date of distribution retroactive to the record date
for the determination of shareholders entitled to receive
such distribution.
(ii) No adjustment shall be made pursuant to
this paragraph (c) unless, on the record date for such
distribution, the Current Market Price per share of Common
Stock exceeds the fair market value of the Assets
applicable to each outstanding share of Common Stock. In
the event, and each time, that the Company distributes
Assets to all holders of its Common Stock and the Current
Market Price per share of Common Stock on the record date
for such distribution is less than or equal to the fair
market value of the Assets applicable to each share of
outstanding Common Stock on such date, the Company shall
either (x) distribute Assets to the Holders of record on
the record date for such distribution when such Assets are
distributed to the holders of Common Stock as though all
then outstanding Warrants had been exercised for the
number of Warrant Shares for which such Warrants are then
exercisable as of such record date or (y) irrevocably
deposit Assets in the amount distributable under clause
(x) above in trust with a reputable and financially sound
trustee (a "Trustee") for the sole and exclusive benefit
of the Holders, subject only to the interests of the
Company as set forth in the last sentence of this
paragraph. If the Company elects to distribute Assets to
the Holders, the Company shall, on the date Assets are
distributed to holders of Common Stock, distribute to each
Holder the Assets that such Holder would have been
entitled to receive on such date if such Holder had
exercised its then outstanding Warrants for the number of
<PAGE> 13
Warrant Shares for which such Warrants are then
exercisable immediately prior to the record date for such
distribution. If, however, the Company elects to deposit
the Assets due Holders in trust, the Company shall, on the
fifth Business Day after the date of the making of the
distribution of such Assets to holders of Common Stock,
irrevocably deposit in trust with a Trustee the Assets
that all Holders would have been entitled to receive on
such date if all of their then outstanding Warrants had
been exercised for the number of Warrant Shares for which
such Warrants are then exercisable immediately prior to
the record date for such distribution; and each Holder
shall be entitled upon exercise of Warrants to receive the
Warrant Shares then issuable upon exercise thereof, the
Assets deposited in trust in respect of such Holder's
Warrants, and the interest and dividends paid on such
Assets since being placed in trust plus all other assets,
securities, money and other items of value declared or
distributed in respect of such Assets to the holders
thereof since the date the Company was obligated hereunder
to deposit such Assets in trust. In the event any
Warrants have not been exercised by 5:00 p.m., New York
City time, on the last day of the Exercise Period, any
Assets or other trust assets shall be delivered over to
the Company.
(d) Adjustment for Common Stock Issue. In
case the Company shall issue shares of its capital stock,
shares of its Common Stock, Rights containing the right to
subscribe for or purchase shares of Common Stock,
Convertible Securities with respect to Common Stock or
Rights to subscribe for or purchase such Convertible
Securities (collectively, "Securities") (excluding the
issuance of (i) shares, Rights or Convertible Securities
issued in any of the transactions described in paragraph
(a), (b) or (c) above, (ii) Warrant Shares issued upon
exercise of the Warrants, (iii) Securities to officers,
directors or employees of the Company as incentive
compensation pursuant to incentive compensation plans
adopted by the Company and (iv) Securities in settlement
of litigation against the Company which the Board of
Directors determines to be in the best interest of the
Company) at a Price Per Share of Common Stock, in the case
of the issuance of Common Stock, or at a Price Per Share
of Common Stock initially deliverable upon conversion or
exercise or exchange of such Securities, in each case,
together with any other consideration received by the
Company in connection with such issuance, more than 10%
lower than the then Current Market Price per share of
Common Stock on the date the Company fixed the offering,
conversion or exercise or exchange price of such
additional shares, then the number of Warrant Shares
thereafter purchasable upon the exercise of each Warrant
<PAGE> 14
shall be determined by multiplying the number of Warrant
Shares theretofore purchasable upon exercise of each
Warrant by a fraction, the numerator of which shall be the
total number of shares of Common Stock outstanding on such
date plus the additional number of Shares of Common Stock
offered for subscription or purchase and the denominator
of which shall be the number of shares of Common Stock
outstanding on such date plus the number of shares of
Common Stock which the aggregate Proceeds of the total
amount of Securities so offered would purchase at the
Current Market Price Per Share of Common Stock at such
record date. In case the Company shall issue and sell
Securities for a consideration consisting, in whole or in
part, of property other than cash or its equivalent, then
in determining the "Price Per Share" of Common Stock and
the "consideration received by the Company" for purposes
of the first sentence and the immediately preceding
sentence of this paragraph (d), the Board of Directors of
the Company shall reasonably and in good faith determine
the fair value of such property. The determination of
whether any adjustment is required under this paragraph
(d), by reason of the sale and issuance of any Securities
and the amount of such adjustment, if any, shall be made
at such time and not at the subsequent time of issuance of
shares of Common Stock upon the exercise, conversion or
exchange of Securities.
(e) Current Market Price; Price Per Share.
(i) For the purpose of any computation under Section 4.2
hereof, paragraph (a) of Section 4.4 hereof, or this
Section 9.1, the Current Market Price per share of Common
Stock at any date shall be the average of the daily
closing prices for the 20 consecutive trading days
preceding the date of such computation. The closing price
for each day shall be (x) if the Common Stock shall be
then listed or admitted to trading on the New York Stock
Exchange, the closing price on the NYSE - Consolidated
Tape (or any successor composite tape reporting
transactions on the New York Stock Exchange) or, if such
a composite tape shall not be in use or shall not report
transactions in the Common Stock, or if the Common Stock
shall be listed on a stock exchange other than the New
York Stock Exchange, the last reported sales price regular
way or, in case no such reported sale takes place on such
day, the average of the closing bid and asked prices
regular way for such day, in each case on the principal
national securities exchange on which the shares of Common
Stock are listed or admitted to trading (which shall be
the national securities exchange on which the greatest
number of shares of the Common Stock has been traded
during such 20 consecutive trading days), or (y) if the
Common Stock is not listed or admitted to trading, the
average of the closing bid and asked prices of the Common
<PAGE> 15
Stock in the over-the-counter market as reported by
National Association of Securities Dealers Automated
Quotations ("NASDAQ") or NASDAQ/NMS or comparable system
then in use or, if not so reported, the average of the
closing bid and asked prices as furnished by two members
of the NASD selected reasonably and in good faith from
time to time by the Board of Directors for that purpose.
In the absence of one or more such quotations, the Current
Market Price per share of the Common Stock shall be
determined reasonably and in good faith by the Board of
Directors of the Company.
(ii) For purposes of this Section 9.1, "Price
Per Share" shall be defined and determined according to
the following formula:
R
P = ---
N
where
P = Price Per Share.
R = the "Proceeds received or
receivable by the Company," which (i) in the case of
shares of Common Stock is the total amount received or
receivable by the Company in consideration for the
issuance and sale of such shares; (ii) in the case of
Rights or of Convertible Securities with respect to
shares of Common Stock, is the total amount received or
receivable by the Company in Rights or such Convertible
Securities, plus the minimum aggregate amount of
additional consideration, other than the surrender of such
Convertible Securities, payable to the Company upon
exercise, conversion or exchange thereof; and (iii) in the
case of Rights to subscribe for or purchase such
Convertible Securities, is the total received or
receivable by the Company in consideration for the
issuance and sale of such Rights plus the minimum
aggregate amount of additional consideration, other than
the surrender of such Convertible Securities, payable upon
the conversion or exchange or exercise of such Convertible
<PAGE> 16
Securities, provided that in each case the proceeds
received or receivable by the Company shall be the net
cash proceeds after deducting therefrom any compensation
paid or discount allowed in the sale, underwriting or
purchase thereof by underwriters or dealers or others
performing similar services, and
N = the "Number of Shares," which (i)
in the case of Common Stock is the number of shares
issued; (ii) in the case of Rights or of Convertible
Securities with respect to shares of Common Stock is the
maximum number of shares of Common Stock initially
issuable upon exercise, conversion or exchange thereof;
and (iii) in the case of Rights to subscribe for or
purchase such Convertible Securities, is the maximum
number of shares of Common Stock initially issuable upon
conversion, exchange or exercise of such Convertible
Securities.
(f) When De Minimis Adjustment May Be
Deferred. No adjustment in the number of Warrant Shares
purchasable hereunder shall be required unless such
adjustment would require an increase or decrease of at
least one percent (1%) in the number of Warrant Shares
purchasable upon the exercise of each Warrant, provided
that any adjustments which by reason of this paragraph (f)
are not required to be made shall be carried forward and
taken into account in any subsequent adjustment. All
calculations shall be made to the nearest one-thousandth
of a Warrant Share and the nearest cent.
(g) Other Dilutive Events. In case any event
shall occur as to which the provisions of paragraphs (b),
(c) or (d) of this Section 9.1 are not strictly applicable
but the failure to make an adjustment would not fairly
protect the purchase rights represented by this Agreement
and the Warrants in accordance with the essential intent
and principles of those paragraphs, then, in each such
case, the Company shall appoint a firm of independent
certified public accountants of recognized national
standing (which may be the regular independent auditors of
the Company), which shall give their opinion upon the
adjustment, if any, on a basis consistent with the
essential intent and principles established in such
Sections, necessary to preserve, without dilution, the
purchase rights represented by this Agreement and the
Warrants. Upon receipt of such opinion, the Company will
promptly mail a copy thereof to the Holders and shall make
the adjustments described therein.
<PAGE> 17
(h) Adjustment in Exercise Price. Whenever
the number of Warrant Shares purchasable upon the exercise
of each Warrant is adjusted as herein provided, the
Exercise Price payable upon exercise of each Warrant
immediately prior to such adjustment shall be adjusted by
multiplying such Exercise Price by a fraction, the
numerator of which shall be the number of Warrant Shares
purchasable upon the exercise of each Warrant immediately
prior to such adjustment and the denominator of which
shall be the number of Warrant Shares purchasable
immediately thereafter.
(i) When No Adjustment Required. No
adjustment in the number of Warrant Shares purchasable
upon the exercise of each Warrant need be made under
paragraphs (b), (c) and (d) of this Section 9.1 if the
Company issues or distributes to each Holder of Warrants
the Rights, Convertible Securities, Securities, evidences
of indebtedness or assets referred to in those paragraphs
which each Holder of Warrants would have been entitled to
receive had the Warrants been exercised for the number of
Warrant Shares for which Warrants are then exercisable
prior to the happening of such event or the record date
with respect thereto. No adjustment in the number of
Warrant Shares purchasable upon the exercise of each
Warrant need be made for sales of Common Stock pursuant to
a Company plan for reinvestment of dividends or interest.
No adjustment need be made for a change in the par value
or to no par value of Warrant Shares, provided that the
Exercise Price shall at no time be less than the par value
of the Common Stock of the Company. The Company will take
appropriate action to assure that the par value of Warrant
Shares shall not exceed $.01, and to reduce the par value
of its Common Stock from time to time as necessary so that
such par value shall not be more than the Exercise Price
then in effect.
(j) Shares of Common Stock. For all purposes
of this Agreement, the term "shares of Common Stock" shall
mean (i) the class of stock designated as the Common Stock
of the Company at the date of this Agreement or (ii) any
other class of stock resulting from successive changes or
reclassifications of such shares consisting solely of
changes in par value, or from par value to no par value,
or from no par value to par value. In the event that at
any time, as a result of an adjustment made pursuant to
paragraph (a) above, the Holders shall become entitled to
purchase any securities of the Company other than shares
of Common Stock, thereafter the number of such other
<PAGE> 18
shares so purchasable upon exercise of each Warrant and
the Exercise Price of such shares shall be subject to
adjustment from time to time in a manner and on terms
substantially identical to the provisions with respect to
the Warrant Shares contained in paragraphs (a) through (i)
above, and the provisions of this Agreement with respect
to the Warrant Shares shall apply on like terms to any
such other securities.
(k) Expiration of Rights, etc. Upon the
expiration of any Rights or conversion or exchange or
exercise rights, if any thereof shall not have been
exercised, the Exercise Price and the number of Warrant
Shares purchasable upon the exercise of each Warrant
shall, upon such expiration, be readjusted and shall
thereafter be such as it would have been had it been
originally adjusted (or had the original adjustment not
been required, as the case may be) as if (A) the only
shares of Common Stock so issued were the shares of Common
Stock, if any, actually issued or sold upon the exercise
of such Rights or conversion or exchange or exercise
rights and (B) such shares of Common Stock, if any, were
issued or sold for the consideration actually received by
the Company upon such exercise plus the aggregate
consideration, if any, actually received by the Company
for the issuance, sale or grant of all of such Rights or
conversion or exchange or exercise rights whether or not
exercised, provided that no such readjustment shall have
the effect of increasing the Exercise Price or decreasing
the number of Warrant Shares purchasable upon the exercise
of each Warrant by an amount in excess of the amount of
the adjustment initially made in respect of the issuance,
sale or grant of such Rights or conversion or exchange or
exercise rights.
9.2. Voluntary Adjustment by the Company.
The Company may at its option, at any time during the term
of the Warrants, reduce the then current Exercise Price to
any amount deemed appropriate by the Board of Directors of
the Company, provided the Company may not in any case
increase the Exercise Price pursuant to this Section 9.2,
and provided, further, if the Company elects to reduce the
then current Exercise Price, such reduction shall remain
in effect for at least a 30 day period, after which time
the Company may, at its option, reinstate the Exercise
Price in effect immediately prior to such reduction,
provided, however, that notice of such option to reinstate
shall have been given to the Holders of the Warrants prior
to such reduction.
<PAGE> 19
9.3. Notice of Adjustment. Whenever the
number of Warrant Shares purchasable upon the exercise of
each Warrant or the Exercise Price of Warrant Shares is
adjusted, as herein provided, the Company shall promptly
mail at its sole expense by first class mail, postage
prepaid, to each Holder notice of such adjustment or
adjustments and a certificate of a firm of independent
public accountants (who may be the regular accountants
employed by the Company) setting forth the number of
Warrant Shares purchasable upon the exercise of each
Warrant and the Exercise Price of Warrant Shares after
such adjustment, setting forth a brief statement of the
facts requiring such adjustment and setting forth in
reasonable detail the computations by which such
adjustment was made.
9.4. Preservation of Purchase Rights upon
Merger or Consolidation. In case of any consolidation of
the Company with or merger of the Company with or into
another entity, the Company or such successor entity shall
execute and deliver to the Holders an agreement that each
Holder shall have the right thereafter upon payment of the
Exercise Price in effect immediately prior to such action
to purchase upon exercise of each Warrant the kind and
amount of shares and other securities and property
(including cash) which such Holder would have owned or
have been entitled to receive after the happening of such
consolidation or merger had such Warrant been exercised
immediately prior to such action, plus all dividends,
interest or other income on or from such shares or other
securities and property during the period from the
effective date of the distribution thereof in connection
with such event and until the exercise of such Warrant.
The Company shall at its sole expense mail by first class
mail, postage prepaid, to each Holder notice of the
execution of any such agreement. Such agreement shall
provide for adjustments, which shall be substantially
identical to the adjustments provided for in this Section
9. In addition, the Company shall not merge or
consolidate with or into any other entity unless the
successor entity (if not the Company) shall expressly
assume, by supplemental agreement executed and delivered
to the Holders, and satisfactory to the Holders, the due
and punctual performance and observance of each and every
covenant and condition of this Agreement to be performed
and observed by the Company. The provisions of this
Section 9.4 shall similarly apply to successive
consolidations or mergers.
9.5. No Impairment of Holder's Rights. The
Company shall not, by amendment of its Certificate of
Incorporation or through any consolidation, merger,
reorganization, transfer of assets, dissolution, issue or
sale of securities or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the
terms hereof or of the Warrants, but at all times in good
<PAGE> 20
faith carry out all such terms and take all such action as
may be necessary or appropriate in order to protect the
rights of the Holders against dilution or other
impairment. Without limiting the generality of the
foregoing, the Company (a) not permit the par value of any
shares of stock receivable upon the exercise of the
Warrants to exceed the amount payable therefor upon such
exercise, (b) take all such action as may be necessary or
appropriate in order that the Company may validly and
legally issue, free from preemptive rights, fully paid and
non-assessable shares of stock upon the exercise of all
Warrants from time to time outstanding, and (c) not take
any action which results in any adjustment of the Exercise
Price if the total number of shares of Common Stock
issuable after the action upon the exercise of all the
Warrants would exceed the total number of shares of Common
Stock then authorized by the Company's Certificate of
Incorporation and available for the purpose of issue upon
such exercise.
9.6. Statement on Warrants. Irrespective of
any adjustments in the Exercise Price or the number or
kind of shares purchasable upon the exercise of the
Warrants, Warrants theretofore or thereafter issued may
continue to express the same price and number and kind of
shares as are stated in the Warrants initially issuable
pursuant to this Agreement.
SECTION 10. Fractional Interests. The
Company shall not be required to issue fractional Warrant
Shares on the exercise of Warrants. If more than one
Warrant shall be exercised at the same time by the same
Holder, the number of full Warrant Shares which shall be
issuable upon such exercise shall be computed on the basis
of the aggregate number of Warrants so exercised. If any
fraction of a Warrant Share would, except for the
provisions of this Section 10, be issuable on the exercise
of any Warrant, the Company shall pay an amount in cash
equal to the closing price for one share of Common Stock
on the date the Warrant Certificate is presented for
exercise (determined in accordance with the second
sentence of Section 9.1(e)(i) hereof), multiplied by such
fraction.
SECTION 11. No Rights as Stockholders;
Notices to Holders. Nothing contained in this Agreement
or in any of the Warrants shall be construed as conferring
upon the Holders or their transferees the right to vote or
to receive dividends or to consent or to receive notice as
stockholders in respect of any meeting of stockholders for
the election of directors of the Company or any other
matter, or any rights whatsoever as stockholders of the
Company.
In case:
<PAGE> 21
(a) the Company shall authorize the issuance
to all holders of shares of Common Stock of rights,
options or warrants to subscribe for or purchase shares of
Common Stock or of any other subscription rights or
warrants; or
(b) the Company shall authorize the
distribution to all holders of shares of Common Stock of
evidences of its indebtedness or assets (other than cash
dividends); or
(c) of any consolidation or merger to which
the Company is a party and for which approval of any
shareholders of the Company is required, or of the
conveyance or transfer of a substantial portion of the
properties and assets of the Company for which approval of
any shareholders of the Company is required, or of any
reclassification or change of Common Stock issuable upon
exercise of the Warrants (other than change in par value,
or from par value to no par value, or from no par value to
par value, or as a result of a subdivision or
combination), or a tender offer or exchange offer for
shares of Common Stock; or
(d) of the voluntary or involuntary
dissolution, liquidation or winding up of the Company; or
(e) the Company proposes to take any
action which would require an adjustment of the Exercise
Price pursuant to Section 9 hereof;
then the Company shall cause to be given to each Holder at
its address appearing on the Warrant Register, at least
twenty (20) days prior to the applicable record date
hereinafter specified, or promptly in the case of events
for which there is no record date, by first class mail,
postage prepaid, a written notice stating (i) the date as
of which the holders of record of shares of Common Stock
entitled to receive any such rights, options, warrants or
distribution are to be determined, or (ii) the initial
expiration date set forth in any tender offer or exchange
offer for shares of Common Stock, or (iii) the date on
which any such reclassification, consolidation, merger,
conveyance, transfer, dissolution, liquidation, winding up
or action is expected to become effective or consummated,
as well as the date as of which it is expected that
holders of record of shares of Common Stock shall be
entitled to exchange such shares for securities or other
property, if any, deliverable upon such reclassification,
consolidation, merger, conveyance, transfer, dissolution,
liquidation, winding up or action. The failure to give
the notice required by this Section 11 or any defect
therein shall not affect the legality or validity of any
distribution, right, option, warrant, reclassification,
consolidation, merger, conveyance, transfer, dissolution,
liquidation, winding up or action, or the vote upon any of
the foregoing.
<PAGE> 22
SECTION 12. SEC Registration.
12.1. SEC Restrictions. Each Holder
represents and warrants to the Company that it will not
transfer any Warrants or Warrant Shares (unless such
Warrants or Warrant Shares were previously transferred
pursuant to an effective registration statement under the
Act) except pursuant to (i) an effective registration
statement under the Act, (ii) to the extent applicable,
Rule 144 under the Act (or any similar rule under the Act
relating to the disposition of restricted securities as
defined thereunder) or (iii) an opinion of counsel
reasonably satisfactory to the Company to the effect that
an exemption from registration under the Act is available
in connection with such transfer.
12.2. Certificates To Bear Legends. The
Warrant Certificates shall initially bear the following
legend, by which each Holder shall be bound:
"THE WARRANTS REPRESENTED BY THIS
CERTIFICATE AND THE SHARES OF COMMON
STOCK OR OTHER SECURITIES ISSUABLE UPON
EXERCISE THEREOF MAY NOT BE OFFERED OR
SOLD EXCEPT PURSUANT TO (i) AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933, AS AMENDED
("ACT"), (ii) TO THE EXTENT APPLICABLE,
RULE 144 UNDER THE ACT (OR ANY SIMILAR
RULE UNDER THE ACT RELATING TO THE
DISPOSITION OF SECURITIES) OR (iii) AN
OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE COMPANY TO THE
EFFECT THAT AN EXEMPTION FROM
REGISTRATION UNDER THE ACT IS AVAILABLE
IN CONNECTION WITH SUCH SALE.
The Warrant Shares or other securities issued
upon exercise of the Warrants shall initially, unless
previously issued pursuant to an effective registration
statement under the Act, bear the following legend, by
which the holder thereof shall be bound:
<PAGE> 23
"THE SHARES OR OTHER SECURITIES
REPRESENTED BY THIS CERTIFICATE MAY NOT
BE OFFERED OR SOLD EXCEPT PURSUANT TO
(i) AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933, AS
AMENDED ("ACT"), (ii) TO THE EXTENT
APPLICABLE, RULE 144 UNDER THE ACT (OR
ANY SIMILAR RULE UNDER THE ACT RELATING
TO THE DISPOSITION OF SECURITIES) OR
(iii) AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE COMPANY TO THE
EFFECT THAT AN EXEMPTION FROM
REGISTRATION UNDER THE ACT IS AVAILABLE
IN CONNECTION WITH SUCH SALE.
12.3. Registration Statements.
(a) (I) Demand Registration. (1) At any
time after the date hereof, the Holders of the Registrable
Securities representing a majority of such Registrable
Securities shall have the right, exercisable by written
notice to the Company, to require the Company to prepare
and file with the SEC, on two occasions, a registration
statement and such other documents, including a
prospectus, as may be necessary in the opinion of both
counsel for the Company and counsel for the Holders, in
order to comply with the provisions of the Act, so as to
permit a public offering and sale of their respective
Registrable Securities and the Registrable Securities of
any other Holders who notify the Company of their decision
to join therein within ten (10) days after receiving
notice from the Company of such request in accordance with
Section 12.3(a)(I)(2) below.
(2) The Company covenants and agrees to give
written notice of any registration request under this
Section 12.3(a)(I) by any Holder or Holders to all other
Holders of the Retgistrable Securities within ten (10)
days from the date of receipt of any such registration
request.
(3) The Company shall use its best efforts to
file a registration statement as soon as practicable, but
in any event within thirty (30) days of receipt of any
demand for registration pursuant to Section 12.3(a)(I)(1)
above and shall use its best efforts to have any such
registration statement declared effective at the earliest
practicable time, shall cause such registration statement
to remain effective for the period during which the
delivery of a prospectus is required and shall furnish
each Holder desiring to sell Registrable Securities such
number of prospectuses as shall reasonably be requested.
<PAGE> 24
(a) (II) Piggyback Registration Rights. In
the event the Company proposes to file a registration
statement under the Act prior to the last day of the
Exercise Period with respect to an offering of any class
of equity security for the Company's account and/or for
the account of others (other than in connection with an
exchange offer or a registration statement on Form S-4 or
S-8 or other similar registration statements not available
to register securities so requested to be included) which
registration statement the Company believes will be or
become effective at any time on or after the first day of
the Exercise Period, the Company shall in each case give
written notice of such proposed filing to each Holder of
Registrable Securities in each case at least 30 days
before the earlier of the anticipated or the actual
effective date of the Registration Statement and at least
10 days before the initial filing of such Registration
Statement. Such notice shall offer to such Holders the
opportunity to include in such Registration Statement such
number of Registrable Securities as they may request.
Holders desiring inclusion of Registrable Securities in
such registration statement shall so inform the Company by
written notice, given within 10 days of the giving of such
notice by the Company in accordance with the provisions of
Section 15 hereof. The Company shall permit, or shall
cause the managing underwriter or underwriters of a
proposed offering to permit, the Holders of Registrable
Securities requested to be included in the Registration
Statement to include the transfer of such securities in
the proposed offering on the same terms and conditions as
applicable to securities of the Company, if any, included
therein for the account of any person other than the
Company and the holders of Registrable Securities and in
any event on such terms as are customary for holders of
securities of a company to be offered in a public
underwritten offering by selling security holders,
provided that to the extent the terms of this Agreement
are applicable, the terms of this Agreement shall control.
Notwithstanding the foregoing, if any such managing
underwriter or underwriters shall advise the Company and
the Holders of Registrable Securities in writing that, in
its opinion, the distribution of securities by holders
thereof, including all or a portion of Registrable
Securities, requested to be included in the registration
statement concurrently with the securities being
registered by the Company would materially adversely
affect the distribution of the securities by the Company
for its own account, then the Company will include in the
registration, to the extent of the number of securities
that the Company is so advised can be sold in the offering
(a) first, securities proposed by the Company to be sold
for its own account, (b) second, Restructuring Securities
(as defined in Section 12.4) and (c) third, Registrable
<PAGE> 25
Securities and securities of the Company held by any other
holders thereof whose rights to have securities of the
Company included in the registration pre-date those of the
Holders of Registrable Securities, pro rata on the basis
of the number of securities so proposed to be sold and so
requested to be included. The Company, in its sole
discretion, may decide to suspend any offering under, or
to terminate, any such registration statement at any time.
(b) Restrictions on Public Sale by the
Company and Others. The Company agrees (i) that, except
for public offerings pursuant to registration statements
required by agreements of the Company in effect prior to
or contemporaneous with the effectiveness of this
Agreement, it shall not, and that it shall not cause or
permit any of its subsidiaries to, effect any public sale
or distribution of any securities similar to the
Registrable Securities or any securities convertible into
or exchangeable or exercisable for such securities (or any
option or other right for such securities) (except for any
securities that may be issued to the Holders pursuant to
this Agreement and the Warrants) during the 15-day period
prior to, and during the 60-day period beginning on, the
commencement of any underwritten offering of Registrable
Securities; (ii) that any agreement entered into after the
date of this Agreement pursuant to which the Company (or,
if applicable, any subsidiary of the Company) issues or
agrees to issue any securities which have registration
rights shall contain (x) a provision under which the
holders of such securities agree not to effect any public
sale or distribution of any securities similar to the
Registrable Securities (or any securities convertible into
or exchangeable or exercisable for any such securities)
during the periods described in clause (i) of this Section
12.3(c), in each case including a sale pursuant to Rule
144 under the Act (or any similar provision then in
effect) and (y) a provision that effects, upon notice
given pursuant to Section 12.3(a)(I) hereof to the Company
that an underwritten offering of Registrable Securities is
to be undertaken, the lapse of any demand registration
rights with respect to any securities of the Company (or,
if applicable, of any subsidiary of the Company) until the
expiration of 180 days after the date of the completion of
any such underwritten offering and (iii) that the Company
(and, if applicable, each subsidiary of the Company) will
not after the date hereof enter into any agreement or
contract wherein the holders of any securities of the
Company or of any subsidiary of the Company issued or to
be issued are granted any "piggyback" registration rights
with respect to any registration effected pursuant to
Section 12.3(a)(I) or (II) hereof.
<PAGE> 26
12.4. Certain Agreements of Holders. The
Holders agree (a) not to effect any public sale or
distribution, including a sale pursuant to Rule 144 under
the Act (or any similar provision then in effect), of any
Registrable Securities (or any securities convertible into
or exchangeable or exercisable for Registrable Securities)
during the 15-day period prior to, and during the 60-day
period beginning on, the commencement of any underwritten
offering of warrants issued pursuant to the Warrant
Agreement between the Company and IBJ Schroder Bank &
Trust Company, as Warrant Agent, dated as of May 1, 1995
or any shares of the Company's Common Stock issued upon
exercise of such warrants ("Restructuring Securities") and
(b) that upon receipt of notice that an underwritten
offering referenced in Section 12.4(a) is to be
undertaken, the Holders' demand rights set forth in
Section 12.3(a)(I) shall be suspended until 180 days after
the date of the completion of such underwritten offering.
The Company shall notify the Holders in writing as soon as
practicable that such an underwritten offering is to
occur.
12.5. Underwritten Registrations. If any of
the Registrable Securities covered by the Registration
Statement required by Section 12.3(a)(I) are to be sold in
an underwritten offering, the investment banker or
investment bankers and manager or managers that will
manage the offering will be selected by the Holders of a
majority of the Registrable Securities and will be
reasonably acceptable to the Company. If the managing
underwriter or underwriters advise the Company and the
Holders in writing that in the opinion of such underwriter
or underwriters the amount of Registrable Securities
proposed to be sold in such offering exceeds the amount of
securities that can be sold in such offering, there shall
be included in such underwritten offering the amount of
Registrable Securities which in the opinion of such
underwriter or underwriters can be sold, and such amount
shall be allocated pro rata among the Holders of
Registrable Securities on the basis of the number of
Registrable Securities requested to be included by all
Holders. The Holders of Registrable Securities sold in
any such offering shall pay all underwriting discounts and
commissions of the underwriter or underwriters pro rata.
No Holder of Registrable Securities may
participate in any underwritten registration hereunder
unless such Holder (a) agrees to sell such Holder's
Registrable Securities on the basis provided in any
underwriting arrangements approved by the Holders of not
less than a majority of the Registrable Securities and (b)
completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other
documents reasonably required under the terms of such
underwriting arrangements.
<PAGE> 27
12.6. Registration Procedures. In connection
with any Registration Statement, the Company shall effect
such registrations to permit the offering and sale of the
Registrable Securities in accordance with the intended
method or methods of disposition thereof, and pursuant
thereto the Company shall as expeditiously as possible:
(a) Before filing a Registration Statement,
any amendments or supplements thereto or to any related
Prospectus (including documents that would be incorporated
or deemed to be incorporated therein by reference,
including such documents filed under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") that
would be incorporated therein by reference), the Company
shall afford promptly to the Holders of the Registrable
Securities covered by the Registration Statement, their
counsel and the managing underwriter or underwriters, if
any, an opportunity to review copies of all such documents
proposed to be filed a reasonable time prior to the
proposed filing thereof. The Company shall not file any
Registration Statement or Prospectus or any amendments or
supplements thereto if the Holders of the Registrable
Securities covered by such Registration Statement, their
counsel, or the managing underwriter or underwriters, if
any, shall reasonably object in writing. The objections
of such Persons shall be deemed to be reasonable if such
Registration Statement, amendment, Prospectus or
supplement, as applicable, as proposed to be filed,
contains a material misstatement or omission, or fails to
comply with the applicable requirements of the Act.
(b) During the time period specified in
Section 12.3(a)(I)(3), prepare and file with the SEC such
amendments and post-effective amendments to the
Registration Statement as may be necessary to keep such
Registration Statement continuously effective for the time
periods prescribed hereby; cause the related Prospectus to
be supplemented by any required prospectus supplement, and
as so supplemented to be filed pursuant to Rule 424 (or
any similar provisions then in force) under the Act; and
comply with the provisions of the Act, the Exchange Act
and the rules and regulations of the SEC promulgated
thereunder applicable to it with respect to the
disposition of all securities covered by such Registration
Statement as so amended or in such prospectus as so
supplemented.
<PAGE> 28
(c) Notify the Holders of Registrable
Securities, their counsel and the managing underwriter or
underwriters, if any, promptly (but in any event within
five (5) Business Days), and confirm such notice in
writing, (i) when a Prospectus or any prospectus
supplement or post-effective amendment has been filed,
and, with respect to the Registration Statement or any
post-effective amendment, when the same has become
effective (including in such notice a written statement
that any Holder may, upon request, obtain, without charge,
one conformed copy of such Registration Statement or
post-effective amendment including financial statements
and schedules and exhibits), (ii) of the issuance by the
SEC of any stop order suspending the effectiveness of such
Registration Statement or of any order preventing or
suspending the use of any preliminary prospectus or the
initiation or threatening of any proceedings for that
purpose, (iii) if at any time when a prospectus is
required by the Act to be delivered in connection with
sales of the Registrable Securities the representations
and warranties of the Company (or, if applicable, any
subsidiary of the Company) contained in any agreement
(including any underwriting agreement) contemplated by
Section 12.6(m) below, to the knowledge of the Company,
cease to be true and correct in any material respect, (iv)
of the receipt by the Company (or, if applicable, any
subsidiary of the Company) of any notification with
respect to (A) the suspension of the qualification or
exemption from qualification of the Registration Statement
or any of the Registrable Securities covered thereby for
offer or sale in any jurisdiction, or (B) the initiation
or threatening of any proceeding for such purpose, (v) of
the happening of any event or information becoming known
that requires the making of any changes in such
Registration Statement, Prospectus or documents so that,
in the case of such Registration Statement, it will not
contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or
necessary to make the statements therein, not misleading,
and that in the case of the Prospectus, it will not
contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading,
and (vi) of the Company's reasonable determination that a
post-effective amendment to such Registration Statement
would be appropriate.
(d) Use every reasonable effort to prevent
the issuance of any order suspending the effectiveness of
the Registration Statement or of any order preventing or
suspending the use of a Prospectus or suspending the
qualification (or exemption from qualification) of any of
the Registrable Securities covered thereby for sale in any
jurisdiction, and, if any such order is issued, to obtain
the withdrawal of any such order at the earliest possible
moment.
<PAGE> 29
(e) If requested by the managing underwriter
or underwriters, if any, or the Holders of a majority of
the Registrable Securities being sold in connection with
an underwritten offering, (i) promptly incorporate in a
prospectus supplement or post-effective amendment such
information as the managing underwriter or underwriters,
if any, or such Holders reasonably request to be included
therein to comply with applicable law, (ii) make all
required filings of such prospectus supplement or such
post-effective amendment as soon as practicable after the
Company (and, if applicable, a subsidiary of the Company)
has received notification of the matters to be
incorporated in such prospectus supplement or
post-effective amendment, and (iii) supplement or make
amendments to such Registration Statement.
(f) Furnish to each Holder of Registrable
Securities who so requests and to counsel for the holders
of Registrable Securities and each managing underwriter,
if any, without charge, one conformed copy of the
Registration Statement and each post-effective amendment
thereto, including financial statements and schedules, and
of all documents incorporated or deemed to be incorporated
therein by reference and all exhibits.
(g) Deliver to each Holder of Registrable
Securities, their counsel and each underwriter, if any,
without charge, as many copies of each Prospectus
(including each form of prospectus) and each amendment or
supplement thereto as such persons may reasonably request;
and, subject to the last paragraph of this Section 12.6,
the Company hereby consents to the use of such Prospectus
and each amendment or supplement thereto by each of the
holders of Registrable Securities and the underwriter or
underwriters or agents, if any, in connection with the
offering and sale of the Registrable Securities covered by
such Prospectus and any amendment or supplement thereto.
(h) Prior to any offering of Registrable
Securities, to register or qualify, and cooperate with the
holders of Registrable Securities, the underwriter or
underwriters, if any, and their respective counsel in
connection with the registration or qualification (or
exemption from such registration or qualification) of,
such Registrable Securities for offer and sale under the
securities or Blue Sky laws of such jurisdictions within
the United States as may be required to permit the resale
thereof by the Holders of Registrable Securities, or as
<PAGE> 30
the managing underwriter or underwriters reasonably
request in writing; keep each such registration or
qualification (or exemption therefrom) effective during
the period during which the Registration Statement is
required to be kept effective and do any and all other
acts or things necessary or advisable to enable the
disposition in such jurisdictions of the securities
covered thereby, provided that the Company will not be
required to (A) qualify generally to do business in any
jurisdiction where it is not then so qualified, (B) take
any action that would subject it to general service of
process in any such jurisdiction where it is not then so
subject or (C) become subject to taxation in any
jurisdiction where it is not then so subject.
(i) Cooperate with the Holders of Registrable
Securities and the managing underwriter or underwriters,
if any, to facilitate the timely preparation and delivery
of certificates representing Registrable Securities to be
sold, which certificates shall not bear any restrictive
legends whatsoever and shall be in a form eligible for
deposit with The Depository Trust Company ("DTC"); and
enable such Registrable Securities to be in such
denominations and registered in such names as the managing
underwriter or underwriters, if any, or Holders may
reasonably request at least two Business Days prior to any
sale of Registrable Securities in a firm commitment
underwritten public offering.
(j) Use its best efforts to cause the
Registrable Securities covered by the Registration
Statement to be registered with or approved by such other
governmental agencies or authorities within the United
States as may be necessary to enable the seller or sellers
thereof or the underwriter or underwriters, if any, to
complete the transfer of such Registrable Securities.
(k) Upon the occurrence of any event
contemplated by Section 12.6(c)(v) or 12.6(c)(vi) above,
as promptly as practicable prepare a supplement or
post-effective amendment to the Registration Statement or
a supplement to the related Prospectus or any document
incorporated or deemed to be incorporated therein by
reference, and, subject to Section 12.6(a) hereof, file
such with the SEC so that, as thereafter delivered to the
purchasers of Registrable Securities being sold
thereunder, such Prospectus will not contain an untrue
statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances
under which they were made, not misleading and will
otherwise comply with law.
<PAGE> 31
(l) Prior to the effective date of the
Registration Statement, (i) provide the registrar for the
Warrant Shares or such other Registrable Securities with
printed certificates for such securities which
certificates shall not bear any restrictive legends
whatsoever and shall be in a form eligible for deposit
with DTC and (ii) provide a CUSIP number for such
securities.
(m) Enter into an underwriting agreement in
form, scope and substance as is customary in underwritten
offerings and take all such other actions as are
reasonably requested by the managing underwriter or
underwriters in order to expedite or facilitate the
registration and transfer of such Registrable Securities
in any underwritten offering to be made of the Registrable
Securities in accordance with this Agreement, and in such
connection, (i) make such representations and warranties
to the underwriter or underwriters with respect to the
business of the Company and the subsidiaries of the
Company, and the Registration Statement, Prospectus and
documents, if any, incorporated or deemed to be
incorporated by reference therein, in each case, in form,
substance and scope as are customarily made by issuers to
underwriters in underwritten offerings, and confirm the
same if and when requested; (ii) obtain "cold comfort"
letters and updates thereof (which letters and updates
shall be reasonably satisfactory in form, scope and
substance to the managing underwriter or underwriters)
from the independent certified public accountants of the
Company (and, if applicable, the subsidiaries of the
Company) and, if necessary, any other independent
certified public accountants of any subsidiary of the
Company or of any business acquired by the Company for
which financial statements and financial data are, or are
required to be, included in the Registration Statement,
addressed to each of the underwriters, such letters to be
in customary form and covering matters of the type
customarily covered in "cold comfort" letters in
connection with underwritten offerings; and (iv) if an
underwriting agreement is entered into, the same shall
contain indemnification provisions and procedures no less
favorable to the Holders than those set forth in Section
12.8 hereof (or such other provisions and procedures
acceptable to Holders of a majority of Registrable
Securities covered by such Registration Statement and the
managing underwriter or underwriters or agents) with
respect to all parties to be indemnified pursuant to said
Section. The above shall be done at each closing under
such underwriting agreement, or as and to the extent
required thereunder. Obtain opinions of counsel to the
Company (and, if applicable, the subsidiaries of the
Company) and updates thereof (which counsel and opinions
(in form, scope and substance) shall be, reasonably
satisfactory to the Holders and, if in connection with an
underwritten offering, to the managing underwriter or
underwriters), covering the matters customarily covered in
opinions requested in public offerings and such other
matters as may be reasonably requested.
<PAGE> 32
(n) Make available for inspection by a
representative of the Holders of Registrable Securities
being sold, any underwriter participating in any such
disposition of Registrable Securities, if any, and any
attorney or accountant retained by such representative of
the holders or underwriter (collectively, the
"Inspectors"), at the offices where normally kept, during
reasonable business hours, all financial and other
records, pertinent corporate documents and properties of
the Company and the subsidiaries of the Company, and cause
the officers, directors and employees of the Company and
the subsidiaries of the Company to supply all information
in each case reasonably requested by any such Inspector in
connection with such Registration Statement.
(o) Comply with all applicable rules and
regulations of the SEC and make generally available to its
securityholders earnings statements satisfying the
provisions of Section 11(a) of the Act and Rule 158
thereunder (or any similar rule promulgated under the Act)
no later than forty-five (45) days after the end of any
12-month period (or ninety (90) days after the end of any
12-month period if such period is a fiscal year (i)
commencing at the end of any fiscal quarter in which
Registrable Securities are sold to an underwriter or to
underwriters in a firm commitment or best efforts
underwritten offering and (ii) if not sold to an
underwriter or to underwriters in such an offering,
commencing on the first day of the first fiscal quarter of
the Company after the effective date of the Registration
Statement, which statements shall cover said 12-month
periods.
Each seller of Registrable Securities as to
which any registration is being effected agrees, as a
condition to the registration obligations with respect to
such Holder provided herein, to furnish to the Company as
the Company may, from time to time, reasonably request in
writing, (i) such information specified in item 507 of
Regulation S-K under the Act, (ii) if such Holder's plan
of distribution includes any manner of offer or sale other
than ordinary course sales in the public markets through
brokers at ordinary rates of commission, such information
as is required by Item 508 of Regulation S-K, or (iii)
otherwise required by the Act or the SEC, for use in
connection with any Registration Statement or Prospectus
<PAGE> 33
or preliminary Prospectus included therein. The Company
may exclude from such registration the Registrable
Securities of any seller who unreasonably fails to furnish
such information within a reasonable time after receiving
such request. If the identity of a seller of Registrable
Securities is to be disclosed in the Registration
Statement, such seller shall be permitted to include all
information regarding such seller as it shall reasonably
request.
Each Holder of Registrable Securities agrees
by acquisition of such Registrable Securities that, upon
receipt of any notice from the Company of the happening of
any event of the kind described in Section 12.6(c)(ii),
12.6(c)(iv), 12.6(c)(v), or 12.6(c)(vi), such Holder will
forthwith discontinue transfer of such Registrable
Securities covered by the Registration Statement or
Prospectus until such Holder's receipt of the copies of
the supplemented or amended Prospectus contemplated by
Section 12.6(k), or until it is advised in writing by the
Company that the use of the applicable prospectus may be
resumed, and has received copies of any amendments or
supplements thereto, and, if so directed by the Company,
such Holder will deliver to the Company or destroy all
copies, other than permanent file copies, then in such
Holder's possession, of the Prospectus covering such
Registrable Securities current at the time of receipt of
such notice.
12.7. Registration Expenses. All fees and
expenses incident to the performance of or compliance with
the provisions of Section 12 of this Agreement by the
Company shall be borne by the Company whether or not the
Registration Statement is filed or becomes effective,
including, without limitation, (i) all registration and
filing fees (including, without limitation, (A) fees with
respect to filings required to be made with the NASD in
connection with an underwritten offering and (B) fees and
expenses of compliance with state securities or Blue Sky
laws (including, without limitation, fees and
disbursements of counsel for the underwriter or
underwriters in connection with Blue Sky qualifications of
the Registrable Securities and determination of the
eligibility of the Registrable Securities for investment
under the laws of such jurisdictions as provided in
Section 12.6(h)), (ii) reasonable printing expenses
(including, without limitation, expenses of printing
certificates for Registrable Securities in a form eligible
for deposit with DTC and of printing prospectuses if the
printing of prospectuses is requested by the managing
underwriter or underwriters, if any, or, in respect of
Registrable Securities, by the Holders of a majority of
Registrable Securities included in any Registration
Statement), (iii) fees and disbursements of all
<PAGE> 34
independent certified public accountants referred to in
Section 12.6(m)(ii) (including, without limitation, the
expenses of any special audit and "cold comfort" letters
required by or incident to such performance), (iv) the
fees and expenses of one "qualified independent
underwriter" or other independent appraiser participating
in an offering pursuant to Schedule E to the By-laws of
the NASD, (v) liability insurance under the Act, if the
Company so desires such insurance, (vi) fees and expenses
of all attorneys, advisors, appraisers and other persons
retained by the Company or any subsidiary of the Company,
(vii) all reasonable fees and disbursements of one counsel
for the Holders of the Registrable Securities to be
selected by Holders of a majority of Registrable
Securities, (viii) internal expenses of the Company and
the subsidiaries of the Company (including, without
limitation, all salaries and expenses of officers and
employees of the Company and the subsidiaries of the
Company performing legal or accounting duties), (ix) the
expense of any annual audit, (x) the fees and expenses
incurred in connection with the listing of the securities
to be registered on any securities exchange and (xi) the
expenses relating to printing, word processing and
distributing all Registration Statements, underwriting
agreements, securities sales agreements and any other
documents necessary in order to comply with this
Agreement.
12.8. Indemnification.
(a) Indemnification by the Company. The
Company shall, without limitation as to time, indemnify
and hold harmless each Holder and each holder of
Registrable Securities, the officers, directors, agents,
investment advisors and employees of each of them, each
person who controls any such person (within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act)
and the officers, directors, agents and employees of each
such controlling person (individually, an "Indemnified
Party") from and against any and all losses, liabilities,
claims, damages and expenses whatsoever (and actions in
respect thereof) (including but not limited to attorneys'
fees and any and all expenses whatsoever incurred in
investigating, preparing or defending against any
litigation, commenced or threatened, or any claim
whatsoever, and any and all amounts paid in settlement of
any claim asserted or in any action, proceeding or
litigation), joint or several, to which they or any of
them may become subject under the Act, the Exchange Act or
other Federal or state statutory law or regulation, at
common law or otherwise, insofar as such losses,
liabilities, claims, damages or expenses (or actions in
respect thereof) arise out of or are based upon a breach
<PAGE> 35
of any representation, warranty or covenant made by the
Company in this Agreement or based upon any untrue
statement or alleged untrue statement of a material fact
contained in any Registration Statement, preliminary
Prospectus or Prospectus, or in any supplement thereto or
amendment thereof, or arise out of or are based upon the
omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make
the statements therein not misleading, and will reimburse
each Indemnified Party for any legal or other expenses
reasonably incurred by the Indemnified Party in connection
with investigating or defending against such loss, claim,
damage, liability or action as such expenses are incurred;
provided, however, that the Company will not be liable in
any such case to the extent, but only to the extent, that
any such loss, liability, claim, damage or expense arises
out of or is based upon any such untrue statement or
alleged untrue statement or omission or alleged omission
made therein in reliance upon and in conformity with
written information furnished to the Company by or on
behalf of any Indemnified Party expressly for use therein;
and provided, further, that the Company shall not be
liable to any Indemnified Party under the indemnity
agreement in this Section 12.8(a) with respect to any
Registration Statement, preliminary Prospectus or
Prospectus, or any supplement thereto or amendment
thereof, to the extent that any such loss, claim,
judgment, liability or expense results solely from an
untrue statement of material fact contained in, or the
omission of any material fact from, such Registration
Statement, preliminary Prospectus or Prospectus, or any
supplement thereto or amendment thereof, which untrue
statement or omission was corrected in the Prospectus or
any supplement thereto or amendment thereof, if the
Company shall sustain the burden of proving that the
Indemnified Party sold Registrable Securities to the
person alleging such loss, claim, damage or liability
without sending or giving, at or prior to the written
confirmation of such sale, a copy of the Prospectus, as
amended, to correct any misstatement or omission, if the
Company had previously furnished copies thereof to the
Indemnified Party. This indemnity agreement will be in
addition to any liability which the Company may otherwise
have, including under this Agreement. The Company
acknowledges that the information provided pursuant to the
second paragraph of Section 12.6(o) of this Agreement
which is included in any Registration Statement,
preliminary Prospectus or Prospectus, or any supplement
thereto or amendment thereof, constitutes the only
information relating to a Holder that will be furnished in
writing to the Company by the Holder expressly for
inclusion in a Registration Statement, preliminary
Prospectus or Prospectus, or any supplement thereto or
amendment thereof.
<PAGE> 36
(b) Indemnification by Holders of Registrable
Securities. Each Holder of Registrable Securities
severally, and not jointly, hereby agrees to indemnify and
hold harmless the Company and any underwriter and each
person, if any, who controls the Company and any
underwriter within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act, and each other Holder
against any losses, liabilities, claims, damages and
expenses whatsoever (and actions in respect thereof)
(including but not limited to attorneys' fees and any and
all expenses whatsoever incurred in investigating,
preparing or defending against any litigation, commenced
or threatened, or any claim whatsoever, and any and all
amounts paid in settlement of any claim asserted in any
action, proceeding or litigation), joint or several, to
which they or any of them may become subject under the
Act, the Exchange Act or other Federal or state statutory
law or regulation, at common law or otherwise, insofar as
such losses, liabilities, claims, damages or expenses (or
actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of a
material fact contained in any Registration Statement, any
related preliminary Prospectus or Prospectus, or in any
amendment thereof or supplement thereto, or arise out of
or are based upon the omission or alleged omission to
state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made therein
in reliance upon and in conformity with written
information furnished to the Company by such Holder (or
its related Indemnified Party) expressly for use therein;
provided, however, that in no event shall the liability of
any Holder of Registrable Securities hereunder be, or be
claimed by the Company to be, greater in amount than the
dollar amount of the proceeds (net of payment of all
expenses) received by such Holder upon the sale of
Registrable Securities pursuant to such Registration
Statement giving rise to such indemnification obligation.
The Company acknowledges that the information provided
pursuant to the second paragraph of Section 12.6(o) of
this Agreement which is included in any Registration
Statement, preliminary Prospectus or Prospectus, or any
supplemental thereto or amendment thereof, constitutes the
only information relating to a Holder that will be
furnished in writing to the Company by the Holder
expressly for inclusion in a Registration Statement,
preliminary Prospectus or Prospectus, or any supplement
thereto or amendment thereof. This indemnity will be in
addition to any liability which such Holder may otherwise
have, including under this Agreement.
<PAGE> 37
(c) Conduct of Indemnification Proceedings.
Promptly after receipt by an indemnified party under
paragraph (a) or (b) of this Section 12.8 of notice of the
commencement of any action, such indemnified party shall,
if a claim in respect thereof is to be made against the
indemnifying party under such paragraph, notify each party
against whom indemnification is to be sought in writing of
the commencement thereof (but the failure so to notify an
indemnifying party shall not relieve it from any liability
which it may have under this Section 12.8, except to the
extent that it has been prejudiced in any material respect
by such failure, or from any liability which it may
otherwise have). In case any such action is brought
against any indemnified party, and it notifies an
indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate
therein, and to the extent it may elect by written notice
delivered to the indemnified party promptly after
receiving the aforesaid notice from such indemnified
party, to assume the defense thereof with counsel
reasonably satisfactory to such indemnified party.
Notwithstanding the foregoing, the indemnified party or
parties shall have the right to employ its or their own
counsel in any such case, but the fees and expenses of
such counsel shall be at the expense of such indemnified
party or parties unless (i) the employment of such counsel
shall have been authorized in writing by the indemnifying
parties in connection with the defense of such action,
(ii) the indemnifying parties shall not have employed
counsel to have charge of the defense of such action
within a reasonable time after notice of commencement of
the action, or (iii) such indemnified party or parties
shall have reasonably concluded that there may be defenses
available to it or them which are different from or
additional to those available to one or all of the
indemnifying parties (in which case the indemnifying
parties shall not have the right to direct the defense of
such action on behalf of the indemnified party or
parties). The Company shall not, in connection with any
one such action or proceeding or separate but
substantially similar or related actions or proceedings in
the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the reasonable
fees and expenses of more than one separate firm of
attorneys (in addition to any local counsel) at any time
for such indemnified parties, which firm shall be
designated by the Holders of a majority of the Registrable
Securities then outstanding. Anything in this subsection
to the contrary notwithstanding, an Indemnifying Party
shall not be liable for any settlement of any claim or
action effected without its written consent; provided,
however, that such consent was not unreasonably withheld.
<PAGE> 38
(d) Contribution. In order to provide for
contribution in circumstances in which the indemnification
provided for in this Section 12.8 is for any reason held
to be unavailable to any indemnified party or is
insufficient to hold harmless such indemnified party
thereunder, then each applicable indemnifying party shall
contribute to the aggregate losses, claims, damages,
liabilities and expenses of the nature contemplated by
such indemnification provisions (including any
investigation, legal and other expenses incurred in
connection with, and any amount paid in settlement of, any
action, suit or proceeding or any claims asserted, but
after deducting, in the case of losses, claims, damages,
liabilities and expenses suffered by the Company, any
contribution received by the Company from persons, other
than any Indemnified Parties, who may also be liable for
contribution, including persons who control the Company
within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act) to which such indemnifying
party may be subject, in such proportion as is appropriate
to reflect the relative fault of such indemnifying party
in connection with the statements or omissions which
resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable
considerations. The relative fault of the indemnifying
parties shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of
a material fact or the omission or alleged omission to
state a material fact relates to information supplied by
the indemnified party and the parties' relative intent,
knowledge, access to information and opportunity to
correct or prevent such statement or omission. The
Company and each Holder agree that it would not be just
and equitable if contribution pursuant to this Section
12.8(d) were determined by pro rata allocation or by any
other method of allocation which does not take into
account the equitable considerations referred to above.
Notwithstanding the provisions of this Section 12.8(d),
(i) an indemnifying party that is a Holder of Registrable
Securities shall not be required to contribute any amount
in excess of the amount by which the total price at which
the Registrable Securities sold by such indemnifying party
and distributed to the public were offered to the public
exceeds the amount of any damages which such indemnifying
party has otherwise paid or been required to pay by
reasons of such untrue or alleged untrue statement or
omission or alleged omission and (ii) no person guilty of
fraudulent misrepresentation (within the meaning of
Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this
Section 12.8(d), each person, if any, who controls any
Holder within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act shall have the same
<PAGE> 39
rights to contribution as such Holder, and each person, if
any, who controls the Company within the meaning of
Section 15 of the Act or Section 20(a) of the Exchange Act
shall have the same rights to contribution as the Company,
subject in each case to clauses (i) and (ii) of this
Section 12.8(d). Any party entitled to contribution will,
promptly after receipt of notice of commencement of any
action, suit or proceeding against such party in respect
of which a claim for contribution may be made against
another party or parties under this Section 12.8(d),
notify such party or parties from whom contribution may be
sought, but the omission to so notify such party or
parties shall not relieve the party or parties from whom
contribution may be sought from any obligation it or they
may have under this Section 12.8 or otherwise. No party
shall be liable for contribution with respect to any
action or claim settled without its written consent;
provided, however, that such written consent was not
unreasonably withheld.
(e) Other Indemnities. The indemnity,
contribution and expense reimbursement obligations under
this Section 12.8 shall be in addition to any liability
each indemnifying person may otherwise have.
12.9. Rule 144. The Company shall file the
reports required to be filed by it under the Act and the
Exchange Act and the rules and regulations adopted by the
SEC thereunder in a timely manner and, if at any time the
Company is not required to file such reports, it will,
upon the reasonable request of any holder of Registrable
Securities, make publicly available other information so
long as necessary to permit sales pursuant to Rule 144 and
Rule 144A under the Act. The Company further covenants
that it will take such further action as any holder of
Registrable Securities may reasonable request, all to the
extent required from time to time to enable such holder to
sell Registrable Securities without registration under the
Act within the limitation of the exemptions provided by
(a) Rule 144 and Rule 144A under the Act, as such Rules
may be amended from time to time, or (b) any similar rule
or regulation hereafter adopted by the SEC. Upon the
request of any holder of Registrable Securities, the
Company will deliver to such holder a written statement as
to whether it has complied with the foregoing
requirements.
SECTION 13. Payments in U.S. Currency. All
payments required to be made hereunder shall be made in
lawful money of the United States of America.
<PAGE> 40
SECTION 14. Identity of Transfer Agent. The
name and address of the Company's Transfer Agent as of the
date hereof is Mellon Financial Services, Fiduciary
Securities Transfer Services, 111 Founders Plaza, 11th
Floor, East Hartford, Connecticut 06108, Attention: Joan
B. Hayes. Forthwith upon the appointment of any subsequent
or other Transfer Agent for the Common Stock, or any other
shares of the Company's capital stock issuable upon the
exercise of the Warrants, the Company shall provide each
Holder with a statement setting forth the name and address
of such Transfer Agent.
SECTION 15. Notices. Any notice pursuant to
this Agreement by the Company to any Holder or by any
Holder to the Company, shall be in writing and shall be
delivered in person or by facsimile transmission, or
mailed first class, postage prepaid, (a) to the Company,
at its offices at 111 Monument Circle, Suite 3200,
Indianapolis, Indiana 46204, Attention: President,
Telecopier No.: (317) 630-3090, or (b) to the Initial
Holder, at 672 Delaware Avenue, Buffalo, New York 14209,
Attention: Treasurer, Telecopier No.: (716) 888-8010. Each
party hereto may from time to time change the address to
which notices to it are to be delivered or mailed
hereunder by notice to the other party.
Any notice mailed pursuant to this Agreement
by the Company to the Holders shall be in writing and
shall be mailed first class, postage prepaid, or otherwise
delivered, to such Holders at their respective addresses
in the Warrant Register. Any Holder may change its address
by notice to the Company given in accordance with this
Section 15.
SECTION 16. Furnishing Information. So long
as the Warrants remain outstanding, the Company shall
cause its annual report to stockholders and any quarterly
or other financial reports furnished by it to stockholders
to be mailed within five (5) days to the Holders, at their
addresses as set forth in the Warrant Register.
At any time that the Company does not have a
class of securities registered under the Exchange Act, the
Company will prepare, for the first three quarters of each
fiscal year quarterly reports, and for each fiscal year an
annual report, containing information (including, but not
limited to, combined or consolidated financial statements
which in the case of annual reports shall be audited)
substantially equivalent to that required to be included
in reports on Form 10-Q and on Form 10-K, respectively,
under the Exchange Act. All financial statements will be
prepared in accordance with generally accepted accounting
<PAGE> 41
principles consistently applied, except for changes with
which the Company's independent public accountants concur
and except that quarterly statements need not comply with
footnote disclosure requirements, may be subject to normal
year-end adjustments and shall be certified by the Chief
Financial Officer of the Company, and the annual financial
statements shall be certified by the Company's independent
public accountants. The Company will cause at the
Company's expense a copy of the respective reports to be
mailed to each Holder within sixty (60) days after the
close of each of the first three quarters of each fiscal
year and within one hundred fifteen (115) days after the
close of each fiscal year, to each Holder at its address
set forth in the Warrant Register.
SECTION 17. Supplements and Amendments. The
Company and the Holders of a majority of the Warrants may
amend this Agreement from time to time.
SECTION 18. Successors. All the covenants
and provisions of this Agreement by or for the benefit of
the Company and the Holders shall bind and inure to the
benefit of their respective successors hereunder.
SECTION 19. APPLICABLE LAW. THIS AGREEMENT
AND EACH WARRANT ISSUED HEREUNDER SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
YORK.
SECTION 20. Benefits of this Agreement.
Nothing in this Agreement shall be construed to give to
any person or corporation other than the Company and the
Holders any legal or equitable right, remedy or claim
under this Agreement; but this Agreement shall be for the
sole and exclusive benefit of the Company, its successors
and the Holders of the Warrants.
SECTION 21. Counterparts. This Agreement may
be executed in any number of counterparts; each of such
counterparts shall for all purposes be deemed to be an
original, and all such counterparts shall together
constitute but one and the same instrument.
SECTION 22. Captions. The captions of the
Sections and subsections of this Agreement have been
inserted for convenience only and shall have no
substantive effect.
[This space intentionally left blank - signature page
follows]
<PAGE> 42
IN WITNESS WHEREOF, the parties hereto have
caused this Agreement to be duly executed, all as of the
day and year first above written.
FRUEHAUF TRAILER CORPORATION
By:/s/ Timothy J. Wiggins
------------------------
Name: Timothy J. Wiggins
Title: Executive Vice
President and Chief
Financial Officer
K-H CORPORATION
By:/s/ Fred J. Chapman
-----------------------
Name: Fred J. Chapman
Title: Treasurer
<PAGE>
EXHIBIT A
[Form of Warrant Certificate]
[Face]
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND
THE SHARES OF COMMON STOCK OR OTHER SECURITIES
ISSUABLE UPON EXERCISE THEREOF MAY NOT BE OFFERED
OR SOLD EXCEPT PURSUANT TO (i) AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF
1933, AS AMENDED ("ACT"), (ii) TO THE EXTENT
APPLICABLE, RULE 144 UNDER THE ACT (OR ANY SIMILAR
RULE UNDER THE ACT RELATING TO THE DISPOSITION OF
SECURITIES) OR (iii) AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE COMPANY TO THE
EFFECT THAT AN EXEMPTION FROM REGISTRATION UNDER
THE ACT IS AVAILABLE IN CONNECTION WITH SUCH SALE.
No. _____ Warrants
Warrant Certificate
FRUEFAUF TRAILER CORPORATION
This Warrant Certificate certifies that _________,
or registered assigns, is the registered holder of
Warrants expiring April 25, 2001 (the "Warrants") to
purchase Common Stock, par value $.01 per share (the
"Common Stock"), of Fruehauf Trailer Corporation, a
Delaware corporation (the "Company"). Each Warrant
entitles the registered holder upon exercise on or after
the date hereof and on or before 5:00 p.m. New York City
Time on April 25, 2001, to receive from the Company one
fully paid and nonassessable share of Common Stock (each
such share, a "Warrant Share") at the exercise price of
$2.50 per share (the "Exercise Price") payable (i) in cash
or (ii) by certified or official bank check. The Warrants
represented by this Warrant Certificate may be exercised
upon surrender of this Warrant Certificate and payment of
the Exercise Price at the office of the Company designated
for such purpose, but only subject to the conditions set
forth herein and in the Warrant Agreement referred to on
the reverse hereof.
In the alternative, Warrants may be exercised
without the exchange of funds pursuant to the net exercise
provisions of Section 4.2 of the Warrant Agreement. The
number of Warrant Shares issuable upon exercise of the
Warrants and the Exercise Price are subject to adjustment
upon the occurrence of certain events set forth in the
Warrant Agreement.
<PAGE> 2
No Warrant may be exercised after 5:00 p.m.,
New York City Time, on April 25, 2001, and to the extent
not exercised by such time such Warrants shall expire.
This Warrant is subject to redemption at the
option of the Company after the third anniversary of the
initial date of issuance of the Warrants if certain
conditions relating to the market price of the Common
Stock are met, as set forth in the Warrant Agreement.
Reference is hereby made to the further
provisions of this Warrant Certificate set forth on the
reverse hereof and such further provisions shall for all
purposes have the same effect as though fully set forth at
this place.
This Warrant Certificate shall be governed by
and construed in accordance with the internal laws of the
State of New York.
IN WITNESS WHEREOF, Fruehauf Trailer
Corporation has caused this Warrant Certificate to be
signed by its duly authorized officer.
Dated: April 25, 1996
FRUEHAUF TRAILER CORPORATION
By: /s/ Timothy J. Wiggins
------------------------
Title: Executive Vice
President and Chief
Financial Officer
<PAGE> 3
[Form of Warrant Certificate]
[Reverse]
The Warrants evidenced by this Warrant
Certificate are part of a duly authorized issue of
Warrants expiring April 25, 2001, entitling the holder on
exercise to receive shares of Common Stock, par value $.01
per share, of the Company (the "Common Stock"), and are
issued or to be issued pursuant to a Warrant Agreement
dated as of April 25, 1996 (the "Warrant Agreement"),
between the Company and K-H Corporation, which Warrant
Agreement is hereby incorporated by reference in and made
a part of this instrument and is hereby referred to for a
description of the rights, limitation of rights,
obligations, duties and immunities thereunder of the
Company and the holders (the words "holders" or "holder"
meaning the registered holders or registered holder) of
the Warrants. A copy of the Warrant Agreement may be
obtained by the holder hereof upon written request to the
Company. Capitalized terms used herein without definition
shall have the meanings ascribed to them in the Warrant
Agreement.
Warrants may be exercised at any time on or
after the date hereof and on or before 5:00 p.m., New York
City Time, on April 25, 2001. The holder of Warrants
evidenced by this Warrant Certificate may exercise them by
surrendering this Warrant Certificate, with the form of
election to purchase set forth hereon properly completed
and executed, together with payment of the Exercise Price
(i) in cash or (ii) by certified or official bank check.
In the alternative, Warrants may be issued without the
exchange of funds pursuant to the net exercise provisions
of Section 4.2 of the Warrant Agreement. In the event that
upon any exercise of Warrants evidenced hereby the number
of Warrants exercised shall be less than the total number
of Warrants evidenced hereby, there shall be issued to the
holder hereof or his assignee a new Warrant Certificate
evidencing the number of Warrants not exercised. No
adjustment shall be made for any dividends on any Common
Stock issuable upon exercise of this Warrant.
The Warrant Agreement provides that upon the
occurrence of certain events the number of shares of
Common Stock issuable upon the exercise of each Warrant
and the Exercise Price shall be adjusted. No fractions of
a share of Common Stock will be issued upon the exercise
of any Warrant, but the Company will pay the cash value
thereof determined as provided in the Warrant Agreement.
<PAGE> 4
The holders of the Warrants are entitled to
certain registration rights with respect to the Warrants
and the Common Stock purchasable upon exercise of the
Warrants. Said registration rights are set forth in full
in the Warrant Agreement.
Warrant Certificates, when surrendered at the
office of the Company by the registered holder thereof in
person or by legal representative or attorney duly
authorized in writing, may be exchanged, in the manner and
subject to the limitations provided in the Warrant
Agreement, but without payment of any service charge, for
another Warrant Certificate or Warrant Certificates of
like tenor evidencing in the aggregate a like number of
Warrants.
Upon due presentation for registration of
transfer of this Warrant Certificate at the office of the
Company, a new Certificate or Warrant Certificates of like
tenor and evidencing in the aggregate a like number of
Warrants shall be issued to the transferee(s) in exchange
for this Warrant Certificate, subject to the limitations
provided in the Warrant Agreement, without charge except
for any tax or other governmental charge imposed in
connection therewith.
The Company may deem and treat the registered
holder(s) hereon as the absolute owner(s) of this Warrant
Certificate (notwithstanding any notation of ownership or
other writing hereon made by anyone), for the purpose of
any exercise hereof, of any distribution to the holder(s)
hereof, and for all other purposes, and the Company shall
not be affected by any notice to the contrary. Neither
the Warrants nor this Warrant Certificate entitles any
holder hereof to any rights of a stockholder of the
Company, except as otherwise provided in the Warrant
Agreement.
<PAGE> 5
Form of Election to Purchase
(To Be Executed Upon Exercise Of Warrant)
The undersigned hereby irrevocably elects to
exercise _______ Warrants containing the right,
represented by this Warrant Certificate, to receive
________ shares of Common Stock and herewith (check item)
tenders payment for such shares to the order of Fruehauf
Trailer Corporation in the amount of $2.50 per share of
Common Stock in accordance with the terms hereof, as
follows:
/ / $________ in cash or by certified or
official bank check to the order of Fruehauf Trailer
Corporation; or
/ / by surrender of Warrant Shares having a
Current Market Value (as defined in the Warrant Agreement)
of $__________.
The undersigned requests that a certificate
for such shares be registered in the name of ___________,
whose address is ____________________, and that such
shares be delivered to ______________, whose address is
__________________________.
If said numbers of shares is less than all of
the shares of Common Stock purchasable hereunder, the
undersigned requests that a new Warrant Certificate for
_________ Warrants representing the remaining balance of
such Warrants be registered in the name of
_____________________, whose address is
__________________________________, and that such Warrant
Certificate be delivered to ________________________,
whose address is ___________________________________.
____________________________
Signature
Date: ______________________
<PAGE> 6
ASSIGNMENT FORM
To assign this Warrant, fill in the form
below: (I) or (we) assign and transfer this Warrant to
________________________________________________________
(Insert assignee's soc. sec. or tax I.D. No.)
_________________________________________________________
________________________________________________________
_________________________________________________________
_________________________________________________________
(Print or type assignee's name, address and zip code)
and irrevocably appoint _________________________________
to transfer this Warrant on the books of the Company. The
agent may substitute another to act for him.
_________________________________________________________
Date: _____________
Your Signature: _______________
(Sign exactly as your name
appears on the face of this
Warrant)
<PAGE> 1
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND
THE SHARES OF COMMON STOCK OR OTHER SECURITIES
ISSUABLE UPON EXERCISE THEREOF MAY NOT BE OFFERED
OR SOLD EXCEPT PURSUANT TO (i) AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF
1933, AS AMENDED ("ACT"), (ii) TO THE EXTENT
APPLICABLE, RULE 144 UNDER THE ACT (OR ANY SIMILAR
RULE UNDER THE ACT RELATING TO THE DISPOSITION OF
SECURITIES) OR (iii) AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE COMPANY TO THE
EFFECT THAT AN EXEMPTION FROM REGISTRATION UNDER
THE ACT IS AVAILABLE IN CONNECTION WITH SUCH SALE.
No. R-1 2,000,000 Warrants
Warrant Certificate
FRUEFAUF TRAILER CORPORATION
This Warrant Certificate certifies that K-H
Corporation, or registered assigns, is the registered
holder of Warrants expiring April 25, 2001 (the
"Warrants") to purchase Common Stock, par value $.01 per
share (the "Common Stock"), of Fruehauf Trailer
Corporation, a Delaware corporation (the "Company"). Each
Warrant entitles the registered holder upon exercise on or
after the date hereof and on or before 5:00 p.m. New York
City Time on April 25, 2001, to receive from the Company
one fully paid and nonassessable share of Common Stock
(each such share, a "Warrant Share") at the exercise price
of $2.50 per share (the "Exercise Price") payable (i) in
cash or (ii) by certified or official bank check. The
Warrants represented by this Warrant Certificate may be
exercised upon surrender of this Warrant Certificate and
payment of the Exercise Price at the office of the Company
designated for such purpose, but only subject to the
conditions set forth herein and in the Warrant Agreement
referred to on the reverse hereof.
In the alternative, Warrants may be exercised
without the exchange of funds pursuant to the net exercise
provisions of Section 4.2 of the Warrant Agreement. The
number of Warrant Shares issuable upon exercise of the
Warrants and the Exercise Price are subject to adjustment
upon the occurrence of certain events set forth in the
Warrant Agreement.
<PAGE> 2
No Warrant may be exercised after 5:00 p.m.,
New York City Time, on April 25, 2001, and to the extent
not exercised by such time such Warrants shall expire.
This Warrant is subject to redemption at the
option of the Company after the third anniversary of the
initial date of issuance of the Warrants if certain
conditions relating to the market price of the Common
Stock are met, as set forth in the Warrant Agreement.
Reference is hereby made to the further
provisions of this Warrant Certificate set forth on the
reverse hereof and such further provisions shall for all
purposes have the same effect as though fully set forth at
this place.
This Warrant Certificate shall be governed by
and construed in accordance with the internal laws of the
State of New York.
IN WITNESS WHEREOF, Fruehauf Trailer
Corporation has caused this Warrant Certificate to be
signed by its duly authorized officer.
Dated: April 25, 1996
FRUEHAUF TRAILER CORPORATION
By: /s/ Timothy J. Wiggins
-----------------------
Title: Executive Vice
President and Chief
Financial Officer
<PAGE> 3
[Reverse]
The Warrants evidenced by this Warrant
Certificate are part of a duly authorized issue of
Warrants expiring April 25, 2001, entitling the holder on
exercise to receive shares of Common Stock, par value $.01
per share, of the Company (the "Common Stock"), and are
issued or to be issued pursuant to a Warrant Agreement
dated as of April 25, 1996 (the "Warrant Agreement"),
between the Company and K-H Corporation, which Warrant
Agreement is hereby incorporated by reference in and made
a part of this instrument and is hereby referred to for a
description of the rights, limitation of rights,
obligations, duties and immunities thereunder of the
Company and the holders (the words "holders" or "holder"
meaning the registered holders or registered holder) of
the Warrants. A copy of the Warrant Agreement may be
obtained by the holder hereof upon written request to the
Company. Capitalized terms used herein without definition
shall have the meanings ascribed to them in the Warrant
Agreement.
Warrants may be exercised at any time on or
after the date hereof and on or before 5:00 p.m., New York
City Time, on April 25, 2001. The holder of Warrants
evidenced by this Warrant Certificate may exercise them by
surrendering this Warrant Certificate, with the form of
election to purchase set forth hereon properly completed
and executed, together with payment of the Exercise Price
(i) in cash or (ii) by certified or official bank check.
In the alternative, Warrants may be issued without the
exchange of funds pursuant to the net exercise provisions
of Section 4.2 of the Warrant Agreement. In the event that
upon any exercise of Warrants evidenced hereby the number
of Warrants exercised shall be less than the total number
of Warrants evidenced hereby, there shall be issued to the
holder hereof or his assignee a new Warrant Certificate
evidencing the number of Warrants not exercised. No
adjustment shall be made for any dividends on any Common
Stock issuable upon exercise of this Warrant.
The Warrant Agreement provides that upon the
occurrence of certain events the number of shares of
Common Stock issuable upon the exercise of each Warrant
and the Exercise Price shall be adjusted. No fractions of
a share of Common Stock will be issued upon the exercise
of any Warrant, but the Company will pay the cash value
thereof determined as provided in the Warrant Agreement.
<PAGE> 4
The holders of the Warrants are entitled to
certain registration rights with respect to the Warrants
and the Common Stock purchasable upon exercise of the
Warrants. Said registration rights are set forth in full
in the Warrant Agreement.
Warrant Certificates, when surrendered at the
office of the Company by the registered holder thereof in
person or by legal representative or attorney duly
authorized in writing, may be exchanged, in the manner and
subject to the limitations provided in the Warrant
Agreement, but without payment of any service charge, for
another Warrant Certificate or Warrant Certificates of
like tenor evidencing in the aggregate a like number of
Warrants.
Upon due presentation for registration of
transfer of this Warrant Certificate at the office of the
Company, a new Certificate or Warrant Certificates of like
tenor and evidencing in the aggregate a like number of
Warrants shall be issued to the transferee(s) in exchange
for this Warrant Certificate, subject to the limitations
provided in the Warrant Agreement, without charge except
for any tax or other governmental charge imposed in
connection therewith.
The Company may deem and treat the registered
holder(s) hereon as the absolute owner(s) of this Warrant
Certificate (notwithstanding any notation of ownership or
other writing hereon made by anyone), for the purpose of
any exercise hereof, of any distribution to the holder(s)
hereof, and for all other purposes, and the Company shall
not be affected by any notice to the contrary. Neither
the Warrants nor this Warrant Certificate entitles any
holder hereof to any rights of a stockholder of the
Company, except as otherwise provided in the Warrant
Agreement.
<PAGE> 5
Form of Election to Purchase
(To Be Executed Upon Exercise Of Warrant)
The undersigned hereby irrevocably elects to
exercise _______ Warrants containing the right,
represented by this Warrant Certificate, to receive
________ shares of Common Stock and herewith (check item)
tenders payment for such shares to the order of Fruehauf
Trailer Corporation in the amount of $2.50 per share of
Common Stock in accordance with the terms hereof, as
follows:
/ / $________ in cash or by certified or official bank
check to the order of Fruehauf Trailer Corporation; or
/ / by surrender of Warrant Shares having a Current
Market Value (as defined in the Warrant Agreement) of
$__________.
The undersigned requests that a certificate
for such shares be registered in the name of ___________,
whose address is ____________________, and that such
shares be delivered to ______________, whose address is
__________________________.
If said numbers of shares is less than all of
the shares of Common Stock purchasable hereunder, the
undersigned requests that a new Warrant Certificate for
_________ Warrants representing the remaining balance of
such Warrants be registered in the name of
_____________________, whose address is
__________________________________, and that such Warrant
Certificate be delivered to ________________________,
whose
address is ___________________________________.
____________________________
Signature
Date: ______________________
<PAGE> 6
ASSIGNMENT FORM
To assign this Warrant, fill in the form
below: (I)
or (we) assign and transfer this Warrant to
_________________________________________________________
(Insert assignee's soc. sec. or tax I.D. No.)
_________________________________________________________
_________________________________________________________
_________________________________________________________
_________________________________________________________
(Print or type assIgnee's name, address and zip code)
and irrevocably appoint _________________________________
to transfer this Warrant on the books of the Company. The
agent may substitute another to act for him.
__________________________________________________________
Date: _____________
Your Signature: ___________________
(Sign exactly as your name appears on
the face of this Warrant)
April 19, 1996
K-H Corporation
38481 Huron River Drive
Romulus, MI 48174
Ladies and Gentlemen:
This letter agreement (this "Agreement")
confirms the agreement between K-H Corporation, a
Delaware corporation ("K-H"), and Fruehauf Trailer
Corporation, a Delaware corporation ("Fruehauf"),
pursuant to which K-H, or an affiliate of K-H, will
purchase an interest in the amount of approximately
$6,500,000 in Fruehauf's existing credit facility (the
"Credit Facility") with Congress Financial Corporation
(Central) ("Congress").
In consideration of K-H's agreement to
purchase the interest in the Credit Facility, the
covenants and agreements contained herein, and for other
good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, K-H and
Fruehauf agree as follows:
(1) K-H shall, or shall cause one of its
creditworthy affiliates to, purchase an interest in the
aggregate amount of $6,500,000 (the "Funding") in the
Credit Facility by entering into one or more Note
Purchase and Assignment Agreements in substantially the
form of Exhibit A attached hereto, pursuant to which K-H
or its affiliate shall purchase a working capital term
note in the amount of $5,500,000 payable to Congress by
Fruehauf an additional working capital term note in the
amount of $1,000,000 on the condition that the consents
of the Holders described in paragraph 4 are received.
The initial Funding shall occur no later than 11:00 a.m.
eastern standard time on Thursday, April 25, 1996. K-H
shall purchase $5,500,000 of the interest at the initial
Funding and shall purchase the remaining $1,000,000 on
the condition that, and as soon as practicable
following, the receipt by Fruehauf of the consents of
Holders described in paragraph 4. This condition
concerning consent by Holders may be waived by mutual
consent of K-H and Fruehauf.
(2) Fruehauf shall execute and deliver to
K-H at the closing of the initial Funding a letter
agreement in the form of Exhibit B attached hereto which
could be furnished by K-H to the Internal Revenue
Service.
(3) K-H shall execute and deliver to
Fruehauf at the closing of the initial Funding and
concurrently with Fruehauf's delivery of the letter
agreement referred to in paragraph 2, an indemnification
agreement in the form of Exhibit C attached hereto.
<PAGE> 2
(4) Fruehauf will use its reasonable best
efforts to obtain as promptly as possible following the
execution of this Agreement from the holders (the
"Holders") of the senior notes issued under the
indenture, dated as of May 1, 1995, between Fruehauf and
IBJ Schroder Bank & Trust Company, as trustee (the
"Indenture"), their consent to (i) such matters as shall
satisfy the conditions contained in the limited waiver,
dated as of April 19, 1996, between Congress and
Fruehauf, attached as an Exhibit to the Note Purchase
and Assignment Agreement referred to on paragraph 1
above and (ii) the incurrence by Fruehauf of additional
junior debt through future financing arrangements with
K-H or an affiliate of K-H and (iii) the grant by
Fruehauf of security interests to K-H or an affiliate of
K-H junior to the security interests of the Holders to
secure any such financing arrangements. Such consent
must include a consent to a supplemental indenture, an
amendment to the First Amended and Restated
Intercreditor Agreement made and entered into as of May
1, 1995 by and among Congress, IBJ Schroder Bank & Trust
Company, as Trustee and Collateral Agent, and the
Existing Lenders (as defined therein) and such other
documents and instruments as may be required to
effectuate the transactions contemplated by this
paragraph 4. Fruehauf shall use its reasonable best
efforts to sell Fruehauf International Limited
reasonably promptly following the initial Funding and,
in connection therewith, will immediately commence
negotiations with the party making the proposal, a copy
of which has been provided to K-H. Nothing in this
paragraph 4 may be construed to require Fruehauf to sell
Fruehauf International Limited.
(5) Fruehauf shall provide K-H with full
and timely access to all information (including
Fruehauf's records, personnel, counsel and auditors) as
may reasonably be requested by K-H and without
limitation will provide K-H with information on an
on-going basis concerning Fruehauf's trailing
liabilities, cash position and financial projections,
proposed business combinations, the proposed disposition
of Fruehauf International Limited, the Consent referred
to in paragraph 4 and any other communications with
Holders and cost savings plans and opportunities.
(6) Fruehauf shall consult with K-H
regarding any potential cost saving opportunities with
respect to Fruehauf's corporate headquarters office
structure and shall implement such cost saving measures
as may be mutually agreed upon by Fruehauf and K-H.
(7) Fruehauf shall cooperate with K-H on
an on-going basis in efforts to reduce Fruehauf's
trailing liabilities and, to the extent that Fruehauf
has cash available beyond its reasonably prudent working
<PAGE> 3
capital needs to do so, to accept or otherwise utilize
opportunities to settle or reduce the trailing
liabilities at a discount. Notwithstanding the
foregoing sentence, Fruehauf retains the sole discretion
to determine whether to accept or utilize such
opportunities to settle or reduce the trailing
liabilities at a discount, except to the extent that K-H
advances additional funding for such purpose.
(8) Fruehauf hereby confirms its liability
to reimburse K-H for up to $367,951 in environmental
expenses incurred by K-H, subject to an accounting by
K-H to show actual environmental expenses incurred. In
addition, Fruehauf shall pay the legal expenses of K-H
in connection with this Agreement and the transactions
contemplated by this Agreement. Fruehauf shall pay the
amount of fees of counsel up an aggregate of $200,000
plus disbursements of counsel at the initial Funding
and, as to any additional such fees and disbursements,
at any second Funding.
(9) On or before May 31, 1996, Fruehauf
will meet with K-H to discuss and determine amounts
owing by Fruehauf, if any, to K-H as a result of legal
expenses incurred by K-H in connection with the
Assumption Agreement (the "Assumption Agreement"), dated
as of July 13, 1989, between Fruehauf Corporation and
Terex Trailer Corporation (now Fruehauf) and that
certain letter agreement dated January 5, 1994, between
K-H and Fruehauf (the "Letter Agreement").
(10) If Fruehauf files a petition under
chapter 11 of the United States Bankruptcy Code,
Fruehauf will seek injunctive protection for any
liability K-H may have with respect to the trailing
liabilities.
(11) Fruehauf hereby reaffirms its
obligations under the Assumption Agreement and the
Letter Agreement and acknowledges that such agreements
continue in full force and effect. In particular,
Fruehauf affirms its obligations under both the
Assumption Agreement and the Letter Agreement to
reimburse K-H for legal expenses incurred by K-H as
provided in such agreements. Fruehauf reaffirms that it
will perform its obligations under both the Assumption
Agreement and the Letter Agreement. Fruehauf will not
assert any defense or right of offset against any
obligation to K-H arising from the Assumption Agreement
or the Letter Agreement.
(12) Fruehauf shall, and shall cause each
of Fruehauf International Limited, a Delaware
corporation, Fruehauf Corporation, a Delaware
corporation, M.J. Holdings, an Ohio corporation, The
Mercer Co., a Delaware corporation, Deutsche-Fruehauf
Holding Corporation, a Delaware corporation, Fruehauf
Holding Corp., a Delaware corporation, FGR, Inc, a
Michigan corporation, Jacksonville Shipyards, Inc., a
<PAGE> 4
Florida corporation, E.L. Devices, Inc., a Florida
corporation, and Maryland Shipbuilding & Drydock
Company, a Maryland corporation (collectively, the
"Fruehauf Subsidiaries"), to execute and deliver to K-H
a release in the form of Exhibit D attached hereto.
(13) In further consideration for the
Funding, Fruehauf will issue at the time of Funding to
K-H warrants to purchase up to 2,000,000 shares of
Fruehauf's common stock pursuant to a warrant agreement
in the form of Exhibit E attached hereto. The terms of
such warrants will permit their exercise by K-H at any
time for a five-year period from the date of their
issuance at a price of $2.50 per share. Such warrants
will be in the form of Exhibit F attached hereto.
(14) Within thirty days from the execution
of this Agreement, Fruehauf shall pay all overdue
amounts owed to Dayton-Walther Corporation
("Dayton-Walther") on account of materials supplied to
Fruehauf. Fruehauf will pay any future accounts payable
to Dayton-Walther on a current and timely basis
according to the current payment terms between Fruehauf
and Dayton-Walther. In the near term, the current
payment terms between Fruehauf and Dayton-Walther will
continue in full force and effect provided that such
payment terms will be changed to reflect any terms more
favorable to suppliers which Fruehauf may adopt
generally for other similarly situated suppliers.
(15) Fruehauf shall use its reasonable best
efforts to settle its current litigation with Deloitte &
Touche LLP in an amount equal to or greater than
$3,000,000.
K-H's obligations under this Agreement are
subject to the satisfaction of the following conditions
precedent before or concurrently with each Funding:
(a) No action, suit, investigation,
litigation or proceeding against or involving Fruehauf
may be pending or threatened before any court,
governmental agency or arbitrator that purports to
affect the legality, validity or enforceability of this
Agreement, any document required by this Agreement to be
executed by Fruehauf or the Fruehauf Subsidiaries or the
Note Purchase and Assignment Agreement or the
consummation of the transactions contemplated hereby or
thereby.
(b) Fruehauf's counsel shall deliver an
opinion letter dated the date of such Funding, addressed
to K-H, satisfactory in form and substance to K-H.
(c) A certificate of Fruehauf dated the
date of such Funding shall be executed on its behalf by
its Secretary certifying that this Agreement and all
<PAGE> 5
other documents to be executed by Fruehauf in connection
with this Agreement have been duly authorized by all
necessary corporate action on the part of Fruehauf.
(d) Fruehauf shall enter into an agreement
with Deloitte & Touche LLP in settlement of Fruehauf's
existing claims against Deloitte & Touche LLP on terms
not less favorable than described in paragraph 15 with
payment due within 7 days.
This Agreement may be executed in any number
of counterparts, each of which will be deemed to be an
original and all of which taken together will constitute
one and the same agreement.
This Agreement will be governed by and
construed in
accordance with the laws of the state of New York,
without giving effect to principles of conflicts of
laws.
If any provision, term or portion of this
Agreement is for any reason held to be illegal or
invalid, such illegality or invalidity will not affect
any other provision, term or portion of this Agreement,
each of which will be construed and enforced as if such
illegal or invalid provision, term or portion were not
contained in this Agreement. Any illegality or
invalidity of any application of this Agreement will not
affect any legal and valid application of this
Agreement, and each provision, term and portion of this
Agreement will be deemed to be effective, operative,
made, entered into or taken in the manner and to the
full extent permitted by law.
<PAGE> 6
Please sign and return one copy of this
Agreement to evidence your acceptance of and agreement
to the foregoing, whereupon this letter agreement will
become the binding obligation of each of the
undersigned.
FRUEHAUF TRAILER CORPORATION
By: /s/ Timothy J. Wiggins
-----------------------
Name: Timothy J. Wiggins
Title:Executive Vice President
Accepted and agreed to as of
the date first above written:
K-H CORPORATION
By: /s/ Fred J. Chapman
--------------------
Name: Fred J. Chapman
Title: Treasurer
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (this
"Agreement") is made and entered into as of April 25,
1996, by and between Fruehauf Trailer Corporation, a
Delaware corporation ("Fruehauf"), and K-H Corporation,
a Delaware corporation ("K-H").
RECITALS
WHEREAS, K-H and Fruehauf have entered into
a letter agreement dated as of April 19, 1996 (the
"Letter Agreement") pursuant to which K-H has agreed to
purchase a term loan or loans from Congress Financial
Corporation (Central) ("Congress") in the aggregate
amount of up to approximately $6,500,000 that
constitutes part of the existing credit facility between
Fruehauf and Congress (the "Funding"); and
WHEREAS, K-H is required by the Letter
Agreement to purchase $5,500,000 of the term loans at
the initial Funding and the remaining $1,000,000 on the
condition that Fruehauf receives the consents as
described in the Letter Agreement from the holders of
the senior notes issued under the indenture, dated as of
May 1, 1995, between Fruehauf and IBJ Schroder Bank &
Trust Company, as trustee; and
WHEREAS, in consideration of the Funding,
K-H has required, among other things, that Fruehauf
execute and deliver a letter agreement in the form of
Exhibit A attached hereto regarding certain federal
income tax information (the "Tax Letter Agreement"); and
WHEREAS, pursuant to the Letter Agreement,
K-H has agreed to indemnify Fruehauf for liabilities
that may result from the Tax Letter Agreement;
NOW, THEREFORE, for good and valuable
consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as
follows:
AGREEMENT
1. Indemnification and Hold Harmless.
K-H and its successors and assigns (the "Indemnitor"),
shall indemnify, defend and hold harmless, for an
unlimited duration of time, Fruehauf, its affiliates,
directors, officers, partners, employees, agents,
successors and assigns (collectively, "Indemnitee"),
from and against seventy-five percent (75%) of any and
all (a) reasonable documented out-of-pocket professional
fees and expenses, including attorney and accountant
fees and expenses, and other similar expenses and (b)
additional tax liability related to federal income tax
and alternative minimum tax (including penalties,
<PAGE> 2
additions to tax and interest) incurred by Indemnitee,
and paid in cash by Indemnitee or set-off against or
collected from a tax refund that would otherwise have
been paid in cash to Indemnitee, after the date of
execution of this Agreement and incurred as a result of
(i) the execution by Fruehauf of the Tax Letter
Agreement or (ii) any implementation or use by K-H of
any information contained in the Tax Letter Agreement.
Indemnitor's obligation to indemnify Indemnitee under
this paragraph 1 is limited only to payment by
Indemnitor of an aggregate amount of $3,500,000.
2. Defense of Claims. Indemnitee shall
give written notice to Indemnitor with respect to any
suit or claim initiated or threatened to be initiated
against Indemnitee which Indemnitee has reason to
believe is likely to give rise to a claim for indemnity
under this Agreement. In any litigation, administrative
proceeding, negotiation or arbitration pertaining to any
claim for which indemnification is sought under this
Agreement, Indemnitee may select legal counsel or other
representatives to represent itself, and to otherwise
control such litigation, proceeding, negotiation or
arbitration. If Indemnitee elects to control such
litigation, proceeding, negotiation or arbitration, the
Indemnitor has the right to fully participate in the
defense at its own expense. If the claim is one that
cannot by its nature be defended solely by Indemnitee,
then the Indemnitor shall make available all information
and assistance as Indemnitee may reasonably request;
provided, however, that Indemnitee shall pay the
reasonable documented fees and expenses of any third
party incurred by Indemnitor as a result of such
request.
Neither Indemnitor nor Indemnitee may make
any settlement of a suit or claim for which Indemnitee
is requesting indemnification under this Agreement
without the prior written consent of the other, which
consent shall not be unreasonably withheld or delayed.
With respect to other matters, including
federal or state tax audits or administrative appeals
matters, that do not constitute litigation,
administrative proceedings, negotiations or
arbitrations, but for which indemnity is nevertheless
potentially available to Indemnitee, Indemnitee is
entitled to process such matters in the normal course of
business, giving Indemnitor periodic notice of the
actions it has taken and the costs of such action, until
such time as Indemnitee determines to make a claim for
indemnity under this Agreement.
3. Notices. Any notice or other
communication required or desired to be given hereunder
shall be given in writing by personal delivery, a
nationally recognized overnight courier service, by
certified mail, return receipt requested and postage
prepaid, or via facsimile addressed as set forth below.
All notices and demands given by personal delivery,
overnight courier service or facsimile will be effective
upon receipt; all notices given by mail will be
effective on the second business day after mailing.
<PAGE> 3
If to Fruehauf: 111 Monument Circle, Suite 3200
Indianapolis, IN 46204
Facsimile: (317) 630-3090
Attn: Timothy J. Wiggins
with a copy to: Jones, Day, Reavis & Pogue
901 Lakeside Avenue
Cleveland, OH 44114
Facsimile: (216) 579-0212
Attn:William H. Coquillette,Esq.
If to K-H: c/o Treasurer
672 Delaware Ave.
Buffalo, NY 14209
Facsimile: (716) 888-8010
The parties may give notice hereunder of a
change of name or address, and notices to that party
shall thereafter be given as directed in that notice.
4. Authority and Enforceability. The
Indemnitor hereby represents and warrants that the
execution and delivery of this Agreement, and the
liabilities created by the obligations assumed and
indemnities granted hereunder, have been duly authorized
by all necessary corporate action, and will not conflict
with, result in any violation of, or constitute a
default under, any provision of any agreement or other
instrument binding upon or applicable to the Indemnitor,
or any present law or governmental regulation or court
decree applicable to the Indemnitor. The Indemnitor
expressly waives any defense to the enforcement of any
provision of this Agreement arising from a claim of lack
of consideration and warrants that this Agreement
constitutes a legal, valid and binding obligation upon
the Indemnitor, enforceable against the Indemnitor in
accordance with its terms.
5. No Offset. The Indemnitor shall not
for any reason deduct from or set off against any
amounts claimed by Indemnitee for indemnification under
this Agreement.
6. Governing Law. This Agreement shall
be governed by and construed in accordance with the laws
of the State of New York, without giving effect to
principles of conflicts of laws.
7. Amendment. This Agreement can be
amended only by a written instrument executed and
delivered by each of the parties to this Agreement.
<PAGE> 4
8. Entire Agreement. This Agreement
contains the entire agreement between the parties
respecting the subject matter of this Agreement and
supersedes all prior understanding and agreements,
whether oral or in writing, between the parties
respecting the subject matter of this Agreement.
9. Severability. If any term, covenant,
condition or provision of this Agreement, or the
application thereof to any person or circumstance, is to
any extent held by a court of competent jurisdiction to
be invalid, void or unenforceable, the remainder to the
terms, covenants, conditions or provisions of this
Agreement, or the application thereof to any person or
circumstance, will remain in full force and effect and
will in no way be affected, impaired, or invalidated
thereby.
IN WITNESS WHEREOF, the parties hereto have
executed this Agreement as of the day and date first
above written.
K-H CORPORATION
By:/s/ Fred J. Chapman
--------------------
Name: Fred J. Chapman
Title: Treasurer
FRUEHAUF TRAILER CORPORATION
By: /s/ Timothy J. Wiggins
----------------------
Name: Timothy J. Wiggins
Title: Executive Vice President
and Chief Financial
Officer
RELEASE
THIS RELEASE ("Release") is effective as of
this 25th day of April 1996 by and among Fruehauf
Trailer Corporation, a Delaware corporation
("Fruehauf"), Fruehauf International Limited, a Delaware
corporation ("FIL"), Fruehauf Corporation, a Delaware
corporation, M.J. Holdings, Inc., an Ohio corporation
("M.J. Holdings"), The Mercer Co., a Delaware
corporation ("Mercer"), Deutsche-Fruehauf Holding
Corporation, a Delaware corporation
("Deutsche-Fruehauf"), Fruehauf Holdings Corp., a
Delaware corporation ("Fruehauf Holdings"), FGR, Inc, a
Michigan corporation ("FGR"), Jacksonville Shipyards,
Inc., a Florida corporation ("Jacksonville"), E.L.
Devices, a Florida corporation ("E.L. Devices"),
Maryland Shipbuilding and Drydock Company, a Maryland
corporation ("Maryland") (Fruehauf, FIL, Fruehauf
Corporation, M.J. Holdings, Mercer, Deutsche-Fruehauf,
Fruehauf Holdings, FGR, Jacksonville, E.L. Devices, and
Maryland are sometimes referred to collectively as the
"Fruehauf Parties"), and K-H Corporation, a Delaware
corporation ("K-H").
RECITALS:
WHEREAS, K-H and Fruehauf have entered into
a letter agreement dated April 19, 1996 (the "Letter
Agreement") pursuant to which K-H has agreed to purchase
a term loan or loans from Congress Financial Corporation
(Central) ("Congress") in the aggregate amount of up to
approximately $6,500,000 that constitutes part of the
existing credit facility between Fruehauf and Congress
(the "Funding"); and
WHEREAS, K-H is required by the Letter
Agreement to purchase $5,500,000 of the term loans at
the initial Funding and the remaining $1,000,000 on the
condition that Fruehauf receives the consent as
described in the Letter Agreement from the holders of
the senior notes issued under the indenture, dated as of
May 1, 1995, between Fruehauf and IBJ Schroder Bank &
Trust Company, as trustee; and
WHEREAS, in consideration of the Funding,
K-H has required that the Fruehauf Parties execute and
deliver this Release in favor of K-H;
NOW THEREFORE, for good and valuable
consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as
follows:
AGREEMENT:
1. From and after the time of the initial
Funding, each of Fruehauf, FIL, Fruehauf Corporation,
M.J. Holdings, Mercer, Deutsche-Fruehauf, Fruehauf
Holdings, FGR, Jacksonville, E.L. Devices and Maryland
<PAGE> 2
hereby fully and forever releases and discharges K-H,
its successors, assigns and affiliates, and their
respective officers, agents and employees from any and
all claims, demands, actions or causes of action, sums
of money, accounts, reckonings, bonds, bills,
specialties, covenants, contracts, controversies,
agreements, promises, variances, trespasses, damages,
judgments, extents, executions, losses, costs, debts,
dues, demands, obligations or other claims of any kind
whatsoever, in law or in equity, that any of the
Fruehauf Parties now possess against K-H. This release
shall not affect any obligations any of the Fruehauf
Parties have to K-H or any other releasee.
2. This Release constitutes the entire
agreement among the parties regarding the subject matter
of this Release and supersedes all prior understandings
and agreements with respect to this Release.
Notwithstanding the foregoing sentence, this Release may
not be interpreted (i) to release K-H from any claims,
demands, actions or causes of action that may arise from
facts or circumstances occurring after the date of this
Agreement against K-H; or (ii) to release any claims
Fruehauf may have arising from its business relationship
with Dayton-Walther Corporation or from the purchase of
products or services from Dayton-Walther, including,
without limitation, claims for defective goods supplied
by Dayton-Walther Corporation to Fruehauf.
3. This Release may not be amended,
except by a written document signed by all of the
parties to this Release.
4. This Release will be governed by the
laws of the state of New York, without giving effect to
principles of conflicts of law.
IN WITNESS WHEREOF, the undersigned have
hereunto set their hands as of the date set forth above.
K-H CORPORATION
By: /s/ Fred J. Chapman
---------------------
Name: Fred J. Chapman
Title: Treasurer
FRUEHAUF TRAILER CORPORATION
By: /s/ Timothy J. Wiggins
-----------------------
Name: Timothy J. Wiggins
Title: Executive Vice President
<PAGE> 3
FRUEHAUF INTERNATIONAL LIMITED
By: /s/ Timothy J. Wiggins
-----------------------
Name: Timothy J. Wiggins
Title: Executive Vice President
FRUEHAUF CORPORATION
By: /s/ Timothy J. Wiggins
-----------------------
Name: Timothy J. Wiggins
Title: Executive Vice President
M.J. HOLDINGS, INC.
By: /s/ Timothy J. Wiggins
-----------------------
Name: Timothy J. Wiggins
Title: Executive Vice President
THE MERCER CO.
By: /s/ Timothy J. Wiggins
-----------------------
Name: Timothy J. Wiggins
Title: Executive Vice President
DEUTSCHE-FRUEHAUF HOLDING
CORPORATION
By: /s/ Timothy J. Wiggins
-----------------------
Name: Timothy J. Wiggins
Title: Executive Vice President
FRUEHAUF HOLDINGS CORP.
By: /s/ Timothy J. Wiggins
-----------------------
Name: Timothy J. Wiggins
Title: Executive Vice President
FGR, INC.
By: /s/ Timothy J. Wiggins
-----------------------
Name: Timothy J. Wiggins
Title: Executive Vice President
JACKSONVILLE SHIPYARDS, INC.
By: /s/ Timothy J. Wiggins
-----------------------
Name: Timothy J. Wiggins
Title: Executive Vice President
E.L. DEVICES, INC.
By: /s/ Timothy J. Wiggins
-----------------------
Name: Timothy J. Wiggins
Title: Executive Vice President
<PAGE> 4
MARYLAND SHIPBUILDING AND
DRYDOCK COMPANY
By: /s/ Timothy J. Wiggins
-----------------------
Name: Timothy J. Wiggins
Title: Executive Vice President
FRUEHAUF CORPORATION
By:
-----------------------
Name:
Title:
EXHIBIT 11
FRUEHAUF TRAILER CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS (LOSS) PER SHARE
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------
1996 1995
------ ------
<S> <C> <C>
PRIMARY:
- - --------
Average shares outstanding. . . . . . . . . . 39,212 30,733
Net effect of dilutive stock options and
warrants based on the treasury stock
method using average market price . . . . -- <F1> 675
------ ------
Totals . . . . . . . . . . . . . . . 39,212 31,408
====== ======
Net income (loss) . . . . . . . . . . . . . . $(4,307) $ 259
======= ======
Primary earnings (loss) per share . . . . . . $ (.11) $ .01
====== =====
FULLY DILUTED:
Average shares outstanding. . . . . . . . . . 39,212 30,733
Net effect of dilutive stock options and
warrants based on the treasury stock
method using average market price as the
average market price exceeds the period
end market price . . . . . . . . . . . . . -- <F1> 675
------ ------
Totals . . . . . . . . . . . . . . . . 39,212 31,408
====== ======
Net income (loss) . . . . . . . . . . . . . . $(4,307) $ 259
======= ======
Fully diluted earnings (loss) per share . . . $ (.11) $ .01
====== =====
<F1> Not applicable as inclusion is anti-dilutive.
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM FRUEHUAF TRAILER CORPORATION'S QUARTERLY
REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31,
1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 5,531
<SECURITIES> 0
<RECEIVABLES> 28,707
<ALLOWANCES> 0
<INVENTORY> 41,149
<CURRENT-ASSETS> 79,477
<PP&E> 32,882
<DEPRECIATION> 12,282
<TOTAL-ASSETS> 135,570
<CURRENT-LIABILITIES> 103,973
<BONDS> 67,450
0
0
<COMMON> 392
<OTHER-SE> (105,722) <F1>
<TOTAL-LIABILITY-AND-EQUITY> 135,570
<SALES> 90,306
<TOTAL-REVENUES> 90,306
<CGS> 79,601
<TOTAL-COSTS> 88,225
<OTHER-EXPENSES> 273
<LOSS-PROVISION> 2,143
<INTEREST-EXPENSE> 3,851
<INCOME-PRETAX> (4,186)
<INCOME-TAX> 121
<INCOME-CONTINUING> (4,307)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,307)
<EPS-PRIMARY> (.11)
<EPS-DILUTED> (.11)
<F1> Amount includes: Accumulated Deficit of ($244,542),
Additional paid-in capital of $130,244, Common stock
purchase warrants of $8,892 and Foreign currency
translation adjustment of ($316).
