<PAGE>
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 September 30, 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
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed
all documents and reports required to be filed by Section
12, 13 or 15(d) of the Securities Exchange Act of 1934
subsequent to the distribution of securities under a plan
confirmed by a court.
Not Applicable X YES NO
----- ---- ----
Number of outstanding shares of common stock: 39,712,454
as of November 14, 1996.
<PAGE> 2
INDEX
FRUEHAUF TRAILER CORPORATION AND SUBSIDIARIES
(Debtor-in-Possession)
PART I - FINANCIAL INFORMATION Page No.
--------------------- --------
Item 1 Condensed Consolidated Financial Statements
Condensed Consolidated Statement
of Operations -
Three months and nine months ended
September 30, 1996 and 1995 . . . . . . . 3
Condensed Consolidated Balance Sheet -
September 30, 1996 and December 31, 1995 . 4
Condensed Consolidated Statement
of Cash Flows -
Nine months ended September 30, 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 . . . . . . . . . . . . . . . 18
PART II - OTHER INFORMATION
Item 1 Legal Proceedings. . . . . . . . . . . . . 32
Item 3 Defaults Upon Senior Securities. . . . . . 33
Item 5 Other Information. . . . . . . . . . . . . 33
Item 6 Exhibits and Reports on Form 8-K . . . . . 34
SIGNATURES . . . . . . . . . . . . . . . . . . . . 36
<PAGE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
FRUEHAUF TRAILER CORPORATION AND SUBSIDIARIES
(Debtor-in-Possession)
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share amounts, unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales. . . . . . . . . $64,942 $94,504 $222,706 $315,901
Cost of goods sold . . . . 58,034 82,851 198,800 275,257
------- ------- -------- --------
Gross margin . . . . . . 6,908 11,653 23,906 40,644
Engineering, selling and
administrative expenses . . 12,305 11,815 36,052 38,026
Royalty income . . . . . . -- (554) (964) (1,788)
Nonrecurring gain. . . . . -- -- (3,000) --
Restructuring credit . . . -- -- -- (2,970)
------- ------- ------- --------
Income (loss) from
operations. . . . . . (5,397) 392 (8,182) 7,376
Other income (expense):
Interest expense . . . (3,406) (4,257) (10,617) (11,460)
Equity in net income of
affiliate companies. . -- 730 -- 2,448
Gain on sale of
excess assets. . . . . . 151 216 14,202 1,854
Impairment in value of
promissory note . . . . -- -- (2,143) --
Other income (expense)
- net . . . . . . . (349) 28 (617) 169
------- ------- ------- --------
Income (loss) before
income taxes. . . . . (9,001) (2,891) (7,357) 387
Provision for income
taxes . . . . . . . . 63 99 276 369
------- ------- ------- --------
Income (loss) before
extraordinary items . . (9,064) (2,990) (7,633) 18
Extraordinary items:
Gain on satisfaction
of payable to Terex
Corporation . . . . -- -- -- 1,156
Loss on early
extinguishment of
debt . . . . . . . . (1,200) -- (1,200) (1,216)
------- ------- ------- --------
Net loss . . . . . . . $(10,264) $ (2,990) $ (8,833) $ (42)
======= ======= ======= =======
Primary and fully
diluted loss per share:
Income (loss) before
extraordinary items. . $ (.23) $ (.08) $ (.19) $ .00
Gain on satisfaction
of payable to Terex
Corporation. . . . . -- -- -- .03
Loss on early
extinguishment of
debt. . . . . . . . (.03) -- (.03) (.03)
------ ------ ------ -------
Primary and fully
diluted loss per
share. . . . . . . $ (.26) $ (.08) $ (.22) $ (.00)
====== ====== ====== ======
Dividends per share. . $ -- $ -- $ -- $ --
====== ====== ====== ======
Weighted average common
and common equivalent
shares outstanding
(See Exhibit 11). . . 39,462 39,198 39,296 35,316
====== ====== ====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
<PAGE> 4
FRUEHAUF TRAILER CORPORATION AND SUBSIDIARIES
(Debtor-in-Possession)
CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents . . $ 3,613 $ 3,804
Net receivables . . . . . . . 21,091 38,589
Net inventories (See Note C). . 24,959 55,162
Other current assets. . . . . 2,898 841
-------- --------
Total current assets. . . 52,561 98,396
Restricted cash. . . . . . . . 2,482 1,427
Prepaid pension cost . . . . . 12,218 11,757
Investments in affiliate
companies (See Note F). . . -- 3,441
Assets held for sale . . . . . 3,378 6,986
Unamortized deferred debt
issuance costs . . . . . . 5,087 6,232
Other assets . . . . . . . . . 7,626 7,255
Property, plant and equipment
Property, plant and
equipment . . . . . . . 31,353 32,906
Less - accumulated
depreciation . . . . . . (12,672) (11,887)
-------- --------
Net property, plant and
equipment. . . . . . . . . 18,681 21,019
Total assets. . . . . . . $102,033 $156,513
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.<PAGE>
<PAGE> 5
FRUEHAUF TRAILER CORPORATION AND SUBSIDIARIES
(Debtor-in-Possession)
CONDENSED CONSOLIDATED BALANCE SHEET (Continued)
(in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
(unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Trade accounts payable. . . . . . . $ 35,654 $ 51,703
Accrued compensation and benefits 5,553 7,835
Accrued warranties and
products liability . . . . . . . 6,714 6,876
Other current liabilities . . . . . 21,932 19,762
Current portion of long-term
debt (See Note D). . . . . . . . 74,533 33,592
-------- --------
Total current liabilities . . . 144,386 119,768
Liabilities subject to settlement
under chapter 11 reorganization
proceedings (See Note E) . . . . . -- --
-------- --------
Long-term debt, less current
portion (See Note D). . . . . . . -- 67,374
Postretirement benefits. . . . . . . 33,606 34,353
Other long-term liabilities. . . . . 32,812 36,041
Contingencies and
litigation (See Note G). . . . . .
Stockholders' deficit
Common Stock $0.01 par value -
authorized 60,000 shares; issued
and outstanding 39,712 shares at
September 30, 1996 and 39,212
shares at December 31, 1995 . . . 397 392
Additional paid-in capital. . . . . 131,114 130,244
Common Stock Purchase Warrants . . 9,102 8,892
Accumulated deficit . . . . . . . . (249,068) (240,235)
Foreign currency translation
adjustment . . . . . . . . . . . (316) (316)
-------- --------
Total stockholders' deficit . . . (108,771) (101,023)
Total liabilities and
stockholders' deficit. . . . . . . . $102,033 $156,513
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.<PAGE>
<PAGE> 6
FRUEHAUF TRAILER CORPORATION AND SUBSIDIARIES
(Debtor-in-Possession)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands, unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------
1996 1995
---- ----
<S> <C> <C>
Operating Activities:
Net loss . . . . . . . . . . . . $ (8,833) $ (42)
Adjustments to reconcile net income
to net cash from (used in)
operating activities:
Depreciation. . . . . . . . . . . . 1,182 1,298
Amortization of deferred debt
issuance costs and debt discount. 1,066 722
Unremitted earnings from
affiliate companies. . . . . . . -- (2,448)
Gain on sale of excess assets . . . (14,202) (1,854)
Non-cash restructuring credit . . . -- (2,970)
Impairment in value of
promissory note. . . . . . . . . 2,143 --
Extraordinary gain on satisfaction
of payable to Terex Corporation -- (1,156)
Extraordinary loss on early
extinguishment of debt. . . . . 1,200 1,216
Increase (decrease) in cash due
to changes in operating assets
and liabilities:
Net receivables . . . . . . . . 16,954 (6,579)
Net inventories . . . . . . . . 30,203 (13,763)
Trade accounts payable. . . . . (16,555) 2,828
Other assets and liabilities. . (5,710) (12,069)
------- -------
Net cash from (used in)
operating activities. . . . . 7,448 (34,817)
======= =======
Investing Activities:
Capital expenditures . . . . . . . (426) (1,091)
Proceeds from sale of excess
assets. . . . . . . . . . . . 21,561 27,069
Increase in restricted cash. . . . (1,055) (6,516)
------- -------
Net cash from investing
activities. . . . . . . . . 20,080 19,462
======= =======
Financing Activities:
Net increase (decrease) in Revolving
Credit Facility borrowings . . . (25,704) 5,763
Issuance of Working Capital
Term Note. . . . . . . . . . . . 6,500 --
Net repayments under notes payable . . -- (77)
Principal repayments of
long-term debt . . . . . . . . . (8,254) (9,122)
Proceeds from issuance of Common
Stock . . . . . . . . . . . . . -- 20,666
Issuance of Senior Notes . . . . . -- 66,617
Extinguishment of former bank
credit facility. . . . . . . . . -- (66,617)
Debt issuance costs . . . . . . . (261) (4,516)
------- -------
Net cash from (used for)
financing activities. . . . . (27,719) 12,714
======= =======
Net decrease in cash and cash
equivalents. . . . . . . . . . (191) (2,641)
Cash and cash equivalents at
beginning of period . . . . . . 3,804 7,789
------- -------
Cash and cash equivalents at
end of period . . . . . . . . . $ 3,613 $ 5,148
======= =======
</TABLE>
The accompanying notes are an
integral part of these statements.<PAGE>
<PAGE> 7
FRUEHAUF TRAILER CORPORATION AND SUBSIDIARIES
(Debtor-in-Possession)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, unless otherwise denoted)
September 30, 1996
NOTE A - PROCEEDING UNDER CHAPTER 11
On October 7, 1996 (the "Petition Date"), Fruehauf Trailer
Corporation ("Fruehauf" or the "Company"), together with
all of its subsidiaries excluding its Mexican subsidiary,
Fruehauf de Mexico S.A. de C.V. ("Fruehauf de Mexico"),
filed voluntary petitions for reorganization under chapter
11 ("Chapter 11") of the United States Bankruptcy Code 11
U.S.C. ss 101-1330 (the "Bankruptcy Code") in the United
States Bankruptcy Court for the District of Delaware (the
"Bankruptcy Court") and are currently operating their
respective businesses as debtors-in-possession, subject to
the approval of the Bankruptcy Court for certain
non-ordinary course transactions. Additionally, certain
official and unofficial creditor committees have been
formed which have the right to review and object to
non-ordinary course business transactions and are expected
to participate in the formulation of any plan or plans of
reorganization. While Fruehauf de Mexico is not a debtor,
the Company's equity interest in Fruehauf de Mexico and
related intercompany receivables owed by Fruehauf de
Mexico represent assets of the bankruptcy estate. The
assets, liabilities and revenues of Fruehauf de Mexico
comprise less than 5% of the related consolidated totals.
On October 21, 1996, a single official unsecured
creditors' committee was appointed by the U.S. trustee
pursuant to section 1102 of the Bankruptcy Code (the
"Creditors' Committee"). The Creditors' Committee has the
right, among other things, to review and object to
certain transactions outside the ordinary course of the
Company's business and is expected to participate in the
negotiation of any plan or plans of reorganization. In
addition, an unofficial committee of certain of the
holders of the Company's 14.75% senior secured notes (the
"Senior Notes") (the "Noteholders' Committee") has also
been formed to represent the interests of the holders of
the Senior Notes. The Company is not aware of any other
unofficial creditors or equity holders committees that
have been formed. No other official committees of
creditors or equity holders have been appointed as of the
date of this filing. Under the Bankruptcy Code and
pursuant to a court order, the Company will be required to
pay legal and other advisory fees and expenses of the
Creditors' Committee, the Noteholders' Committee and those
of the Company. The ultimate amount of such expenses
cannot be predicted with certainty. Such expenses will be
expensed as they are incurred.
The Company has the exclusive right pursuant to section
1121 of the Bankruptcy Code to file a plan of
reorganization within 120 days of the Petition Date (the
"Exclusive Period"). The Company is currently in the
process of developing a business plan which will serve as
the basis for a plan of reorganization. The Company
expects that the Creditors' Committee and Noteholders'
Committee will participate in the negotiation of a plan of
reorganization during the initial Exclusive Period.
Although the timing of any filing of a plan of
reorganization plan cannot be predicted with certainty,
the Company's present intention is to present the
Creditors' Committee and Noteholders' Committee with a
proposed plan of reorganization as soon as possible.
Nonetheless, the Company may need to seek an extension of
the Exclusive Period. If the Company is unable to obtain
confirmation of a plan of reorganization, its creditors or
equity security holders may seek a liquidation of Fruehauf
by conversion to a chapter 7 bankruptcy case or otherwise.
In that event, it is likely that additional liabilities
would be asserted that are not presently reflected in the
financial statements. Furthermore, certain liabilities,
such as those related to defined benefit pension plans,
are computed under assumptions for an ongoing business.
In the event of a liquidation, other assumptions would be
used in such computations and the amounts reflected in the
financial statements would be subject to adverse
adjustments in amounts which, while not presently
determinable, would be material.
<PAGE> 8
Pursuant to the approval of the Bankruptcy Court, the
Company and its affiliated debtors have entered into a $55
million debtor-in-possession financing facility with
Madeleine LLC ("Madeleine"), an affiliate of Cerberus
Partners, L.P. (the "DIP Facility"). The conditions
precedent to obtaining advances under the DIP Facility
required, among other things, (1) satisfaction of
pre-petition secured indebtedness owed Congress Financial
Corporation (Central) ("Congress") under the Company's
revolving credit facility (the "Revolving Credit
Facility") and a working capital term note (the "Working
Capital Term Note"), (2) satisfaction of pre-petition
secured indebtedness owed to K-H Corporation ("K-H")
pursuant to a loan agreement (the "Subordinated Revolving
Note"), (3) release of liens by Congress and K-H, (4)
granting of a first priority lien to Madeleine on
substantially all of the assets of the Company and its
affiliated debtors and (5) the holders of the Senior Notes
subordinating their liens to the liens granted to
Madeleine. See further discussion of the DIP Facility in
Note D - "Debt."
The commencement of the Chapter 11 cases resulted in the
imposition of an automatic stay under Section 362 of the
Bankruptcy Code against the commencement or continuation
of any judicial, administrative or other proceeding
against the Company, against any act to obtain possession
of property of or from the Company, and against any act to
create, perfect or enforce a lien against property of the
Company, subject to certain exceptions. Fruehauf's
creditors, therefore, are prohibited from attempting to
collect pre-petition debts without the consent of the
Bankruptcy Court. Any creditor may seek relief from the
automatic stay and, if applicable, enforce a lien against
its collateral, if authorized by the Bankruptcy Court.
There are various other provisions of the Bankruptcy Code
that may impose limitations or constraints on the
Company's operations.
In addition, the Company may reject pre-petition executory
contracts and unexpired leases under Section 365 of the
Bankruptcy Code, and parties affected by these rejections
may file claims with the Bankruptcy Court in accordance
with the reorganization claims process. The Company has
not yet made decisions with respect to the assumption or
rejection of its various executory contracts and unexpired
leases. Substantially all the liabilities under these
contracts and leases in existence as of the Petition Date
are subject to being paid or compromised under a plan of
reorganization to be voted upon by all impaired classes of
creditors and equity holders and approved by the
Bankruptcy Court.
The accompanying condensed consolidated financial
statements have been prepared on a going concern basis,
which contemplates continuity of operations, realization
of assets and liquidation of liabilities in the ordinary
course of business. However, as a result of the Chapter
11 filings and circumstances relating to this event,
including the Company's highly leveraged financial
structure and recurring losses from operations as
reflected in the Condensed Consolidated Statement of
Operations, such realization of assets and liquidation of
liabilities is subject to significant uncertainty. As a
Chapter 11 debtor, the Company may sell or otherwise
dispose of assets and liquidate or settle liabilities (in
each case subject, under certain circumstances, to
Bankruptcy Court approval), for amounts other than those
reflected in the condensed consolidated financial
statements. Further, the amounts reported in the
condensed consolidated financial statements do not give
effect to any adjustments to the carrying value of assets
or amounts of liabilities that might result as a
consequence of actions taken pursuant to a plan of
reorganization. The appropriateness of using the going
concern basis is dependent upon, among other things,
confirmation of a plan of reorganization, future
profitable operations, the ability to comply with
debtor-in-possession and other financing agreements and
the ability to generate sufficient cash from operations,
investing and financing sources to meet obligations.
Substantially all of the Company's debt subject to
settlement in its Chapter 11 cases is in default of the
terms of certain of the applicable loan agreements, notes
and indentures. For financial statement reporting
purposes after the Petition Date, those liabilities and
obligations whose disposition is dependent on the outcome
of the Chapter 11 cases will be segregated and
reclassified as liabilities subject to settlement under
the reorganization proceedings on the Company's balance
sheet (see also Note E - "Liabilities Subject to
Settlement under Reorganization Proceedings"). Certain
pre-petition liabilities were approved by the Bankruptcy
Court for payment in the ordinary course of business and
accordingly will be included in the appropriate liability
captions on the Company's balance sheet after the Petition
Date. Such liabilities include payments for wages,
salaries and employee benefits and certain customer
obligations. As of the Petition Date, the Company has
discontinued accruing interest on its unsecured
pre-petition debt obligations. Under certain
circumstances, the Company believes that the Senior Notes
may be undersecured as of the Petition Date.
<PAGE> 9
NOTE B - BASIS OF PRESENTATION
Current Basis of Presentation
As discussed previously, the accompanying condensed
consolidated financial statements of the Company as of
September 30, 1996 and for the three and nine months ended
September 30, 1996 have been prepared on a going concern
basis. Such financial statements 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 F.
Operating results for the three and nine months ended
September 30, 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").
Fresh Start Reporting
AICPA Statement of Position 90-7, "Financial Reporting by
Entities in Reorganization Under The Bankruptcy Code"
provides that if the reorganization value of the assets of
an entity emerging from bankruptcy immediately before the
date of confirmation of a plan is less than the total of
all post-petition liabilities and allowed pre-petition
claims, and if holders of the existing voting shares
immediately before confirmation receive less than 50% of
the voting shares of the emerging entity, the entity is
required to adopt fresh start reporting upon emergence
from chapter 11. As discussed previously, the Company is
in the process of developing a business plan which will
serve as the basis for a plan of reorganization. While
there can be no assurance that the Company will be able to
obtain confirmation of a plan, the Company believes that
it is reasonably possible that the Company will be
required to adopt fresh start reporting upon a successful
emergence from Chapter 11.
<PAGE> 10
NOTE C - INVENTORIES
Inventories consisted of the following at:
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- -------------
<S> <C> <C>
New trailers. . . . . . . . . . . $ 6,105 $ 19,324
Used trailers . . . . . . . . . . 1,816 4,288
Finished parts. . . . . . . . . . 8,314 14,923
Work-in-process and
raw materials . . . . . . . . 11,523 19,926
-------- -------
Gross inventories. . . . . 27,758 58,461
FIFO inventory value
over LIFO costs. . . . . . . . (2,799) (3,299)
-------- -------
Net inventories. . . . . . $24,959 $55,162
======== =======
</TABLE>
NOTE D - DEBT
Debt consisted of the following at:
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------ -----------
<S> <C> <C>
Senior Notes bearing interest at
14.75% due April 2002 (net of
unamortized debt discount of
$3,323 at September 30, 1996 and
$4,094 at December 31, 1995) . . . $ 51,182 $ 58,480
Revolving Credit Facility bearing
interest at prime (8.25% at
September 30, 1996) plus 2.5%,
due May 1997 . . . . . . . . . . . 7,639 33,343
Working Capital Term Note bearing
interest at prime (8.25% at
September 30, 1996) plus 2.5%,
due May 1997 (net of unamortized
debt discount of $123 at
September 30, 1996) . . . . . . 6,377 --
Subordinated Revolving Note bearing
interest at prime (8.25% at
September 30, 1996) plus 2.5%,
due the later of December 1,
1999 or 15 days after the full
redemption of the Senior Notes. . 125 --
Warrant Notes bearing interest at
15% due October 1998 . . . . . . 8,692 8,692
Other 518 451
------- --------
Total debt. . . . . . . . . . $74,533 $100,966
======= ========
</TABLE>
DIP Facility
By order dated October 9, 1996, the Bankruptcy Court
authorized borrowings of up to $35 million on an interim
basis pursuant to the DIP Facility. By order dated
November 5, 1996, the Bankruptcy Court approved the DIP
Facility on a final basis, providing the Company with
access to the entire $55 million commitment contemplated
by the DIP Facility. The conditions precedent to
obtaining advances under the DIP Facility required, among
other things, (1) satisfaction of pre-petition secured
indebtedness owed Congress under the Revolving Credit
Facility and the Working Capital Term Note, (2)
satisfaction of pre-petition secured indebtedness owed to
K-H pursuant to the Subordinated Revolving Note, (3)
release of liens by Congress and K-H, (4) granting of a
first priority lien to Madeleine on substantially all of
the assets of the Company and its affiliated debtors and
(5) the holders of the Senior Notes to subordinate their
liens to the liens granted Madeleine.
<PAGE> 11
The DIP Facility provides for (i) a borrowing base
facility of up to $35 million (as such amount may be
reduced from time to time by voluntary and mandatory
commitment reductions) subject to certain borrowing base
limitations (the "Borrowing Base Facility") and (ii) an
overadvance facility of up to $20 million (as such amount
may be reduced from time to time by voluntary and
mandatory commitment reductions) (the "Overadvance
Facility"). Advances under the Borrowing Base Facility
are referred to as "Borrowing Base Loans" and advances
under the Overadvance Facility are referred to as
"Overadvance Loans." The available borrowing base is
calculated by applying the prescribed advance ratios
against eligible receivables (ranging from 65% to 85%) and
eligible inventory balances (ranging from 50% to 70%), in
accordance with the terms of the DIP Facility. Applying
the prescribed advance ratios against eligible receivables
and inventories under the DIP Facility results in a
borrowing base of $20.7 million as of November 8, 1996.
Total borrowings under the DIP Facility as of November 8,
1996 totaled $28.3 million, resulting in a $7.6 million
utilization of the $20 million Overadvance Facility.
The DIP Facility matures the earliest of (a) April 30,
1997; (b) the effective date of one or more plans of
reorganization; or (c) upon default and acceleration of
the DIP Facility. Borrowing Base Loans bear interest at
prime plus 3.5%, while Overadvance Loans bear interest at
prime plus 7.5%. Interest on the DIP Facility is payable
monthly in arrears. Obligations under the DIP Facility
that are not paid when due bear interest at 2% per annum
in excess of the amount otherwise payable. In addition,
the DIP Facility requires the payment of (i) a one-time
nonrefundable facility fee of $1.9 million, or 3.5% of the
aggregate $55 million commitment, which was paid at the
closing of the DIP Facility, (ii) monthly administrative
and monitoring fees and (iii) unused commitment fees equal
to 1/2% of the average unused commitments under the
Borrowing Base Facility and Overadvance Facility.
The DIP Facility is secured by first priority security
interests (subject only to the carve out for certain
administrative expense claims and certain other permitted
encumbrances) in and liens on all existing and future
acquired property of the Company. The final financing
order entered by the Bankruptcy Court also granted
Madeleine super-priority administrative claim status
(subject only to the carve out for certain administrative
expense claims and certain other permitted encumbrances)
with respect to all obligations under the DIP Facility.
The DIP Facility and the final financing order provide for
a carve out for certain fees and expenses of professionals
retained by the Company and its affiliated debtors, the
Creditors' Committee, the Indenture Trustee for the Senior
Notes and the Noteholders' Committee (but not including
investment banking or crisis manager fees or expenses) in
connection with the Chapter 11 case in an aggregate amount
not to exceed (on a cumulative basis) $1.0 million per
month less the amount of any fees and expenses paid for
such month and any unpaid fees to the Clerk of the
Bankruptcy Court or the United States trustee.
The DIP Facility contains certain financial covenants
relating to minimum levels of consolidated revenues and
earnings before interest, taxes, depreciation and
amortization. The DIP Facility also includes, among
others, negative covenants concerning (i) the incurrence
of additional indebtedness, (ii) the incurrence of liens
on the Company's assets and properties, (iii) the making
of investments in other entities, (iv) the Company's
incurrence of contingent obligations, (v) the Company's
ability to effect asset sales, (vi) limitations on the
level of capital expenditures the Company can make, (vii)
the Company's ability to engage in transactions with
affiliates and (viii) the making of restricted payments.
Revolving Credit Facility/Working Capital
Term Note/Subordinated Revolving Note
As a condition of the DIP Facility and pursuant to
authority granted by the Bankruptcy Court, the Company
entered into certain payoff letters with Congress and K-H
with respect to the satisfaction of pre-petition
indebtedness owed Congress and K-H (collectively, the
"Payoff Letters"). The terms of the Congress Payoff
Letter provided for the payment to Congress of
approximately $14.5 million, comprised of (i) $7.3 million
in respect of outstanding revolving loans under the
Revolving Credit Facility, (ii) $6.2 million to cash
<PAGE> 12
collateralize outstanding letters of credit issued
pursuant to the Revolving Credit Facility, (iii) $0.3
million representing 5% of the outstanding letters of
credit to collateralize certain indemnity obligations,
(iv) $0.45 million, or 1% of the $45 million commitment
under the Revolving Credit Facility, as an early
termination fee and (v) $0.2 million for certain legal and
other accrued costs related to the Revolving Credit
Facility. In addition, the Congress Payoff Letter
required the Company, as a condition to discharging and
terminating the Revolving Credit Facility and Congress
releasing its liens, to release Congress from any claims
the Company may have against Congress. On October 10,
1996, the Company used the proceeds of the initial draw
under the DIP Facility to fund the $14.5 million to
Congress, thus discharging all remaining obligations
pursuant to the Revolving Credit Facility.
The terms of the K-H Payoff Letter provided for the
payment to K-H of approximately $6.7 million, comprised of
(i) $6.5 million in respect of the Working Capital Term
Note, (ii) $0.1 million in respect of the Subordinated
Revolving Note and (iii) $0.1 million representing accrued
interest and certain legal and other costs related to the
Working Capital Term Note and Subordinated Revolving Note.
In addition, the K-H Payoff Letter required the Company,
as a condition to discharging the obligations under the
Working Capital Term Note and the Subordinated Revolving
Note and K-H releasing its liens, to release K-H from any
claims the Company may have against K-H with respect to
the loans. On October 10, 1996, the Company used the
proceeds of the initial draw under the DIP Facility to
fund the $6.7 million to K-H, thus discharging all
remaining obligations pursuant to the Working Capital Term
Note and the Subordinated Revolving Note.
Senior Notes
A condition precedent to entering into the DIP Facility
required the holders of the Senior Notes to consent to the
DIP Facility, including the creation of first priority
security interests for Madeleine (subject to the carve out
for professional fees and certain other permitted
encumbrances). Holders of the Senior Notes representing
in excess of 75% of the total outstanding principal amount
of Senior Notes indicated their express consent to the
implementation of the DIP Facility. The holders of the
Senior Notes received replacement liens on substantially
all of the Company's assets and properties subordinate
only to the liens granted to Madeleine pursuant to the DIP
Facility (and certain other claims, including the
professional fee carve out). Under certain circumstances,
the Company believes that the Senior Notes may be
undersecured as of the Petition Date.
Pursuant to the terms of the Indenture, the Company
commenced an offer dated June 28, 1996 to repurchase
Senior Notes with an aggregate principal balance, plus
accrued interest, of approximately $8.1 million
(consisting of approximately $7.5 million of remaining
Foreign Sale (as defined below) proceeds and approximately
$0.6 million on deposit with the Trustee from previous
asset sales). The offer to repurchase Senior Notes was
fully subscribed. Accordingly, the Company repurchased
Senior Notes with an aggregate principal balance of $8.1
million on August 5, 1996. After giving effect to the
repurchase, Senior Notes with an aggregate principal
balance of $54.5 million remained outstanding as of the
Petition Date.
Warrant Notes and Other
The Company's unsecured promissory notes due October 1998
(the "Warrant Notes") and its other unsecured debt subject
to settlement in its Chapter 11 case are in default of
certain of the terms of the applicable loan agreements and
notes. For financial statement reporting purposes, these
debt obligations whose disposition is dependent on the
outcome of the Chapter 11 case have been segregated and
will be reclassified as liabilities subject to settlement
under the reorganization proceedings in subsequent
financial statements (see also Note E - "Liabilities
Subject to Settlement under Reorganization Proceedings").
As of the Petition Date, the Company has discontinued
accruing interest on its unsecured pre-petition debt
obligations.
<PAGE> 13
NOTE E - LIABILITIES SUBJECT TO SETTLEMENT UNDER
REORGANIZATION PROCEEDINGS
Liabilities subject to settlement in the Company's Chapter
11 cases include all the Company's current and long-term
debt (excluding obligations under the Revolving Credit
Facility, Working Capital Term Note and Subordinated
Revolving Note which were satisfied as discussed
previously), trade accounts payable, accrued interest
expense and other accrued liabilities as of the Petition
Date. As the Petition Date occurred after September 30,
1996, the exact amount of liabilities outstanding as of
September 30, 1996 that were also outstanding at the
Petition Date, and thus are subject to settlement, is not
known. Accordingly, liabilities ultimately subject to
settlement under the reorganization cases are not
segregated in the Condensed Consolidated Balance Sheet as
of September 30, 1996. However, subsequent to September
30, 1996 and before the Petition Date, the Company did not
incur any material liabilities not already accounted for
in the September 30, 1996 Condensed Consolidated Balance
Sheet nor did the Company make any material payments on
liabilities included in the September 30, 1996 Condensed
Consolidated Balance Sheet.
As part of the Chapter 11 reorganization process, the
Company has notified all known or potential claimants for
the purpose of identifying all pre-petition claims against
the Company. A claims bar date has yet to be set by the
Bankruptcy Court. Generally, claimants have until such
bar date to file claims or be barred from further action
or recourse on account of such claims, except in instances
of claims relating to any future rejection of executory
contracts as part of the Chapter 11 cases and certain
other claims. Additional claims and pre-petition
liabilities may arise as certain contingent and/or
potentially disputed bankruptcy claims are settled for
amounts that may differ from those shown on the Condensed
Consolidated Balance Sheet.
NOTE F - 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 secured by a mortgage on the underlying
property and assumption of liabilities related to the
property. The purchaser has 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. Thereafter, on
May 8, 1996, Jacksonville initiated a foreclosure
proceeding on the real property securing the promissory
note. Such discussions, however, including the proposed
economic terms of the promissory note sale, indicated that
the entire carrying amount of the promissory note may not
be recoverable. 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. More
recently, Jacksonville has entered into a Note and
Mortgage purchase agreement whereby Jacksonville will sell
the note and underlying mortgage for $2.7 million in cash.
Jacksonville expects to close, subject to Bankruptcy Court
approval, the sale before the end of the first quarter of
1997. It should be noted, however, that there can be no
assurance that the transaction will close.
The Company completed the sale of certain of the Company's
foreign assets (the "Foreign Sale") on June 21, 1996.
Proceeds to the Company, net of transaction costs and $1.0
million held in escrow, totaled approximately $18.3
million. The assets sold in the Foreign Sale consisted of
the Company's interest in (i) capital stock of certain
foreign trailer manufacturers, including Societe
Europeenne de Semi-Remorques, S.A. ("SESR"), Nippon
Fruehauf Company, Ltd. ("Nippon Fruehauf") and Henred
Fruehauf (Pty) Ltd. ("Henred Fruehauf") (such stock
interests excluded Fruehauf de Mexico), (ii) certain
trademark and technology license agreements currently
<PAGE> 14
operative outside North America (including without
limitation, all rights to any fees payable under any such
existing agreements and any renewals thereof that may be
made in the future), (iii) the trademark "Fruehauf"
outside North America and (iv) certain excess machinery
and equipment and the rights to collect certain export
trade receivables. The Company recognized a gain of
approximately $14.0 million related to the Foreign Sale.
As a result of the Foreign Sale, the Company no longer
generates income from equity affiliates, dividend income
or royalty income related to such foreign assets.
The Company recognized a gain of $3.0 million in the first
quarter of 1996 in connection with the settlement of
litigation.
Pursuant to the terms of the Indenture, the Company was
required in certain circumstances to offer to repurchase
Senior Notes out of proceeds of asset sales. During the
third quarter of 1996, the Company repurchased $8.1
million in aggregate principal amount of Senior Notes from
certain of the proceeds of asset sales. As a result of
such repurchase of Senior Notes, the Company was required
to write off $1.2 million during the third quarter of
1996, representing a proportionate share of remaining
unamortized deferred debt issuance costs and debt
discount.
NOTE G - CONTINGENCIES AND LITIGATION
Pursuant to section 362 of the Bankruptcy Code,
substantially all pre-petition non-Bankruptcy Court
litigation against the Company and other contingent
liabilities were automatically stayed by the Chapter 11
filings. Motions may be made, although none have yet been
heard, in Bankruptcy Court to modify the automatic stay
provisions of the Bankruptcy Code to permit certain
matters to continue to be litigated in the courts where
they are pending. Affected parties may file claims with
the Bankruptcy Court in accordance with the reorganization
claims process.
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 Corporation ("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 in the amount of $3.3 million and (c) issue
warrants for the purchase of 325,000 shares of Common
Stock. To the extent that the warrants do not have an
agreed upon value 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 has attempted to
develop the specific terms of the notes and warrants. The
Company has experienced difficulties in negotiating terms
acceptable to the Company. As of the Petition Date, the
Company had not distributed any securities pursuant to the
settlement.
<PAGE> 15
The Company is involved in other various legal proceedings
that 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, the Company's former maritime
operations are among 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.
In December 1995, the Company reached a settlement of a
product liability suit whereby the Company issued, as part
of the settlement, 500,000 shares of common stock during
1996. The Company had litigation reserves totaling $11.1
million at September 30, 1996. However, pursuant to
section 362 of the Bankruptcy Code, all pre-petition
non-Bankruptcy Court litigation against the Company and
other contingent liabilities were automatically stayed by
the Chapter 11 filing.
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
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 has participated 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 that 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 $11.9 million at September 30, 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.
Certain environmental liabilities may not be stayed under
Section 362 of the Bankruptcy Code.
Other
The Company is party to a lease with respect to a former
manufacturing plant in Fort Worth, Texas (the "Fort Worth
Lease"). The Fort Worth Lease expired pursuant to its
terms in October 1996. The landlord recently notified the
Company of its belief that the Company is in default of
the Fort Worth Lease with respect to certain covenants
relating to the maintenance of the leased property. The
landlord has indicated its desire that the Company perform
certain repair and maintenance to the facility which the
landlord estimates the cost of such repair at
approximately $1.7 million. The actual amount of any
liability or the extent that the Company may be liable
cannot be determined at this time. The Company has not
recorded a reserve related to such contingency.
<PAGE> 16
In March 1994, the SEC initiated a formal investigation of
the Company. This investigation followed an informal
inquiry by the SEC that had existed for some period of
time. 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 Company and certain former
officers of the Company, without admitting or denying any
findings of the SEC, made an offer of settlement, which,
if accepted by the SEC, would result in the entry of an
order that the Company and such former officers cease and
desist from committing or causing any violations of
federal securities laws.
The Internal Revenue Service (the "Service") had been 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 Service notified the Company of
its intent to discontinue the examination of the 1989
federal tax return and issue a no-change letter resulting
in no adjustment to the Company's tax return as filed.
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 impact on the Company.
NOTE H - MANAGEMENT'S ACTION PLAN AND OUTLOOK
As discussed previously, the Company has the Exclusive
Period in which, pursuant to section 1121 of the
Bankruptcy Code, to file a plan of reorganization. The
Company is currently in the process of developing a
business plan which will serve as the basis for a plan of
reorganization. The DIP Facility requires that the Company
submit a business plan to the DIP Facility lender by
December 15, 1996. Such plan is required to consider the
sale of the entire business in whole or in parts during
the Chapter 11 cases or under a plan of reorganization.
The Company expects that the Creditors' Committee and
Noteholders' Committee will participate in the negotiation
of a plan of reorganization during the 120 day Exclusive
Period. Although the timing of any filing of a plan of
reorganization plan cannot be predicted with certainty,
the Company's present intention is to present the
Creditors' Committee and Noteholders' Committee with a
proposed plan of reorganization as soon as possible.
Nonetheless, the Company may need to seek an extension of
the Exclusive Period.
As discussed previously, the DIP Facility matures the
earliest of (a) April 30, 1997; (b) the effective date of
one or more plans of reorganization; or (c) upon default
and acceleration of the DIP Facility. The DIP Facility
maturity date of April 30, 1997 and the amount of the
Overadvance Facility of $20 million was based upon
financial projections that indicated that liquidity under
the DIP Facility would be exhausted as of April 30, 1997.
The appropriateness of the amount of the Overadvance
Facility and the maturity date of the DIP Facility are
dependent upon, among other things, the future financial
results of operations, the ability to comply with
restrictive financial covenants set forth in the DIP
Facility and the ability to generate sufficient cash from
operations and financing sources to meet obligations. In
addition, management currently believes that a successful
reorganization may also require the sale of one or more
business units to generate liquidity during the Chapter 11
proceeding. The Company has little experience operating
as a debtor-in-possession and its projections as to the
ability to generate sufficient cash to make payments in
Chapter 11 are based upon assumptions that may not be
<PAGE> 17
realized. Based upon these factors, there is substantial
risk that the Company will exhaust its liquidity prior to
April 1997. Until a plan of reorganization is approved by
the creditors and confirmed by the Bankruptcy Court, the
long-term liquidity and the adequacy of the Company's
capital resources cannot be determined. No plan of
reorganization has yet been filed with the Bankruptcy
Court and no assurances can be given that the Company will
be able to obtain confirmation of a plan of
reorganization. If the Company is unable to obtain
confirmation of a plan of reorganization, its creditors or
equity security holders may seek a liquidation of Fruehauf
by conversion to a chapter 7 bankruptcy case or otherwise.
In a forced liquidation of the Company's assets, it is
likely that the Senior Notes will be substantially
undersecured and that no recovery will be available to the
Company's unsecured creditors or equity holders.
<PAGE>
<PAGE> 18
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
On October 7, 1996, Fruehauf, together with all of its
subsidiaries excluding Fruehauf de Mexico, filed voluntary
Chapter 11 petitions under the Bankruptcy Code in the
United States Bankruptcy Court for the District of
Delaware and are currently operating their respective
businesses as debtors-in-possession, subject to the
approval of the Bankruptcy Court for certain proposed
non-ordinary course transactions. In early 1996,
management and the Board of Directors of Fruehauf
determined that a major financial restructuring would be
required to ensure the Company's long-term survival. The
Company expended substantial efforts over the ensuing
months exploring alternatives to modify its capital
structure, including discussions with other trailer
manufacturers as to possible consolidations or other
potential strategic investments and the sale of
non-strategic assets. Despite several actions consummated
to date, the Company continued to operate within severe
liquidity constraints. As a consequence, the ability of
the Company to meet ongoing debt service requirements, to
meet cash funding requirements (including trailing
liabilities) and to otherwise satisfy its obligations to
its vendors and lenders was adversely effected. Based
upon developments with respect to the Company's
pre-petition exploration of alternatives to modify its
capital structure outside of bankruptcy, the Board of
Directors of the Company concluded that sufficient
liquidity did not exist to execute such transactions in a
non-bankruptcy context.
The Company's determination that it must restructure and
reduce cash funding requirements for debt service and
trailing liabilities arose out of its belief that the
trailer industry is in a critical condition as a result of
manufacturing overcapacity and that the Company's
competitive position was adversely impacted by its high
leverage and cash funding requirements for trailing
liabilities. The Company's level of new trailer sales is
largely dependent on production levels and market demand.
The domestic trailer industry entered a strong cyclical
rebound in late 1991 that continued through 1995,
culminating in an all time record level of sales of
approximately 279,000 units in 1995. During this same
period, several of the larger trailer manufacturers added
significant manufacturing capacity. Beginning in late
1995, the new trailer industry experienced a significant
reduction in retail market demand for new trailers.
Industry shipments for 1996 are projected by industry
sources to be down approximately 20% from the all time
record level of 1995. Fruehauf experienced reduced
bookings levels during the second half of 1995 and the
first half of 1996, as well as an increase in the
cancellation level of sales orders. While the significant
reduction in retail demand in the new trailer industry and
manufacturing overcapacity affected the trailer industry
as a whole, they were particularly adverse to
manufacturers such as Fruehauf due to the Company's high
leverage and cash funding requirements for trailing
liabilities.
Despite actions consummated prior to the Petition Date,
the Company continued to operate with severe liquidity
constraints and confronted several substantial issues
including: (i) the Company did not make the required June
30, 1996 interest payment on the Warrant Notes, and the
holders of the Warrant Notes indicated their intent to
accelerate the indebtedness represented by the Warrant
Notes following the expiration of a 180 day "standstill"
period, (ii) the Company's effort to increase days payable
outstanding increased the level of trade accounts payable
past normal terms and adversely affected material flow to
the Company's operating locations, (iii) a substantial
number of the Company's trade vendors placed the Company
on "cash-in-advance" or "cash-on-delivery" terms for new
shipment of goods and certain vendors required pay down of
past due accounts, together with "cash-on-delivery" for
new shipments, as a condition for new shipments of goods
to the Company, and (iv) the Company determined that it
did not have sufficient liquidity to make the required
November 1, 1996 interest payment on the Senior Notes.
As a result of the Chapter 11 filing, Fruehauf has, for
financial reporting purposes after the Petition Date,
suspended the accrual of interest on unsecured
pre-petition debt, which will reduce the amount of
interest expense recognized during the Chapter 11 period.
Under certain circumstances, the Company believes that the
Senior Notes may be undersecured as of the Petition Date.
However, because the Company has withheld the payment of
interest on its unsecured debt throughout most of 1996 and
the fact that the May 1, 1996 interest payment on the
<PAGE> 19
Senior Notes was funded with a portion of the Foreign Sale
proceeds as opposed to cash generated from operations, it
is not expected that this will improve the Company's cash
flow. The Company's liquidity and capital resources may
also be affected by decisions that it makes in connection
with the Chapter 11 cases with respect to unexpired leases
and executory contracts, and the Company's results may be
adversely affected by administrative expenses which accrue
during the Chapter 11 cases and other factors arising from
the Chapter 11 cases. For example, pursuant to the
Bankruptcy Code, the Company will be required to pay legal
and other advisory fees and expenses associated with its
Chapter 11 cases. The Company presently estimates that
such expenses will be substantial and may average as much
as $1 million per month, although such fees and expenses
cannot be predicted with any meaningful degree of
certainty at this time.
For Fruehauf to reorganize and emerge from Chapter 11, a
plan of reorganization must be confirmed by the Bankruptcy
Court. If Fruehauf is unable to obtain confirmation of a
plan of reorganization, its creditors or equity holders
may seek a liquidation of Fruehauf by conversion to a
chapter 7 bankruptcy case or otherwise. In that event, it
is likely that additional liabilities and claims would be
asserted which are not presently reflected in the
Company's financial statements.
On October 21, 1996, the Creditors' Committee was
appointed by the United States trustee pursuant to section
1102 of the Bankruptcy Code. The Creditors' Committee has
since retained legal counsel and a financial advisor to
represent their interests. The Creditors' Committee has
the right, among other things, to review and object to
certain business transactions and is expected to
participate in the negotiation of any plan or plans of
reorganization. In addition, certain of the holders of the
Senior Notes have also formed an unofficial Noteholders'
Committee. The Company is not aware of any other
unofficial creditors or equity holder committees that have
been formed.
The Company has the Exclusive Period pursuant to section
1121 of the Bankruptcy Code to file a plan of
reorganization within 120 days of the Petition Date. The
Company is currently in the process of developing a
business plan which will serve as the basis for a plan of
reorganization. Although the timing of any filing of a
plan of reorganization plan cannot be predicted with
certainty, the Company's present intention is to present
the Creditors' Committee and Noteholders' Committee with a
proposed plan of reorganization as soon as possible.
Nonetheless, the Company may need to seek an extension of
the Exclusive Period.
The financial condition, cash flows and results of
operations of Fruehauf and its subsidiaries, as shown in
the Condensed Consolidated Financial Statements and Notes
thereto, are not necessarily indicative of earnings (loss)
potential or future financial position. In addition to
the uncertain effects on Fruehauf's financial condition,
cash flows and results of operations as a result of the
pendency of its Chapter 11 cases, historically there have
been significant variations in year-to-year revenues and
expenses experienced by the trailer industry in general
and Fruehauf in particular, reflecting among other causes
such factors as: (i) changes in retail demand caused in
part by many external factors, including general economic
conditions and regulatory changes, (ii) intensity of
competition among trailer manufacturers that ultimately
effects pricing sensitivity and (iii) other factors, e.g.,
the ability to meet anticipated delivery dates,
availability of parts to provide timely service and the
ability to meet warranty service obligations. Further,
the Company's results of operations, liquidity and outlook
are subject to additional risks and uncertainties, some of
which are outside the Company's control, including those
set forth on page 3 of the Company's Annual Report on Form
10-K for the year ended December 31, 1995. In addition,
further discussion of risks and uncertainties that could
affect the Company's outlook is included under the
headings "Results of Operations" and "Liquidity and
Capital Resources."
<PAGE>
<PAGE> 20
RESULTS OF OPERATIONS
Nine Months Ended September 30, 1996 versus September 30, 1995
- --------------------------------------------------------------
Sales
The Company generated sales of $222.7 million during the
first nine months of 1996 compared to $315.9 million for
the corresponding 1995 period. The table below is a
comparison of net sales by product line for the nine
months ended September 1996 and 1995 (in millions of
dollars):
<TABLE>
September 30, September 30,
1996 1995
------------- -------------
<S> <C> <C>
New trailers. . . . . . . $ 131.0 $ 198.5
Used trailers . . . . . . 15.5 24.1
Replacement parts and
accessories . . . . . . 49.7 58.9
Service . . . . . . . . . 16.5 17.9
International . . . . . . 10.0 16.5
------- -------
$ 222.7 $ 315.9
======= =======
</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 nine months of 1996 and the
related additional constraints on the Company's liquidity.
The order cancellation activity experienced by the Company
in the first nine months 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. In the second
quarter of 1996 the Company idled Fort Madison for a week
to conserve cash and balance its production schedule.
Production levels into the third quarter of 1996 at Fort
Madison, as well as Scott County are substantially below
production levels experienced throughout most of 1995.
More recently, the Company was forced to significantly
reduce its production and subsequently temporarily idle
its Fort Madison and Scott County assembly plants due to
cash constraints preceding the Petition Date. The Company
resumed production at the Fort Madison and Scott County
assembly plants on October 21, 1996. The Company's
backlog of new trailer orders decreased to approximately
$32 million at September 30, 1996 as compared to $172
million as of December 31, 1995, which decrease reflects
the substantial reduction in industry demand. The Company
has experienced and continues to experience cancellations
of new trailer orders prior to scheduled production.
There can be no assurance that cancellations will not
occur with respect to the current backlog of new trailer
orders.
Domestic new trailer production for the first nine months
of 1996 totaled approximately 6,700 as compared to
approximately 12,800 for the first nine months of 1995.
Domestic new trailer unit sales totaled approximately
7,500 and 11,900 for the nine months ended September 30,
1996 and 1995, respectively, reflecting of the reduced
retail market demand. In addition, the Company's Mexican
subsidiary's revenues 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 nine
months of 1996 due to excess manufacturing capacity in
the trailer industry and resulting price competition in
the domestic trailer market.
Replacement parts/service sales and used trailer sales for
the nine months ended September 30, 1996 decreased by
$10.7 million and $8.6 million, respectively, over the
comparable 1995 period. The decreased sales levels are
primarily attributable to the Company's lower than planned
liquidity levels and resulting impact on availability of
replacement parts and used trailers to fill orders. Parts
orders filled as a percentage of orders placed at the
Company's wholesale parts distribution center decreased to
below 70% during the third quarter of 1996. Improvement
in replacement parts and used trailer availability and
resultant replacement parts and used trailer sales are
dependent on improved liquidity.
<PAGE> 21
Fruehauf de Mexico continued to experience decreases in
Mexican domestic sales volume. Sales were $4.6 million
for the first nine months of 1996 compared to $8.4 million
for the first nine months of 1995. Mexican domestic sales
have been adversely impacted by the depressed Mexican
economy throughout 1995 and continuing in 1996. In part
to offset the reduced Mexican domestic new trailer sales,
Fruehauf de Mexico has produced 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 nine
months of 1996 totaled $5.4 million compared to export
sales of $8.1 million for the first nine months of 1995.
Gross Margin
The Company's consolidated gross margin decreased to
$23.9 million for the first nine months of 1996 from $40.6
million for the first nine months of 1995. This decrease
is primarily the result of the decreased sales volumes, as
discussed above and deterioration in new trailer pricing.
The gross margin percentage for the first nine months of
1996 declined to 10.7% as compared to 12.9% for the first
nine 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 in the market. Gross margin
was also adversely affected in the first nine months of
1996 due to an increase in certain product liability
reserves.
Engineering, Selling and Administrative Expenses
Engineering, selling and administrative expenses decreased
to $36.1 million for the first nine months of 1996 from
$38.0 million for the nine months ended September 30,
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 variable costs associated with reduced sales
volume, 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 (approximately $0.8 million).
The Company recognized a gain of $3.0 million in
connection with the settlement of litigation during the
first nine months of 1996.
Restructuring Credit
In 1991, the Company, under prior management, implemented
a restructuring program which included restructuring the
Company's distribution system by closing Company-owned
sales and service branches or converting them to
independent dealers. The Company had 59 Company-owned
branches at the end of 1991. During 1992, the Company
converted 21 locations to independent dealers and five
were closed and an additional branch was closed in early
1993. The Company's turnaround program initially
contemplated the continuance of the branch restructuring
initiated by the Company's prior management. Management
had temporarily suspended the branch restructuring program
in order to evaluate the feasibility of revising the
branch restructuring program. During the second quarter
of 1995, management decided to significantly revise the
branch restructuring program. Based upon these
conclusions, the Company recorded a $3.0 million non-cash
restructuring credit in the second quarter of 1995 to
reflect the revised program.
<PAGE> 22
Income (Loss) from Operations
The loss from operations for the nine months ended
September 30, 1996 was $8.2 million compared to income
from operations of $7.4 million for the first nine months
of 1995. Excluding the impact of the $3.0 million
litigation settlement in the first nine months of 1996 and
the $3.0 million restructuring credit in the first nine
months of 1995, the $15.6 million 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. The conditions giving rise to
the reduced operating results will likely continue to have
an adverse effect on sales, operating results and
liquidity during the fourth quarter of 1996.
Other Income (Expense)
Interest expense was $10.6 million for the nine months
ended September 30, 1996 compared to $11.5 million for the
nine months ended September 30, 1995. 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 31, 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 decrease in interest expense
resulted from the repurchase of $11.5 million and $8.1
million of Senior Notes during the fourth quarter of 1995
and third quarter of 1996, respectively, and lower average
borrowings under the Revolving Credit Facility.
The Company's share of net income of affiliate companies,
accounted for using the equity method, was $2.4 million
for the nine months ended September 30, 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%. The
Company disposed of its remaining 5% interest in Henred
Fruehauf in June 1996 as part of the Foreign Sale.
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 secured
by a mortgage on the underlying property and assumption of
liabilities related to the property. The purchaser has
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.
Thereafter, on May 8, 1996, Jacksonville initiated a
foreclosure proceeding on the real property securing the
promissory note. Such discussions, however, including the
proposed economic terms of the promissory note sale,
indicated that the entire carrying amount of the
promissory note may not be recoverable. 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. More recently, Jacksonville has entered
into a Note and Mortgage purchase agreement whereby
Jacksonville will sell the note and underlying mortgage
for $2.7 million in cash. Jacksonville expects, subject
to Bankruptcy Court approval, to close the sale before the
end of the first quarter of 1997. It should be noted,
however, that there can be no assurance that the
transaction will close.
As previously discussed, the Company recognized a gain of
$14.0 million on the Foreign Sale. In addition to the
gain on the Foreign Sale, the Company recognized a gain on
the sale of excess assets of approximately $0.2 million
during the nine months ended September 30, 1996 as
compared to a gain of approximately $1.9 million during
the nine months ended September 30, 1995.
<PAGE> 23
Extraordinary Gain on Satisfaction of Payable
to Terex Corporation
In November 1992, Terex Corporation ("Terex") advanced
$2.0 million to the Company. The Company subsequently
entered into an agreement with Terex whereby the Company
would provide parts produced by the Company's Delphos
operation. The $2.0 million advance was considered an
advance on subsequent Terex parts purchases from the
Company. The Company never produced any parts for Terex
and had recorded deferred revenue in the consolidated
liabilities to reflect the Company's outstanding
obligations pursuant to the agreement. In June 1995, the
Company and Terex agreed to terminate the agreement and,
on June 30, 1995, the Company issued 250,000 shares of
Common Stock to Terex in satisfaction of the $2.0 million
advance. The shares were issued at a price equivalent to
$8.00 per share. The resulting gain of $1.2 million was
calculated using $3.375 per share as the fair value of the
Common Stock, which was the closing price of the Common
Stock on the New York Stock Exchange on June 30, 1995.
Such gain was recorded in the second quarter of 1995.
Extraordinary Loss on Early Extinguishment of Debt
The Company accounted for the issuance of the Senior Notes
in 1995 to the Company's lenders under its former bank
credit facility in an amendment and restatement of the
bank credit facility and the amendment to the Company's
Revolving Credit Facility as extinguishments of debt.
Accordingly, the Company recorded a write off of the
remaining unamortized deferred debt issuance costs of
approximately $1.2 million during the second quarter of
1995.
Pursuant to the terms of the Indenture, on August 5, 1996
the Company repurchased Senior Notes with an aggregate
principal balance of $8.1 million (consisting of
approximately $7.5 million of remaining Foreign Sale
proceeds and approximately $0.6 million on deposit with
the Trustee from previous asset sales). As a result of
such repurchase of Senior Notes, the Company was required
to write off $1.2 million during the third quarter of 1996
representing a proportionate share of remaining
unamortized debt issuance costs and debt discount.
Quarter Ended September 30, 1996 versus September 30, 1995
- ----------------------------------------------------------
Sales
The Company generated sales of $64.9 million during the
three months ended September 30, 1996 compared to
$94.5 million for the corresponding 1995 period. The
table below is a comparison of net sales by product line
for the three months ended September 30, 1996 and 1995 (in
millions of dollars):
<TABLE>
September 30, September 30,
1996 1995
------------ ------------
<S> <C> <C>
New trailers. . . . . . . $ 34.6 $ 55.3
Used trailers . . . . . 5.2 7.2
Replacement parts and
accessories . . . . . . 15.9 21.0
Service . . . . . . . . . 5.4 5.8
International . . . . . . 3.8 5.2
------ ------
$ 64.9 $ 94.5
====== ======
</TABLE>
<PAGE> 24
Consistent with the decrease in sales for the year-to-date
period, this 31% decrease in quarter to quarter sales
principally reflects the significantly reduced retail
demand in the new trailer industry through the third
quarter of 1996 and the additional constraints on the
Company's liquidity. More recently, the Company was
forced to significantly reduce its production and
subsequently temporarily idle its Fort Madison and Scott
County assembly plants due to cash constraints preceding
the Petition Date. The Company resumed production at the
Fort Madison and Scott County assembly plants on October
21, 1996. New trailer production decreased to
approximately 1,800 units in the third quarter of 1996
from 4,100 in the third quarter of 1995. Domestic new
trailer unit sales totaled approximately 2,000 and 3,300
for the three months ended September 30, 1996 and 1995,
respectively.
Replacement parts/service sales and used trailer sales for
the third quarter ended September 30, 1996 decreased by
$5.5 million and $2.0 million, respectively, as compared
to the respective 1995 period. The decreased sales levels
are primarily attributable to lower than planned liquidity
levels and the resulting impact on availability of
replacement parts and used trailers to fill orders.
Fruehauf de Mexico experienced a decrease in sales volume
from $3.4 million for the third quarter of 1995 to $1.8
million for the third quarter of 1996. Mexican sales were
adversely impacted by the same conditions noted in the
year-to-date periods. Export sales from the Company's
United States operations of wholesale parts and components
for the three months ended September 30, 1996 totaled $1.9
million compared to export sales of $1.8 million for the
three months ended September 30, 1995.
Gross Margin
Gross margin for the third quarter of 1996 decreased to
$6.9 million compared to $11.7 million for the third
quarter of 1995. The decrease results primarily from
decreased sales volumes and a deterioration in new trailer
pricing. The gross margin percentage for the three months
ended September 30, 1996 declined to 10.6% as compared to
12.3% for the three months ended September 30, 1995. Such
decrease in the gross margin percentage is due primarily
to reduced absorption of fixed overhead costs resulting
from lower production levels, unfavorable labor variances
and increasing price sensitivity in the market.
Engineering, Selling and Administrative Expenses
Engineering, selling and administrative expenses increased
to $12.4 million for the third quarter of 1996 from $11.8
million for the third quarter of 1995. The increase in
engineering, selling and administrative expenses is
primarily attributable to higher professional fees
associated with reorganization planning during the third
quarter of 1996 partially offset by cost containment
measures taken at all the Company's locations and lower
variable costs associated with the reduced sales volume.
Income (Loss) from Operations
The loss from operations for the three months ended
September 30, 1996 was $5.4 million compared to income
from operations of $0.4 million for the third quarter of
1995. The decrease in income from operations is primarily
attributable to decreased sales volumes and resulting
lower gross margin dollars, lower royalty income and
increased engineering, selling and administrative
expenses. The Foreign Sale in the second quarter of 1996
included all Fruehauf rights to royalties from its
international affiliates. 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 fourth quarter of 1996.
<PAGE> 25
Other Income (Expense)
Interest expense was $3.4 million for the three months
ended September 30, 1996 compared to $4.3 million for the
three months ended September 30, 1995. This decrease in
interest expense is primarily attributable to the
repurchase of $11.5 million and $8.1 million of Senior
Notes during the fourth quarter of 1995 and third quarter
of 1996, respectively, and lower average borrowings under
the Revolving Credit Facility.
The Company's share of net income of affiliate companies,
accounted for using the equity method was $0.7 million for
the three months ended September 30, 1995. The equity in
net income of affiliate companies relates solely to Henred
Fruehauf. As discussed previously, the Company completed
the sale of its remaining interest in Henred Fruehauf
during the second quarter of 1996.
Extraordinary Loss on Early Extinguishment of Debt
Pursuant to the terms of the Indenture, on August 5, 1996
the Company repurchased Senior Notes with an aggregate
principal balance of $8.1 million (consisting of
approximately $7.5 million of remaining Foreign Sale
proceeds and approximately $0.6 million on deposit with
the Trustee from previous asset sales). As a result of
such repurchase of Senior Notes, the Company was required
to write off $1.2 million during the third quarter of 1996
representing a proportionate share of remaining
unamortized debt issuance costs and debt discount.
LIQUIDITY AND CAPITAL RESOURCES
Discussion of Cash Flows
The Company's cash and cash equivalents totaled $3.6
million and $3.8 million at September 30, 1996 and
December 31, 1995, respectively. Cash and cash
equivalents at September 30, 1996 and December 31, 1995
principally 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 escrow a portion of asset sale proceeds
to be used to make an offer to repurchase Senior Notes.
In addition, the Company is required to deposit certain
amounts in restricted cash accounts as security for
certain obligations and certain amounts are held in escrow
pending resolution of certain post-closing conditions on
certain asset sales. Accordingly, restricted cash of $2.5
million and $1.4 million at September 30, 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.
Operating Activities
After considering changes in assets and liabilities, the
Company generated cash from operating activities of $7.4
million during the nine months ended September 30, 1996
and used cash for operating activities of $34.8 million
during the nine months ended September 30, 1995. Cash
generated from operating activities during the nine months
ended September 30, 1996 principally related to a
reduction in operating working capital (defined as net
receivables and net inventories less trade accounts
payable) of $31.2 million, offset by operating losses, the
funding of trailing liabilities, interest on debt and
cash-in-advance payments to vendors. The reduction in
operating working capital was the result of (i) focused
efforts to reduce 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 nine months
of 1996 and (iii) an increase in the days payables
outstanding with the Company's trade suppliers.
<PAGE> 26
Cash used for operating activities during the nine months
ended September 30, 1995 principally related to (i)
increased receivables ($6.6 million), (ii) increased
inventories ($13.8 million), (iii) recognition of deferred
revenue resulting from certain advance deposits received
in the latter part of 1994 on new trailer orders ($4.8
million), (iv) settlement of liabilities principally
funded by excess asset sale proceeds during the six months
ended June 30, 1995 ($1.0 million), including liabilities
such as property taxes and accrued interest on the Fresno
mortgage, and (v) the funding of trailing liabilities and
the Company's restructuring efforts. The cash used for
operating activities in the first nine 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 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
September 30, 1996, trailing liabilities associated with
the former maritime business and other closed facilities
(including workers compensation, postretirement benefits,
environmental, products liability and certain other
litigation, the cost of maintaining closed facilities and
certain other matters) are included in other current
liabilities, noncurrent postretirement benefits and other
long-term liabilities in the Company's Condensed
Consolidated Balance Sheet. As discussed previously, the
commencement of the Chapter 11 cases resulted in the
imposition of the automatic stay provisions of section 362
of the Bankruptcy Code.
The Company currently has outstanding letters of credit in
the amount of $6.2 million which generally serve as
collateral for certain trailing liabilities included in
the Condensed Consolidated Balance Sheet. As part of the
Congress Payoff Letter, the Company was required to cash
collateralize the outstanding letters of credit. On
October 1, 1996, letters of credit in the amount of $1.2
million were drawn and became obligations under the
Revolving Credit Facility.
Investing Activities
During the first nine months of 1996, the Company sold
property, plant and equipment and other excess assets,
including the Foreign Sale, with proceeds totaling $21.6
million. Excess assets sale proceeds in the corresponding
period of 1995 totaled $27.1 million. The Company made
capital expenditures of $0.4 million during the first nine
months of 1996 compared to capital expenditures of $1.1
million during the first nine months of 1995.
The increase in restricted cash at September 30, 1996 as
compared to December 31, 1995 principally relates to $1.0
million held in escrow related to the Foreign Sale pending
resolution of certain post-closing conditions.
Financing Activities
The Company had net repayments under the Revolving Credit
Facility of approximately $25.7 million during the nine
months ended September 30, 1996 and net borrowings of $5.8
million during the nine months ended September 30, 1995.
The sources of cash to fund the reduction in Revolving
Credit Facility borrowings principally include the
reduction in operating working capital investment,
proceeds from the issuance of the Working Capital Term
Note ($6.5 million) and certain of the proceeds from the
Foreign Sale ($6.0 million). Outstanding borrowings
pursuant to the Revolving Credit Facility totaled $7.6
million at September 30, 1996.
A letter agreement entered into by the Company and K-H in
April 1996 (the "K-H Letter Agreement") provided for,
among other things, K-H to purchase an initial $5.5
million interest and, upon successful completion of a
consent solicitation with holders of the Senior Notes, an
additional $1.0 million interest in the Revolving Credit
Facility (the aggregate $6.5 million collectively being
referred to as the Working Capital Term Note). The
initial funding of $5.5 million of the Working Capital
Term Note was consummated on April 25, 1996 and the
additional funding of $1.0 million was consummated on June
21, 1996, resulting in a $6.5 million reduction in the
Company's borrowings under the Revolving Credit Facility.
<PAGE> 27
In May 1995, the Company completed a series of
recapitalization transactions which included, among other
things, the following transactions: (i) the issuance of
the Senior Notes to the Company's lenders under its then
existing bank credit facility; (ii) the issuance by the
Company of detachable warrants to purchase 2,791,907
shares of the Company's common stock pro rata to the
holders of the Senior Notes; and (iii) the issuance by the
Company of an aggregate of 8,136,500 shares of common
stock in a private placement.
The Senior Notes were issued in an aggregate principal
amount of $74.1 million, representing $66.6 million of
then outstanding indebtedness under the former bank credit
facility, $4.1 million of previously accrued amendment
fees and approximately $3.4 million in fees associated
with the Senior Notes. Costs incurred in conjunction with
entering into the amended Revolving Credit Facility, as
well as the costs associated with the issuance of the
Senior Notes to the lenders under the former bank credit
facility, totaled $7.8 million. Such amount of debt
issuance costs were comprised of $4.4 million of cash
expenditures during the first nine months of 1995 and
approximately $3.4 million in fees associated with the
Senior Notes which were included in the aggregate
principal balance of the Senior Notes.
The 1995 private placement included the issuance of an
aggregate of 8,136,500 shares of common stock at a price
of $2.75 share. Proceeds to the Company, net of certain
placement agent fees and other equity placement fees, were
$20.7 million.
The Company repaid term debt pursuant to the former bank
credit facility of approximately $4.9 million during the
nine months ended September 30, 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
As part of the K-H Letter Agreement, K-H received a
warrant to purchase 2.0 million shares of the Company's
common stock at an exercise price of $2.50 per share (the
"K-H Warrant"). The fair value of the K-H Warrant, as
determined by an independent valuation firm, was $0.2
million. Such amount allocable to the K-H Warrant was
recorded as "Common Stock Purchase Warrants" in the
stockholders' deficit section with a corresponding amount
recorded as debt discount.
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.
During the third quarter of 1996, the Company issued
500,000 shares of the Company's common stock as part of
the settlement of a product liability suit. The Company
increased "Common Stock" and "Additional Paid-in Capital"
by $0.9 million to reflect the issuance of the shares in
settlement of the suit.
On June 30, 1995, the Company issued 250,000 shares of
Common Stock to Terex at a price equivalent to $8.00 per
share in satisfaction of a $2.0 million advance. The
resulting gain of $1.2 million was calculated using $3.375
per share as the fair value of the Common Stock, which was
the closing price of the Common Stock on the New York
Stock Exchange on June 30, 1995. The Company increased
"Common Stock" and "Additional Paid-In Capital" by $0.8
million to reflect the issuance of the 250,000 shares in
satisfaction of the payable to Terex.
<PAGE> 28
As part of the 1995 recapitalization transactions,
warrants for 2,791,907 shares of the Company's Common
Stock were issued on May 3, 1995. The warrants are
exercisable at a price of $3.30 per share. The fair value
of the warrants, as determined by an independent valuation
firm, was $5.1 million. Such amount allocable to the
warrants was recorded as "Common Stock Purchase Warrants"
in the stockholders' deficit section with a corresponding
amount recorded as debt discount.
In June 1995, the Company issued 79,195 shares of Common
Stock (net of Common Shares surrendered in payment of
withholding tax obligations) pursuant to restricted stock
awards made in 1994 to certain officers of the Company.
The Company increased "Common Stock" and "Additional
Paid-In Capital" by $0.6 million to reflect the issuance
of the
79,195 shares.
The Company issued a warrant to purchase 75,000 shares of
Common Stock to the placement agent in the 1995 private
placement as a component of the placement agent's
compensation. The warrant is exercisable at $2.75 per
share. The fair value of the warrant, as determined by an
independent valuation firm, was approximately $0.1 million
at the date of issuance. The Company recorded the fair
value of the warrant as a component of "Common Stock
Purchase Warrants" in the stockholders' deficit section
with a corresponding reduction of additional paid-in
capital.
As discussed previously, the Company incurred
approximately $7.8 million of debt issuance costs
associated with entering into the amended Revolving Credit
Facility, as well as the issuance of the Senior Notes to
the lenders under the former bank credit facility.
Approximately $3.4 million of such fees were included in
the aggregate principal balance of the Senior Notes.
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
As discussed previously, the Company has the Exclusive
Period pursuant to section 1121 of the Bankruptcy Code to
file a plan of reorganization within 120 days of the
Petition Date. The Company is currently in the process of
developing a business plan which will serve as the basis
for a plan of reorganization. The DIP Facility requires
that the Company submit a business plan to the DIP
Facility lender by December 15, 1996. Such plan is
required to consider the sale of the entire business in
whole or in parts during the Chapter 11 cases or under a
plan of reorganization. The Company expects that the
Creditors' Committee and Noteholders' Committee will
participate in the negotiation of a plan of
reorganization. Although the timing of any filing of a
plan of reorganization plan cannot be predicted with
certainty, the Company's present intention is to present
the Creditors' Committee and Noteholders' Committee with a
proposed plan of reorganization as soon as possible.
Nonetheless, the Company may need to seek an extension of
the Exclusive Period.
As discussed previously, the DIP Facility matures the
earliest of (a) April 30, 1997; (b) the effective date of
one or more plans of reorganization; or (c) upon default
and acceleration of the DIP Facility. The DIP Facility
maturity date of April 30, 1997 and the amount of the
Overadvance Facility of $20 million was based upon
financial projections that indicated that liquidity under
the DIP Facility would be exhausted as of April 30, 1997.
The appropriateness of the amount of the Overadvance
Facility and the maturity date of the DIP Facility are
<PAGE> 29
dependent upon, among other things, the future financial
results of operations, the ability to comply with
restrictive financial covenants set forth in the DIP
Facility and the ability to generate sufficient cash from
operations and financing sources to meet obligations. In
addition, management currently believes that a successful
reorganization may also require the sale of one or more
business units to generate liquidity during the Chapter 11
cases. The Company has little experience operating as a
debtor-in-possession and its projections as to the ability
to generate sufficient cash to make payments under Chapter
11 are based upon assumptions that may not be realized.
Based on these factors, there is substantial risk that the
Company will exhaust its liquidity prior to April 1997.
Until a plan of reorganization is approved by the
creditors and confirmed by the Bankruptcy Court, the
long-term liquidity and the adequacy of the Company's
capital resources cannot be determined. No plan of
reorganization has yet been filed with the Bankruptcy
Court and no assurances can be given that the Company will
be able to obtain confirmation of a plan of
reorganization. If the Company is unable to obtain
confirmation of a plan of reorganization, its creditors or
equity holders may seek liquidation of Fruehauf by
conversion to a chapter 7 bankruptcy case or otherwise.
In a forced liquidation of the Company's assets, it is
likely that the Senior Notes will be substantially
undersecured and that no recovery will be available to the
Company's unsecured creditors or equity holders.
STATUS OF MATERIAL CONTINGENCIES
Pursuant to section 362 of the Bankruptcy Code,
substantially all pre-petition non-Bankruptcy Court
litigation against the Company and other contingent
liabilities were automatically stayed by the Chapter 11
filings. Motions may be made, although none have yet been
heard, in Bankruptcy Court to modify the automatic stay
provisions of the Bankruptcy Code to permit certain
matters to continue to be litigated in the courts where
they are pending. Affected parties may file claims with
the Bankruptcy Court in accordance with the reorganization
claims process.
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 Directors and officers, 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 in the amount of $3.3 million and (c) issue
warrants for the purchase of 325,000 shares of Common
Stock. To the extent that the warrants do not have an
agreed upon value 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 has attempted to
develop the specific terms of the notes and warrants. The
Company has experienced difficulties in negotiating terms
acceptable to the Company. As of the Petition Date, the
Company had not distributed any securities pursuant to the
settlement.
<PAGE> 30
The Company is involved in other various legal proceedings
that 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, the Company's former maritime
operations are among 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.
In December 1995, the Company reached a settlement of a
product liability suit whereby the Company issued, as part
of the settlement, 500,000 shares of Common Stock during
1996. The Company had litigation reserves totaling $11.1
million at September 30, 1996. However, pursuant to
section 362 of the Bankruptcy Code, all pre-petition
non-Bankruptcy Court litigation against the Company and
other contingent liabilities were automatically stayed by
the Chapter 11 filing.
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 has participated 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 that 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 $11.9 million at September 30, 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. Certain environmental liabilities may not be
stayed under Section 362 of the Bankruptcy Code.
Other
The Company is party to the Fort Worth Lease, which
expired pursuant to its terms in October 1996. The
landlord recently notified the Company of its belief that
the Company is in default of the Fort Worth Lease with
respect to certain covenants relating to the maintenance
of the leased property. The landlord has indicated its
desire that the Company perform certain repair and
maintenance to the facility which the landlord estimates
the cost of such repair at approximately $1.7 million. The
actual amount of any liability or the extent that the
Company may be liable cannot be determined at this time.
As such, the Company has not recorded a reserve related to
such contingency.
In March 1994, the SEC initiated a formal investigation of
the Company. The investigation followed an informal
inquiry by the SEC that had existed for some period of
time. 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 Company and certain former
officers of the Company, without admitting or denying any
findings of the SEC, made an offer of settlement, which,
if accepted by the SEC, would result in the entry of an
order that the Company and such former officers cease and
desist from committing or causing any violations of
federal securities laws.
<PAGE> 31
The Service had been 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 Service has
notified the Company of its intent to discontinue the
examination of the 1989 federal income tax return and
issue a no-change letter resulting in no adjustment to the
Company's tax return as filed.
The DOL has alleged that the Company's former Chairman,
Randolph W. Lenz; Terex Corporation, the Company's former
parent; and the Company violated certain provision 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.
<PAGE>
<PAGE> 32
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
Chapter 11 Proceedings
- ----------------------
On October 7, 1996, Fruehauf, together with all of its
subsidiaries, excluding Fruehauf de Mexico, filed
voluntary petitions for reorganization under chapter 11 of
the United States Bankruptcy Code in the United States
Bankruptcy Court for the District of Delaware and are
currently operating their respective businesses as
debtors-in-possession. The following is a general
description of certain developments in the Company's
Chapter 11 cases subsequent to the Petition Date. For
additional information regarding the Company's Chapter 11
cases, reference should be made to the Notes to the
Condensed Consolidated Financial Statements and
Management's Discussion and Analysis of Financial
Condition and Results of Operations.
On October 8, 1996, the Bankruptcy Court granted certain
requests made by the Company and its affiliate debtors
(collectively, the "Debtors") with respect to certain
first day motions. The following summarizes the primary
first day orders entered by the Bankruptcy Court:
1. The Bankruptcy Court entered an order authorizing
the joint administration of the related Chapter 11
cases.
2. The Bankruptcy Court entered an order admitting
certain attorneys of the Debtors pro hac vice
Pursuant to Local District Court Rule 83.5
3. The Bankruptcy Court entered an order authorizing
the Debtors to retain and employ Jones, Day, Reavis
& Pogue as counsel.
4. The Bankruptcy Court entered an order authorizing
the Debtors to retain Morris, Nichols, Arsht &
Tunnell as co-counsel.
5. The Bankruptcy Court entered an order authorizing
the Debtors to retain Price Waterhouse LLP as
independent auditors, accountants and tax and
financial advisors.
6. The Bankruptcy Court entered an order authorizing
the Debtors to retain Logan & Company, Inc. as
claims and noticing agent and approving the form and
manner of notice of the Section 341 meeting of
creditors.
7. The Bankruptcy Court entered an order establishing
the procedures for interim compensation and
reimbursement of professionals.
8. The Bankruptcy entered an order authorizing the
Debtors to retain, employ and pay certain
professionals in the ordinary course of the Debtors'
businesses.
9. The Bankruptcy Court entered an order approving the
Debtors' centralized cash management system, use of
existing bank accounts and business forms and
according priority status to all postpetition
intercompany claims.
10. The Bankruptcy Court entered an order
authorizing the Debtors to (A) pay
pre-petition employee wages, salaries and
related items; (B) reimburse pre-petition
employee business expenses; (C) make payments
for which payroll deductions were made; (D)
make pre-petition contributions and pay
benefits under employee benefit plans; and (E)
pay all costs and expenses incident to the
foregoing payments and contributions.
11. The Bankruptcy Court entered an order
authorizing the Debtors to honor certain
pre-petition obligations to customers.
12. The Bankruptcy Court entered an order
authorizing the Debtors to pay pre-petition
trust fund taxes.
13. The Bankruptcy Court entered an order
extending the time for the Debtors to file
schedules and statements required by the
Bankruptcy Code and granted related relief.
<PAGE> 33
On October 9, 1996, the Bankruptcy Court entered an order
authorizing the Debtors to retain Alvarez & Marsal, Inc.
as crisis managers and to provide interim management.
On October 9, 1996, the Bankruptcy Court approved an
interim financing order that, among other things, (i)
authorized post-petition financing of up to $35 million
under the DIP Facility, (ii) granted senior liens and
super-priority administrative claim status of Madeleine
LLC, an affiliate of Cerberus Partners, L.P., (iii)
provided adequate protection to certain pre-petition
secured noteholders, (iv) provided related relief
(including execution, delivery and performance of the
Payoff Letters), and (v) scheduled a final hearing
pursuant to Bankruptcy Rule 4001(c). After a final
hearing on November 5, 1996, the Bankruptcy Court entered
a final financing order with respect to these matters,
which approved the entire $55 million DIP Facility on a
permanent basis.
On October 21, 1996, the Creditors' Committee was
appointed by the United States trustee pursuant to section
1102 of the Bankruptcy Code. The Creditors' Committee has
since retained legal counsel and a financial advisor to
represent their interests. The Creditors' Committee has
the right to review and object to certain business
transactions made outside the ordinary course of the
Debtors' business and is expected to participate in the
negotiation of any plan or plans of reorganization. In
addition, certain of the holders of the Senior Notes have
also formed the unofficial Noteholders' Committee.
Item 3 - Defaults Upon Senior Securities
The filing by the Company on October 7, 1996 of a petition
for reorganization under chapter 11 constituted a default
under the terms of all of the Company's loan agreements,
notes and indentures. See Note A - "Proceeding Under
Chapter 11" to Notes to Condensed Consolidated Financial
Statements for further discussion.
Item 5 - Other Information
Listing of Common Stock on the New York Stock Exchange
- ------------------------------------------------------
On October 24, 1996, the New York Stock Exchange ("NYSE")
published a press release announcing that the NYSE was
suspending the trading in the common stock of the Company
immediately and, following the suspension, that
application would be made to the Securities and Exchange
Commission to delist the common stock. In the press
release, the NYSE indicated that it gives consideration to
delisting securities of a company when the company falls
below any of the NYSE's continued listing criteria such
as: net tangible assets available to common stock (of at
least $12 million); the aggregate market value of all
outstanding common stock (of at least $12 million) and
average net income for the last three years (of at least
$0.6 million). The NYSE also noted that the Company filed
a voluntary petition for relief under chapter 11 of the
Bankruptcy Code. The NYSE also noted in the press release
that it may, at any time, suspend dealings in a security
if it believes that continued dealings in a security on
the NYSE are not advisable. Under the NYSE's delisting
procedure, the Company has the right to a hearing before a
Committee of the Board of Directors of the NYSE. The
Company does not anticipate at this time that it will
appeal the NYSE's recommendation.
Board of Directors and Management Changes
- -----------------------------------------
Effective September 13, 1996, Thomas B. Roller, the former
President and Chief Executive Officer of the Company,
resigned to become the President and Chief Executive
Officer of Wolverine Tube, Inc. In addition, also
effective September 13, 1996, Timothy J. Wiggins, the
former Executive Vice President and Chief Financial
Officer of the Company, resigned from the Company. The
Board subsequently appointed Mr. Derek L. Nagle as
<PAGE> 34
President. Mr. Nagle was previously Senior Vice President
- - North American Sales and Distribution for the Company.
More recently, the Company retained Alvarez & Marsal, Inc.
as crisis managers and appointed Mr. Thomas E. Ireland, a
Managing Director of Alvarez & Marsal, Inc., as Chief
Executive Officer of the Company.
In addition to Messrs. Roller and Wiggins, Messrs. William
P. Panny and Marvin B. Rosenberg resigned from the
Company's Board prior to the Petition Date. As a
condition to secure the consent of the holders of the
Senior Notes to the terms of the DIP Facility, the
Company's remaining members of the Board of Directors,
excluding Messrs. Chriss W. Street and Worth W. Frederick,
were required to resign from the Board. Messrs. Street
and Frederick had been nominated to the Board previously
by the holders of the Senior Notes. Upon approval of the
interim financing order by the Bankruptcy Court, Messrs.
Anthony Miller, Raymond J. Dempsey and Richard Nevins
resigned from the Board. The Company has since added
Messrs. Jonathan C. Gallen and Robert F. Incorvaia to its
Board of Directors, bringing the total membership of the
Board to four, and has appointed Mr. Street as Chairman.
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
- ------------ -------
4.48 Debtor-In-Possession Credit Agreement,
dated as of October 9, 1996, by and
between Fruehauf Trailer Corporation,
FGR, Inc., Fruehauf Corporation, Maryland
Shipbuilding & Drydock Company, The
Mercer Co., Fruehauf International
Limited, Deutsche-Fruehauf Holding
Corporation, Jacksonville Shipyards,
Inc., M.J. Holdings, Inc., Fruehauf
Holdings Corp., E.L. Devices, Inc., and
Madeleine LLC.
4.49 Pledge and Security Agreement, dated as
of October 9, 1996, by and between
Fruehauf Trailer Corporation, FGR, Inc.,
Fruehauf Corporation, Maryland
Shipbuilding & Drydock Company, The
Mercer Co., Fruehauf International
Limited, Deutsche-Fruehauf Holding
Corporation, Jacksonville Shipyards,
Inc., M.J. Holdings, Inc., Fruehauf
Holdings Corp., E.L. Devices, Inc., and
Madeleine LLC.
4.50 Note, dated as of October 9, 1996, by and
between Fruehauf Trailer Corporation,
FGR, Inc., Fruehauf Corporation, Maryland
Shipbuilding & Drydock Company, The
Mercer Co., Fruehauf International
Limited, Deutsche-Fruehauf Holding
Corporation, Jacksonville Shipyards,
Inc., M.J. Holdings, Inc., Fruehauf
Holdings Corp., E.L. Devices, Inc.,
and Madeleine LLC
4.51 Payoff Letter of Indebtedness, dated as
of October 8, 1996, of Fruehauf Trailer
Corporation to Congress Financial
Corporation (Central).
4.52 Payoff Letter of Indebtedness, dated as
of October 8, 1996, of Fruehauf Trailer
Corporation to K-H Corporation.
4.53 Alvarez & Marsal, Inc. Engagement Letter.
11 Computation of Loss per Share.
27 Financial Data Schedule.
<PAGE> 35
(b) Reports on Form 8-K
-------------------
On August 20, 1996, the Company filed a
Current Report on Form 8-K under Item 5
regarding the resignation of Thomas B.
Roller, President and Chief Executive Officer
of the Company. On August 30, 1996, the
Company filed a Current Report on Form 8-K
under Item 5 reporting the appointment of
Derek L. Nagle as President of the Company
and the resignation of Timothy J. Wiggins,
Executive Vice President and Chief Financial
Officer. On September 27, 1996, the Company
filed a Current Report on Form 8-K under Item
5 announcing the resale prospectus for
certain privately placed shares of the
Company's common stock is no longer current.
On October 7, 1996, the Company filed a
Current Report on Form 8-K under Item 3
announcing the Debtors' filing of voluntary
petitions under chapter 11 of the Bankruptcy
Code in the Bankruptcy Court and certain of
its subsidiaries and under Item 5 a press
release discussing said chapter 11 filings.
No financial statements were required to be
filed with any of these reports.
<PAGE> 36
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: November 14, 1996 /s/ Gregory G. Fehr
-----------------------
Gregory G. Fehr
Vice President -
Corporate Controller
(Duly Authorized Officer and
Principal Accounting Officer)
DEBTOR-IN-POSSESSION CREDIT AGREEMENT
DATED AS OF OCTOBER 9, 1996
among
FRUEHAUF TRAILER CORPORATION,
FGR, INC.,
FRUEHAUF CORPORATION,
MARYLAND SHIPBUILDING & DRYDOCK COMPANY,
THE MERCER CO.,
FRUEHAUF INTERNATIONAL LIMITED,
DEUTSCHE-FRUEHAUF HOLDING CORPORATION,
JACKSONVILLE SHIPYARDS, INC.,
M.J. HOLDINGS, INC., and
E.L. DEVICES, INC.
each a Debtor-in-Possession,
as Borrowers,
and
MADELEINE, L.L.C.,
as Lender
<PAGE> (I)
DEBTOR-IN-POSSESSION CREDIT AGREEMENT
TABLE OF CONTENTS
Page
SECTION 1
DEFINITIONS . . . . . . . . 2
1.1 Certain Defined Terms. . . . . . . . . . . . 2
1.2 Accounting Terms; Utilization of GAAP for
Purposes of Calculations
Under Agreement. . . . . . . . . . . . . . . 21
1.3 Other Definitional Provisions. . . . . . . . 22
SECTION 2
AMOUNTS AND TERMS OF COMMITMENTS AND LOANS . . 22
2.1 Commitments; Loans; Notes. . . . . . . . . . 22
2.2 Interest on the Loans. . . . . . . . . . . . 24
2.3 Fees . . . . . . . . . . . . . . . . . . . . 25
2.4 Prepayments and Reductions in Commitments;
General Provisions Regarding Payments.. . . 26
2.5 Use of Proceeds. . . . . . . . . . . . . . . 29
2.6 Increased Costs; Taxes; Capital Adequacy . . 29
2.7 Obligation of Lender to Mitigate.. . . . . . 32
2.8 Superpriority Nature of Obligations
and First Priority Encumbrances. . . . . . . 32
2.9 Joint and Several Liability;
Payment Indemnifications . . . . . . . . . . 33
SECTION 3
[RESERVED] . . . . . . . . . . . 34
SECTION 4
CONDITIONS TO LOANS . . . . . . . . . . . . 34
4.1 Conditions to Initial Loans. . . . . . . . . 34
4.2 Conditions to All Loans. . . . . . . . . . . 37
SECTION 5
BORROWERS' REPRESENTATIONS AND WARRANTIES. . .39
5.1 Organization, Powers, Qualification, Good
Standing, Business and Subsidiaries.. . .. . 39
5.2 Authorization of Borrowing, etc. . . . . . . 40
5.3 Financial Condition. . . . . . . . . . . . . 41
5.4 No Material Adverse Change; No Restricted
Junior Payments. . . . . . . . . . . . . . . 41
5.5 Title to Properties; Liens.. . . . . . . . . 42
5.6 Litigation; Adverse Facts. . . . . . . . . . 42
5.7 Payment of Taxes.. . . . . . . . . . . . . . 42
<PAGE> (ii)
5.8 Performance of Agreements; Materially
Adverse Agreements. . . . . . . . . . . . . .43
5.9 Governmental Regulation. . . . . . . . . . . 43
5.10 Securities Activities. . . . . . . . . . . . 43
5.11 Employee Benefit Plans.. . . . . . . . . . . 43
5.12 Certain Fees.. . . . . . . . . . . . . . . . 44
5.13 Environmental Protection . . . . . . . . . . 44
5.14 Employee Matters.. . . . . . . . . . . . . . 45
5.15 Inventory and Accounts.. . . . . . . . . . . 45
5.16 Representations Concerning Cash
Management System. . . . . . . . . . . . . . 47
5.17 Intellectual Property. . . . . . . . . . . . 47
5.19 Disclosure.. . . . . . . . . . . . . . . . . 47
SECTION 6
BORROWERS' AFFIRMATIVE COVENANTS. . .. . . . 48
6.1 Financial Statements and Other Reports.. . . 48
6.2 Corporate Existence, etc.. . . . . . . . . . 54
6.3 Payment of Taxes and Claims. . . . . . . . . 54
6.4 Maintenance of Properties; Insurance.. . . . 54
6.5 Inspection; Lender Meeting.. . . . . . . . . 55
6.6 Compliance with Laws, etc. . . . . . . . . . 55
6.7 Environmental Matters. . . . . . . . . . . . 55
6.8 Environmental Indemnity. . . . . . . . . . . 58
6.9 Borrowing Base and Inventory Reports.. . . . 58
6.10 Cash Management System.. . . . . . . . . . . 59
6.11 Material Contracts.. . . . . . . . . . . . . 61
6.12 Certain Post-Closing Obligations . . . . . . 62
SECTION 7
BORROWERS' NEGATIVE COVENANTS. . . . . . . . 63
7.1 Indebtedness.. . . . . . . . . . . . . . . . 64
7.2 Liens and Related Matters. . . . . . . . . . 64
7.3 Investments; Joint Ventures. . . . . . . . . 65
7.4 Contingent Obligations.. . . . . . . . . . . 66
7.5 Restricted Junior Payments . . . . . . . . . 66
7.6 Financial Covenants. . . . . . . . . . . . . 66
7.7 Restriction on Fundamental Changes;
Asset Sales. . . . . . . . . . . . . . . . . 67
7.8 Consolidated Capital Expenditures. . . . . 68
7.9 Restriction on Leases. . . . . . . . . . . . 68
7.10 Sales and Lease-Backs. . . . . . . . . . . . 69
7.11 Chapter 11 Claims. . . . . . . . . . . . . . 69
7.12 Transactions with Shareholders and
Affiliates. . . . . . . . . . . . . . . . .. 69
7.13 Disposal of Subsidiary Stock.. . . . . . . . 69
7.14 Conduct of Business. . . . . . . . . . . . . 70
7.15 Limitation on Payments and Disbursements.. . 70
7.17 Fiscal Year; Tax Consolidation.. . . . . . . 70
7.18 Amendments to Material Contracts.. . . . . . 70
<PAGE> (iii)
SECTION 8
EVENTS OF DEFAULT. . . . . . . . . . . . . . 70
8.1 Failure to Make Payments When Due. . . . . . 71
8.2 Breach of Certain Covenants. . . . . . . . . 71
8.3 Other Defaults Under Loan Documents. . . . . 71
8.4 Breach of Warranty.. . . . . . . . . . . . . 71
8.5 Bankruptcy Proceeding Events.. . . . . . . . 71
8.6 Judgments. . . . . . . . . . . . . . . . . . 72
8.7 Employee Benefit Plans.. . . . . . . . . . . 72
8.8 Impairment of Collateral.. . . . . . . . . . 73
8.9 Default Under or Termination of
Material Contracts. . . . . . . . . . . . . .73
8.10 Material Adverse Effect. . . . . . . . . . . 73
8.11 Change in Crisis Manager . . . . . . . . . . 73
8.12 Change in Board. . . . . . . . . . . . . . . 73
SECTION 9
MISCELLANEOUS. . . . . . . . . . . . . . . . 74
9.1 Participations in Loans. . . . . . . . . . . 74
9.2 Expenses.. . . . . . . . . . . . . . . . . . 75
9.3 Indemnity. . . . . . . . . . . . . . . . . . 76
9.4 Set-Off; Security Interest in Deposit
Accounts. . . . . . . . . . . . . . . .. . . 77
9.5 Amendments and Waivers.. . . . . . . . . . . 78
9.6 Independence of Covenants. . . . . . . . . . 78
9.7 Notices. . . . . . . . . . . . . . . . . . . 78
9.8 Survival of Representations,
Warranties and Agreements. . . . . . . . . . 78
9.9 Failure or Indulgence Not Waiver;
Remedies Cumulative. . . . . . . . . . . . . 79
9.10 Marshalling; Payments Set Aside. . . . . . . 79
9.11 Severability.. . . . . . . . . . . . . . . . 79
9.12 Headings.. . . . . . . . . . . . . . . . . . 79
9.13 Applicable Law.. . . . . . . . . . . . . . . 79
9.14 Successors and Assigns.. . . . . . . . . . . 80
9.15 Consent to Jurisdiction and Service
of Process . . . . . . . . . . . . . . . . . 80
9.16 Waiver of Jury Trial . . . . . . . . . . . . 80
9.17 Confidentiality. . . . . . . . . . . . . . . 81
9.18 Counterparts; Effectiveness. . . . . . . . . 81
9.19 Parties Including Trustees;
Court Proceedings. . . . . . . . . . . . . . 82
Signature pages . . . . . . . . . . . . . . . . .S-1
<PAGE> (iv)
EXHIBITS
I FORM OF BORROWING BASE CERTIFICATE
II FORM OF CASH MANAGEMENT LETTER
III FORM OF COMPLIANCE CERTIFICATE
IV FORM OF FINAL ORDER
V FORM OF INTERIM ORDER
VI FORM OF NOTE
VII FORM OF NOTICE OF BORROWING
VIII FORM OF PLEDGE AND SECURITY AGREEMENT
IX FORM OF OPINION OF BORROWERS COUNSEL
<PAGE> (v)
SCHEDULES
1.1A EXISTING LETTERS OF CREDIT
1.1B MORTGAGED PROPERTY
5.1 SUBSIDIARIES OF BORROWERS; COLLATERAL MATTERS
5.2 CONSENTS
5.5 EXISTING PERMITTED ENCUMBRANCES
5.6 LITIGATION
5.7 TAX RETURNS
5.8 MATERIAL CONTRACTS
5.11 ERISA MATTERS
5.13 ENVIRONMENTAL MATTERS
5.16 CASH MANAGEMENT SYSTEM
5.17 INTELLECTUAL PROPERTY
7.1 EXISTING INDEBTEDNESS
7.2 EXISTING LIENS
7.3 EXISTING INVESTMENTS
7.4 EXISTING CONTINGENT OBLIGATIONS
<PAGE> 1
DEBTOR-IN-POSSESSION CREDIT AGREEMENT
This DEBTOR-IN-POSSESSION CREDIT AGREEMENT is dated
as of October 9, 1996 and entered into by and among
FRUEHAUF TRAILER CORPORATION, a Delaware corporation, as
debtor and debtor-in-possession (``FTC''), FGR, INC.
(f.k.a. Decatur Aluminum Company, Inc.), a Michigan
corporation, as debtor and debtor-in-possession (``FGR''),
FRUEHAUF CORPORATION, a Delaware corporation, as debtor
and debtor-in-possession (``FC''), MARYLAND SHIPBUILDING &
DRYDOCK COMPANY, a Maryland corporation, as debtor and
debtor-in-possession (``MSD''), THE MERCER CO., a Delaware
corporation, as debtor and debtor-in-possession
(``Mercer''), FRUEHAUF INTERNATIONAL LIMITED, a Delaware
corporation, as debtor and debtor-in-possession (``FIL''),
DEUTSCHE-FRUEHAUF HOLDING CORPORATION, a Delaware
corporation, as debtor and debtor-in-possession (``DHC''),
JACKSONVILLE SHIPYARDS, INC., a Florida corporation, as
debtor and debtor-in-possession (``JSI''), M.J. HOLDINGS,
INC., an Ohio corporation, as debtor and
debtor-in-possession (``MJH''), E.L. DEVICES, INC., a
Florida corporation, as debtor and debtor-in-possession
(``ELD'' and, together with FTC, FGR, FC, MSD, Mercer,
FIL, DHC, JSI, and MJH each individually referred to
herein as a ``Borrower'' and jointly and severally as
``Borrowers''), and MADELINE, L.L.C., a Delaware limited
liability company (``Lender'').
R E C I T A L S
WHEREAS, on October 7, 1996, Borrowers filed
voluntary petitions for relief under the Bankruptcy Code
(such term and other capitalized terms used in these
recitals without definition have the meanings set forth in
subsection 1.1 of this Agreement), with the United States
Bankruptcy Court, District of Delaware, (the ``Court'')
(such proceedings, Jointly Administered Case No. 96-1563
are hereinafter referred to as the ``Chapter 11 Cases'').
Each Borrower continues to operate its businesses and
manage its properties as a debtor in possession pursuant
to Sections 1107 and 1108 of the Bankruptcy Code.
WHEREAS, Borrowers have requested Lender to provide a
revolving credit facility consisting of two tranches, a
borrowing base facility of up to $35,000,000 (subject to
the Borrowing Base) and an overadvance facility of up to
$20,000,000, with proceeds of such facilities to be used
to fund working capital, repay and terminate the Existing
Working Capital Facilities (and cash collateralize
Existing Letters of Credit outstanding thereunder) and
make certain other payments during the Chapter 11 Cases,
all as set forth herein and Lender is willing to extend
such postpetition credit to Borrowers in accordance with
and on the terms and conditions set forth in this
Agreement.
WHEREAS, Borrowers desire to secure their respective
obligations hereunder and under the other Loan Documents
by granting to Lender a first priority perfected security
interest in all of their assets as set forth in the Pledge
and Security Agreement and other Collateral Documents.
<PAGE> 2
NOW, THEREFORE, in consideration of the premises and
the agreements, provisions and covenants herein contained,
Borrowers and Lender hereby agree as follows:
SECTION 1
DEFINITIONS
1.1 Certain Defined Terms.
The following terms used in this Agreement shall have
the following meanings:
``Acceleration'' means the declaration (whether
automatic, by notice or otherwise) of all or any portion
of the Loans or other Obligations to be immediately due
and payable pursuant to Section 8.
``Accounts'' shall mean all present and future
accounts, contract rights, general intangibles, chattel
paper, documents and instruments, as such terms are
defined in the UCC, of each Borrower and its Subsidiaries,
including, without limitation, all obligations for the
payment of money arising out of the sale, lease or other
disposition of goods or other property or rendition of
services and all proceeds thereof.
``Account Debtor'' shall mean each debtor or obligor
in any way obligated on or in connection with any Account.
``Affiliate'', as applied to any Person, means any
other Person directly or indirectly controlling,
controlled by, or under common control with, that Person.
For the purposes of this definition, ``control''
(including, with correlative meanings, the terms
``controlling'', ``controlled by'' and ``under common
control with''), as applied to any Person, means the
possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of
that Person, whether through the ownership of voting
securities or by contract or otherwise.
``Agreement'' means this Debtor-In-Possession Credit
Agreement dated as of October 9, 1996.
``Approved Budget'' has the meaning set forth in
Subsection 6.1(xv).
``Applicable Percentage'' means, as to Eligible
Inventory, the following percentages of the value thereof,
determined at the lower of cost or market on a first in
first out basis, (i) in the case of new trailers, 70%;
(ii) in the case of used trailers, 70%; (ii) in the case
of purchased parts and accessories, 50%; and (iv) in the
case of raw materials, 50%.
<PAGE> 3
``Asset Sale'' means the sale by any Borrower or any
of its Subsidiaries to any Person ther than another
Borrower of (i) any of the capital stock of any of their
respective Subsidiaries, (ii) substantially all of the
assets of any division or line of business or product
brands, or (iii) any assets (whether tangible or
intangible) outside of the ordinary course of business.
``Base Rate'' means a fluctuating interest rate per
annum in effect from time to time, which rate per annum
shall at all times be equal to the rate of interest
announced publicly by The Chase Manhattan Bank, in New
York, New York, from time to time, as The Chase Manhattan
Bank's base rate.
``Bankruptcy Code'' means Title 11 of the United
States Code entitled ``Bankruptcy'', as now and hereafter
in effect, or any successor statute.
``Bankruptcy Rule'' means a rule promulgated as part
of the Federal Rules of Bankruptcy Procedure.
``Borrower'' and ``Borrowers'' has the meaning
assigned to that term in the introduction to this
Agreement.
``Borrowing Base'' means, as of any date of
determination, the amount by which (a) the sum of: (i)
eighty five percent (85%) of the Net Amount of Eligible
Accounts; (ii) sixty-five percent (65%) of the Net Amount
of Approved Nondomestic Accounts (or such lesser
percentage thereof as determined from time to time by
Lender in its sole discretion); and (iii) the Applicable
Percentage of the value of Eligible Inventory determined
at the lower of cost or market on a first in first out
basis, exceeds (b) such reserves as Lender may from time
to time require in it sole discretion.
``Borrowing Base Certificate'' means a certificate
substantially in the form of Exhibit I annexed hereto
delivered by Borrowers to Lender pursuant to subsection
6.9.
``Borrowing Base Loan Commitment'' means the
commitment of Lender to make Borrowing Base Loans to
Borrowers pursuant to subsection 2.1A. Such commitment
shall be an aggregate amount initially equal to
$35,000,000 and shall be reduced from time by the amount
of any reductions pursuant to subsections 2.1A, 2.4A(ii)
or 2.4A(iii).
``Borrowing Base Loans'' means the Borrowing Base
Loans made by Lender to Borrowers pursuant to subsection
2.1A.
``Borrowing Orders'' means the Interim Order and the
Final Order.
``Business Day'' means for all purposes any day
excluding Saturday, Sunday and any day which is a legal
holiday under the laws of the State of New York or is a
day on which banking institutions located in such state
are authorized or required by law or other governmental
action to close.
<PAGE> 4
``Capital Lease'', as applied to any Person, means
any lease of any property (whether real, personal or
mixed) by that Person as lessee that, in conformity with
GAAP, is accounted for as a capital lease on the balance
sheet of that Person.
``Carve Out'' has the meaning set forth in the
Interim Order and Final Order.
``Cash'' means money, currency or a credit balance in
a Deposit Account.
``Cash Equivalents'' means (i) marketable securities
issued or directly and unconditionally guaranteed by the
United States Government or issued by any agency thereof
and backed by the full faith and credit of the United
States, in each case maturing within 60 days from the date
of acquisition thereof; (ii) marketable direct obligations
issued by any state of the United States of America or any
political subdivision of any such state or any public
instrumentality thereof maturing within 60 days from the
date of acquisition thereof and, at the time of
acquisition, having the highest rating obtainable from
either Standard & Poor's Corporation or Moody's Investors
Service, Inc.; (iii) commercial paper maturing no more
than 60 days from the date of creation thereof and, at the
time of acquisition, having a rating of at least A-1 from
Standard & Poor's Corporation or at least P-1 from Moody's
Investors Service, Inc.; (iv) certificates of deposit or
bankers' acceptances maturing within 60 days from the date
of acquisition thereof issued by any commercial bank
organized under the laws of the United States of America
or any state thereof or the District of Columbia having
unimpaired capital and surplus of not less than
$500,000,000 (each such commercial bank herein called a
``Cash Equivalent Bank''); (v) time deposits having a
maturity of 30 days or less with any Cash Equivalent Bank
(whether such deposit is with such Cash Equivalent Bank or
any other Cash Equivalent Bank) and (vi) balances
maintained in Deposit Accounts included in the Cash
Management System.
``Cash Management Letters'' means each of the letter
agreements among Borrowers, the financial institutions at
which Deposit Accounts are located pursuant to the Cash
Management System and Lender, in each case substantially
in the form of Exhibit II annexed hereto with such
changes as are requested or otherwise acceptable to
Lender.
``Cash Management System'' means the system of
Deposit Accounts of Borrowers and their Subsidiaries
pursuant to which all Receipts of Borrowers and such
Subsidiaries are collected and distributed all as
described in Schedule 5.16 annexed hereto, as it may be
modified from time to time in accordance with the terms
hereof and with the written consent of Lender.
``Chapter 11 Cases'' has the meaning assigned to that
term in the recital clauses hereof.
``Closing Date'' means the date on which the Interim
Order is entered which shall be not later than October 11,
1996.
<PAGE> 5
``Collateral'' means all of the real, personal and
mixed property of Borrowers wherever located, now existing
or hereafter acquired and all proceeds and products
thereof, all of which shall be subject to a Lien in favor
of Lender pursuant to the Collateral Documents.
``Collateral Documents'' means, collectively, the
Pledge and Security Agreement and any other mortgages,
deeds of trust, security agreements, pledge agreements,
assignments, financing statements or other agreements,
documents or certificates now or hereafter granting
Liens on the property of a Borrower or any of its
Subsidiaries to Lender.
``Collection Accounts'' means the Sweep Accounts and
the Local Depository Accounts.
``Commitments'' means collectively the Borrowing Base
Loan Commitment and the Overadvance Loan Commitment.
``Commitment Termination Date'' means the earliest of
(i) April 30, 1997, (ii) the effective date of one or more
plans of reorganization in the Chapter 11 Cases, and (iii)
the date of termination in whole of the Commitments
pursuant to subsections 2.1A, 2.1B, 2.4A(ii) or Section 8.
``Compliance Certificate'' means a certificate
substantially in the form of Exhibit III annexed hereto
delivered to Lender by Borrowers pursuant to subsection
6.1(iv).
``Consolidated Adjusted EBITDA'' means, for any
period, the sum of the amounts for such period of (i)
Consolidated Net Income, (ii) Consolidated Interest
Expense, (iii) provisions for taxes based on income, (iv)
total depreciation expense, (v) professional fees and
expenses associated with the administration of the Chapter
11 Cases in an aggregate amount not to exceed $1,000,000
per month (vi) total amortization expense, and (vii) other
non-cash items reducing Consolidated Net Income less other
non-cash items increasing Consolidated Net Income, all of
the foregoing as determined on a consolidated basis for
FTC and its Subsidiaries in conformity with GAAP.
``Consolidated Capital Expenditures'' means, for any
period, the sum of (i) the aggregate of all expenditures
(whether paid in cash or other consideration or accrued as
a liability and including that portion of Capital Leases
which is capitalized on the consolidated balance sheet
of Borrowers and their Subsidiaries) by Borrowers and
their Subsidiaries during that period that, in conformity
with GAAP, are included in ``additions to property, plant
or equipment'' or comparable items reflected in the
consolidated statement of cash flows of Borrowers and
their Subsidiaries plus (ii) to the extent not covered by
clause (i) hereof, the aggregate of all expenditures by
Borrowers and their Subsidiaries during that period to
acquire (by purchase or otherwise) the business, property
or fixed assets of, or stock or other evidence of
beneficial ownership of, any Person.
<PAGE> 6
``Consolidated Interest Expense'' means, for any
period, total interest expense (including that portion
attributable to Capital Leases in accordance with GAAP and
capitalized interest) of FTC and its Subsidiaries on a
consolidated basis with respect to all outstanding
Indebtedness of FTC and its Subsidiaries, including all
commissions, discounts and other fees and charges owed
with respect to letters of credit and bankers' acceptance
financing and net costs under any Interest Rate
Agreements, but excluding, however, any amounts referred
to in subsection 2.3 payable to Lender on or before the
Closing Date.
``Consolidated Net Income'' means, for any period,
the net income (or loss) of FTC and its Subsidiaries on a
consolidated basis for such period taken as a single
accounting period determined in conformity with GAAP;
provided that there shall be excluded (i) the income (or
loss) of any Person (other than a Subsidiary of FTC) in
which any other Person (other than FTC or any of its
Subsidiaries) has a joint interest, except to the extent
of the amount of dividends or other distributions actually
paid to FTC or any of its Subsidiaries by such Person
during such period, (ii) the income (or loss) of any
Person accrued prior to the date it becomes a Subsidiary
of FTC or is merged into or consolidated with FTC or any
of its Subsidiaries or that Person's assets are acquired
by FTC or any of its Subsidiaries, (iii) the income of any
Subsidiary of FTC to the extent that the declaration or
payment of dividends or similar distributions by that
Subsidiary of that income is not at the time permitted by
operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to that Subsidiary,
(iv) any after-tax gains or losses attributable to Asset
Sales or returned surplus assets of any Pension Plan, and
(v) (to the extent not included in clauses (i) through
(iv) above) any net extraordinary gains or net non-cash
extraordinary losses.
``Consolidated Net Sales'' means, for any period, the
net sales of FTC and its Subsidiaries on a consolidated
basis for such period taken as a single accounting period
determined in accordance with GAAP.
``Contingent Obligation'', as applied to any Person,
means any direct or indirect liability, contingent or
otherwise, of that Person (i) with respect to any
Indebtedness, lease, dividend or other obligation of
another if the primary purpose or intent thereof by the
Person incurring the Contingent Obligation is to provide
assurance to the obligee of such obligation of another
that such obligation of another will be paid or
discharged, or that any agreements relating thereto will
be complied with, or that the holders of such obligation
will be protected (in whole or in part) against loss in
respect thereof, (ii) with respect to any letter of credit
issued for the account of that Person or as to which that
Person is otherwise liable for reimbursement of
drawings, or (iii) under Interest Rate Agreements and
Currency Agreements. Contingent Obligations shall
include, without limitation, (a) the direct or indirect
guaranty, endorsement (otherwise than for collection or
deposit in the ordinary course of business), co-making,
discounting with recourse or sale with recourse by such
Person of the obligation of another, (b) the obligation to
make take-or-pay or similar payments if required
regardless of non-performance by any other party or
parties to an agreement, and (c) any liability of such
Person for the obligation of another through any agreement
(contingent or otherwise) (1) to purchase, repurchase
or otherwise acquire such obligation or any security
therefor, or to provide funds for the payment or discharge
of such obligation (whether in the form of loans,
advances, stock purchases, capital contributions or
otherwise) or (2) to maintain the solvency or any balance
sheet item, level of income or financial condition of
another if, in the case of any agreement described under
subclauses (1) or (2) of this sentence, the primary
purpose or intent thereof is as described in the preceding
sentence. The amount of any Contingent Obligation shall
be equal to the amount of the obligation so guaranteed or
otherwise supported or, if less, the amount to which such
Contingent Obligation is specifically limited.
<PAGE> 7
``Contractual Obligation'', as applied to any Person,
means any provision of any Security issued by that Person
or of any material indenture, mortgage, deed of trust,
contract, undertaking, agreement or other instrument to
which that Person is a party or by which it or any of its
properties is bound or to which it or any of its
properties is subject.
``Court'' shall have the meaning assigned to it in
the recital clauses hereof.
``Crisis Manager'' shall mean Alvarez & Marsal or
such other crisis manager approved in writing by Lender.
``Currency Agreement'' means any foreign exchange
contract, currency swap agreement, futures contract,
option contract, synthetic cap or other similar agreement
or arrangement designed to protect any Borrower or any of
its Subsidiaries against fluctuations in currency values.
``Deposit Account'' means a demand, time, savings,
passbook or like account with a bank, savings and loan
association, credit union or like organization, other than
an account evidenced by a negotiable certificate of
deposit, including, without limitation, the Collection
Accounts and the Disbursement Accounts.
``Depository Institutions'' means any bank or other
institution at which a Deposit Account which is part of
the Cash Management System is held or maintained.
``Disbursement Accounts'' means the General Funding
Account, the MNB Controlled Disbursement Account, the
Branch Funding Account, the Branch Disbursement Accounts,
the Aetna Account (each as defined on Schedule 5.16),
account number 02330414 maintained at Michigan National
Bank, account number 010168238 maintained with Hancock
Bank, account number 6101430 maintained with NationsBank,
account number 2529928 maintained with National City Bank,
and any additional account(s) or replacement(s) for such
accounts approved by Lender in a writing designating such
accounts as Disbursement Accounts.
``Dollars'' and the sign ``$'' mean the lawful money
of the United States of America.
<PAGE> 8
``Eligible Accounts'' means Accounts created by
Borrowers in the ordinary course of business arising out
of Borrowers' sale of goods or rendition of services,
which are acceptable to Lender in all respects in its sole
discretion. Standards of eligibility may be fixed and
revised from time to time solely by Lender in Lender's
exclusive judgment. In determining eligibility, Lender
may, but need not, rely on agings, reports and schedules
of Accounts furnished by Borrowers, but reliance by Lender
thereon from time to time shall not be deemed to limit
Lender's right to revise standards of eligibility at any
time as to both Borrowers' present and future Accounts.
In general, except as otherwise agreed to by Lender in its
sole discretion, Eligible Accounts shall not include:
(a) any Account with respect to which the Account Debtor
on such Account is not acceptable to Lender in its sole
discretion; (b) any Account which does not comply in all
respects with the representations, covenants and
warranties set forth herein or in any of the other Loan
Documents; (c) any Account for which more than 90 days
have elapsed since the invoice date of such Account;
(d) any Account with respect to which the Account Debtor
is a director, officer, employee, Subsidiary or Affiliate
of Debtor; (e) all Accounts owing by a single Account
Debtor if Accounts constituting twenty-five percent (25%)
or more of the aggregate balance owing by such Account
Debtor to Borrowers remains unpaid more than ninety (90)
days after the applicable invoice dates of such Accounts;
(f) all Accounts from any Account Debtor who is also a
creditor of any Borrower or any of their Subsidiaries, but
only to the extent of the outstanding amount owing by
such Borrower or such Subsidiary to such Account Debtor;
(g) any Account with respect to which the Account Debtor
is the United States of America or any department, agency
or instrumentality thereof, unless the applicable Borrower
assigns its right to payment of such Accounts to Lender
pursuant to the Assignment of Claims Act of 1940, as
amended (31 U.S.C. ss 3727) and notice of such assignment
has been provided to the applicable department, agency or
instrumentality in accordance with such act; (h) any
Account with respect to which the Account Debtor is not a
resident of the United States of America unless (i) the
Account Debtor has delivered to Lender an irrevocable
letter of credit naming Lender as payee (or assigned to
Lender in a manner acceptable to Lender), (ii) such letter
of credit has been issued by a financial institution
satisfactory to Lender, and (iii) such letter of credit is
satisfactory in form and substance to Lender, in which
event such Account may be eligible to the extent of the
face amount of such letter of credit; (i) any Account with
respect to which Lender does not have a first and valid
fully perfected security interest and for which Lender has
not received adequate certificates, reports and other
assurances (the adequacy of which shall be determined by
Lender in its sole discretion) of such priority and
perfection; (j) any Account with respect to which the
Account Debtor is the subject of a case under the
Bankruptcy Code or a similar insolvency proceeding or has
made an assignment for the benefit of creditors or whose
assets have been conveyed to a receiver or trustee; and
(k) any Account with respect to which the Account Debtor's
obligation to pay the Account is conditional upon the
Account Debtor's approval or is otherwise subject to any
repurchase obligation or return right, as with sales made
on a bill-and-hold (unless made at the direction of the
Account Debtor and payment of such Account is not
conditional), guaranteed sale, sale-and-return, sale on
approval or consignment basis.
``Eligible Inventory'' means and includes Inventory
consisting of first quality and used finished goods held
for resale in the ordinary course of Borrowers' business
<PAGE> 9
and raw materials for such finished goods and component
parts held for sale in the ordinary course of Borrowers'
business, which are owned by Borrowers and located at
Borrowers' premises in the United States of America and
acceptable to Lender in all respects. General criteria
for Eligible Inventory may be established and revised from
time to time by Lender in Lender's exclusive judgment. In
determining such acceptability Lender may, but need not,
rely on reports and schedules of Inventory furnished to
Lender by Borrowers, but reliance thereon by Lender from
time to time shall not be deemed to limit Lender's right
to revise standards of eligibility at any time. In
general, except as otherwise agreed to by Lender in its
sole discretion, Eligible Inventory shall not include (a)
work in process; (b) components which are not to be part
of finished goods; (c) spare parts not held for sale in
the ordinary course of Borrower business; (d) packaging
and shipping materials; (e) supplies used or consumed in
Borrowers' business; (f) Inventory at the premises of
third parties unless such Inventory consists of trailers
located off site at paint or decal shops which shall be
eligible to the extent not exceeding both (i) 12 trailers
and (ii) 3% of value of Eligible Inventory in the
aggregate at any time; (g) subject to a Lien in favor of
any third party, except for Liens permitted hereunder; (h)
bill and hold goods; (i) Inventory which is not subject
to Lender's first and valid fully perfected security
interest and for which Lender has not received adequate
certificates, reports and other assurances (the adequacy
of which is to be determined by Lender in its sole
discretion) of such priority and perfection; (j) returned,
damaged and/or defective goods; (k) ``seconds''; (l)
Inventory purchased on consignment; (m) Inventory produced
in violation of the Fair Labor Standards Act or subject to
the so-called ``hot goods'' provisions contained in Title
29 U.S.C. 215(a)(i); (n) finished goods which do not meet
the specifications of the purchase order for such goods in
any material respect; (o) Inventory which is not in good
condition, does not meet all standards imposed by any
governmental agency, or department or division thereof,
having regulatory authority over the Inventory, or which
is not either currently usable or currently saleable in
the ordinary course of Borrowers' business; (p) Inventory
which is not otherwise acceptable to Lender in its sole
discretion because of age, type, category, quality
and/or quantity; (q) Inventory which has been consigned to
a customer of Lender, has been used or repossessed (other
than used trailers held for sale), or has been attached,
seized, made subject to a writ or distress warrant, levied
upon or brought within the possession of any receiver,
trustee, custodian or assignee for the benefit of
creditors; (r) Inventory which does not comply in all
respects with each of the representations, warranties and
covenants set forth in this Agreement; and (s) Inventory
purchased by Lender in or as part of a ``bulk'' transfer
or sale of assets unless Debtor has complied with all
applicable bulk sales or bulk transfer laws.
``Employee Benefit Plan'' means any ``employee
benefit plan'' as defined in Section 3(3) of ERISA which
is, or was at any time during the past five years,
maintained or contributed to by Borrowers or any Persons
who are or were, at the relevant time, their ERISA
Affiliates and with respect to which any Borrower could
have any liability.
``Environmental Claim'' means any accusation,
allegation, notice of violation, claim, demand, abatement
order or other order or direction (conditional or
otherwise) by any governmental authority or any Person for
any damage, including, without limitation, personal
injury (including sickness, disease or death), tangible or
intangible property damage, contribution, indemnity,
indirect or consequential damages, damage to the
environment, nuisance, pollution, contamination or other
adverse effects on the environment, or for fines,
penalties or restrictions, in each case relating to,
resulting from or in connection with Hazardous Materials
and relating to any Borrower, any of its Subsidiaries, any
of their respective Affiliates or any Facility.
<PAGE> 10
``Environmental Laws'' means all statutes,
ordinances, orders, rules, regulations, plans,
policies or decrees and the like relating to (i)
environmental matters, including, without limitation,
those relating to fines, injunctions, penalties, damages,
contribution, cost recovery compensation, losses or
injuries resulting from the Release or threatened Release
of Hazardous Materials, (ii) the generation, use, storage,
transportation or disposal of Hazardous Materials, or
(iii) occupational safety and health, industrial hygiene,
land use or the protection of human, plant or animal
health or welfare, in any manner applicable to any
Borrower or any of its Subsidiaries or any of their
respective properties, including, without limitation, the
Comprehensive Environmental Response, Compensation, and
Liability Act (42 U.S.C. ss 9601 et seq.), the Hazardous
Materials Transportation Act (49 U.S.C. ss 1801 et seq.),
the Resource Conservation and Recovery Act (42 U.S.C. ss
6901 et seq.), the Federal Water Pollution Control Act (
33 U.S.C. ss 1251 et seq.), the Clean Air Act (42 U.S.C. ss
7401 et seq.), the Toxic Substances Control Act (15 U.S.C.
ss 2601 et seq.), the Federal Insecticide, Fungicide and
Rodenticide Act (7 U.S.C. ss136 et seq.), the Occupational
Safety and Health Act (29 U.S.C. ss 651 et seq.) and the
Emergency Planning and Community Right-to-Know Act (42
U.S.C. ss 11001 et seq.), each as amended or supplemented,
and any analogous future or present local, state and
federal statutes and regulations promulgated pursuant
thereto, each as in effect as of the date of
determination.
``ERISA'' means the Employee Retirement Income
Security Act of 1974, as amended from time to time, and
any successor statute.
``ERISA Affiliate'', as applied to any Person, means
(i) any corporation which is, or was at the relevant time,
a member of a controlled group of corporations within the
meaning of Section 414(b) of the Internal Revenue Code of
which that Person is, or was at the relevant time, a
member; (ii) any trade or business (whether or not
incorporated) which is, or was at the relevant time, a
member of a group of trades or businesses under common
control within the meaning of Section 414(c) of the
Internal Revenue Code of which that Person is, or was at
any time, a member; and (iii) any member of an affiliated
service group within the meaning of Section 414(m)
or (o) of the Internal Revenue Code of which that Person,
any corporation described in clause (i) above or any trade
or business described in clause (ii) above is, or was at
the relevant time, a member.
``ERISA Event'' means (i) a ``reportable event''
within the meaning of Section 4043 of ERISA and the
regulations issued thereunder with respect to any Pension
Plan (excluding those for which the provision for 30-day
notice to the PBGC has been waived by regulation); (ii)
the failure to meet the minimum funding standard of
Section 412 of the Internal Revenue Code with respect to
any Pension Plan (whether or not waived in accordance with
Section 412(d) of the Internal Revenue Code) or the
failure to make by its due date a required installment
under Section 412(m) of the Internal Revenue Code with
<PAGE> 11
respect to any Pension Plan or the failure to make any
required contribution (other than contributions that are
being contested in good faith and as to which adequate
reserves have been provided for in accordance with GAAP)
to a Multiemployer Plan; (iii) the provision by the
administrator of any Pension Plan pursuant to Section
4041(a)(2) of ERISA of a notice of intent to terminate
such plan in a distress termination described in Section
4041(c) of ERISA; (iv) the withdrawal by any Borrower or
any of its ERISA Affiliates from any Pension Plan with two
or more contributing sponsors or the termination of any
such Pension Plan resulting in liability pursuant to
Sections 4063 or 4064 of ERISA; (v) the institution by the
PBGC of proceedings to terminate any Pension Plan, or the
occurrence of any event or condition which would
constitute grounds under ERISA for the termination of, or
the appointment of a trustee to administer, any Pension
Plan; (vi) the imposition of liability on any Borrower or
any of its ERISA Affiliates pursuant to Section 4062(e) or
4069 of ERISA or by reason of the application of Section
4212(c) of ERISA; (vii) the withdrawal by any Borrower or
any of its ERISA Affiliates in a complete or partial
withdrawal (within the meaning of Sections 4203 and 4205
of ERISA) from any Multiemployer Plan if there is any
potential liability therefor, or the receipt by any
Borrower or any of its ERISA Affiliates of notice from any
Multiemployer Plan that it is in reorganization or
insolvency pursuant to Section 4241 or 4245 of ERISA, or
that it intends to terminate or has terminated under
Section 4041A or 4042 of ERISA; (viii) the occurrence of
an act or omission which could reasonably be expected to
give rise to the imposition on any Borrower or any of its
ERISA Affiliates of fines, penalties, taxes or related
charges under Chapter 43 of the Internal Revenue Code or
under Section 409 or 502(c), (i) or (l) or 4071 of ERISA
in respect of any Employee Benefit Plan; (ix) the
assertion of a material claim (other than routine claims
for benefits) against any Employee Benefit Plan other than
a Multiemployer Plan or the assets thereof, or against any
Borrower or any of its ERISA Affiliates in connection with
any such Employee Benefit Plan; (x) receipt from the
Internal Revenue Service of notice of the failure of any
Pension Plan (or any other Employee Benefit Plan intended
to be qualified under Section 401(a) of the Internal
Revenue Code) to qualify under Section 401(a) of the
Internal Revenue Code, or the failure of any trust forming
part of any Pension Plan to qualify for exemption from
taxation under Section 501(a) of the Internal Revenue
Code; or (xi) the imposition of a Lien pursuant to Section
401(a)(29) or 412(n) of the Internal Revenue Code or
pursuant to ERISA with respect to any Pension Plan.
``Event of Default'' means each of the events set
forth in Section 8.
``Exchange Act'' means the Securities Exchange Act of
1934, as amended from time to time, and any successor
statute.
``Existing Indenture'' means the Indenture dated as
of May 1, 1995, as amended as of June 21, 1996, between
FTC and IBJ Schroder Bank & Trust Company, as trustee,
pursuant to which FTC issued its 14.75% Senior Secured
Notes due 2002 in an aggregate initial principal
amount of $74,117,000.
<PAGE> 12
``Existing Letters of Credit'' means the Letters of
Credit listed on Schedule 1.1A issued by CoreStates Bank,
N.A. for the account of FTC under the Existing Working
Capital Facilities and outstanding and undrawn as of the
Closing Date with a maximum undrawn amount of $6,248,977.
``Existing Working Capital Facility'' means,
collectively, (i) all documents and instruments entered
into between Congress Financial Corporation (Central)
and/or one of its affiliates and one or more Borrowers,
including, without limitation, that certain Accounts
Financing Agreement [Security Agreement] between FTC and
Congress Financial Corporation (Central); that certain
Inventory and Equipment Security Agreement Supplement to
Accounts Financing Agreement [Security Agreement] between
FTC and Congress Financial Corporation (Central); that
certain Rider No. 1 to Accounts Financing Agreement
[Security Agreement] and Inventory and Equipment Security
Agreement Supplement to Account Financing Agreement
[Security Agreement] between FTC and Congress Financial
Corporation (Central) and that certain letter regarding
Inventory Loans between FTC and Congress Financial
Corporation (Central) each dated as of August 20, 1993;
and each as amended by that certain First Amendment to
Accounts Financing Agreement [Security Agreement] between
FTC and Congress Financial Corporation (Central) entered
into as of April 4, 1994; that certain Second Amendment to
Accounts Financing Agreement [Security Agreement] and
Waiver between FTC and Congress Financial Corporation
(Central) entered into as of April 12, 1994; that certain
Third Amendment to Accounts Financing Agreement [Security
Agreement] between FTC and Congress Financial Corporation
(Central) entered into as of May 1, 1995; that certain
Fourth Amendment to Accounts Financing Agreement [Security
Agreement] between FTC and Congress Financial Corporation
(Central) entered into as of April 19, 1996; and that
certain Fifth Amendment to Accounts Financing Agreement
[Security Agreement] and Limited Waiver between FTC and
Congress Financial Corporation (Central) entered into as
of June 21, 1996; together with all other agreements and
instruments entered into in connection with any of the
foregoing for the benefit of Congress Financial
Corporation (Central), including without limitation all
notes, guarantees, mortgages, pledge agreements and
security agreements relating thereto; and (ii) the Working
Capital Term Note of FTC dated April 19, 1996 in a
principal amount of $5,500,000 issued to Congress
Financial Corporation (Central) and assigned to K-H
Corporation; the Supplemental Working Capital Term
Note of FTC dated June 21, 1996 in a principal amount of
$1,000,000 issued to Congress Financial Corporation
(Central) and assigned to K-H Corporation; and the
Subordinated Revolving Note of FTC dated June 21, 1996
issued to K-H Corporation; together with all other
agreements and instruments entered into in connection with
the foregoing for the benefit of the holder of such
notes, including, without limitation, all guarantees,
mortgages, pledge agreements and security
agreements relating thereto.
``Facilities'' means any and all real property
(including, without limitation, all buildings, fixtures or
other improvements located thereon) now, hereafter or
heretofore owned, leased or operated or used (for
manufacturing, warehousing, sales or other business
operations) by any Borrower or any of its Subsidiaries or
any of their respective predecessors or Affiliates.
<PAGE> 13
``Final Order'' shall mean an order of the Court
entered in the Chapter 11 Cases after a final hearing
under Bankruptcy Rule 4001(c)(2) in the form attached
hereto as Exhibit IV with any modifications approved by
Lender in its sole discretion. The Final Order shall also
contain a finding consistent with the representation of
Borrowers set forth in subsection 5.2A.
``Fiscal Year'' means the fiscal year or fiscal
period of Borrowers and their Subsidiaries, as the case
may be, ending on or about the last Business Day of
December of each calendar year. For purposes of this
Agreement, any particular Fiscal Year shall be designated
by reference to the calendar year in which such Fiscal
Year ends.
``Fruehauf de Mexico'' means Fruehauf de Mexico, S.A.
de C.V.
``Funding Date'' means the date of the funding of a
Loan.
``GAAP'' means, subject to the limitations on the
application thereof set forth in subsection 1.2, generally
accepted accounting principles set forth in opinions and
pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting
Standards Board or in such other statements by such other
entity as may be approved by a significant segment of the
accounting profession, in each case as the same are
applicable to the circumstances as of the date of deter-
mination.
``Governmental Authorization'' means any permit,
license, authorization, directive, consent order or
consent decree of or from any federal, state or local
governmental authority, agency or court.
``Hazardous Materials'' means (i) any chemical,
material or substance at any time defined as or included
in the definition of ``hazardous substances'', ``hazardous
wastes'', ``hazardous materials'', ``extremely hazardous
waste'', ``restricted hazardous waste'', ``infectious
waste'', ``toxic substances'' or any other formulations
intended to define, list or classify substances by reason
of deleterious properties such as ignitability,
corrosivity, reactivity, carcinogenicity, toxicity,
reproductive toxicity, ``TCLP toxicity'' or ``EP
toxicity'' or words of similar import under any applicable
Environmental Laws or publications promulgated pursuant
thereto; (ii) any oil, petroleum, petroleum fraction or
petroleum derived substance; (iii) any drilling fluids,
produced waters and other wastes associated with the
exploration, development or production of crude oil,
natural gas or geothermal resources; (iv) any flammable
substances or explosives; (v) any radioactive materials;
(vi) asbestos in any form; (vii) urea formaldehyde foam
insulation; (viii) electrical equipment which contains any
oil or dielectric fluid containing levels of
polychlorinated biphenyls in excess of fifty parts per
million; (ix) pesticides; and (x) any other chemical,
material or substance, exposure to which is prohibited,
limited or regulated by any governmental authority or
which may or could pose a hazard to the health and safety
of the owners, occupants or any Persons in the vicinity of
the Facilities.
<PAGE> 14
``Hazardous Materials Activity'' means any past,
current, proposed or threatened activity, event or
occurrence involving any Hazardous Materials, including
the use, manufacture, possession, storage, holding,
presence, existence, location, Release, threatened
Release, discharge, placement, generation, transportation,
processing, construction, treatment, abatement, removal,
remediation, disposal, disposition or handling of any
Hazardous Materials, and any corrective action or response
action with respect to any of the foregoing.
``Indebtedness'', as applied to any Person, means (i)
all indebtedness for borrowed money, (ii) that portion of
obligations with respect to Capital Leases that is
properly classified as a liability on a balance sheet in
conformity with GAAP, (iii) notes payable and drafts
accepted representing extensions of credit whether or not
representing obligations for borrowed money, (iv) any
obligation owed for all or any part of the deferred
purchase price of property or services (excluding any such
obligations incurred under ERISA), which purchase price is
(a) due more than six months from the date of incurrence
of the obligation in respect thereof or (b) evidenced by a
note or similar written instrument, and (v) all
indebtedness secured by any Lien on any property
or asset owned or held by that Person regardless of
whether the indebtedness secured thereby shall have been
assumed by that Person or is nonrecourse to the credit of
that Person. Obligations under Interest Rate Agreements
and Currency Agreements constitute Contingent Obligations
and not Indebtedness.
``Indemnitee'' has the meaning assigned to that term
in subsection 9.3.
``Initial Borrowing Date'' has the meaning set forth
in subsection 4.1.
``Interest Rate Agreement'' means any interest rate
swap agreement, interest rate cap agreement, interest rate
collar agreement or other similar agreement or arrangement
to which a Borrower or any of its Subsidiaries is a party.
``Interim Order'' means an order of the Court entered
in the Chapter 11 Cases after an interim hearing under
Bankruptcy Rule 4001(c)(2) in the form attached hereto as
Exhibit V with any modifications approved by Lender in its
sole discretion. The Interim Order shall also contain a
finding consistent with the representation of Borrower set
forth in subsection 5.2A.
``Internal Revenue Code'' means the Internal Revenue
Code of 1986, as amended to the date hereof and from time
to time hereafter.
``Inventory'' shall mean any ``inventory,'' as such
term is defined in the UCC, now or hereafter owned or
acquired by Borrowers, wherever located, and, in any
event, including all inventory, merchandise, goods and
other personal property which are held by or on behalf of
Borrowers for sale or lease or are furnished or are to be
furnished under a contract of service or which constitute
raw materials, work in process, or materials used or
consumed or to be used or consumed in Borrowers' business,
or in the processing, packaging, advertising, promotion,
delivery or shipping of the same, and all finished goods
and all proceeds and products thereof.
<PAGE> 15
``Investment'' means (i) any direct or indirect
purchase or other acquisition by any Borrower or any of
its Subsidiaries of, or of a beneficial interest in, stock
or other Securities of any other Person, or (ii) any
direct or indirect loan, advance (other than advances to
employees for moving, entertainment and travel expenses,
drawing accounts and similar expenditures in the
ordinary course of business) or capital contribution by
any Borrower or any of their Subsidiaries
to any other Person, including all indebtedness and
accounts receivable from that other Person that
are not current assets and did not arise from sales to
that other Person in the ordinary course of
business. The amount of any Investment shall be the
original cost of such Investment plus the cost of all
additions thereto, without any adjustments for increases
or decreases in value, or write-ups, write-downs or
write-offs with respect to such Investment.
``Joint Venture'' means a joint venture, partnership
or other similar arrangement, whether in corporate,
partnership or other legal form; provided that in no event
shall any corporate Subsidiary of any Person be considered
to be a Joint Venture to which such Person is a party.
``Lender'' means Madeline, L.L.C. together with its
successors.
``Lending Office'' means, with respect to Lender, the
office of such Lender specified as its ``Lending Office''
below its name on the signature pages hereto or such other
office of such Lender as such Lender may from time to time
specify to the other parties hereto.
``Lien'' means any lien, mortgage, pledge,
assignment, security interest, charge or encumbrance of
any kind (including any conditional sale or other title
retention agreement, any lease in the nature thereof, and
any agreement to give any security interest) and any
option, trust or other preferential arrangement having the
practical effect of any of the foregoing.
``Loan Documents'' means (i) this Agreement, (ii) the
Note, (iii) the Collateral Documents and any other
documents or instruments entered into by one or more
Borrowers with or for the benefit of Lender pursuant to
the terms hereof.
``Loans'' means collectively the Borrowing Base Loans
and the Overadvance Loans.
``Local Depository Accounts'' means the Local
Depository Accounts (as defined on Schedule 5.16) and any
additional accounts or replacements for such accounts
approved by Lender in a writing designating such
account(s) as Local Depository Accounts.
``Margin Stock'' has the meaning assigned to that
term in Regulation U of the Board of Governors of the
Federal Reserve System as in effect from time to time.
<PAGE> 16
``Material Adverse Effect'' means (i) a material
adverse effect upon the business, operations, properties,
assets, financial condition or prospects of any Borrower
or (ii) the material impairment of any of the Collateral
or (iii) the impairment of the ability of any Borrower to
perform any of its material obligations under the Loan
Documents, or of Lender to enforce, the Obligations.
``Material Contract'' means any contract or other
arrangement to which any Borrower or any of its
Subsidiaries is a party (other than the Loan Documents)
for which breach, nonperformance, cancellation or failure
to renew could have a Material Adverse Effect.
``Mortgaged Properties'' means the real property
owned or leased by Borrowers described on Schedule 1.1B
and all improvements now or hereafter located thereon.
``Mortgages'' means, any mortgage or deed of trust or
similar security document executed, acknowledged and
delivered from time to time by any Borrower to Lender
pursuant to this Agreement or any Collateral Document
which encumbers the fee or leasehold interest of any
Borrower in real property.
``Multiemployer Plan'' means an Employee Benefit Plan
that is a ``multiemployer plan'', as defined in Section
3(37) of ERISA.
``Net Amount of Approved Nondomestic Accounts'' shall
mean the gross amount of Accounts of Account Debtors that
are not residents of the United States but that would
constitute Eligible Accounts if the Account Debtor were a
resident of the United States and that have been approved
by Lender on a customer-by-customer basis, in Lender's
sole discretion.
``Net Amount of Eligible Accounts'' shall mean the
gross amount of Eligible Accounts less returns, discounts,
claims, credits and allowances of any nature at any time
issued, owing, granted, outstanding, available or claimed.
``Net Asset Sale Proceeds'' means, with respect to
any Asset Sale, Cash payments (including any Cash received
by way of deferred payment pursuant to, or by monetization
of, a note receivable or otherwise, but only as and when
so received) received from such Asset Sale, net of any
bona fide direct costs incurred in connection with such
Asset Sale, including income taxes reasonably estimated to
be actually payable within two years of the date of such
Asset Sale as a result of any gain recognized in
connection with such Asset Sale.
``Net Insurance/Condemnation Proceeds'' means any
Cash payments or proceeds received by any Borrower or any
of their Subsidiaries (i) under any business interruption
or casualty insurance policy in respect of a covered loss
thereunder or (ii) as a result of the taking of any assets
of any Borrower or any of its Subsidiaries by any Person
pursuant to the power of eminent domain, condemnation or
otherwise, or pursuant to a sale of any such assets to a
purchaser with such power under threat of such a taking,
in each case net of any actual and reasonable documented
costs incurred by any Borrower or any of its Subsidiaries
in connection with the adjustment or settlement of any
claims of such Borrower or such Subsidiary in respect
thereof.
<PAGE> 17
``Note'' means the promissory note of Borrowers
issued pursuant to subsection 2.1D on the Closing Date,
together with any replacements or substitutions therefor,
in each case substantially in the form of Exhibit VI
annexed hereto.
``Notice of Borrowing'' means a notice substantially
in the form of Exhibit VII annexed hereto delivered by any
Borrower to Lender pursuant to subsection 2.1C with
respect to a proposed borrowing.
``Obligations'' means all obligations of every nature
of Borrowers from time to time owed to Lender or to be
performed under the Loan Documents, whether for principal,
interest, fees, expenses, indemnification or otherwise,
including all Secured Obligations as defined in the
Pledge and Security Agreement.
``Officer's Certificate'' means, as applied to any
corporation, a certificate executed on behalf of such
corporation by any of its chairman of the board (if an
officer), president, one of its senior vice presidents or
chief financial officer or its vice president treasurer or
assistant treasurer or secretary (if in each case such
officer is also a senior officer of a Borrower); provided
that every Officer's Certificate with respect to the
compliance with a condition precedent to the making of any
Loans hereunder shall include (i) a statement that the
officer making or giving such Officer's Certificate has
read such condition and any definitions or other
provisions contained in this Agreement relating thereto,
(ii) a statement that, to the best knowledge of the
signer, such officer has made or has caused to be made
such examination or investigation as is reasonably
necessary to enable such officer to express an informed
opinion as to whether or not such condition has been
complied with, and (iii) a statement as to whether, to the
best knowledge of the signer, such condition has been
complied with in all material respects; and provided,
further, that each Officer's Certificate from a Borrower
executed after the Closing Date shall also be
signed by the Crisis Manager unless otherwise agreed to by
Lender.
``Operating Lease'' means, as applied to any Person,
any lease (including, without limitation, leases that may
be terminated by the lessee at any time) of any property
(whether real, personal or mixed) that is not a Capital
Lease other than any such lease under which that Person
is the lessor.
``Overadvance Loan Commitment'' means the commitment
of Lender to make Overadvance Loans to Borrowers pursuant
to subsection 2.1B. Such commitment shall be an aggregate
amount initially equal to $20,000,000 and shall be reduced
from time to time by the amount of any reductions thereto
pursuant to subsections 2.1B, 2.4A(ii) or 2.4A(iii).
<PAGE> 18
``Overadvance Loans'' means the Overadvance Loans
made by Lender to Borrower pursuant to subsection 2.1B.
``PBGC'' means the Pension Benefit Guaranty
Corporation (or any successor thereto).
``Pension Plan'' means any Employee Benefit Plan,
other than a Multiemployer Plan, which is subject to
Section 412 of the Internal Revenue Code or Section 302 of
ERISA.
``Permitted Encumbrances'' means the following types
of Liens (other than any such Lien imposed pursuant to
Section 401(a)(29) or 412(n) of the Internal Revenue Code
or by ERISA):
(i) Liens for taxes, assessments or
governmental charges or claims the payment of which is
not, at the time, required by subsection 6.3;
(ii) Liens of carriers, warehousemen, mechanics
and materialmen and other Liens imposed by law incurred in
the ordinary course of business for sums not yet
delinquent or being contested in good faith, if such
reserve or other appropriate provision, if any, as shall
be required by GAAP shall have been made therefor;
(iii) Liens incurred or deposits made in the
ordinary course of business in connection with workers'
compensation, unemployment insurance and other types of
social security, or to secure the performance of tenders,
statutory obligations, surety and appeal bonds, bids,
leases, government contracts, trade contracts, performance
and return-of-money bonds and other similar obligations
(exclusive of obligations for the payment of borrowed
money);
(iv) any attachment or judgment Lien not
constituting an Event of Default under subsection 8.6;
(v) leases or subleases granted to others not
interfering in any material respect with the ordinary
conduct of the business of Borrowers or any of their
Subsidiaries;
(vi) easements, rights-of-way, restrictions,
minor defects, encroachments or irregularities in title
and other similar charges or encumbrances not interfering
in any material respect with the ordinary conduct of the
business of Borrowers or any of their Subsidiaries;
(vii) any (a) interest or title of a lessor
or sublessor under any lease permitted by subsection 7.9,
(b) restriction or encumbrance that the interest or title
of such lessor or sublessor may be subject to, or (c)
subordination of the interest of the lessee or sublessee
under such lease to any restriction or encumbrance
referred to in the preceding clause (b);
<PAGE> 19
(viii) Liens arising from filing UCC
financing statements relating solely to leases permitted
by this Agreement; and
(ix) Liens in favor of customs and revenue
authorities arising as a matter of law to secure payment
of customs duties in connection with the importation of
goods.
``Permitted Payments'' has the meaning assigned to
that term in subsection 2.5.
``Person'' means and includes natural persons,
corporations, limited partnerships, general
partnerships, joint stock companies, Joint Ventures,
associations, companies, trusts, banks, trust
companies, land trusts, business trusts or other
organizations, whether or not legal entities, and
governments and agencies and political subdivisions
thereof.
``Petition Date'' means October 7, 1996.
``Pledge and Security Agreement'' shall mean the
Pledge and Security Agreement, in substantially the form
of Exhibit VIII annexed hereto entered into between Lender
and the Borrowers.
``Potential Event of Default'' means a condition or
event that, after notice or lapse of time or both, would
constitute an Event of Default.
``Prepetition Indebtedness'' means Indebtedness of
any Borrower or any of its Subsidiaries incurred prior to
the commencement of the Chapter 11 cases and outstanding
on the Petition Date.
``Receipts'' shall mean all Cash, Cash Equivalents,
checks, notes, drafts and any items of payment or
collection received, by or on behalf of any Borrower or
any of its Subsidiaries, or by any officers, employees or
agents of any Borrower or any of its Subsidiaries or other
Persons acting for or in concert with such Borrower or
such Subsidiary to make collections on such Borrower's or
such Subsidiary's behalf in connection with or in any way
relating to Borrower or such Subsidiary or the operation
of such Borrower's or such Subsidiary's business,
including, without limitation, any proceeds received from
(i) any sales of, or loans against, Accounts of any
Borrower or any of its Subsidiaries (other than the Loans
pursuant to this Agreement), (ii) any disposition of
assets or issuance or sale of stock or equity securities
by any Borrower or any of its Subsidiaries, (iii) the
issuance or sale of Indebtedness by any Borrower or any of
its Subsidiaries (other than the Obligations and other
Indebtedness permitted by this Agreement), (iv) insurance
policies (other than liability insurance payable directly
or indirectly to a third party) maintained by any Borrower
or any of its Subsidiaries, whether or not Lender is an
additional insured or named as loss payee thereunder and
(v) the successful prosecution (including any settlement)
of any claims, actions or other litigation or proceeding
by or on behalf of or against any Borrower or any of its
Subsidiaries; it being understood and agreed that nothing
contained in this definition shall in any respect be
deemed to permit any transactions by any Borrower or any
of its Subsidiaries otherwise restricted or prohibited by
this Agreement.
<PAGE> 20
``Release'' means any release, spill, emission,
leaking, pumping, pouring, injection, escaping, deposit,
disposal, discharge, dispersal, dumping, leaching or
migration of Hazardous Materials into the indoor or
outdoor environment (including, without limitation, the
abandonment or disposal of any barrels, containers or
other closed receptacles containing any Hazardous
Materials), or into or out of any Facility, including the
movement of any Hazardous Material through the air, soil,
surface water, groundwater or property.
``Restricted Junior Payment'' means (i) any dividend
or other distribution, direct or indirect, on account of
any shares of any class of stock of any Borrower now or
hereafter outstanding, except (x) a cash dividend from a
wholly-owned Subsidiary of a Borrower to a Borrower and
(y) a dividend payable solely in shares of stock to the
holders of such shares if such shares are pledged to
Lender under the Collateral Documents, (ii) any
redemption, retirement, sinking fund or similar payment,
purchase or other acquisition for value, direct or
indirect, of any shares of any class of stock of any
Borrower now or hereafter outstanding, (iii) any payment
made to retire, or to obtain the surrender of, any
outstanding warrants, options or other rights to acquire
shares of any class of stock of any Borrower now or
hereafter outstanding, and (iv) any Investment other than
an Investment permitted pursuant to subsection 7.3.
``Securities'' means any stock, shares, partnership
interests, voting trust certificates, certificates of
interest or participation in any profit-sharing agreement
or arrangement, options, warrants, bonds, debentures,
notes, or other evidences of indebtedness, secured or
unsecured, convertible, subordinated or otherwise, or in
general any instruments commonly known as ``securities''
or any certificates of interest, shares or participations
in temporary or interim certificates for the purchase or
acquisition of, or any right to subscribe to, purchase or
acquire, any of the foregoing.
``Securities Act'' means the Securities Act of 1933,
as amended from time to time, and any successor statute.
``Senior Notes'' means the 14.75% Senior Secured
Notes of FTC due 2002 issued pursuant to the Existing
Indenture.
``Subsidiary'' means, with respect to any Person, any
corporation, partnership, association, joint venture or
other business entity of which more than 50% of the total
voting power of shares of stock or other ownership
interests entitled (without regard to the occurrence
of any contingency) to vote in the election of the Person
or Persons (whether directors, managers, trustees or other
Persons performing similar functions) having the power to
direct or cause the direction of the management and
policies thereof is at the time owned or controlled,
directly or indirectly, by that Person or one or more of
the other Subsidiaries of that Person or a combination
thereof.
<PAGE> 21
``Sweep Accounts'' means the Concentration Account,
the Lockbox Accounts, the Corporate Depository Account and
the International Depository Account (each as defined in
Schedule 5.16 hereof) and any additional account(s) or
replacement(s) for such accounts approved by Lender in a
writing designating such account(s) as Sweep Accounts.
``Tax'' or ``Taxes'' means any present or future tax,
levy, impost, duty, charge, fee, deduction or withholding
of any nature and whatever called, by any federal, state
or local governmental authority or any political
subdivision or taxing authority thereof, on whomsoever
and wherever imposed, levied, collected, withheld or
assessed; provided that ``Tax on the overall net income''
of a Person shall be construed as a reference to a tax
imposed by the jurisdiction in which that Person's
principal office (and/or, in the case of Lender, its
Lending Office) is located or by any political subdivision
or taxing authority thereof or in which that Person is
deemed to be doing business on all or part of the net
income, profits or gains of that Person (whether
worldwide, or only insofar as such income, profits or
gains are considered to arise in or to relate to a
particular jurisdiction, or otherwise).
``Type'' means, (i) with respect to Loans, the Type
of Loans advanced, which shall be either Borrowing Base
Loans or Overadvance Loans and (ii) with respect to the
Commitments, the Type of Commitment, which shall be either
the Borrowing Base Loan Commitment or the Overadvance Loan
Commitment.
``UCC'' shall mean the Uniform Commercial Code of the
jurisdiction with respect to which such term is used, as
in effect from time to time.
1.2 Accounting Terms; Utilization of GAAP for Purposes of
Calculations Under Agreement.
Except as otherwise expressly provided in this
Agreement, all accounting terms not otherwise defined
herein shall have the meanings assigned to them in
conformity with GAAP. Financial statements and other
information required to be delivered by Borrowers to
Lender pursuant to clauses (i), (ii), (iii) and (xiii) of
subsection 6.1 shall be prepared in accordance with
GAAP as in effect at the time of such preparation (and
delivered together with the reconciliation statements
provided for in subsection 6.1(v)). Calculations in
connection with the definitions, covenants and other
provisions of this Agreement shall utilize accounting
principles and policies in conformity with those used to
prepare the financial statements referred to in subsection
5.3. If any changes in accounting principles from those
used in the preparation of the financial statements
referred to in subsection 5.3 are hereafter required or
permitted by the rules, regulations, pronouncements and
opinions of the Financial Accounting Standards Board or
the American Institute of Certified Public Accountants (or
successors thereto or agencies with similar functions) and
are adopted by Borrowers with the agreement of its
independent certified public accountants and such changes
result in a change of the components of the calculation of
any of the definitions, covenants or other provisions
referred to in the immediately preceding sentence,
Borrowers, and Lender agree to enter into negotiations in
order to amend such provisions so as to equitably reflect
such changes with the desired result that the criteria for
evaluating financial condition of FTC and its Subsidiaries
shall be the same after such changes as if such changes
had not been made; provided, however, that no change in
GAAP that would affect the components of the calculation
of any of such definitions, covenants or other provisions
shall be given effect in such calculations until such
provisions are amended, in a manner satisfactory Lender,
to reflect such change in accounting principles.
<PAGE> 22
1.3 Other Definitional Provisions.
For purposes of this Agreement and the other Loan
Documents, the following additional rules of construction
shall apply: (a) wherever from the context it appears
appropriate, each term stated in either the singular or
plural shall include the singular and the plural, and
pronouns stated in the masculine, feminine or neuter
gender shall include the masculine, the feminine and the
neuter; (b) the term ``including'' shall not be limiting
or exclusive; (c) all references to statutes and related
regulations shall include any amendments of same and any
successor statutes and regulations; (d) all references to
any instruments or agreements, including references to any
of the Loan Documents, shall include any and all
modifications or amendments thereto and any and all
extensions or renewals thereof; and (e) all references to
``Sections'' or ``subsections'' in a Loan Document shall
be to Sections or subsections of such Loan Document unless
otherwise specifically provided.
SECTION 2
AMOUNTS AND TERMS OF COMMITMENTS AND LOANS
2.1 Commitments; Loans; Notes.
A. Commitment to Make Borrowing Base Loans.
Subject to the terms and conditions of this Agreement and
in reliance upon the representations and warranties of
each Borrower herein set forth, Lender hereby agrees,
subject to the limitations set forth below with respect to
the maximum amount of Borrowing Base Loans permitted to be
outstanding from time to time, to lend to Borrowers, as
joint and several obligors, from time to time during the
period from the Closing Date to but excluding the
Commitment Termination Date an aggregate amount
not exceeding the amount of the Borrowing Base Loan
Commitment to be used for the purposes identified in
subsection 2.5A. The original amount of the Borrowing
Base Loan Commitment is $35,000,000; provided that the
amount of the Borrowing Base Loan Commitment shall be
reduced from time to time by the amount of any reductions
thereto made pursuant to subsections 2.4A(ii) or
2.4A(iii). Lender's Borrowing Base Loan Commitment shall
expire on the Commitment Termination Date and all
Borrowing Base Loans and all other Obligations shall be
paid in full no later than that date; provided that
Lender's Borrowing Base Loan Commitment shall expire
immediately and without further action (i) on October 10,
1996 if the initial Loans are not made on or before that
date and (ii) on October 25, 1996 if the Final Borrowing
Order is not entered on or before that date. Amounts
borrowed under this subsection 2.1A may be repaid and
reborrowed to but excluding the Commitment Termination
Date. Borrowers shall be jointly and severally liable
with respect to the obligations under the Borrowing Base
Loans and with respect to all other Obligations.
<PAGE> 23
Anything contained in this Agreement to the contrary
notwithstanding, in no event shall (i) the aggregate
principal amount of the Borrowing Base Loans at any time
outstanding exceed the lesser of (x) the Borrowing Base
Loan Commitment and (y) the Borrowing Base, in each case
as then in effect or (ii) the principal amount of all
Borrowing Base Loans and Overadvance Loans then
outstanding exceed $35,000,000 in the aggregate prior to
the time that the Final Order shall have been entered.
B. Commitment to Make Overadvance Loans. Subject
to the terms and conditions of this Agreement and in
reliance upon the representations and warranties of each
Borrower herein set forth, Lender hereby agrees to lend to
Borrowers, as joint and several obligors, from time to
time during the period from the Closing Date to but
excluding the Commitment Termination Date an aggregate
amount not exceeding the amount of the Overadvance Loan
Commitment to be used for the purposes identified in
subsection 2.5A. The original amount of the Overadvance
Loan Commitment is $20,000,000; provided that the amount
of the Overadvance Loan Commitment shall be reduced from
time to time by the amount of any reductions thereto made
pursuant to subsections 2.4A(ii) or 2.4A(iii). Lender's
Overadvance Loan Commitment shall expire on the Commitment
Termination Date and all Overadvance Loans and all other
Obligations shall be paid in full no later than that date;
provided that Lender's Overadvance Loan Commitment shall
expire immediately and without further action (i) on
October 10, 1996 if the initial Loans are not made on or
before that date and (ii) on October 25, 1996 if the Final
Borrowing Order is not entered on or before that date.
Amounts borrowed under this subsection 2.1B may be repaid
and reborrowed to but excluding the Commitment Termination
Date. Borrowers shall be jointly and severally liable
with respect to the obligations under the Overadvance
Loans and with respect to all other Obligations.
C. Borrowing Mechanics.
(i) Each Loan shall be made on notice, given
not later than 11:00 A.M. (New York City time) one
Business Day prior to the proposed Funding Date, by the
applicable Borrower to Lender. Each such Notice of
Borrowing shall be by telex, telecopier or cable,
confirmed immediately in writing, specifying therein (i)
the identity of such Borrower, (ii) the proposed Funding
Date (which shall be a Business Day), (iii) whether such
Loans shall be Borrowing Base Loans or Overadvance Loans,
(iv) the aggregate amount of the applicable Type(s) of
proposed Loans, and (v) that after giving effect to the
proposed borrowing, (x) the Borrowing Base Loans
outstanding will not exceed the lesser of the Borrowing
Base Loan Commitment and the Borrowing Base, in each case
then in effect, (y) the Overadvance Loans will not exceed
the Overadvance Loan Commitment then in effect and (z) if
prior to the time that the Final Order has been entered,
the principal amount of the Overadvance Loans and the
Borrowing Base Loans then outstanding shall not exceed
$35,000,000 in the aggregate. Loans shall be in an
aggregate minimum amount of $500,000 and integral
multiples of $500,000 in excess of that amount.
<PAGE> 24
(ii) Borrowers shall notify Lender prior to the
funding of any Loans in the event that any of the matters
to which a Borrower is required to certify in the
applicable Notice of Borrowing is no longer true and
correct in any material respect as of the applicable
Funding Date, and the acceptance by such Borrower of the
proceeds of any Loans shall constitute a re-certification
by such Borrower, as of the applicable Funding Date, as to
the matters to which Borrower is required to certify in
the applicable Notice of Borrowing.
(iii) Each Notice of Borrowing shall be
irrevocable and binding on the Borrower requesting Loans
thereunder.
(iv) Upon fulfillment of the applicable
conditions set forth in Section 4, Lender shall, not later
than 2:00 P.M. (New York City time) on the proposed
Funding Date, make available to Borrower such Loan by
depositing or transferring same-day funds to the following
account of Borrowers:
IBJ Schroder Bank & Trust
Account No. 42081107
ABA No. 026007825
New York, New York
D. Note. Borrowers shall execute and deliver on
the Closing Date to Lender a Note substantially in the
form of Exhibit VII annexed hereto to evidence Lender's
Borrowing Base Loans and Overadvance Loans, in the
aggregate principal amount of $55,000,000 and with other
appropriate insertions.
2.2 Interest on the Loans.
A. Rate of Interest. Subject to the provisions of
subsections 2.2B, (i) each Borrowing Base Loan shall bear
interest on the unpaid principal amount thereof from the
date made through maturity (whether by acceleration or
otherwise) at a rate per annum equal at all times to the
Base Rate plus three and one-half percent (3-1/2%) per annum
and (ii) each Overadvance Loan shall bear interest on the
unpaid principal amount thereof from the date made through
maturity (whether by acceleration or otherwise) at a rate
per annum equal at all times to the Base Rate plus seven
and one-half percent (7-1/2%) per annum. Interest on the
Loans shall be payable in arrears (i) monthly through the
last day of each month on the first Business Day of the
next succeeding month; (ii) upon any prepayment of that
Loan (to the extent accrued on the amount being prepaid)
and (iii) on the Commitment Termination Date.
<PAGE> 25
B. Default Rate. Upon the occurrence and during
the continuation of any Potential Event of Default or
Event of Default, the outstanding principal amount of all
Loans and, to the extent permitted by applicable law, any
interest payments thereon not paid when due and any fees
and other amounts then due and payable hereunder, shall
thereafter bear interest payable upon demand at a rate
that is two percent (2%) per annum in excess of the
interest rate otherwise payable under this Agreement with
respect to such Loans; provided that if a Potential Event
of Default is cured prior to becoming an Event of Default,
Borrowers shall not be required to pay any default rate of
interest accrued as a result of such Potential Event of
Default. Payment or acceptance of the increased rates of
interest provided for in this subsection 2.2B is not a
permitted alternative to timely payment and shall not
constitute a waiver of any Event of Default or otherwise
prejudice or limit any rights or remedies of Lender.
C. Computation of Interest. Interest on the Loans
shall be computed on the basis of a 360-day year, in each
case for the actual number of days elapsed in the period
during which it accrues. In computing interest on any
Loan, the date of the making of such Loan shall be
included, and the date of payment of such Loan excluded;
provided that if a Loan is repaid on the same day on which
it is made, one day's interest shall be paid on that Loan.
2.3 Fees.
A. Facility Fee. Borrowers agree to pay to Lender
on the Closing Date a facility fee equal to three and
one-half percent (3-1/2%) of the maximum aggregate
Commitments.
B. Commitment Fees. Borrowers agree to pay to
Lender, commitment fees for the period from and including
the Closing Date to and excluding the Commitment
Termination Date equal to the sum of (a)(i) the average of
the daily excess of the Borrowing Base Loan Commitments
over the aggregate principal amount of the Borrowing Base
Loans outstanding multiplied by (ii) one-half percent (1/2%)
per annum plus (b)(i) the average daily excess of the
Overadvance Loan Commitments over the aggregate principal
amount of the Overadvance Loans outstanding multiplied by
(ii) one-half percent (1/2%) per annum, such commitment fees
to be calculated on the basis of a 360-day year and the
actual number of days elapsed and to be payable monthly in
arrears, on the first day of the next succeeding month,
commencing on the first such date to occur after the
Closing Date, and on the Commitment Termination Date.
C. Administrative Fee. Borrowers agree to pay to
Lender a monthly administrative fee in the amount of
$15,000 for the first month after the Closing Date,
$12,000 for the second month after the Closing Date,
$10,000 for the third month after the Closing Date and
$5,000 per month thereafter, payable monthly in advance on
the Closing Date and on the first day of each month
thereafter.
<PAGE> 26
2.4 Prepayments and Reductions in Commitments; General
Provisions Regarding Payments.
A. Prepayments and Reductions in Commitments.
(i) Voluntary Prepayments. Borrowers may, upon
not less than three Business Day's prior written or
telephonic notice confirmed in writing to Lender, at any
time and from time to time prepay any Loans on any
Business Day in whole or in part in an aggregate minimum
amount of $1,000,000 and integral multiples of $1,000,000
in excess of that amount without premium or penalty. Such
notices of prepayment shall specify (i) the Type of Loans
to be prepaid, (ii) the principal amount of the proposed
repayment of the applicable Type(s) of Loans, and (iii)
the date of prepayment (which shall be a Business Day).
Notice of prepayment having been given as aforesaid, the
principal amount of the applicable Type of Loans specified
in such notice shall become due and payable on the
prepayment date specified therein.
(ii) Voluntary Reductions of Commitments.
Borrowers may, upon not less than three Business Days'
prior written or telephonic notice confirmed in writing to
Lender at any time and from time to time terminate in
whole or permanently reduce in part, without premium or
penalty, (i) the Borrowing Base Loan Commitment in an
amount up to the amount by which the Borrowing Base Loan
Commitment exceeds the principal amount of the Borrowing
Base Loans outstanding at the time of such proposed
termination or reduction and/or (ii) the Overadvance Loan
Commitment in an amount up to the amount by which the
Overadvance Loan Commitment exceeds the principal amount
of the Overadvance Loans outstanding at the time of such
proposed termination or reduction; provided that any such
partial reduction of the Commitments shall be in an
aggregate minimum amount of $1,000,000 and integral
multiples of $1,000,000 in excess of that amount; and
provided further that, the aggregate Commitments shall not
be reduced to less than $20,000,000 pursuant to this
subsection 2.4A(ii) except pursuant to a termination in
whole of the Commitments. Borrowers' notice to Lender
shall designate (i) the date (which shall be a Business
Day) of such termination or reduction, (ii) the Type(s) of
Commitment(s) to which each reduction applies and (iii)
the amount of any partial reduction of the applicable
Type(s) of Commitments, and such termination or reduction
of the Commitments shall be effective on the date
specified in Borrowers' notice.
(iii) Mandatory Prepayments and Reductions
of Commitments.
(a) Prepayments from the Sweep Accounts.
Borrowers hereby irrevocably authorize Lender to apply or
direct the application, as applicable, of all available
funds on deposit in the Sweep Accounts to the prepayment
of Loans then outstanding on a daily basis, in accordance
with subsection 6.10 B. Subject to subsection
2.4A(iii)(c) below, any prepayment of the Loans pursuant
to this clause (a) shall be applied first, to repay
Overadvance Loans to the full extent thereof and,
thereafter, to repay Borrowing Base Loans to the full
extent thereof. Borrowers acknowledge that amounts applied
pursuant to this subsection 2.4A(iii) will include only
amounts actually transferred to Lender from the Sweep
Accounts.
<PAGE> 27
(b) Prepayments Due to Reductions or
Restrictions of Commitments. Borrowers shall from time to
time prepay (i) the Borrowing Base Loans to the extent
necessary so that the principal amount of Borrowing Base
Loans outstanding shall not at any time exceed the lesser
of (x) the Borrowing Base Loan Commitment and (y) the
Borrowing Base, in each case then in effect and (ii) the
Overadvance Loans to the extent necessary so that (x) the
principal amount of the Overadvance Loans outstanding
shall not at any time exceed the Overadvance Loan
Commitment then in effect and (y) the principal amount of
Borrowing Base Loans and Overadvance Loans outstanding
shall not exceed $35,000,000 in the aggregate at any time
prior to the time when their Final Order shall have been
entered.
(c) Prepayments and Commitment Reductions
From Net Asset Sale Proceeds and Net
Insurance/Condemnation Proceeds. No later than the first
Business Day following the date of receipt by Borrowers or
any of their Subsidiaries of any Net Asset Sale Proceeds
in respect of any Asset Sale, Borrowers shall prepay the
Loans in an aggregate amount equal to such Net Asset Sale
Proceeds. No later than the first Business Day following
the date of receipt by Lender or by a Borrower or any of
its Subsidiaries of any Net Insurance/Condemnation
Proceeds, Borrowers shall prepay the Loans in an aggregate
amount equal to the amount of such Net
Isurance/Condemnation Proceeds. Concurrently with any
prepayment of the Loans pursuant to this subsection
2.4A(iii)(c), FTC shall deliver to Lender an Officers'
Certificate demonstrating the calculation of the amount
(the ``Net Proceeds Amount'') of the applicable Net Asset
Sale Proceeds or Net Insurance/Condemnation Proceeds, as
the case may be, that gave rise to such prepayment. In
the event that FTC shall subsequently determine that the
actual Net Proceeds Amount was greater than the amount set
forth in such Officers' Certificate, FTC shall promptly
make an additional prepayment of the Loans (and the
Commitments shall be reduced) in an amount equal to the
amount of such excess, and FTC shall concurrently
therewith deliver to Lender an Officers' Certificate
demonstrating the derivation of the additional Net
Proceeds Amount resulting in such excess. Any prepayments
pursuant to this subsection 2.4A(iii)(c) shall be applied
(i) first, to prepay Borrowing Base Loans in an amount
equal to the amount, if any, by which the Borrowing Base
has been reduced as a result of the disposition of assets
or the casualty or condemnation event giving rise to such
prepayment, (ii) second, to prepay Overadvance Loans then
outstanding to the full extent thereof and, (iii)
thereafter, to prepay remaining Borrowing Base Loans then
outstanding. On the date of any such required prepayment,
the Commitments shall be permanently reduced by the Net
Proceeds Amount with such reduction to apply, (i) first,
to reduce the Borrowing Base Loan Commitment then in
effect up to an amount equal to the amount, if any, by
which the Borrowing Base has been reduced as a result of
the disposition of assets or casualty or condemnation
event giving rise to such proceeds but not to exceed the
Net Proceeds Amount, (ii) second, to reduce the
Overadvance Loan Commitment then in effect in an amount
up to the portion of the Net Proceeds Amount not applied
pursuant to clause (i), and (iii) thereafter, to reduce
the Borrowing Base Loan Commitments in an amount up to the
portion of the Net Proceeds Amount not applied pursuant to
clauses (i) and (ii).
<PAGE> 28
B. General Provisions Regarding Payments.
(i) Manner and Time of Payment. All payments
by Borrowers of principal, interest, fees and other
Obligations hereunder and under the Notes shall be made in
same day funds and without defense, setoff or
counterclaim, free of any restriction or condition,
and delivered to the account of Lender specified below not
later than 12:00 P.M. (New York time) on the date due;
funds received by Lender after that time on such due date
shall be deemed to have been paid by the applicable
Borrower on the next succeeding Business Day. Borrowers
shall make all payments to Lender to the following account
(or such other account(s) as Lender may specify from time
to time by written notice to Borrowers):
The Chase Manhattan Bank, N.A.
ABA No.: 021-000-021
Account No.: 031-1-191-688
Account Name: Madeline, L.L.C.
Contact: Michael Hisler (212) 421-2600
(ii) Application of Payments to Principal and
Interest. All payments in respect of the principal amount
of any Loan (other than pursuant to subsection 2.4A(iii))
shall include payment of accrued interest on the principal
amount being repaid or prepaid, and all such payments
shall be applied to the payment of interest before
application to principal.
(iii) Payments on Business Days. Whenever
any payment to be made hereunder shall be stated to be due
on a day that is not a Business Day, such payment shall be
made on the next succeeding Business Day and such
extension of time shall be included in the computation of
the payment of interest hereunder or of the commitment
fees hereunder, as the case may be.
(iv) Notation of Payment. Lender agrees that
before disposing of the Note held by it, or any part
thereof (other than by granting participations therein),
Lender will make a notation thereon (or on attachments
thereto) of all Loans evidenced by that Note and all
principal payments previously made thereon and of the date
to which interest thereon has been paid; provided that the
failure to make (or any error in the making of) a notation
of any Loan made under such Note shall not limit or
otherwise affect the obligations of any Borrower hereunder
or under such Note with respect to any Loan or any
payments of principal or interest on such Note.
<PAGE> 29
2.5 Use of Proceeds.
A. Loans. The proceeds of the initial Loans in an
amount not to exceed $28,500,000 shall be applied by
Borrowers to repay all obligations and terminate all
commitments in respect of the Existing Working Capital
Facilities (and to cash collateralize Existing Letters of
Credit to the extent permitted by subsection 7.2(iv) to
the extent such payments are permitted by an applicable
order of the Court. Any excess proceeds of the initial
Loans and the proceeds of any subsequent Loans shall be
applied by Borrowers for working capital and general
corporate purposes including payments to or for the
account of Lender hereunder, in each case to the extent
such payments (other than any payments to or for the
account of Lender hereunder) are (i) permitted by an
applicable order of the Court and (ii) (x) made in the
ordinary course of business, (y) approved by the Crisis
Manager, if in excess of $1,000,000, and (z) made in
accordance with an Approved Budget, provided that up to
$100,000 in the aggregate through the Commitment
Termination Date may be used for disbursements which are
not part of an Approved Budget. Any payments permitted
under this Section 2.5A are referred to as "Permitted
Payments". Notwithstanding anything set forth in this
Subsection 2.5A to the contrary, neither payments on
Prepetition Indebtedness (other than the repayment of the
Existing Working Capital Facilities) nor payments on any
other pre-petition claims or obligations shall constitute
Permitted Payments hereunder, provided that payments for
prepetition claims other than Prepetition Indebtedness in
an aggregate amount not to exceed $9,400,000 (including
$4,500,000 on account of accruals relating to prepetition
customer warranty claims and prepetition employee
vacations) shall constitute Permitted Payments to the
extent otherwise satisfying the requirements set forth in
the second sentence of this subsection 2.5A.
B. Margin Regulations. No portion of the proceeds
of any borrowing under this Agreement shall be used by any
Borrower in any manner that might cause the borrowing or
the application of such proceeds to violate Regulation G,
Regulation U, Regulation T or Regulation X of the Board of
Governors of the Federal Reserve System or any other
regulation of such Board or to violate the Exchange Act,
in each case as in effect on the date or dates of such
borrowing and such use of proceeds.
2.6 Increased Costs; Taxes; Capital Adequacy.
A. Compensation for Increased Costs and Taxes.
Subject to the provisions of subsection 2.6B, in the event
that Lender shall determine (which determination shall,
absent manifest error, be final and conclusive and binding
upon all parties hereto) that any change after the date
hereof in any law, treaty or governmental rule, regulation
or order, or in the interpretation, administration or
application thereof (including the introduction of any new
law, treaty or governmental rule, regulation or order), or
any determination of a court or governmental authority, in
each case that becomes effective after the date hereof, or
compliance by Lender with any guideline, request or
directive issued or made after the date hereof by any
central bank or other governmental or quasi-governmental
authority (whether or not having the force of law):
<PAGE> 30
(i) subjects Lender (or its applicable lending
office) to any additional Tax (other than any Tax on the
overall net income of such Lender) with respect to this
Agreement or any of its obligations hereunder or any
payments to Lender (or its applicable lending office) of
principal, interest, fees or any other amount payable
hereunder;
(ii) imposes, modifies or holds applicable any
reserve (including without limitation any marginal,
emergency, supplemental, special or other reserve),
special deposit, compulsory loan, FDIC insurance or
similar requirement against assets held by, or deposits or
other liabilities in or for the account of, or advances or
loans by, or other credit extended by, or any other
acquisition of funds by, the applicable lending office of
Lender; or
(iii) imposes any other condition (other
than with respect to a Tax matter) on or affecting Lender
(or its applicable lending office) or its obligations
hereunder;
and the result of any of the foregoing is to increase the
cost to Lender of agreeing to make, making or maintaining
Loans hereunder or to reduce any amount received or
receivable by Lender (or its applicable lending office)
with respect thereto; then, in any such case, Borrowers
shall promptly pay to Lender, upon receipt of the
statement referred to in the next sentence, such
additional amount or amounts (in the form of an increased
rate of, or a different method of calculating, interest or
otherwise as such Lender in its sole discretion shall
determine) as may be necessary to compensate Lender for
any such increased cost or reduction in amounts received
or receivable hereunder. Lender shall deliver to
Borrowers a written statement, setting forth in reasonable
detail the basis for calculating the additional amounts
owed to Lender under this subsection 2.6A, which statement
shall be conclusive and binding upon all parties hereto
absent manifest error.
B. Withholding of Taxes.
(i) Payments to Be Free and Clear. All sums
payable by Borrowers under this Agreement and the other
Loan Documents shall be paid free and clear of and (except
to the extent required by law) without any deduction or
withholding on account of any Tax (other than a Tax on the
overall net income of Lender (for which payment need not
be free and clear but no deduction or withholding shall be
made unless required under applicable law)) imposed,
levied, collected, withheld or assessed by or within the
United States of America or any political subdivision in
or of the United States of America or any other
jurisdiction from or to which a payment is made by or on
behalf of Borrowers or by any federation or organization
of which the United States of America or any such
jurisdiction is a member at the time of payment.
<PAGE> 31
(ii) Grossing-up of Payments. If any Borrower
or any other Person is required by law to make any
deduction or withholding on account of any such Tax from
any sum paid or payable by such Borrower to Lender under
any of the Loan Documents:
(a) such Borrower shall notify Lender of
any such requirement or any change in any such requirement
as soon as such Borrower becomes aware of it;
(b) such Borrower shall pay any such Tax
before the date on which penalties attach thereto, such
payment to be made (if the liability to pay is imposed
on such Borrower) for its own account or (if that
liability is imposed on Lender) on behalf of and in the
name of Lender;
(c) the sum payable by such Borrower to
Lender in respect of which the relevant deduction,
withholding or payment is required shall be increased to
the extent necessary to ensure that, after the making of
that deduction, withholding or payment, Lender receives on
the due date a net sum equal to what it would have
received had no such deduction, withholding or payment
been required or made; and
(d) within 30 days after paying any sum
from which it is required by law to make any deduction or
withholding, and within 30 days after the due date of
payment of any Tax which it is required by clause (b)
above to pay, such Borrower shall deliver to Lender
evidence satisfactory to the other affected parties of
such deduction, withholding or payment and of the
remittance thereof to the relevant taxing or other
authority;
provided that no such additional amount shall be
required to be paid to Lender under clause (c) above
except to the extent that any change after the date hereof
in any such requirement for a deduction, withholding or
payment as is mentioned therein shall result in an
increase in the rate of such deduction, withholding or
payment from that in effect at the date of this Agreement
in respect of payments to Lender.
C. Capital Adequacy Adjustment. If Lender shall
have determined that the adoption, effectiveness, phase-in
or applicability of any law, rule or regulation (or any
provision hereof) regarding capital adequacy, or any
change therein or in the interpretation or administration
thereof, in each case after the date hereof, by any
governmental authority, central bank or comparable agency
charged with the interpretation or administration thereof,
or compliance by Lender (or its applicable lending office)
with any guideline, request or directive regarding capital
adequacy (whether or not having the force of law) of any
such governmental authority, central bank or comparable
agency, has or would have the effect of reducing the rate
of return on the capital of Lender or any corporation
controlling Lender as a consequence of, or with reference
to, Lender's Loans or Commitments or participations
therein or other obligations hereunder with respect to the
Loans to a level below that which Lender or such
controlling corporation could have achieved but for such
adoption, effectiveness, phase-in, applicability, change
or compliance, then from time to time, within five
Business Days after receipt by any Borrower from Lender of
the statement referred to in the next sentence, Borrowers
shall pay to Lender such additional amount or amounts as
will compensate Lender or such controlling corporation on
an after-tax basis for such reduction. Lender shall
deliver to Borrowers a written statement, setting forth in
reasonable detail the basis of the calculation of such
additional amounts, which statement shall be conclusive
and binding upon all parties hereto absent manifest error.
<PAGE> 32
2.7 Obligation of Lender to Mitigate.
Lender agrees that, as promptly as practicable after
the officer of Lender responsible for administering the
Loans becomes aware of the occurrence of an event or the
existence of a condition that would entitle Lender to
receive payments under subsection 2.6, it will, to the
extent not inconsistent with any applicable legal or
regulatory restrictions, use reasonable efforts (i) to
make, issue, fund or maintain the Commitment of Lender or
the affected Loans of Lender through another lending
office of Lender, or (ii) take such other measures as
Lender may deem reasonable, if as a result thereof the
additional amounts which would otherwise be required to be
paid to Lender pursuant to subsection 2.6 would be
materially reduced and if, as determined by Lender
in its sole discretion, the making, issuing, funding or
maintaining of such Commitment or Loans through such other
lending office or in accordance with such other measures,
as the case may be, would not otherwise materially
adversely affect such Commitment or Loans or the interests
of Lender; provided that such Lender will not be obligated
to utilize such other lending office pursuant to this
subsection 2.7 unless Borrowers agree to pay all
incremental expenses incurred by Lender as a result of
utilizing such other lending office as described in clause
(i) above; provided further that such Lender shall not be
obligated to utilize such lending office if it determines
in its sole discretion that it is economically
disadvantageous to do so. A certificate as to the amount
of any such expenses payable by any Borrower pursuant to
this subsection 2.7 (setting forth in reasonable detail
the basis for requesting such amount) submitted by Lender
to such Borrower shall be conclusive absent manifest
error.
2.8 Superpriority Nature of Obligations and First
Priority Encumbrances.
All Obligations under the Loan Documents shall be
senior in right of payment and priority of distribution to
any other obligation of Borrowers and constitute allowed
administrative expense claims against Borrowers in the
Chapter 11 Cases with priority under Section 364(c)(1) of
the Bankruptcy Code over any and all other administrative
expenses of the kind specified or ordered pursuant to any
provision of the Bankruptcy Code, including, but not
limited to, Sections 105, 326, 328, 503(b), 506(c),
507(a), 507(b) and 726 of the Bankruptcy Code; provided
that, upon the occurrence and during the continuance of an
Event of Default under this Agreement or the exercise by
Lender of its remedies after an Event of Default, such
claims shall be subject to the Carve-Out as set forth in
the Interim and Final Orders. The Liens granted to Lender
pursuant to the Collateral Documents shall be senior and
prior in all respects to all Liens at any time granted
to any Person, including without limitation any Lien
granted pursuant to the Existing Indenture or documents
executed in connection therewith; provided that, upon the
occurrence and during the continuance of an Event of
Default under this Agreement or the exercise by Lender of
its remedies after an Event of Default, such Liens shall
be subject to the Carve-Out and only such other claims as
are specifically set forth in the Interim and Final
Orders.
<PAGE> 33
2.9 Joint and Several Liability; Payment
Indemnifications.
(i) All Obligations of Borrowers under the Loan
Documents shall be the joint and several Obligations of
each Borrower. The Obligations of and the Liens granted
by any such Borrower under the Loan Documents shall not be
impaired or released by any action or inaction on the part
of Lender with respect to any other Borrower, including
any action or inaction which would otherwise release a
surety.
(ii) In order to provide for just and equitable
contribution between the Borrowers if any payment is made
by a Borrower (a ``Funding Borrower'') in discharging any
of the Obligations, that Funding Borrower shall be
entitled to a contribution from the other Borrowers for
all payments, damages and expenses incurred by that
Funding Borrower in discharging the Obligations, in the
manner and to the extent set forth in this Section 2.9(b).
Any amount payable as contribution under this Section
2.9(b) shall be determined as of the date on which the
related payment is made by a Funding Borrower. For
purposes of this Agreement, the Note and the other Loan
Documents, the ``Benefit Amount'' of a Borrower as of any
date of determination shall be the net value of the
benefits to such Borrower from the extensions of credit
under this Agreement or the other Loan Documents. A
Borrower shall be liable to a Funding Borrower in an
aggregate amount equal to (i) the ratio of (x) the Benefit
Amount of such Borrower to (y) the total amount of all
Benefit Amounts of all Borrowers multiplied by (ii)
the amount of Obligations paid by such Funding Borrower.
If and to the extent that a Funding Borrower makes any
payment to Lender or any other Person in respect of the
Obligations, any claim which said Funding Borrower may
have against the other Borrower by reason thereof shall be
subject and subordinate to the prior cash payment in full
of the Obligations. The parties hereto acknowledge that
the right to contribution hereunder shall constitute an
asset of the party to which such contribution is owing.
Notwithstanding any of the foregoing to the contrary, such
contribution arrangements shall not limit in any manner
the joint and several nature of the Obligations, limit,
release or otherwise impair any rights of Lender under the
Loan Documents, or alter, limit or impair the obligation
of each Borrower, which is absolute and unconditional, to
repay the Obligations.
<PAGE> 34
SECTION 3
[RESERVED]
SECTION 4
CONDITIONS TO LOANS
The obligations of Lender to make any Loans hereunder
are subject to the satisfaction of the following
conditions:
4.1 Conditions to Initial Loans.
The obligations of Lender to make the initial Loans
to be made hereunder are, in addition to the conditions
precedent specified in subsection 4.2, subject to the
prior or concurrent satisfaction of the following
conditions on or before the date of the initial borrowing
hereunder (the ``Initial Borrowing Date''):
A. Borrower Documents. On or before the Initial
Borrowing Date, each Borrower shall deliver or cause to be
delivered to Lender the following, each, unless otherwise
noted, dated the Initial Borrowing Date:
(i) Certified copies of its Certificate or
Articles of Incorporation, together with a good standing
certificate from the Secretary of State of the State of
its incorporation and each other state in which it is
qualified as a foreign corporation to do business, each
dated a recent date prior to the Initial Borrowing Date;
(ii) Copies of its Bylaws, certified as of the
Initial Borrowing Date by its corporate secretary or an
assistant secretary;
(iii) Resolutions of its Board of Directors
approving and authorizing the execution, delivery and
performance of this Agreement and the other Loan Documents
to which it is a party, certified as of the Initial
Borrowing Date by its corporate secretary or an assistant
secretary as being in full force and effect without
modification or amendment;
(iv) Signature and incumbency certificates of
its officers executing this Agreement and the other Loan
Documents;
(v) Originals of this Agreement and the Note
(duly executed by Borrowers in accordance with subsection
2.1D, drawn to the order of Lender and with appropriate
insertions) and the other Loan Documents; and
(vi) Such other documents as Lender may
reasonably request.
<PAGE> 35
B. Security Interests. Each Borrower shall have
taken or caused to be taken (and Lender shall have
received satisfactory evidence thereof) such actions in
such a manner so that Lender has a valid and perfected
first priority security interest as of such date in the
entire Collateral. Such actions shall include, without
limitation, (i) delivery of appropriate Lien, judgment and
tax searches as Lender shall request in all applicable
jurisdictions for the Borrowers in form and substance
satisfactory to Lender, (ii) delivery to Lender of all
instruments (duly endorsed where appropriate) evidencing
the Collateral, (iii) filing of Uniform Commercial Code
financing statements as to the Collateral for all
jurisdictions as Lender shall request as Lender may
deem desirable with respect to Lender's security interests
in the Collateral and (iv) delivery of all other evidence
reasonably satisfactory to Lender that all other filings,
recordings and other actions Lender deems necessary or
advisable to establish, preserve and perfect the first
priority Liens granted to Lender shall have been made or
provided for.
C. Cash Management System. The Cash Management
System shall be in place in form and substance
satisfactory to Lender.
D. Interim Order. The Interim Order authorizing
Loans to be made on the Initial Borrowing Date shall have
been entered by the Court and shall be in full force and
effect and shall not be modified or stayed.
E. Termination of Existing Working Capital
Facilities. Prior to or concurrently with the funding of
the initial Loans under this Agreement, Borrowers shall
repay all principal and interest on outstanding loans and
other obligations owed under or related to the Existing
Working Capital Facilities, including without limitation
all fees, expenses and other costs arising thereunder, and
shall terminate the obligation to lend or make other
extensions of credit under the provisions of the Existing
Working Capital Facilities; provided that Borrowers may
cash collateralize any Existing Letter of Credit not drawn
as of the Closing Date in accordance with subsection 2.5A
and Borrowers may remain liable with respect to Contingent
Obligations under such Existing Letters of Credit until
drawn to the extent fully cash collateralized.
Concurrently with such repayment, any Liens granted to
secure any obligations under or with respect to the
Existing Working Capital Facilities or the documents
delivered thereunder shall be released and terminated,
other than Liens on deposits securing obligations under
Existing Letters of Credit to the extent permitted by
subsection 7.2A(iv). All lenders (or an authorized agent
on their behalf) under the Existing Working Capital
Facilities shall have delivered written acknowledgements
of such terminations and releases in form and substance
satisfactory to Lender. All of the foregoing shall be
accomplished in form and substance satisfactory to Lender.
F. Existing Indebtedness. As of the Initial
Borrowing Date and after giving effect to the repayment
and termination of the Existing Working Capital Facilities
in accordance with the terms hereof, the aggregate
Indebtedness of FTC and its Subsidiaries (other than
Indebtedness in respect of the Obligations) shall not
exceed $69,000,000 (including approximately $5,000,000
of accrued but unpaid interest).
<PAGE> 36
G. Projections and Budgets. On or before the
Initial Borrowing Date, Lender shall have received, in
form and substance satisfactory to it, the financial plans
and cash budgets described in subsections 6.1(xiii) and
6.1(xv).
H. Borrowing Base. On or before the Initial
Borrowing Date, Lender shall have received a Borrowing
Base Certificate, certifying the Borrowing Base as of
September 30, 1996, in form and substance satisfactory to
Lender.
I. Opinions of Borrower's Counsel. Lender and its
counsel shall have received (i) originally executed copies
of one or more favorable written opinions of Jones, Day,
Reavis and Pogue, counsel for the Borrowers, in form and
substance satisfactory to Lender and its counsel, dated as
of the Initial Borrowing Date and setting forth
substantially the matters in the opinions designated in
Exhibit IX annexed hereto and as to such other matters as
Lender may reasonably request, and (ii) evidence
satisfactory to Lender that each Borrower has requested
each such counsel to deliver such opinions to Lender.
J. Management and Boards of Directors of Borrowers.
Borrowers shall have engaged Alvarez & Marsal as Crisis
Manager. The engagement of the Crisis Manager shall be
pursuant to an agreement in form and substance acceptable
to Lender, shall have been approved by the Bankruptcy
Court and shall provide that such Crisis Manager shall
have the full authority of a chief executive officer of
each Borrower to operate and manage the business except as
otherwise agreed to by Lender in its sole discretion. The
composition and compensation of the Board of Directors of
each Borrower shall be satisfactory to Lender in its sole
discretion.
K. Expenses. Borrowers shall have paid to Lender,
all reimbursable costs and expenses incurred under through
the Initial Borrowing Date in accordance with subsection
9.2.
L. Fees. Borrower shall have paid to Lender, the
fees payable on the Initial Borrowing Date referred to in
subsection 2.3.
M. No Material Adverse Effect. Since January 1,
1996, no Material Adverse Effect (in the sole opinion of
Lender) shall have occurred other than (i) as would
normally result from the filing of the Chapter 11 Cases,
(ii) as a result of general industry conditions, (iii) the
temporary, partial shut down of the Fort Madison and Scott
County facilities which commenced on September 23, 1996
and September 26, 1996, respectively or (iv) as disclosed
in the 10Q filing with the Securities and Exchange
Commission of FTC and its Subsidiaries for the fiscal
quarter ended June 30, 1996. Borrowers shall not have
shut down any Facilities other than as set forth in clause
(iii) of the preceding sentence and shall not have missed
or delayed payroll for any period immediately preceding
this Closing Date.
<PAGE> 37
N. Consent of Senior Noteholders. Lender shall
have received, in form and substance satisfactory to it,
the consent of the holders of a majority in amount of the
Senior Notes to the execution and delivery of the Loan
Documents by Borrowers and the performance by Borrowers of
their obligations under the Loan Documents, including the
creation of first priority perfected Liens in favor of
Lender in the Collateral and the repayment of the Existing
Working Capital Facilities and the Interim Order referred
to in subsection 4.1D above, shall contain findings and
decrees that all of the holders of the Senior Notes and
the trustee under the Existing Indenture have received
adequate notice (in the judgment of the Lender) of the
motion to approve this Agreement, the other Loan Documents
and the transactions contemplated hereby and thereby,
that neither such trustee nor any holder of Senior Notes
has objected to the entry of the Interim Order, and that
such consent together with such notice and absence of
objection is sufficient to bind the holders of all of the
Senior Notes.
O. Representations and Warranties; Performance of
Agreements. Borrowers shall have delivered to Lender an
Officer's Certificate, in form and substance satisfactory
to Lender, to the effect that the representations and
warranties in Section 5 hereof are true, correct and
complete in all material respects on and as of the Initial
Borrowing Date to the same extent as though made on and as
of that date and that each Borrower shall have performed
in all material respects all agreements and satisfied all
conditions which this Agreement provides shall be
performed or satisfied by it on or before the Initial
Borrowing Date except as otherwise disclosed to and agreed
to in writing by Lender.
P. Completion of Proceedings. All corporate and
other proceedings taken or to be taken in connection with
the transactions contemplated hereby and all documents
incidental thereto not previously found acceptable by
Lender, and its counsel in accordance with this subsection
4.1 shall be satisfactory in form and substance to Lender
and such counsel, and Lender and such counsel shall have
received all such counterpart originals or certified
copies of such documents as Lender may reasonably request.
4.2 Conditions to All Loans.
The obligations of Lender to make Loans on each
Funding Date are subject to the following further
conditions precedent:
A. Lender shall have received on or before that
Funding Date, in accordance with the provisions of
subsection 2.1C, a copy of an originally executed Notice
of Borrowing, in each case signed by the president, chief
executive officer, the chief financial officer or the
treasurer of the applicable Borrower or by any executive
officer of such Borrower designated by any of the
above-described officers on behalf of such Borrower in a
writing delivered to Lender which shall be in accordance
with subsection 2.1C(i) and shall contain a certification
by the officer executing such notice of the matters set
forth in subsection 4.2B below.
B. As of that Funding Date:
(i) The representations and warranties
contained herein and in the other Loan Documents shall be
true, correct and complete in all material respects on and
as of that Funding Date to the same extent as though made
on and as of that date, except to the extent such
representations and warranties specifically relate to an
earlier date, in which case such representations and
warranties shall have been true, correct and complete in
all material respects on and as of such earlier date;
<PAGE> 38
(ii) No event shall have occurred and be
continuing or would result from the consummation of the
borrowing contemplated by such Notice of Borrowing that
would constitute an Event of Default or a Potential Event
of Default;
(iii) No order, judgment or decree of any
court, arbitrator or governmental authority shall purport
to enjoin or restrain Lender from making the Loans to be
made by it on that Funding Date;
(iv) The Interim Order or the Final Order, as
the case may be, shall be in full force and effect and not
stayed and, after giving effect to such Loans, the
aggregate amount of Loans outstanding shall not exceed the
amount approved in the Interim Order or the Final Order,
as the case may be;
(v) The making of the Loans requested on such
Funding Date shall not violate any law including, without
limitation, Regulation G, Regulation T, Regulation U or
Regulation X of the Board of Governors of the Federal
Reserve System;
(vi) There shall not be pending or, to the
knowledge of Borrowers, threatened, any action, suit,
proceeding, governmental investigation or arbitration
against or affecting the Borrowers or any property of the
Borrowers that has not been disclosed by Borrowers in
writing pursuant to subsection 5.6 or 6.1(x) prior to the
making of the last preceding Loans (or, in the case of the
initial Loans, prior to the execution of this Agreement),
and there shall have occurred no development not so
disclosed in any such action, suit, proceeding,
governmental investigation or arbitration so disclosed,
that, in either event, in the opinion of Lender, would be
expected to have a Material Adverse Effect; and no
injunction or other restraining order shall have been
issued and no hearing to cause an injunction or other
restraining order to be issued shall be pending or noticed
with respect to any action, suit or proceeding seeking to
enjoin or otherwise prevent the consummation of, or to
recover any damages or obtain relief as a result of, the
transactions contemplated by this Agreement or the making
of Loans hereunder;
(vii) The amount of the proposed borrowing
will not cause (a) the principal amount of the Borrowing
Base Loans outstanding to exceed the lesser of (i) the
Borrowing Base Loan Commitment and (ii) the Borrowing
Base, in each case as of the date thereof of (b) the
principal amount of the Overadvance Loans outstanding to
exceed the Overadvance Loan Commitment as of the date
thereof; or (c) if made prior to the entry of the Final
Order, the principal amount of the Borrowing Base Loans
and Overadvance Loans to exceed $35,000,000 in the
aggregate;
<PAGE> 39
(viii) the proceeds of previous Loans have
been applied only in accordance with an Approved Budget,
unless otherwise consented to by Lender, and the proceeds
of the requested Loans will be applied in accordance with
the Approved Budget in effect; and
(ix) if the proposed borrowing includes
Overadvance Loans, after giving effect to such Borrowing,
there shall be no unused availability to borrow additional
Borrowing Base Loans under Section 2.1A.
SECTION 5
BORROWERS' REPRESENTATIONS AND WARRANTIES
In order to induce Lender to enter into this
Agreement and to make the Loans Borrowers represent and
warrant to Lender, on the date of this Agreement and on
each Funding Date that the following statements are true,
correct and complete:
5.1 Organization, Powers, Qualification, Good Standing,
Business and Subsidiaries.
A. Organization and Powers. Each Borrower is a
corporation duly organized, validly existing and in good
standing under the laws of the State of its incorporation.
Subject to compliance with any applicable provisions of
the Bankruptcy Code, each Borrower has all requisite
corporate power and authority to own and operate its
properties, to carry on its business as now conducted and
as proposed to be conducted, to enter into the Loan
Documents to which it is a party, to carry out the
transactions contemplated thereby and to issue and pay the
Note. Each Borrower is in compliance with its Articles of
Incorporation and Bylaws and all applicable orders of the
Court.
B. Qualification and Good Standing. Each Borrower
is qualified to do business and is in good standing in
every jurisdiction necessary to carry out its business and
operations, except in jurisdictions where the failure to
be so qualified or in good standing has not had and will
not have a Material Adverse Effect or result in any Lien
not permitted hereunder.
C. Conduct of Business. Each Borrower and its
Subsidiaries are engaged only in the businesses permitted
to be engaged in pursuant to subsection 7.14.
D. Subsidiaries. FTC has no Subsidiaries with any
material assets or operations other than (i) the other
Borrowers, (ii) Fruehauf de Mexico and (iii)
Deutsche-Fruehauf Beteiligungs GmbH and Fruehauf Corp. &
Co. OhG which have no material assets or operations other
than the direct or indirect ownership of a piece of real
estate located in Sindorf, Germany. The capital stock of
each Subsidiary of FTC is duly authorized, validly issued,
fully paid and nonassessable and none of such capital
stock constitutes Margin Stock. Part One of Schedule 5.1
annexed hereto correctly sets forth the ownership
interests in each of the Subsidiaries of FTC as of the
Closing Date.
<PAGE> 40
E. Collateral Matters. Other than as may be
supplemented by written notices delivered to Lender
pursuant to the Pledge and Security Agreement:
(i) the chief executive office and principal
place of business of each Borrower is as set forth in Part
Two of Schedule 5.1 annexed hereto;
(ii) the office where each Borrower keeps its
records concerning Accounts and all originals of all
chattel paper which evidence any Accounts are located at
the addresses specified for such Borrower in Part Three of
Schedule 5.1 annexed hereto;
(iii) all Equipment and Inventory of each
Borrower is located on the premises specified for such
Borrower on Part Four of Schedule 5.1 annexed hereto (or
is in transit thereto) and except as specified in Part
Four of Schedule 5.1 annexed hereto, no such Inventory is
stored with a bailee, warehouseman or similar party;
(iv) other than as set forth in Part Five of
Schedule 5.1 annexed hereto, no Borrower does any business
under any fictitious business names or tradenames or has
done business under any fictitious business names or
tradenames during the five years preceding the Closing
Date.
5.2 Authorization of Borrowing, etc.
A. Authorization of Borrowing. The execution,
delivery and performance of the Loan Documents and the
issuance, delivery and payment of the Note (i) have been
duly authorized by all necessary corporate action on the
part of each Borrower and (ii) have been or by the Closing
Date will be, duly authorized by the Court.
B. No Conflict. The execution, delivery and
performance by each Borrower of the Loan Documents, the
issuance, delivery and payment of the Note and the
consummation of the transactions contemplated by the Loan
Documents do not and will not (i) violate any provision of
any law or any governmental rule or regulation applicable
to any Borrower or any of its Subsidiaries, the
Certificate or Articles of Incorporation or Bylaws of any
Borrower or any of its Subsidiaries or any order, judgment
or decree of any court or other agency of government
binding on any Borrower or any of its Subsidiaries, (ii)
conflict with, result in a breach of or constitute
(with due notice or lapse of time or both) a default under
any material Contractual Obligation of any Borrower or any
of its Subsidiaries (performance or enforceability of
which has not been excused by the Bankruptcy Code or an
applicable order of the Court), (iii) result in or require
the creation or imposition of any Lien upon any of the
properties or assets of any Borrower or any of its
Subsidiaries (other than any Liens created under any of
the Loan Documents in favor of Lender), or (iv) require
any approval of stockholders or any approval or consent of
any Person under any Material Contract to which any
Borrower or any of its Subsidiaries is a party
(performance of which has not been excused by the
Bankruptcy Code), except for such approvals or consents
which will be obtained on or before the Closing Date and
are disclosed on Schedule 5.2 annexed hereto.
<PAGE> 41
C. Governmental Consents. The execution, delivery
and performance by each Borrower of the Loan Documents,
the issuance, delivery and payment of the Note and the
consummation of the transactions contemplated by the Loan
Documents do not and will not require any registration
with, consent or approval of, or notice to, or other
action to, with or by, any federal, state or other
governmental authority or regulatory body, except for the
Court, and other than filings expressly contemplated by
the Loan Documents.
D. Binding Obligation. Each of the Loan Documents
has been duly executed and delivered by each Borrower
thereto and is the legally valid and binding obligation of
such Borrower, enforceable against such Borrower in
accordance with its respective terms.
5.3 Financial Condition.
Borrowers have heretofore delivered to Lender, at
Lender' request, the following financial statements and
information: (i) the audited consolidated balance sheet
of FTC and its Subsidiaries as at December 31, 1995 and
the related consolidated statements of income,
stockholders' equity and cash flows of FTC and its
Subsidiaries for the Fiscal Year then ended and (ii) the
unaudited consolidated and consolidating balance sheets of
FTC and its Subsidiaries as at June 30, 1996 and the
related unaudited consolidated and consolidating
statements of income and consolidated cash flows of FTC
and its Subsidiaries for the six months then ended. All
such statements were prepared in conformity with GAAP and
fairly present the financial position (on a consolidated
and, where applicable, consolidating basis) of the
entities described in such financial statements as at the
respective dates thereof and the results of operations and
cash flows (on a consolidated and, where applicable,
consolidating basis) of the entities described therein for
each of the periods then ended, subject, in the case of
any such unaudited financial statements, to changes
resulting from audit and normal year-end adjustments.
Borrowers do not (and will not following the funding of
the initial Loans) have any Contingent Obligation,
contingent liability or liability for taxes, long-term
lease or unusual forward or long-term commitment that is
not reflected in the foregoing financial statements or the
notes thereto and which in any such case is material in
relation to the business, operations, properties, assets,
financial condition or prospects of FTC or any of its
Subsidiaries.
5.4 No Material Adverse Change; No Restricted Junior
Payments.
Since January 1, 1996, no event or change has
occurred that has caused or evidences, either in any case
or in the aggregate, a Material Adverse Effect other than
(i) as would normally result from the filing of the
Chapter 11 Cases, (ii) as a result of general industry
conditions, (ii) the partial, temporary shutdown of the
Fort Madison and Scott County Facilities which commenced
on September 23, 1996 and September 26, 1996, respectively
and (iv) as disclosed in the 10Q filing with the
Securities and Exchange Commission of FTC and its
Subsidiaries for the fiscal quarter ended June 30, 1996.
No Borrower nor any of its Subsidiaries has directly or
indirectly declared, ordered, paid or made, or set apart
any sum or property for, any Restricted Junior Payment or
agreed to do so.
<PAGE> 42
5.5 Title to Properties; Liens.
Borrowers and their Subsidiaries have (i) good,
sufficient and legal title to (in the case of fee
interests in real property), (ii) valid leasehold
interests in (in the case of leasehold interests in
real or personal property), or (iii) good title to (in the
case of all other personal property), all of their
respective properties and assets reflected in the
financial statements referred to in subsection 5.3 or in
the most recent financial statements delivered pursuant to
subsection 6.1, in each case except for assets disposed of
since the date of such financial statements in the
ordinary course of business or as otherwise permitted
under subsection 7.7 other than the manufacturing plant
located in Waverly, Ohio sold in August, 1996. All such
properties and assets are free and clear of Liens other
than Permitted Encumbrances listed on Schedule 5.5 and
other existing Liens set forth on Schedule 7.2. All real
property owned or leased by Borrowers and their
Subsidiaries is described on Schedule 1.1B hereto, which
indicates the interest held, the Borrowers holding such
interest, a description of the property and, if a
leasehold interest, a description of the lease.
5.6 Litigation; Adverse Facts.
Except as set forth in Schedule 5.6 annexed hereto,
there is no action, suit, proceeding, arbitration or
governmental investigation (whether or not purportedly on
behalf of a Borrower or any of its Subsidiaries) at law or
in equity or before or by any federal, state, municipal or
other governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign, pending
or, to the knowledge of Borrowers, threatened against or
affecting any Borrower or any of its Subsidiaries or any
property of any Borrower or any of its Subsidiaries that
has had, or could reasonably be expected to result in, a
Material Adverse Effect. No Borrower nor any of its
Subsidiaries is (i) in violation of any applicable law
that has had, or could reasonably be expected to result
in, a Material Adverse Effect or (ii) subject to or in
default with respect to any final judgment, writ,
injunction, decree, rule or regulation of any court or any
federal, state, municipal or other governmental
department, commission, board, bureau, agency or
instrumentality, domestic or foreign, that has had, or
could reasonably be expected to result in, a Material
Adverse Effect.
5.7 Payment of Taxes.
Except to the extent permitted by subsection 6.3 and
to the extent payment has been excused by the Bankruptcy
Code or an applicable order of the Court or as set forth
on Schedule 5.7, all tax returns and reports of FTC and
its Subsidiaries required to be filed by any of them
have been timely filed, and all taxes, assessments, fees
and other governmental charges upon FTC and its
Subsidiaries and upon their respective properties, assets,
income, businesses and franchises which are due and
payable have been paid when due and payable. Borrowers
know of no proposed tax assessment against FTC or any of
its Subsidiaries which is not being actively contested by
FTC or such Subsidiary in good faith and by appropriate
proceedings; provided that such reserves or other
appropriate provisions, if any, as shall be required in
conformity with GAAP shall have been made or provided
therefor.
<PAGE> 43
5.8 Performance of Agreements; Materially Adverse
Agreements.
A. No Borrower nor any of its Subsidiaries is in
default and to Borrowers' knowledge, no third party is in
default, in the performance, observance or fulfillment of
any of the obligations, covenants or conditions contained
in any of the Material Contracts, and no condition exists
that, with the giving of notice or the lapse of time or
both, would constitute such a default, except in any case
where the consequences, direct or indirect, of such
default or defaults, if any, would not have a Material
Adverse Effect.
B. No contract, lease, agreement or other
instrument to which any Borrower is a party or by which it
or any of its properties or assets is bound or affected
and no provision of any charter, corporate restriction,
applicable law or governmental regulation has resulted in
or will result in a Material Adverse Effect.
C. Schedule 5.8 sets forth a complete and accurate
list of all Material Contracts of each Borrower. Except
as described on Schedule 5.8, all such Material Contracts
are in full force and effect and no material defaults
currently exist thereunder.
5.9 Governmental Regulation.
No Borrower nor any of its Subsidiaries is subject to
regulation under the Public Utility Holding Company Act of
1935, the Federal Power Act, the Interstate Commerce Act
(to the extent applicable to the transactions contemplated
hereby) or the Investment Company Act of 1940 or under any
other federal or state statute or regulation which in any
case may limit its ability to incur Indebtedness or which
may otherwise render all or any portion of the Obligations
unenforceable.
5.10 Securities Activities.
No Borrower nor any of its Subsidiaries is engaged
principally, or as one of its important activities, in the
business of extending credit for the purpose of purchasing
or carrying any Margin Stock.
5.11 Employee Benefit Plans.
A. Borrowers, each of their Subsidiaries and each
of their respective ERISA Affiliates are in compliance
with all applicable provisions and requirements of ERISA
and the regulations and published interpretations
thereunder with respect to each Employee Benefit Plan, and
have performed all their obligations under each Employee
Benefit Plan. Each Employee Benefit Plan which is
intended to qualify under Section 401(a) of the Internal
Revenue Code is so qualified.
B. No ERISA Event has occurred or is reasonably
expected to occur.
<PAGE> 44
C. Except to the extent required under Section
4980B of the Internal Revenue Code or except as set forth
in Schedule 5.11 annexed hereto, no Employee Benefit Plan
provides health or welfare benefits (through the purchase
of insurance or otherwise) for any retired or former
employee of Borrowers, any of their Subsidiaries or any of
their respective ERISA Affiliates.
D. As of the most recent valuation date for any
Pension Plan, the amount of unfunded benefit liabilities
(as defined in Section 4001(a)(18) of ERISA), individually
or in the aggregate for all Pension Plans (excluding for
purposes of such computation any Pension Plans with
respect to which assets exceed benefit liabilities), does
not exceed $250,000.
E. As of the most recent valuation date for each
Multiemployer Plan for which the actuarial report is
available, the potential liability of Borrowers, their
Subsidiaries and their respective ERISA Affiliates for a
complete withdrawal from such Multiemployer Plan (within
the meaning of Section 4203 of ERISA), when aggregated
with such potential liability for a complete withdrawal
from all Multiemployer Plans, based on information
available pursuant to Section 4221(e) of ERISA, does not
exceed $250,000.
5.12 Certain Fees.
No broker's or finder's fee or commission will be
payable with respect to this Agreement or any of the
transactions contemplated hereby, and Borrowers hereby
indemnify Lender against, and agree that they will hold
Lender harmless from, any claim, demand or liability for
any such broker's or finder's fees claiming by, through or
under any Borrower alleged to have been incurred in
connection herewith or therewith and any expenses
(including reasonable fees, expenses and disbursements of
counsel) arising in connection with any such claim, demand
or liability.
5.13 Environmental Protection.
Except as set forth in Schedule 5.13 annexed hereto:
(i) None of the Borrowers nor any of their
Subsidiaries nor any of their respective Facilities or
operations are subject to any outstanding written order,
consent decree or settlement agreement with any Person
relating to (a) any Environmental Law,(b) any
Environmental Claim, or (c) any Hazardous Materials
Activity that, individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect;
(ii) None of the Borrowers nor any of their
Subsidiaries has received any letter asserting that such
Person has liability under Section 104 of the
Comprehensive Environmental Response, Compensation, and
Liability Act (42 U.S.C. ss 9604) or any comparable state
law;
<PAGE> 45
(iii) there are and, to Borrowers'
knowledge, have been no conditions, occurrences, or
Hazardous Materials Activities which could reasonably be
expected to form the basis of an Environmental Claim
against any Borrower or any of their Subsidiaries that,
individually or in the aggregate, could reasonably be
expected to have a Material Adverse Effect;
(iv) None of the Borrowers nor any of their
Subsidiaries nor, to Borrowers' knowledge, any predecessor
of any Borrower or any of their Subsidiaries has filed any
notice under any Environmental Law indicating past or
present treatment of Hazardous Materials at any Facility,
and none of Borrowers' or any of their Subsidiaries'
operations involves the generation, transportation,
treatment, storage or disposal of hazardous waste, as
defined under 40 C.F.R. Parts 260-270 or any state
equivalent other than in compliance in all material
respects with all applicable Environmental Laws;
(v) Commencing at least 3 years prior to the
Closing Date, Borrowers have maintained an environmental
management system for their and each of their
Subsidiaries' operations that demonstrates a commitment to
environmental compliance including without limitation
compliance in all material respects with all applicable
Environmental Laws;
(vi) compliance with all current or reasonably
foreseeable future requirements pursuant to or under
Environmental Laws will not, individually or in the
aggregate, have a reasonable possibility of giving rise to
a Material Adverse Effect.
Notwithstanding anything in this subsection 5.13
to the contrary, no event or condition has occurred or is
occurring with respect to any Borrower or any of its
Subsidiaries relating to any Environmental Law, any
Release of Hazardous Materials, or any Hazardous
Materials Activity, including any matter disclosed on
Schedule 5.13 annexed hereto, which individually or in the
aggregate has had or could reasonably be expected to have
a Material Adverse Effect.
5.14 Employee Matters.
There is no strike or work stoppage in existence or
threatened involving any Borrower or any of their
Subsidiaries that could reasonably be expected to have a
Material Adverse Effect.
5.15 Inventory and Accounts.
Except as disclosed in the written information
provided to Lender by Borrowers under subsection 6.9 or
otherwise disclosed to Lender in writing, with respect to
all Inventory and Accounts:
<PAGE> 46
(i) Lender may rely upon all statements,
warranties, or representations made in any Borrowing Base
Certificate or other written report regarding Inventory
and Accounts delivered hereunder by Borrowers in
determining which items of Inventory or Accounts are to be
deemed Eligible Inventory or Eligible Accounts, as the
case may be;
(ii) No Inventory or Account is subject to any
Lien whatsoever, except for Liens of Lenders under the
Collateral Documents and other Liens permitted hereunder;
(iii) No such Inventory has been consigned
to any Person;
(iv) All Inventory has been produced in
accordance with all applicable requirements of the Federal
Fair Labor Standards Act of 1938, as amended and all
rules, regulations and orders related thereto;
(v) All Inventory has been and shall be used in
Borrowers' business and not for personal, family,
household or farming use;
(vi) Each Eligible Account represents a valid
and legally enforceable indebtedness based upon an actual
and bona fide sale and delivery of goods or rendition
of services in the ordinary course of Borrowers' business
which has been finally accepted by the Account Debtor and
for which the Account Debtor is unconditionally liable to
make payment of the amount stated in each invoice,
document or instrument evidencing the Eligible Account in
accordance with the terms thereof, without offset, defense
or counterclaim and will be paid in full at maturity;
(vii) All statements made and all unpaid
balances appearing in the invoices, documents and
instruments evidencing each Eligible Account are true and
correct in all material respects and are in all material
respects what they purport to be and, to the best of
Borrowers' knowledge, all signatures and endorsements that
appear thereon are genuine and all signatories and
endorsers have full capacity to contract and each Account
Debtor is solvent and financially able to pay in full the
Eligible Account when it matures;
(viii) None of the transactions underlying or
giving rise to any Account violate any state or federal
laws or regulations, and all documents relating to the
Accounts are legally sufficient under such laws or
regulations and are legally enforceable in accordance
with their terms and all recording, filing and other
requirements of giving public notice under any applicable
law have been duly complied with; and
(ix) All sales, excise and similar taxes
relating to Accounts of Borrowers have been paid when due.
<PAGE> 47
5.16 Representations Concerning Cash Management System.
The summary of the Cash Management System attached
hereto as Schedule 5.16 is accurate and complete in all
material respects as of the Closing Date and does not omit
to state any material fact necessary to make the
statements set forth therein not misleading. No Borrower
nor any of its Subsidiaries owns any Deposit Account which
is not described in Schedule 5.16 or otherwise permitted
pursuant to subsection 6.10 . There has been no change to
the Cash Management System (other than as permitted by
subsection 6.10) since the Closing Date except such
changes as have been disclosed to Lender in writing and
approved by Lender.
5.17 Intellectual Property
A. Except as set forth on Schedule 5.17 annexed
hereto, the Borrowers and their subsidiaries are the sole
and exclusive owner or licensee of all trade names,
unregistered trademarks and service marks, brand names,
patents, registered and unregistered copyrights,
registered trademarks and service marks, and all
applications for any of the foregoing, and all permits,
grants and licenses or other rights with respect thereto
used in or necessary for the conduct of their respective
businesses as currently conducted, the absence of which
could reasonably be expected to result in a Material
Adverse Effect. Schedule 5.17 annexed hereto sets
forth a true and complete list of all copyrights, service
marks and registered trademarks and patents (or
copyrights, trademarks or patents for which registration
is pending) of the Borrowers and their Subsidiaries. None
of the Borrowers nor any of their subsidiaries has been
charged with any material infringement of any intangible
property of the character described above or been notified
or advised of any material claim of any other Person
relating to any of the intangible property, other than as
set forth in Schedule 5.17 annexed hereto. The
consummation of the transactions contemplated by this
Agreement will not in any material manner or to any
material extent impair the ownership of (or the license to
use, as the case may be) any of such intangible
property by any Borrower.
5.18 Governmental Authorizations.
Each Borrower and each of its Subsidiaries has all
Governmental Authorizations the absence of which could
reasonably be expected to result in a Material Adverse
Effect.
5.19 Disclosure.
No representation or warranty of any Borrower or any
of its Subsidiaries contained in any Loan Document or in
any other document, certificate or written statement
furnished to Lender by or on behalf of any Borrower or any
of its Subsidiaries for use in connection with the
transactions contemplated by this Agreement contains any
untrue statement of a material fact or omits to state
a material fact (known to Borrowers, in the case of any
document not furnished by them) necessary in order to make
the statements contained herein or therein not misleading
in light of the circumstances in which the same were made.
Any projections and pro forma financial information
contained in such materials are based upon good faith
estimates and assumptions believed by Borrowers to be
reasonable at the time made, it being recognized by Lender
that such projections as to future events are not to be
viewed as facts and that actual results during the
period or periods covered by any such projections may
differ from the projected results. There is no fact known
(or which should upon the reasonable exercise of diligence
be known) to Borrowers (other than matters of a general
economic nature) that has had, or could reasonably be
expected to result in, a Material Adverse Effect and that
has not been disclosed herein or in such other documents,
certificates and statements furnished to Lender for use in
connection with the transactions contemplated hereby.
<PAGE> 48
SECTION 6
BORROWERS' AFFIRMATIVE COVENANTS
Each Borrower covenants and agrees that, so long as
the Commitments hereunder shall remain in effect and until
payment in full of all of the Loans and other Obligations,
unless Lender shall otherwise give prior written consent,
such Borrower shall perform, and shall cause each of
its Subsidiaries to perform, all covenants in this Section
6.
6.1 Financial Statements and Other Reports.
FTC and its subsidiaries will maintain a system of
accounting established and administered in accordance with
sound business practices to permit preparation of
financial statements in conformity with GAAP. Borrowers
will deliver to Lender:
(i) Monthly Financials: As soon as available
and in any event within 30 days after the end of each
month ending after the Closing Date, for each month other
than the last month of each fiscal quarter and each Fiscal
Year, the consolidated and consolidating balance sheets
and consolidated and consolidating statement of income of
FTC and its Subsidiaries as at the end of such month and
consolidated and consolidating statements of income and
consolidated statement of cash flows of FTC and its
Subsidiaries for the period from the beginning of the then
current Fiscal Year to the end of such month, setting
forth in comparative form the corresponding figures for
the corresponding periods of the previous Fiscal Year and
the corresponding figures from the current consolidated
plan and financial forecast covering such month delivered
pursuant to subsection 6.1(xiii), all in reasonable detail
and certified by the chief financial officer, chief
accounting officer, controller or treasurer of FTC that
they fairly present the financial condition of FTC and
its Subsidiaries as at the dates indicated and the results
of their operations and their cash flows for the periods
indicated, subject to changes resulting from audit and
normal year-end adjustments.
<PAGE> 49
(ii) Quarterly Financials: As soon as available
and in any event within 45 days after the end of each of
the first three fiscal quarters of each Fiscal Year, the
consolidated and consolidating balance sheets and
consolidated and consolidating statement of income of FTC
and its Subsidiaries as at the end of such fiscal quarter
and the consolidating statements of income and
consolidated statement of cash flows of FTC and its
Subsidiaries for the period from the beginning of the then
current Fiscal Year to the end of such fiscal quarter,
setting forth in comparative form the corresponding
figures for the corresponding periods of the previous
Fiscal Year and the corresponding figures from the current
consolidated plan and financial forecast covering such
period delivered pursuant to subsection 6.1(xiii), all in
reasonable detail and certified by the chief financial
officer, chief accounting officer, controller or treasurer
of FTC that they fairly present the financial condition of
FTC and its Subsidiaries as at the dates indicated and the
results of their operations and their cash flows for the
periods indicated, subject to changes resulting from audit
and normal year-end adjustments.
(iii) Year-End Financials: As soon as
available and in any event (a) within 45 days after the
end of each Fiscal Year a preliminary statement of income
for such Fiscal Year and (b) within 90 days after the end
of each Fiscal Year, (1) the consolidated and
consolidating balance sheets of FTC and its Subsidiaries
as at the end of such Fiscal Year and the related
consolidated and consolidating statements of income, and
consolidated statement of stockholders' equity and cash
flows of FTC and its Subsidiaries for such Fiscal Year,
setting forth in each case in comparative form the
corresponding figures for the previous Fiscal Year and the
corresponding figures from the consolidated plan and
financial forecast delivered pursuant to subsection
6.1(xiii) for the period (or relevant portion thereof)
covered by such financial statements, all in reasonable
detail and certified by the chief financial officer, chief
accounting officer, controller or treasurer of FTC that
they fairly present the financial condition of FTC and its
Subsidiaries as at the dates indicated and the results of
their operations and their cash flows for the periods
indicated and (2) in the case of such consolidated
financial statements, a report thereon of Price Waterhouse
LLP or other independent certified public accountants of
recognized national standing selected by FTC and
reasonably satisfactory to Lender which report shall not
be qualified as to the scope of audit and shall state that
such consolidated financial statements fairly present the
consolidated financial position of FTC and its
Subsidiaries as at the dates indicated and the results of
their operations and their cash flows for the periods
indicated in conformity with GAAP (except as otherwise
disclosed in such financial statements) and that the
examination by such accountants in connection with such
consolidated financial statements has been made in
accordance with generally accepted auditing standards.
(iv) Officer's and Compliance Certificates:
Together with each delivery of financial statements of FTC
and its Subsidiaries pursuant to subdivisions (i), (ii)
and (iii) above, (a) an Officer's Certificate of FTC
stating that the signer has reviewed the terms of this
Agreement and has made, or caused to be made under such
officer's supervision, a review in reasonable detail of
the transactions and condition of FTC and its Subsidiaries
during the accounting period covered by such financial
statements and that such review has not disclosed the
existence during or at the end of such accounting period,
and that the signer does not have knowledge of the
existence as at the date of such Officer's Certificate,
of any condition or event that constitutes an Event of
Default or Potential Event of Default, or, if any such
condition or event existed or exists, specifying the
nature and period of existence thereof and what action
Borrowers have taken, are taking and propose to take with
respect thereto and (b) a Compliance Certificate
demonstrating in reasonable detail compliance for such
applicable accounting periods with the restrictions
contained in Section 7.
<PAGE> 50
(v) Reconciliation Statements: If, as a result
of any change in accounting principles and policies from
those used in the preparation of the audited financial
statements referred to in subsection 5.3, the consolidated
financial statements of FTC and its Subsidiaries delivered
pursuant to subdivisions (ii) or (iii) of this subsection
6.1 will differ in any material respect from the
consolidated financial statements that would have been
delivered pursuant to such subdivisions had no such change
in accounting principles and policies been made, then (a)
together with the first delivery of financial statements
pursuant to subdivision (ii) or (iii) of this subsection
6.1 following such change, consolidated financial
statements of FTC and its Subsidiaries for (1) the current
Fiscal Year to the effective date of such change and (2)
the two full Fiscal Years immediately preceding the Fiscal
Year in which such change is made, in each case prepared
on a pro forma basis as if such change had been in effect
during such periods, and (b) together with each delivery
of financial statements pursuant to subdivision (ii) or
(iii) of this subsection 6.1 following such change, a
written statement of the chief accounting officer or chief
financial officer of FTC setting forth the differences
which would have resulted in the calculation of the
covenants set forth in Section 7 if such financial
statements had been prepared without giving effect to such
change.
(vi) Accountants' Certification: Together with
each delivery of consolidated financial statements of FTC
and its Subsidiaries pursuant to subdivision (iii) above,
to the extent such statement can be provided in accordance
with generally accepted auditing standards, a written
statement by the independent certified public accountants
giving the report thereon (a) stating that their audit
examination has included a review of the terms of this
Agreement and the other Loan Documents as they relate to
accounting matters and (b) stating whether, in connection
with their audit examination, any condition or event that
constitutes an Event of Default or Potential Event of
Default has come to their attention and, if such a
condition or event has come to their attention, specifying
the nature and period of existence thereof; provided that
such accountants shall not be liable by reason of any
failure to obtain knowledge of any such Event of Default
or Potential Event of Default that would not be disclosed
in the course of their audit examination.
(vii) Accountants' Reports: Promptly upon
receipt thereof, copies of all reports submitted to
Borrowers by independent certified public accountants in
connection with each annual, interim or special audit of
the financial statements of FTC and its Subsidiaries
made by such accountants, including, without limitation,
any comment letter submitted by such accountants to
management in connection with their annual audit.
<PAGE> 51
(viii) SEC Filings and Press Releases:
Promptly upon their becoming available, copies of (a) all
financial statements, reports, notices and proxy
statements sent or made available generally by FTC to its
security holders or by any Subsidiary of FTC generally
to its security holders other than FTC or another
Subsidiary of FTC, (b) all regular and periodic reports
and all effective registration statements (other than on
Form S-8 or a similar form) and effective prospectuses, if
any, filed by FTC or any of its Subsidiaries with any
securities exchange or with the Securities and Exchange
Commission or any governmental or private regulatory
authority, and (c) all press releases and other statements
made available generally by FTC or any of its Subsidiaries
to the public concerning material developments in the
business of any Borrower or any of its Subsidiaries.
(ix) Events of Default, etc.: Promptly upon any
officer of any Borrower obtaining knowledge (a) of any
condition or event that constitutes an Event of Default or
Potential Event of Default, or becoming aware that Lender
has given any notice or taken any other action with
respect to a claimed Event of Default or Potential Event
of Default, (b) that any Person has given any notice to
any Borrower or any of its Subsidiaries or taken any other
action with respect to a claimed default or event or
condition of the type referred to in subsection 8.10, (c)
of any condition or event required to be disclosed in a
current report filed by FTC with the Securities and
Exchange Commission on Form 8-K (Items 1, 2, 4, 5 and 6 of
such Form as in effect on the date hereof) concurrently
with the filing of such Form 8-K by FTC or (d) of the
occurrence of any event or change that has caused or
evidences, either in any case or in the aggregate, a
Material Adverse Effect, an Officer's Certificate
specifying the nature and period of existence of such
condition, event or change, or specifying the notice given
or action taken by any such Person and the nature of such
claimed Event of Default, Potential Event of Default,
default, event or condition, and what action Borrowers
have taken, are taking and propose to take with respect
thereto.
(x) Litigation or Other Proceedings: Promptly
upon any officer of any Borrower obtaining knowledge of
(a) the institution of, or non-frivolous threat of, any
action, suit, proceeding (whether administrative, judicial
or otherwise), governmental investigation or arbitration
against or affecting any Borrower or any of its
subsidiaries or any property of any Borrower or any of its
Subsidiaries (collectively, ``Proceedings'') not
previously disclosed in writing by a Borrower to Lender or
(b) any material development in any Proceeding that, in
any case:
(a) has a reasonable possibility of giving
rise to an Event of Default or a Material Adverse Effect;
or
<PAGE> 52
(b) seeks to enjoin or otherwise prevent
the consummation of, or to recover any damages or obtain
relief as a result of, the transactions contemplated
hereby;
written notice thereof together with such other
information as may be reasonably available to Borrowers to
enable Lender and their counsel to evaluate such matters.
(xi) ERISA Events: Promptly upon becoming aware
of the occurrence of or notice of a forthcoming occurrence
of any ERISA Event, a written notice specifying the nature
thereof, what action Borrowers or any of their ERISA
Affiliates have taken, are taking or propose to take with
respect thereto and, when known, any action taken or
threatened by the Internal Revenue Service, the Department
of Labor or the PBGC with respect thereto.
(xii) ERISA Notices: With reasonable
promptness, copies of (a) each Schedule B (Actuarial
Information) to the annual report (Form 5500 Series) filed
by any Borrower or any of its Subsidiaries with the
Internal Revenue Service with respect to each Pension
Plan; (b) all notices received by any Borrower or any of
its Subsidiaries from a Multiemployer Plan sponsor
concerning an ERISA Event; and (c) such other documents
or governmental reports or filings relating to any
Employee Benefit Plan as Lender shall reasonably request;
provided that upon Lender's request, Borrowers shall
submit promptly to each Multiemployer Plan identified by
Lender a request (together with payment of any reasonable
charges therefor) for an estimate of the withdrawal
liability any Borrower or any of its ERISA Affiliates
would incur upon a complete withdrawal (within the meaning
of Section 4203 of ERISA) from such Multiemployer Plan and
for a copy of the actuarial valuation and review and a
report on employer withdrawal liability regularly prepared
for such Multiemployer Plan, and shall provide copies of
the information and materials supplied by each such
Multiemployer Plan in response to such submission.
(xiii) Financial Plans: On or before the
Closing Date, and every three months thereafter copies of,
a consolidated and consolidating plan and financial
forecast on a month by month basis for the period through
the Commitment Termination Date, including without
limitation (a) forecasted consolidated and consolidating
balance sheets and forecasted consolidated and
consolidating statements of income and consolidated cash
flows of FTC and its Subsidiaries for each month of such
period with pro forma Compliance Certificates with respect
to the covenants set forth in subsection 7.6 for each
such period and an explanation of the material assumptions
on which such forecasts are based, together with an
explanation of the material assumptions on which such
forecasts are based and (b) such other information and
projections as any Lender may reasonably request.
(xiv) Cash Receipts and Disbursement
Reports. On a daily basis, a detailed report of cash
receipts and cash disbursements by FTC and it Subsidiaries
for the previous day, on a consolidated and consolidating
basis, in a format acceptable to Lender, and certified by
the chief accounting officer, chief financial officer or
treasurer of FTC or such other officer of FTC as Lender
may approve.
<PAGE> 53
(xv) Cash Budgets. On or before the Closing
Date and on the last Business Day of each week thereafter,
a detailed cash budget for FTC and its Subsidiaries on a
consolidated and consolidating basis, showing forecasted
cash disbursements and cash receipts for FTC and its
subsidiaries for the succeeding four week period, in a
format acceptable to Lender. Each such cash budget must
be approved in writing by the Crisis Manager and will be
subject to further approval by Lender in its sole and
exclusive discretion, and will be deemed approved only
upon written notice by Lender to FTC to that effect. Any
such budget approved by Lender is referred to herein as an
``Approved Budget.'' Until a subsequent cash budget is
approved, the most recent Approved Budget shall constitute
the Approved Budget then in effect. If Lender does not
approve a particular cash budget, Borrowers will promptly
revise the proposed budget to endeavor to address Lender's
concerns and deliver such revised budget complying with
the requirements of this subsection 6.1(xv) to Lender, but
approval by Lender of any revised proposed budget shall
remain in Lenders sole and exclusive discretion. Approval
of any budget by Lender shall not be deemed to constitute
a waiver of any restriction set forth in this Agreement or
any other Loan Document.
(xvi) Insurance: As soon as practicable and
in any event by the last day of each Fiscal Year, and of
such other times as Lender may request, a report in form
and substance satisfactory to Lender outlining all
material insurance coverage maintained as of the date of
such report by Borrowers and their Subsidiaries and all
material insurance coverage planned to be maintained by
Borrowers and their Subsidiaries in the immediately
succeeding Fiscal Year which shall not be materially less
than the type and amount maintained on the Closing Date.
(xvii) Environmental Audits and Reports: As
soon as practicable following receipt thereof, copies of
all environmental audits and reports, whether prepared by
personnel of Borrowers or any of their Subsidiaries or by
independent consultants, with respect to environmental
matters at any Facility or an Environmental Claim which
could result in a Material Adverse Effect.
(xviii) Board of Directors: With reasonable
promptness (but in any event no earlier than such
information is generally made public), written notice of
any change in the Board of Directors of any Borrower.
(xix) Filings with the Court: Promptly upon
filing or receiving any such document, copies of any
pleading or document filed with the Court or the Office of
the United States Trustee in the Chapter 11 Cases.
<PAGE> 54
(xx) Notices under Existing Indenture: Promptly
upon receiving any such notices, copies of any notices
from the holders of Senior Notes or any trustee or
committee acting on their behalf.
(xxi) Other Information: With reasonable
promptness, such other information and data with respect
to any Borrower or any of its Subsidiaries as from time to
time may be reasonably requested by Lender.
6.2 Corporate Existence, etc.
Each Borrower will, and will cause each of its
Subsidiaries to, at all times preserve and keep in full
force and effect its corporate existence and all rights
and franchises material to its business.
6.3 Payment of Taxes and Claims.
Except as prohibited by the Borrowing Orders or this
Agreement or (except with respect to the Obligations) as
excused by the Bankruptcy Code or an applicable order of
the Court, each Borrower will, and will cause each of its
Subsidiaries to, (i) use its best efforts to pay and
discharge or cause to be paid and discharged all its
Indebtedness arising after the Petition Date, including
all of the Obligations, as and when due and payable and
(ii) to the extent they constitute claims allowable under
Section 503(b) of the Bankruptcy Code, pay all taxes,
assessments and other governmental charges imposed upon it
or any of its properties or assets or in respect of any
of its income, businesses or franchises before any penalty
accrues thereon, and all claims (including, without
limitation, claims for labor, services, materials and
supplies) for sums that have become due and payable and
that by law have or may become a Lien upon any of its
properties or assets, prior to the time when any penalty
or fine shall be incurred with respect thereto; provided
that no such charge or claim need be paid if being
contested in good faith by appropriate proceedings
promptly instituted and diligently conducted and if such
reserve or other appropriate provision, if any, as shall
be required in conformity with GAAP shall have been made
therefor.
6.4 Maintenance of Properties; Insurance.
A. Each Borrower will, and will cause each of its
Subsidiaries to, take all reasonable action to maintain or
cause to be maintained in good repair, working order and
condition, ordinary wear and tear excepted, all material
properties used or useful in the business of such Borrower
and its Subsidiaries and from time to time will make or
cause to be made all reasonably necessary repairs,
renewals and replacements thereof. Each Borrower will
maintain or cause to be maintained, with financially sound
and reputable insurers, insurance with respect to its
properties and business and the properties and businesses
of its Subsidiaries against loss or damage consistent
with the policies and programs in effect as of the Closing
Date and of the kinds customarily carried or maintained
under similar circumstances by corporations of established
reputation engaged in similar businesses. Each such
policy of insurance shall name Lender as an additional
insured and/or as the loss payee thereunder as appropriate
and shall provide for at least 30 days prior written
notice to Lender of any modification, cancellation or
non-renewal of such policy.
<PAGE> 55
B. If any portion of any Mortgaged Property is
situated in an area now or subsequently designated as
having special flood hazards as defined by the Flood
Disaster Protection Act of 1973, as amended by the
National Flood Insurance Reform Act of 1994, and as
further amended from time to time, then the types of
insurance that Borrowers are required to maintain or cause
to be maintained shall include flood insurance in such
amounts as Lenders shall require, but not less than the
amount required by law. If Borrowers fail to obtain flood
insurance as required, Lenders may purchase such flood
insurance, and Borrowers shall pay all premiums and other
costs and expenses incurred by Lender.
6.5 Inspection; Lender Meeting.
Each Borrower shall, and shall cause each of its
Subsidiaries to, permit any authorized representatives
designated by Lender to visit and inspect any of the
properties of such Borrower or any of its Subsidiaries,
including its and their financial and accounting records,
and to make copies and take extracts therefrom, and to
discuss its and their affairs, finances and accounts with
its and their officers and independent public accountants
(provided that such Borrower may, if it so chooses, be
present at or participate in any such discussion), all
upon reasonable notice and at such reasonable times during
normal business hours and as often as Lender may
reasonably request. Without in any way limiting the
foregoing, each Borrower will, upon the request of
Lender, participate in a meeting with Lender twice each
month after the Closing Date at FTC's corporate offices
(or such other location as may be agreed to by Borrowers
and Lender) at such time as may be agreed to by Borrowers
and Lender.
6.6 Compliance with Laws, etc.
Except to the extent compliance is excused by the
Bankruptcy Code, each Borrower shall, and shall cause each
of its Subsidiaries to, comply with the requirements of
all applicable laws, rules, regulations and orders of any
governmental authority, noncompliance with which could
reasonably be expected to cause a Material Adverse Effect.
6.7 Environmental Matters.
A. Each Borrower shall, and shall cause each of its
Subsidiaries to, exercise all due diligence in order to
comply and cause (i) all tenants under any leases or
occupancy agreements affecting any portion of the
Facilities and (ii) all other Persons on or occupying such
property, to comply with all Environmental Laws.
<PAGE> 56
B. Borrowers agree that Lender may, from time to
time and in its reasonable discretion, (i) retain, at
Borrowers' expense, an independent professional consultant
to review any environmental audits, investigations,
analyses and reports relating to Hazardous Materials
prepared by or for Borrowers and (ii) conduct its own
investigation of any Facility; provided that, in the
case of any Facility no longer owned, leased, operated or
used by a Borrower or any of its Subsidiaries, Borrowers
shall only be obligated to use commercially reasonable
efforts to obtain permission for Lender's professional
consultant to conduct an investigation of such Facility.
For purposes of conducting such a review and/or
investigation, Borrowers hereby grant to Lender and
its agents, employees, consultants and contractors the
right to enter into or onto any Facilities currently
owned, leased, operated or used by any Borrower or any of
its Subsidiaries and to perform such tests on such
property (including taking samples of soil, groundwater
and suspected asbestos-containing materials) as are
reasonably necessary in connection therewith. Any such
investigation of any Facility shall be conducted, unless
otherwise agreed to by the applicable Borrower and Lender,
during normal business hours and, to the extent reasonably
practicable, shall be conducted so as not to interfere
with the ongoing operations at such Facility or to cause
any damage or loss to any property at such Facility.
Borrowers and Lender hereby acknowledge and agree that any
report of any investigation conducted at the request of
Lender pursuant to this subsection 6.7B. will be obtained
and shall be used by Lender for the purposes of Lender's
internal credit decisions, to monitor and police the Loans
and to protect Lender's security interests, if any,
created by the Loan Documents. Lender agrees to deliver a
copy of any such report to Borrowers with the
understanding that Borrowers acknowledge and agree that
(x) they will indemnify and hold harmless Lender from any
costs, losses or liabilities relating to Borrowers' use of
or reliance on such report, (y) Lender makes no
representation or warranty with respect to such report,
and (z) by delivering such report to Borrowers, Lender is
not requiring or recommending the implementation of any
suggestions or recommendations contained in such report.
C. Each Borrower shall, and shall cause each of its
Subsidiaries to, promptly advise Lender in writing and in
reasonable detail of any:
(i) any Release required to be reported to any
federal, state or local governmental or regulatory agency
under any applicable Environmental Laws;
(ii) any remedial action taken by a Borrower or
any other Person in response to (a) any Hazardous
Materials Activities the existence of which has a
reasonable possibility of resulting in one or more
Environmental Claims having, individually or in the
aggregate, a Material Adverse Effect, or (b) any
Environmental Claims that, individually or in the
aggregate, have a reasonable possibility of resulting in a
Material Adverse Effect;
(iii) a Borrowers' discovery of any
occurrence or condition on any real property adjoining or
in the vicinity of any Facility that could cause such
Facility or any part thereof to be subject to any material
restrictions on the ownership, occupancy, transferability
or use thereof under any Environmental Laws;
<PAGE> 57
(iv) any and all written communications with
respect to (a) any Environmental Claims that, individually
or in the aggregate, have a reasonable possibility of
giving rise to a Material Adverse Effect, or (b) any
Release required to be reported to any federal, state or
local governmental or regulatory agency;
(v) any request for information from any
governmental agency that suggests such agency is
investigating whether any Borrower or any of its
Subsidiaries may be potentially responsible for any
Hazardous Materials Activity;
(vi) any proposed acquisition of property by any
Borrower or any of its Subsidiaries that could reasonably
be expected to (1) expose any Borrower or any of its
Subsidiaries to, or result in, Environmental Claims that
could reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect or (2) affect the
ability of any Borrower or any of its Subsidiaries to
maintain in full force and effect all material
Governmental Authorizations required under any
Environmental Laws for their respective operations; and
(vii) any proposed action to be taken by any
Borrower or any of its Subsidiaries to modify current
operations in a manner that could reasonably be expected
to subject any Borrower or any of its Subsidiaries to any
material additional obligations or requirements under any
Environmental Laws.
D. Borrowers shall promptly undertake, and shall
cause each of their Subsidiaries promptly to undertake,
any and all investigations, studies, sampling, testing,
abatement, cleanup, removal, remediation or other response
actions necessary to remove, remediate, clean up or abate
any Hazardous Materials Activity on, under or about any
Facility that is in violation of any Environmental Laws or
that presents a material risk of giving rise to an
Environmental Claim. In the event any Borrower or any of
their Subsidiaries undertakes any such action with respect
to any Hazardous Materials, such Borrower or such
Subsidiary shall conduct and complete such action in
compliance with all applicable Environmental Laws and in
accordance with the policies, orders and directives of all
federal, state and local governmental authorities except
when, and only to the extent that, such Borrower's or such
Subsidiary's liability with respect to such Hazardous
Materials Activity is being diligently contested in good
faith by such Borrower or such Subsidiary and such
reserves or other appropriate provision, if any, as shall
be required in conformity with GAAP shall have been made
therefor.
E. Except to the extent excused by the Bankruptcy
Code, Borrowers shall promptly take, and shall cause each
of their Subsidiaries promptly to take, any and all
actions necessary to (i) cure any material violation of
applicable Environmental Laws by any Borrower or any of
its Subsidiaries that arises after the Petition Date, and
(ii) make an appropriate response to any Environmental
Claim that arises after the Petition Date against any
Borrower or any of any of its Subsidiaries and discharge
any obligations it may have to any Person thereunder where
failure to do so could reasonably be expected to have,
individually or in the aggregate, a Material Adverse
Effect.
<PAGE> 58
F. Each Borrower shall, at its own expense, provide
copies of such documents or information in the possession
of such Borrower or its Subsidiaries as Lender may
reasonably request in relation to any matters disclosed
pursuant to this subsection 6.7.
6.8 Environmental Indemnity.
Each Borrower shall fully and promptly pay, perform,
discharge, defend, indemnify and hold harmless each
Indemnitee from and against any action, suit, proceeding,
claim or loss suffered or incurred by that Indemnitee
under or on account of any Environmental Laws or Release
of any Hazardous Materials relating to the Facilities
other than, to the extent that, such liability is a result
of the gross negligence or willful misconduct of the
Indemnitee, all as evidenced by a final judgment of a
court of competent jurisdiction.
6.9 Borrowing Base and Inventory Reports.
(i) Borrowing Base Certificates. Borrowers
shall deliver a Borrowing Base Certificate to Lender two
days in advance of the Closing Date, certifying the
Borrowing Base as of such date, to permit Lender to
determine the Borrowing Base to be in effect on the
Closing Date. Thereafter Borrowers shall deliver
Borrowing Base Certificates on a daily basis with each
such Borrowing Base Certificate dated and certifying the
Borrowing Base as of the immediately previous day.
Promptly following receipt of each such Borrowing Base
Certificate, Lender shall determine or, as the case may
be, redetermine the Borrowing Base in accordance with the
definition thereof, using the information contained in
such Borrowing Base Certificate, and shall notify
Borrowers of the Borrowing Base so determined and so
redetermined. Each such Borrowing Base so determined or
redetermined by Lender shall remain in effect until notice
of a redetermined Borrowing Base shall have been given by
Lender in accordance with the provisions of this
subsection 6.9.
(ii) Inventory Reports.
(a) Borrowers shall at all times hereafter
maintain a perpetual inventory, keeping correct and
accurate records itemizing and describing the kind, type,
quality and quantity of Inventory, Borrowers' cost
therefor and daily withdrawals therefrom and additions
thereto, all of which records shall be available during
Borrower's usual business hours upon reasonable prior
request of Lender.
(b) Within 60 days of the Closing Date
and at such other times as Lender may request, Borrowers
shall conduct a physical count of the Inventory for which
a statistical sampling will be sufficient, provided that
such statistical sampling is consistent with prior
practice of Borrowers and performed in accordance with
generally accepted auditing standards, and promptly
following such physical Inventory shall supply Lender with
a report in a form and with such specificity as may be
reasonably satisfactory to Lender concerning such physical
count of the Inventory.
<PAGE> 59
(c) Upon Lender's request, at any time
and from time to time, Borrowers shall, at Borrowers' sole
cost and expense, execute and deliver to Lender written
reports or appraisals of the Inventory listing all items
and categories thereof, describing the condition of same
and setting forth the value thereof (the lower of cost or
market value of the Inventory), in such form as is
reasonably satisfactory to Lender. Lender, in its
reasonable discretion, and at Borrowers' expense, may
review or have an outside consultant selected by them
review, upon reasonable notice and at reasonable times,
the quality and amount of inventory.
(iii) Accounts
(a) Borrowers shall immediately upon
obtaining knowledge thereof report to Lender all
reclaimed, repossessed or returned goods, Account Debtor
claims and any other matter affecting the value,
enforceability or collectability of Accounts.
(b) At Lender's request, any goods
reclaimed or repossessed by or returned to Borrowers will
be set aside, marked with Lender's name and held by
Borrower for Lender's account and subject to Lender's
security interest.
(c) Borrowers shall pay all sales, excise
or similar taxes relating to Accounts when due.
6.10 Cash Management System.
A. Cash Management System. Subject to the other
provisions of this subsection 6.10 and except for the
modifications described on Schedule 5.16, Borrowers shall
continue to maintain the Cash Management System as in
effect on the Closing Date as described on Schedule 5.16
and operate such system in accordance with past practice.
Without limiting the generality of the preceding sentence,
Borrowers shall cause all Receipts of Borrowers and each
of their subsidiaries to be deposited directly into
Collection Accounts subject to the Cash Management System
unless otherwise directed by Lender. If contrary to the
immediately preceding sentence, any Receipts are collected
by Borrowers or any Person acting on their behalf and not
paid directly into the Collection Accounts, such Receipts
shall be received in trust for Lender as Collateral and
shall be deposited into Collection Accounts subject to the
Cash Management System as promptly as practicable but in
any event not later than the Business Day following
receipt.
B. Lender Sweeps. On each Business Day following
the Closing Date, all collected funds on deposit in the
Sweep Accounts shall be transferred to the account of
Lender set forth in subsection 2.4B above or such other
account as Lender may designate in writing and the amounts
transferred shall be applied by Lender to the Obligations
in such order as Lender may elect, it being understood,
however, that (i) amounts transferred will be subject to
any reserve requirements of the applicable Depository
Institution and (ii) Lender shall be required to make
transfers from the Sweep Accounts only to the extent
Lender has the contractual right with the applicable
Depository Institution to initiate such transfer. As
promptly as possible and in any event within 5 days of the
Closing Date, Borrowers shall, and shall cause Congress
Financial Corporation (Central), to notify each Depository
Institution at which Sweep Accounts are maintained to make
all transfers from such accounts to the account of Lender
set forth on subsection 2.4B or such other account of
Lender as Lender shall designate in writing, all in a
manner satisfactory to Lender.
<PAGE> 60
C. Restrictions on Withdrawals. Borrowers shall
have no right to, and shall not, make any withdrawals from
any Deposit Accounts other than withdrawals from the
Disbursement Accounts for Permitted Payments so long as no
Potential Event of Default or Event of Default shall then
exist and be continuing.
D. Changes in Cash Management System.
(i) Following the Closing Date, Borrowers shall
make such changes in the Cash Management System as Lender
may reasonably request and shall take any actions
requested by Lender in connection with the operation of
the Cash Management System including without limitation,
entering into such documentation with Depository
Institutions as Lender may request to among other things
(x) confirm that such accounts are held in the name of and
under the control of Lender and that withdrawals and
transfers from the Deposit Accounts will be made, and only
made, in accordance with the Cash Management System, as
set forth herein, and any other instructions from Lender
and (y) provide for a waiver by the applicable Depository
Institution of any liens, claims or rights of set off
against the applicable Deposit Account and any funds held
therein.
(ii) Without limiting the generality of the
foregoing, within 15 days of the Closing Date, Borrower
will cause each Depository Institution at which Deposit
Accounts of Borrowers are maintained to enter into a Cash
Management Letter substantially in the form of Exhibit II
hereto with such changes as Lender may request.
E. Certain Lender Rights.
(i) All Deposit Accounts of Borrowers shall be
under the sole dominion and control of Lender subject to
any rights of Borrowers to make withdrawals from the
Disbursement Accounts to the extent permitted by
Subsection 6.10C.
(ii) Lender may from time to time instruct any
Depository Institutions with whom Collection Accounts in
the Cash Management System are maintained to transfer
funds on deposit in such Collection Accounts to any other
Deposit Account of Borrowers or to the account of Lender
set forth in subsection 2.4B.
<PAGE> 61
(iii) Each Borrower irrevocably makes,
constitutes and appoints Lender and all Persons designated
by Lender for that purpose at any time, as such Borrower's
true and lawful attorney and agent-in-fact to endorse such
Borrower's name on any checks, notes, drafts or any other
form of payment relating to the Collateral or receipts or
proceeds of Collateral that come into Lender's possession
or under Lender's control, provided, however, that such
appointment by such Borrower of Lender as such Borrower's
attorney-in-fact shall in no case impose upon Lender any
obligation or duty to take any actions on behalf of such
Borrowers or any fiduciary obligations with respect to
such Borrower.
(iv) If at any time an Event of Default or
Potential Event of Default shall exist and be continuing,
Lender may notify Depository Institutions to block any
Disbursement Accounts of Borrowers held by them and not
permit further withdrawals thereunder by Borrowers. If at
any time an Event of Default shall exist and be continuing
Lender may also exercise any rights and remedies with
respect to any Deposit Account in the Cash Management
System as may be available under this Agreement, the
Pledge and Security Agreement, or any other Loan Document,
or otherwise, including without limitation, instructing
all Depository Institutions to transfer funds held in any
such Deposit Accounts to any account which Lender may
designate.
F. Reimbursement and Indemnification. Without
limiting the generality of subsection 9.3 hereof,
Borrowers hereby agree jointly and severally to indemnify
and reimburse Lender for any claims, costs, fees, expenses
or other liabilities as incurred which Lender is required
to pay to any Depository Institution or any other Person
as a result of any fees associated with the Cash
Management System, any returned or dishonored checks or
any other amounts owing to such Persons in connection with
the Cash Management System, including without limitation
any amounts Lender is required to pay to Congress
Financial Corporation (Central) or any of its affiliates
in connection therewith, it being understood, however,
that Lender has no obligation to discharge or assume any
such claims, costs, fees, expenses or other liabilities
which shall be the sole responsibility of Borrower.
6.11 Material Contracts.
Except to the extent performance is otherwise excused
by the Bankruptcy Code or an applicable order of the
Court, each Borrower shall, and shall cause each of its
Subsidiaries to, perform, within all required time periods
(after giving effect to any applicable grace periods), all
of its obligations and enforce all of its rights under
each agreement, contract, instrument or other document to
which it is a party, including each Material Contract, any
leases and customer contracts to which it is a party where
the failure to so perform and enforce could have or result
in a Material Adverse Effect.
<PAGE> 62
6.12 Certain Post-Closing Obligations.
A. Business Plan. Borrowers shall deliver to
Lender by December 15, 1996, a business plan for FTC and
its Subsidiaries acceptable to Lender which shall include
a plan for a sale of the entire business in whole or in
parts during the Chapter 11 Cases or under a plan of
reorganization and setting forth a time line therefor,
together with sufficient detail as to the order of sale,
the process and the projected gross and net proceeds of
each asset, Facility or business to be sold. Nothing in
this Section 6.12A shall constitute a consent to any such
transactions.
B. Evidence of Insurance. Within 10 days of the
Closing Date, Lender shall have received an Officer's
Certificate of Borrowers setting forth a schedule of
insurance with respect to each of the insurance policies
required to be maintained hereunder, in form and substance
satisfactory to Lender, and cause each such insurance
policy to name Lender as loss payee and/or additional
insured, as appropriate, and to otherwise comply with
subsection 6.4A, and cause to be delivered to Lender an
original certificate of insurance from or on behalf of the
issuer of each such policy.
C. Mortgages. Within 30 days of the Closing Date
(i) Borrowers shall execute and deliver, or cause to be
executed and delivered, to Lender, Mortgages in recordable
form and such other agreements, instruments and documents
as Lender may require, all in form and substance
satisfactory to Lender, covering the Mortgaged Properties
and (ii) Borrowers shall deliver to Lender, an ALTA
lender's title insurance policy or other form of policy
satisfactory to Lender (``Lender's Policy'') issued by a
company or companies satisfactory to Lender, in an amount
satisfactory to Lender, with all premiums paid thereon,
and which shall insure that (x) the Obligations are
secured by a valid first Lien on the Mortgaged Property
subject only to the title exceptions approved by Lender,
and (y) Borrowers are current in the payment of all
applicable state and local taxes, charges and assessments
affecting the Mortgaged Property. The Lender's Policy
shall contain, to the extent available, (a) a
comprehensive lender's endorsement, (b) a broad form
zoning endorsement, including parking, (c) a survey
accuracy endorsement, (d) a usury endorsement, (e)
appropriate encroachment endorsements, (f) a tie-in
endorsement, (g) a last-dollar endorsement, (h) a variable
rate endorsement, (i) a revolving loan endorsement, and
(j) such other endorsements as Lender may deem necessary
or advisable, all in form and substance satisfactory to
Lender. No title indemnities shall be established in
connection with the issuance of the Lender's Policy.
Concurrently with the delivery of the Mortgage on any
Mortgaged Property, Lender shall have received evidence
satisfactory to it as to whether (i) such Mortgaged
Property is in an area designated by the Federal Emergency
Management Agency as having special flood or mud slide
hazards (a ``Flood Hazard Property'') and (ii) the
community in which such Flood Hazard Property is located
is participating in the National Flood Insurance Program;
and, if such Mortgaged Property contains any Flood Hazard
Property, Lender shall have received Borrower's written
acknowledgement of receipt of written notification from
Lender (x) as to the existence of such Flood Hazard
Property and (y) as to whether the community in which such
Flood Hazard Property is located is participating in the
National Flood Insurance Program.
<PAGE> 63
D. Further Assurances. Each Borrower shall
promptly, upon the request of Lender, at Borrower's
expense (i) execute, acknowledge and deliver, or cause the
execution, acknowledgement and delivery of, and thereafter
register, file or record, or cause to be registered,
filed or recorded, in an appropriate governmental office,
any document or instrument supplemental to or confirmatory
of any Collateral Document or otherwise deemed by the
Lender desirable for the continued validity, perfection
and priority of the Liens on the Collateral covered
thereby; and (ii) execute and deliver such further
documents and do such other acts and things as Lender may
at any time or from time to time request in order to
effect fully the purposes of this Agreement and the other
Loan Documents and to provide for payment of the
Obligations hereunder and under the other Loan Documents
in accordance with the terms of this Agreement and the
other Loan Documents and to confirm the grant to Lender of
a perfected, first priority security interest in all of
its real, personal and mixed property.
E. Opinions. If requested by Lender, Borrowers
shall cause to be delivered to Lender (i) an opinion or
opinions of counsel covering such matters as Lender may
request in connection with any matters described in, or
matters requested by Lender in accordance with,
subsections 6.12C or 6.12D, and otherwise in form and
substance satisfactory to Lender and (ii) such
corporate documents (including, without limitation,
resolutions of the board of directors, organizational
documents and signature and incumbency certificates)as
Lender may request with respect to such matters.
F. Certain Engagements. Borrowers will hire a
chief financial officer by not later than October 18,
1996. Borrowers will continue to engage Price Waterhouse
as their financial advisor and Alvarez & Marsal as Crisis
Manager unless otherwise consented to by Lender in
writing.
G. Lien Searches. To the extent not delivered to
Lender on or prior to the Closing Date, Borrowers shall
deliver to Lender as promptly as practicable and in any
event prior to the entry of the Final Order, appropriate
Lien, judgment and tax searches for each Borrower in each
applicable recording office in each county and state where
such Borrower (i) owns or leases real property, (ii) has
equipment or inventory, (iii) has its chief executive
office or (iv) has a place of business, all in form and
substance satisfactory to Lender.
SECTION 7
BORROWERS' NEGATIVE COVENANTS
Each Borrower covenants and agrees that, so long as
the Commitments hereunder shall remain in effect and until
payment in full of all of the Loans and other Obligations
unless Lender shall otherwise give prior written consent,
such Borrower shall perform, and shall cause each of its
Subsidiaries to perform, all covenants in this Section 7.
<PAGE> 64
7.1 Indebtedness.
Borrowers shall not, and shall not permit any of
their respective Subsidiaries to, directly or indirectly,
create, incur, assume or guaranty, or otherwise become or
remain directly or indirectly liable with respect to, any
Indebtedness, except:
(i) Borrowers may become and remain liable with
respect to the Obligations;
(ii) each Borrower and its Subsidiaries may
become and remain liable with respect to Contingent
Obligations permitted by subsection 7.4 and, upon any
matured obligations actually arising pursuant thereto, the
Indebtedness corresponding to the Contingent Obligations
so extinguished;
(iii) each Borrower and its Subsidiaries may
become and remain liable with respect to Indebtedness in
respect of Capital Leases; provided that such Capital
Leases are permitted under the terms of subsection 7.9;
(iv) each Borrower may become and remain liable
with respect to Prepetition Indebtedness without giving
effect to any extensions, renewals, refinancings,
supplemental borrowings or other incurrences thereof, it
being understood that all such Indebtedness shall be
permitted under this clause (iv) only to the extent listed
on Schedule 7.1 hereto; and
(v) Fruehauf de Mexico may incur additional
indebtedness to Borrowers in an aggregate principal amount
not to exceed $800,000 at any time and remain liable with
respect to existing indebtedness to the Borrowers,
provided (x) in the case of any new advances, that such
advances are reflected in a separate line item of an
Approved Budget and (y) in the case of all such
indebtedness, that such indebtedness is evidenced by
promissory notes which are pledged to Lender.
7.2 Liens and Related Matters.
A. Prohibition on Liens. Borrowers shall not, and
shall not permit any of their respective Subsidiaries to,
directly or indirectly, create, incur, assume or permit to
exist any Lien on or with respect to any property or asset
of any kind (including any document or instrument in
respect of goods or accounts receivable) of any Borrower
or any such Subsidiary, whether now owned or hereafter
acquired, or any income or profits therefrom, or file or
permit the filing of, or permit to remain in effect, any
financing statement or other similar notice of any Lien
with respect to any such property, asset, income or
profits under the Uniform Commercial Code of any State or
under any similar recording or notice statute (other than
filings or recordings in respect of the Existing Working
Capital Facilities for a period of 30 days after the
Closing Date), or apply to the Court for the authority to
do any of the foregoing, except:
<PAGE> 65
(i) existing Permitted Encumbrances listed on
Schedule 5.5;
(ii) Liens created in favor of Lender pursuant
to the Collateral Documents;
(iii) Liens in existence as of the Petition
Date as set forth in Schedule 7.2 annexed hereto;
(iv) post-petition Liens securing amounts
outstanding under the Existing Indenture to the extent
permitted by the Borrowing Orders; and
(v) Liens on deposits collateralizing
Contingent Obligations under Existing Letters of Credit to
the extent such deposits do not exceed $6,561,426.
B. Equitable Lien in Favor of Lender. If any
Borrower or any of its Subsidiaries shall create or assume
any Lien upon any of its properties or assets, whether now
owned or hereafter acquired, other than Liens excepted by
the provisions of subsection 7.2A, it shall make or
cause to be made effective provision whereby the
Obligations will be secured by such Lien equally
and ratably with any and all other Indebtedness secured
thereby as long as any such Indebtedness shall be so
secured; provided that, notwithstanding the foregoing,
this covenant shall not be construed as a consent by
Lender to the creation or assumption of any such Lien not
permitted by the provisions of subsection 7.2A.
C. No Further Negative Pledges. Other than as
provided herein and the other Loan Documents, no Borrower
and no Subsidiary of any Borrower shall enter into any
agreement prohibiting the creation or assumption of any
Lien upon any of its properties or assets, whether now
owned or hereafter acquired.
D. No Restrictions on Subsidiary Distributions to
Borrower or Other Subsidiaries. Except as provided herein
and the other Loan Documents, each Borrower will not, and
will not permit any of its respective Subsidiaries to,
create or otherwise cause or suffer to exist or become
effective any consensual encumbrance or restriction of any
kind on the ability of any such Subsidiary to (i) pay
dividends or make any other distributions on any of such
Subsidiary's capital stock owned by such Borrower or any
other Subsidiary of such Borrower, (ii) repay or prepay
any Indebtedness owed by such Subsidiary to such Borrower
or any other Subsidiary of such Borrower, (iii) make loans
or advances to such Borrower or any other Subsidiary of
such Borrower, or (iv) transfer any of its property or
assets to such Borrower or any other Subsidiary of such
Borrower.
7.3 Investments; Joint Ventures.
Borrowers shall not, and shall not permit any of
their respective Subsidiaries to, directly or indirectly,
make or own any Investment in any Person, including any
Joint Venture or Subsidiary, except:
<PAGE> 66
(i) Borrowers and their respective Subsidiaries
may make and own Investments in Cash Equivalents;
(ii) each Borrower and its Subsidiaries may make
Consolidated Capital Expenditures permitted by subsection
7.8;
(iii) each Borrower and its Subsidiaries may
continue to own the Investments owned by them as of the
Closing Date as set forth in Schedule 7.3 annexed hereto;
(iv) each Borrower may make investments in other
Borrowers; and
(v) Borrowers may make loans to Fruehauf de
Mexico to the extent permitted by Section 7.1(v).
7.4 Contingent Obligations.
Borrowers shall not, and shall not permit any of
their respective Subsidiaries to, directly or indirectly,
create or become or remain liable with respect to any
Contingent Obligation, except:
(i) each Borrower and its Subsidiaries may
become and remain liable with respect to Contingent
Obligations in respect of the Obligations;
(ii) each Borrower and its Subsidiaries may
become and remain liable with respect to Contingent
Obligations in existence on the Petition Date set forth on
Schedule 7.4 annexed hereto; and
(iii) each Borrower may continue to remain
liable with respect to Contingent Obligations in respect
of the Existing Letters of Credit set forth on Schedule
1.1A annexed hereto only to the extent such obligations
are fully cash collateralized with proceeds of Loans
hereunder.
7.5 Restricted Junior Payments.
Borrowers shall not, and shall not permit any of
their respective Subsidiaries to, directly or indirectly,
declare, order, pay, make or set apart any sum for any
Restricted Junior Payment.
7.6 Financial Covenants.
A. Minimum Consolidated Adjusted EBITDA. Borrowers
shall not permit Consolidated Adjusted EBITDA for any
fiscal month set forth below to be less than (or more
negative, in the case of negative numbers) the correlative
amount indicated:
<PAGE> 67
Minimum Consolidated
Month Adjusted EBITDA
----- ---------------
November 1996 ($1,200,000)
December 1996 ($1,100,000)
January 1997 $150,000
February 1997 $150,000
March 1997 $150,000
April 1997 $150,000
B. Minimum Net Sales. Borrowers shall not permit
Consolidated Net Sales for any month set forth below to be
less than the correlative amount indicated:
Minimum Consolidated
Month Net Sales
----- ---------
November 1996 $16,425,000
December 1996 $16,125,000
January 1997 $18,375,000
February 1997 $18,525,000
March 1997 $18,600,000
April 1997 $18,450,000
7.7 Restriction on Fundamental Changes; Asset Sales.
Each Borrower shall not, and shall not permit any of
its Subsidiaries to, change its legal form, or enter into
any transaction of merger or consolidation, or liquidate,
wind-up or dissolve itself (or suffer any liquidation or
dissolution), make any Asset Sale or otherwise convey,
sell, lease, sub-lease, transfer or otherwise dispose of,
in one transaction or a series of transactions, all or any
substantial part of its business, property or fixed
assets, whether now owned or hereafter acquired, or
acquire by purchase or otherwise all or substantially all
the business, property or fixed assets of, or stock or
other evidence of beneficial ownership of, any Person,
except:
<PAGE> 68
(i) Borrowers and their Subsidiaries may make
Consolidated Capital Expenditures permitted under
subsection 7.8; and
(ii) subject to subsection 7.13, Borrowers and
their Subsidiaries may sell or otherwise dispose of assets
in transactions that do not constitute Asset Sales;
provided that the consideration received for such assets
shall be in an amount at least equal to the fair market
value thereof.
7.8 Consolidated Capital Expenditures.
Borrowers shall not, and shall not permit any of
their respective Subsidiaries to, make or incur
Consolidated Capital Expenditures, in any month indicated
below, in an aggregate amount in excess of the
corresponding amount (the "Maximum Consolidated Capital
Expenditures Amount") set forth below opposite such month;
provided that the Maximum Consolidated Capital
Expenditures Amount for any month shall be increased by an
amount equal to the excess, if any, of the Maximum
Consolidated Capital Expenditures Amount for the previous
month (as adjusted in accordance with this proviso) over
the actual amount of Consolidated Capital Expenditures for
such previous month:
Maximum Consolidated
Month Capital Expenditures
----- --------------------
October 1996 $165,000
November 1996 $165,000
December 1996 $165,000
January 1997 $165,000
February 1997 $165,000
March 1997 $165,000
April 1997 $165,000
7.9 Restriction on Leases.
Borrowers shall not, and shall not permit any of
their respective Subsidiaries to, become liable in any
way, whether directly or by assignment or as a guarantor
or other surety, for the obligations of the lessee under
any lease, whether an Operating Lease or a Capital Lease,
other than Operating Leases and Capital Leases in
existence on the Petition Date.
<PAGE> 69
7.10 Sales and Lease-Backs.
Borrowers shall not, and shall not permit any of
their respective Subsidiaries to, directly or indirectly,
become or remain liable as lessee or as a guarantor or
other surety with respect to any lease, whether an
Operating Lease or a Capital Lease, of any property
(whether real, personal or mixed), whether now owned or
hereafter acquired, (i) which any Borrower or any of its
Subsidiaries has sold or transferred or is to sell or
transfer to any other Person or (ii) which any Borrower or
any of its Subsidiaries intends to use for substantially
the same purpose as any other property which has been or
is to be sold or transferred by such Borrower or any such
Subsidiary to any Person in connection with such lease.
7.11 Chapter 11 Claims.
Without limiting the provisions of subsection 7.2
hereof, none of the Borrowers shall incur, create, assume,
suffer or permit any claim or Lien or encumbrance against
it or any of its property or assets in any Chapter 11 Case
(other than the allowed administrative expense claims
specifically referred to in subsection 2.8) to be pari
passu with or senior to the claims of Lender against any
Borrower in respect of the Obligations hereunder, or apply
to the Court for authority to do so.
7.12 Transactions with Shareholders and Affiliates.
No Borrower shall nor shall it permit any of its
Subsidiaries to, directly or indirectly, enter into or
permit to exist any transaction (including, without
limitation, the purchase, sale, lease or exchange of any
property or the rendering of any service) with any holder
of 5% or more of any class of equity Securities of such
Borrower or with any Affiliate of such Borrower or of any
such holder unless the terms of such business, transaction
or series of transactions are (i) set forth in writing and
(ii) as favorable to such Borrower or such Subsidiary as
terms that would be obtainable at the time for a
comparable transaction or series of similar transactions
in arm's-length dealings with an unrelated third person
provided that this subsection 7.12 shall not prohibit
intercompany loans to Fruehauf de Mexico made in
accordance with subsection 7.1(v).
7.13 Disposal of Subsidiary Stock.
Other than as permitted by subsections 7.2, no
Borrower shall:
(i) directly or indirectly issue, sell, assign,
pledge or otherwise encumber or dispose of any shares of
capital stock or other equity Securities of any of its
Subsidiaries, except to qualify directors if required by
applicable law; or
(ii) permit any of its Subsidiaries directly or
indirectly to issue, sell, assign, pledge or otherwise
encumber or dispose of any shares of capital stock or
other equity Securities of any of its Subsidiaries
(including such Subsidiary), except to qualify directors
if required by applicable law.
<PAGE> 70
7.14 Conduct of Business.
From and after the Closing Date, Borrowers shall not,
and shall not permit any of their respective Subsidiaries
to, engage in any business other than the businesses
engaged in by Borrowers and such Subsidiaries on the
Closing Date.
7.15 Limitation on Payments and Disbursements.
Borrowers shall not, and not permit any of their
Subsidiaries to, make, or draw any funds from any
Disbursement Account for, any disbursements or payments
other than Permitted Payments.
7.16 Sale or Discount of Receivables.
Borrowers shall not, and shall not permit any of
their Subsidiaries to, directly or indirectly, sell with
recourse, or discount or otherwise sell for less than the
face value thereof, any of their notes or accounts
receivable.
7.17 Fiscal Year; Tax Consolidation.
A. Borrowers shall not change their Fiscal Year-end
from December 31.
B. Borrowers will not, nor will they permit any of
their respective Subsidiaries to, file or consent to the
filing of any consolidated income tax return with any
Person (other than FTC or any of its Subsidiaries).
7.18 Amendments to Material Contracts.
Each Borrower shall not, and shall not permit any of
its Subsidiaries to, terminate or modify any provision of
any agreement, contract, instrument or other document
(including any Material Contract) to which it is a party
which termination or modification could have or result
in a Material Adverse Effect.
SECTION 8
EVENTS OF DEFAULT
Notwithstanding the provisions of Sections 105 and
362 of the Bankruptcy Code and without application or
motion to, or order from, the Court, the occurrence of any
one or more of the following events, regardless of the
reason therefore, shall constitute an ``Event of Default''
hereunder:
<PAGE> 71
8.1 Failure to Make Payments When Due.
Failure to make any payment of principal of any Loan
when due, whether at stated maturity, by acceleration, by
notice of prepayment or otherwise; or failure to make any
payment of interest on any Loan or to pay any other
Obligations within three days of the date due; or
8.2 Breach of Certain Covenants.
Failure of any Borrower to perform or comply with any
term or condition contained in subsections 2.4, 2.5, 6.2,
6.4, 6.9, 6.10, or Section 7 of this Agreement; or
8.3 Other Defaults Under Loan Documents.
Any Borrower shall default in the performance of or
compliance with any term contained in this Agreement or
any of the other Loan Documents, other than any such term
referred to in any other subsection of this Section 8, and
such default shall not have been remedied or waived within
5 days after the earlier of (i) an officer of any Borrower
becoming aware of such default or (ii) receipt by such
Borrower of notice from Lender of such default; or
8.4 Breach of Warranty.
Any representation, warranty, certification or other
statement made by any Borrower or any of its Subsidiaries
in any Loan Document or in any statement or certificate at
any time given by any Borrower or any of its Subsidiaries
in writing pursuant hereto or thereto or in connection
herewith or therewith shall be false in any material
respect on the date as of which made; or
8.5 Bankruptcy Proceeding Events.
(i) The entry of an order authorizing any Borrower
in any of the Chapter 11 Cases to obtain additional
financing under Section 364(c) or (d) of the Bankruptcy
Code, or authorizing any Person to recover from any
portions of the Collateral any costs or expenses of
preserving or disposing of such Collateral under Section
506(c) of the Bankruptcy Code, or authorizing the use
of cash collateral without prior written consent of Lender
under Section 363(c) of the Bankruptcy Code; (ii) the
appointment of an interim or permanent trustee or examiner
in any of the Chapter 11 Cases; (iii) the dismissal of any
of the Chapter 11 Cases, or the conversion of any of the
Chapter 11 Cases to a case under Chapter 7 of the
Bankruptcy Code; (iv) the entry of an order
granting relief from or modifying the automatic stay of
Section 362 of the Bankruptcy Code (a) to allow any
creditor to take possession of or execute upon or enforce
a Lien on any Collateral or on any other property or
assets of any Borrower or (b) with respect to any Lien of,
or the granting of any Lien on any Collateral or any other
property or assets of any Borrower to, any State or
local environmental or regulatory agency or authority; (v)
the entry of an order amending, supplementing, staying,
vacating or otherwise modifying either of the Borrowing
Orders, this Agreement or any other Loan Document or any
of Lender's obligations, rights, benefits, privileges or
remedies under the Borrowing Orders, this Agreement or any
other Loan Document, in any case without Lender's prior
consent; (vi) an order shall be entered approving, or
there shall arise, any other administrative expense claim
(other than as to the Carve-Out as and to the extent
specifically referred to in subsection 2.8) having any
priority over, or being pari passu with the administrative
expense super priority status of the Obligations in
respect of any of the Chapter 11 Cases; or
<PAGE> 72
8.6 Judgments.
(i) Any money judgment, writ or warrant of
attachment, or similar process involving in any individual
case an amount in excess of $250,000 (exclusive of any
amount which is fully and adequately covered by insurance
and with respect to which the insurer has acknowledged in
writing its coverage) that would constitute an
administrative expense in the Chapter 11 Cases shall
be entered or filed against any Borrower or any of their
respective assets and shall remain undischarged,
unvacated, unbonded or unstayed for a period of thirty
(30) days or in any event later than five (5) days prior
to the date of any proposed sale thereunder; or
(ii) Any Borrower shall enter into any voluntary
settlement of litigation or claim that would constitute an
administrative expense in the Chapter 11 Cases in an
amount, in any individual case, in excess of $250,000
(exclusive of any amount which is fully and adequately
covered by insurance and with respect to which the insurer
has acknowledged its coverage in writing); or
(iii) Any judgment, writ or warrant of attachment
or similar process involving (a) in any individual case an
amount in excess of $250,000 or (b) in the aggregate at
any time an amount in excess of $250,000 (in either case
not adequately covered by insurance as to which a solvent
and its unaffiliated insurance company has acknowledged
coverage) shall be entered or filed against any Subsidiary
of any Borrower or any of its assets and shall remain
undischarged, unvacated, unbonded or unstayed for a period
of 30 days (or in any event later than five days prior to
the date of any proposed sale thereunder).
8.7 Employee Benefit Plans.
There shall occur one or more ERISA Events which
individually or in the aggregate results in or might
reasonably be expected to result in liability of any
Borrower or any of its ERISA Affiliates in excess of
$250,000 during the term of this Agreement; or there shall
exist an amount of unfunded benefit liabilities (as
defined in Section 4001(a)(18) of ERISA), individually or
in the aggregate for all Pension Plans (excluding for
purposes of such computation any Pension Plans with
respect to which assets exceed benefit liabilities), which
exceeds $250,000; or
<PAGE> 73
8.8 Impairment of Collateral.
Any provision of any Collateral Document shall for
any reason cease to be valid and enforceable in accordance
with its terms, any Collateral Document shall be
repudiated or terminated, including by operation of law,
or any Lien created under any Collateral Document or
the Interim Order or the Final Order, as the case may be,
shall cease to be a valid and perfected first priority
security interest or Lien in any portion of the Collateral
purported to be covered thereby; or
8.9 Default Under or Termination of Material Contracts.
Any termination or material default or breach under,
or expiration of (other than in accordance with the
prepetition terms of such contract), any Material Contract
shall occur; or
8.10 Material Adverse Effect.
Any event or change shall occur after the Closing
Date (including any judgment) that has caused or
evidences, either in any case or in the aggregate, a
Material Adverse Effect; or
8.11 Change in Crisis Manager.
The Crisis Manager shall resign or be terminated or
such manager's powers shall be modified or curtailed in
any material respect in the sole judgment of Lender from
those set forth in the initial engagement agreement
required to be approved by Lender or Jones, Day, Reavis &
Pogue shall cease to be general bankruptcy and corporate
counsel to Borrowers in the Chapter 11 Cases or its
responsibilities shall be limited, in any such event
without the consent of Lender.
8.12 Change in Board.
The composition of the Board of Directors (or any
committee thereof) shall change without the consent of
Lender except as a result of death or permanent
disability.
THEN upon the occurrence and during the continuance of any
Event of Default, Lender may (notwithstanding the
provisions of Sections 105 and 362 of the Bankruptcy Code
and without application or motion to, or order from, the
Court) (A) declare (i) the unpaid principal amount
of and accrued interest on the Loans, and (ii) all other
Obligations, immediately due and payable, without
presentment, demand, protest or other requirements of any
kind, all of which are hereby expressly waived by
Borrowers, and the same shall forthwith become,
immediately due and payable, and the obligation of Lender
to make any Loan hereunder and the Commitments shall
thereupon terminate and (B) exercise all other rights and
remedies of Lender set forth in any of the Collateral
Documents, in addition to all rights and remedies allowed
by applicable laws of the United States and of any state
thereof, including but not limited to the UCC; provided
that, any other provision of this Agreement or any other
Loan Document to the contrary notwithstanding, with
<PAGE> 74
respect to all rights and remedies other than Acceleration
and termination of the Commitments and any obligation to
make Loans, Lender shall give Borrowers, counsel to any
official committee in respect of the Chapter 11 Cases, the
trustee under the Existing Indenture and Haynes and Boone,
L.L.P. (counsel to certain holders of Senior Notes) five
Business Days' prior notice (which notice shall be
delivered by facsimile or overnight courier) of the
intention to exercise its rights and remedies with respect
to the Collateral and the Obligations and file a copy of
such notice with the clerk of the Court, all in accordance
with the Borrowing Orders. In addition to all other
rights and remedies, Lender may, by one or more motions,
which Borrower agrees not to oppose, cause any part or all
of the assets and properties of the Borrowers to be sold
at one or more sales pursuant to Section 363 of the
Bankruptcy Code, or Lender may request that Borrowers file
and prosecute such motion or motions and Borrowers agree
to do so promptly.
Lender shall not have any obligation of any kind to
make a motion or application to the Bankruptcy Court to
exercise any of its rights and remedies set forth or
referred to in this Agreement or in the other Loan
Documents. The enumeration of the foregoing rights and
remedies is not intended to be exhaustive and the exercise
of any right or remedy shall not preclude the exercise of
any other rights or remedies, all of which shall be
cumulative and not alternative.
Borrowers waive, (i) presentment, demand and protest
and notice of presentment, dishonor, notice of intent to
accelerate, notice of acceleration, protest, default,
nonpayment, maturity, release, compromise, settlement,
extension or renewal of any or all commercial paper,
accounts, contract rights, documents, instruments, chattel
paper and guaranties or other property at any time held by
Lender on which Borrowers may in any way be liable and
hereby ratify and confirm whatever Lender may do in this
regard, (ii) subject to the notice provisions of the
preceding paragraph, all rights to notice and hearing
prior to Lender's taking possession or control of, or to
Lender's replevy, attachment or levy upon, the Collateral,
or any bond or security which might be required by any
court prior to allowing Lender to exercise any of its
remedies, and (iii) the benefit of all valuation,
appraisal and exemption laws. Borrowers acknowledge they
have been advised by counsel of their choice with respect
to the effect of the foregoing waivers and this Agreement,
the other Loan Documents and the transactions evidenced by
this Agreement and the other Loan Documents.
SECTION 9
MISCELLANEOUS
9.1 Participations in Loans.
Lender shall have the right at any time to sell
participations to any Person in all or any part of its
Commitment or any Loan or Loans made by it or any other
interest herein or in any other Obligations owed to it;
provided that Lender may not participate more than
one-quarter of the Commitment or any Loans or any other
interest herein or any other Obligations owed to it and
provided further that no such participation shall, without
the consent of Borrowers, require any Borrower to file a
registration statement with the Securities and Exchange
Commission or apply to qualify such participation under
the securities laws of any state. Except as otherwise
provided in this subsection 9.1, Lender shall not, as
between Borrowers and Lender, be relieved of any of
its obligations hereunder as a result of any granting of
participations in all or any part of its Commitment or the
Loans or the other Obligations owed to Lender.
<PAGE> 75
The holder of any such participation shall not be
entitled to require such Lender to take or omit to take
any action hereunder except action directly affecting (i)
the extension of the regularly scheduled maturity of any
portion of the principal amount of or interest on any Loan
allocated to such participation, (ii) a reduction of the
principal amount of or the rate of interest payable on any
Loan allocated to such participation or (iii) the release
of more than 50% of the Collateral. All amounts payable
by Borrowers hereunder (including without limitation
amounts payable to such Lender pursuant to subsection 2.6)
shall be determined and paid to Lender as if Lender had
not sold such participation.
Lender may furnish any information concerning
Borrowers and their Subsidiaries in the possession of
Lender from time to time to participants (including
prospective participants), subject to subsection 9.17.
9.2 Expenses.
Borrowers shall, at the option of Lender in each
instance either pay directly or reimburse Lender for all
expenses of Lender in connection with the underwriting,
due diligence analysis and credit approval with respect
to, and the preparation of, the Loan Documents (including
the reasonable fees and out-of-pocket expenses of Lender's
counsel retained in connection with the Loan Documents and
the transactions contemplated thereby), and all such
expenses shall be part of the Obligations. If, at any
time or times, regardless of the existence of an Event of
Default, Lender shall incur reasonable expenses itself or
employ counsel or other professional advisors, including,
but not limited to, environmental, financial and
management consultants, for advice or other representation
or shall incur legal, appraisal, accounting, consulting or
other reasonable costs and expenses in connection with:
A. any amendment, modification or waiver of,
or consent with respect to, any of the Loan Documents;
B. any litigation, contest, dispute, suit,
proceeding or action (whether instituted by Lender, any
Borrower or any other Person) in any way relating to the
Collateral, any of the Loan Documents, or any other
agreements to be executed or delivered in connection
therewith or herewith, including any litigation, contest,
dispute, suit, case, proceeding or action, and any appeal
or review thereof, in connection with a case or proceeding
commenced by or against any Borrower or any other Person
that may be obligated to Lender by virtue of the Loan
Documents, under the Bankruptcy Code, or any other
applicable Federal, state, or foreign bankruptcy or other
similar law;
<PAGE> 76
C. any attempt to enforce any rights or
remedies of Lender against any Borrower, or any other
Person that may be obligated to Lender by virtue of being
a party to any of the Loan Documents;
D. any effort or attempt to administer,
appraise, inspect, monitor, verify, protect, collect,
sell, liquidate or otherwise dispose of the Collateral; or
E. any Chapter 11 Case (including, without
limitation, the on-going monitoring by Lender of any
Chapter 11 Case, including attendance by Lender and/or its
counsel at hearings or other proceedings or meetings and
the on-going review of documents filed with the Court in
respect thereof) and Lender's interests with respect to
any Borrower (including, without limitation, the on-going
review of any Borrower's business, assets, operations,
prospects or financial condition as Lender shall deem
necessary), the Collateral or the Obligations;
then, and in any such event, the fees and expenses
incurred by Lender and such attorneys and other
professional advisors and consultants arising from such
services, including those of any appellate proceedings,
and all reasonable expenses, costs, charges and other fees
incurred by such counsel or other professionals in any
respect arising in connection with or relating to any of
the events or actions described in this subsection 9.2
shall be payable, on demand, by Borrowers to Lender, shall
be additional Obligations secured under the Collateral
Documents and the other Loan Documents, and Lender may
charge any Deposit Account for payment thereof. Without
limiting the generality of the foregoing, such expenses,
costs, charges and fees may include: paralegal fees, costs
and expenses; accountants' and experts' fees, costs and
expenses; appraisers' fees, costs and expenses; management
and other consultants' fees, costs and expenses; court
costs and expenses; photocopying and duplicating expenses;
court reporter fees, costs and expenses; long distance
telephone charges; communication charges, air express
charges; telegram charges; secretarial overtime charges;
and expenses for travel, lodging and food paid or incurred
in connection with the performance of such legal or other
professional services. Lender and its attorneys or other
agents shall not be required to file any application with
the Court for the payment of any fees and expenses. All
such fees and expenses shall be presumed reasonable and
Borrowers shall have the burden of proof to demonstrate
otherwise.
9.3 Indemnity.
In addition (but without duplication) to the payment
of expenses pursuant to subsection 9.2, whether or not the
transactions contemplated hereby shall be consummated,
Borrowers jointly and severally agree to defend,
indemnify, pay and hold harmless Lender, and the officers,
directors, employees, agents and affiliates of Lender
(collectively called the ``Indemnitees'') from and
against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, claims,
costs, expenses and disbursements of any kind or nature
<PAGE> 77
whatsoever (including without limitation the reasonable
fees and disbursements of counsel for such Indemnitees in
connection with any investigative, administrative or
judicial proceeding commenced or threatened by any
Person, whether or not any such Indemnitee shall be
designated as a party or a potential party thereto),
whether direct, indirect or consequential and whether
based on any federal, state or foreign laws, statutes,
rules or regulations (including without limitation
securities and commercial laws, statutes, rules or
regulations and Environmental Laws), on common law or
equitable cause or on contract or otherwise, that may be
imposed on, incurred by, or asserted against any such
Indemnitee, in any manner relating to or arising out of
this Agreement or the other Loan Documents or the Chapter
11 Cases or the transactions contemplated hereby or
thereby (including without limitation Lender's agreement
to make the Loans hereunder or the use or intended use of
the proceeds of any of the Loans hereunder (collectively
called the ``Indemnified Liabilities''); provided that
Borrowers shall not have any obligation to any Indemnitee
hereunder with respect to any Indemnified Liabilities to
the extent such Indemnified Liabilities arise solely from
the gross negligence or willful misconduct of that
Indemnitee (or its officers, agents or employees) as
determined by a final judgment of a court of competent
jurisdiction. To the extent that the undertaking to
defend, indemnify, pay and hold harmless set forth in the
preceding sentence may be unenforceable because it is
violative of any law or public policy, each Borrower shall
contribute the maximum portion that it is permitted to pay
and satisfy under applicable law to the payment and
satisfaction of all Indemnified Liabilities incurred by
the Indemnitees or any of them.
9.4 Set-Off; Security Interest in Deposit Accounts.
In addition to any rights now or hereafter granted
under this Agreement or any other Loan Document (including
the Collateral Documents) or under applicable law and not
by way of limitation of any such rights, and
notwithstanding the provisions of Sections 105 and 362 of
the Bankruptcy Code and without application or motion to,
or order from, the Court, upon the occurrence of any Event
of Default Lender is hereby authorized by Borrowers at any
time or from time to time, without notice to any Borrower,
or to any other Person (other than as expressly required
by the third to last paragraph of Section 8 hereof), any
such notice being hereby expressly waived, to set off and
to appropriate and to apply all Deposit Accounts and any
other deposits of or by Borrowers (general or special,
including, but not limited to, Indebtedness evidenced by
certificates of deposit, whether matured or unmatured, but
not including trust accounts) and any other Indebtedness
at any time held or owing by Lender to or for the credit
or the account of any Borrower against and on account of
the Obligations of Borrowers to Lender under the Notes and
the other Loan Documents including, but not limited to,
all claims of any nature or description arising out of or
connected with this Agreement, the Notes, or any other
Loan Document, irrespective of whether or not (i) Lender
shall have made any demand hereunder or (ii) the principal
of or the interest on the Loans or any other Obligations
shall have become due and payable pursuant to Section 8
and although said Obligations, or any of them, may be
contingent or unmatured. Borrowers hereby further confirm
the grant to Lender as part of the Collateral of a
security interest in, all Deposit Accounts and any other
deposits and accounts maintained with any bank, such
Lender or any agent acting on its behalf, as security for
the Obligations.
<PAGE> 78
9.5 Amendments and Waivers.
No amendment, modification, termination or waiver of
any provision of this Agreement, the Notes or any other
Loan Documents, or consent to any departure by Borrowers
therefrom, shall in any event be effective without the
written concurrence of Lender. Any waiver or consent
shall be effective only in the specific instance and for
the specific purpose for which it was given. No notice to
or demand on any Borrower in any case shall entitle such
Borrower to any other or further notice or demand in
similar or other circumstances. Any amendment,
modification, termination, waiver or consent effected in
accordance with this subsection 9.5 shall be binding upon
Lender and, if signed by any Borrower, on such Borrower.
9.6 Independence of Covenants.
All covenants hereunder shall be given independent
effect so that if a particular action or condition is not
permitted by any of such covenants, the fact that it would
be permitted by an exception to, or would otherwise be
within the limitations of, another covenant shall not
avoid the occurrence of an Event of Default or Potential
Event of Default if such action is taken or condition
exists.
9.7 Notices.
Unless otherwise specifically provided herein, any
notice or other communication herein required or permitted
to be given shall be in writing and may be personally
served, telecopied, telexed or sent by United States mail
or courier service and shall be deemed to have been given
when delivered in person or by courier service, upon
receipt of telecopy or telex, or four Business Days after
depositing it in the United States mail, registered or
certified, with postage prepaid and properly addressed;
provided that notices to Lender shall not be effective
until received. For the purposes hereof, the address of
each party hereto shall be as set forth under such party's
name on the signature pages hereof or as to any party,
such other address as shall be designated by such Person
in a written notice delivered to the other parties hereto.
9.8 Survival of Representations, Warranties and
Agreements.
A. All representations, warranties and agreements
made herein shall survive the execution and delivery of
this Agreement and the making of the Loans hereunder.
B. Notwithstanding anything in this Agreement or
implied by law to the contrary, the agreements of
Borrowers set forth in subsections 2.6, 9.2 and 9.3 and
the agreements of Lender set forth in subsection 9.17
shall survive the payment of the Loans and the termination
of this Agreement.
<PAGE> 79
9.9 Failure or Indulgence Not Waiver; Remedies
Cumulative.
No failure or delay on the part of Lender in the
exercise of any power, right or privilege hereunder or
under any other Loan Document shall impair such power,
right or privilege or be construed to be a waiver of any
default or acquiescence therein, nor shall any single or
partial exercise of any such power, right or privilege
preclude other or further exercise thereof or of any other
power, right or privilege. All rights and remedies
existing under this Agreement and the other Loan Documents
are cumulative to, and not exclusive of, any rights or
remedies otherwise available.
9.10 Marshalling; Payments Set Aside.
Lender shall not be under any obligation to marshal
any assets in favor of any Borrower or any other party or
against or in payment of any or all of the Obligations.
To the extent that any Borrower makes a payment or
payments to Lender, or Lender enforces any security
interests or exercises its right of setoff, and such
payment or payments or the proceeds of such enforcement
or setoff or any part thereof 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, any
other state or federal law, common law or any equitable
cause, then, to the extent of such recovery, the
obligation or part thereof originally intended to be
satisfied, and all Liens, rights and remedies therefor or
related thereto, shall be revived and continued in full
force and effect as if such payment or payments had not
been made or such enforcement or setoff had not occurred.
9.11 Severability.
In case any provision in or obligation under this
Agreement, the Note or any other Loan Document shall be
invalid, illegal or unenforceable in any jurisdiction, the
validity, legality and enforceability of the remaining
provisions or obligations, or of such provision or
obligation in any other jurisdiction, shall not in any way
be affected or impaired thereby.
9.12 Headings.
Section and subsection headings in this Agreement are
included herein for convenience of reference only and
shall not constitute a part of this Agreement for any
other purpose or be given any substantive effect.
9.13 Applicable Law.
THIS AGREEMENT SHALL BE GOVERNED BY, AND SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL
LAWS OF THE STATE OF NEW YORK (INCLUDING, WITHOUT
LIMITATION, SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAWS
OF THE STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS OF
LAWS PRINCIPLES.
<PAGE> 80
9.14 Successors and Assigns.
This Agreement shall be binding upon the parties
hereto and their respective successors and assigns and
shall inure to the benefit of the parties hereto and the
successors and assigns of Lender. No Borrower's rights or
obligations hereunder or any interest therein may be
assigned or delegated by such Borrower without the prior
written consent of Lender.
9.15 Consent to Jurisdiction and Service of Process.
ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST BORROWERS
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER
LOAN DOCUMENT OR ANY OBLIGATION MAY, SUBJECT TO THE
JURISDICTION OF THE COURT, BE BROUGHT IN ANY STATE OR
FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE OF
NEW YORK, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT
EACH BORROWER ACCEPTS FOR ITSELF AND IN CONNECTION WITH
ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE
NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS AND
WAIVES ANY DEFENSE OF FORUM NON CONVENIENS AND IRREVOCABLY
AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN
CONNECTION WITH THIS AGREEMENT, SUCH OTHER LOAN DOCUMENT
OR SUCH OBLIGATION. Each Borrower hereby agrees that
service of all process in any such proceeding in any such
court may be made to its counsel pursuant to the
Bankruptcy Rules or the rules of the Court or by
registered or certified mail, return receipt requested, to
such Borrower at its address provided in subsection 9.7,
such service being hereby acknowledged by Borrower to be
sufficient for personal jurisdiction in any action against
Borrower in any such Court and to be otherwise effective
and binding in every respect. Nothing herein shall affect
the right to serve process in any other manner permitted
by law or shall limit the right of Lender to bring
proceedings against any Borrower in the courts of any
other jurisdiction.
9.16 Waiver of Jury Trial.
EACH OF THE PARTIES TO THIS AGREEMENT HEREBY AGREES
TO WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY
CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS
AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR ANY
DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF
THIS LOAN TRANSACTION OR THE LENDER/BORROWER RELATIONSHIP
THAT IS BEING ESTABLISHED. The scope of this waiver
is intended to be all-encompassing of any and all disputes
that may be filed in any court and that relate to the
subject matter of this transaction, including without
limitation contract claims, tort claims, breach of duty
claims and all other common law and statutory claims.
Each party hereto acknowledges that this waiver is a
material inducement to enter into a business relationship,
that each has already relied on this waiver in entering
into this Agreement, and that each will continue to rely
on this waiver in their related future dealings. Each
party hereto further warrants and represents that it has
reviewed this waiver with its legal counsel and that it
knowingly and voluntarily waives its jury trial rights
following consultation with legal counsel. THIS WAIVER
IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER
ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO ANY
SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR
MODIFICATIONS TO THIS AGREEMENT OR ANY OF THE OTHER LOAN
DOCUMENTS OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING
TO THE LOANS MADE HEREUNDER. In the event of litigation,
this Agreement may be filed as a written consent to a
trial by the court.
<PAGE> 81
9.17 Confidentiality.
Lender agrees that it will hold and keep confidential
any non-public information from time to time supplied by
Borrowers or any of their Subsidiaries, which has been
identified as confidential, pursuant to the terms of this
Agreement or the Loan Documents in accordance with
Lender's customary procedures for handling confidential
information of this nature and in accordance with safe and
sound banking practices, and in all cases, in a manner
consistent with which Lender protects its own non-public
confidential information, it being understood and agreed
by Borrowers that Lender may make disclosures: (i) to the
extent required by law, to any governmental agency or
representative thereof or pursuant to legal process;
provided that, unless specifically prohibited by
applicable law or court order, Lender shall notify
Borrowers of any request by any governmental agency or
representative for disclosure of any such non-public
information prior to the disclosure of such information;
(ii) counsel to Lender or its accountants or other
advisors; (iii) bank examiners and auditors; (iv) any
participant of Lender, that agrees in writing to be bound
by the terms and provisions of this subsection 9.17; or
(vi) to the extent that such information becomes public
other than as a result of a breach of this subsection
9.17. It is understood and agreed that in no event shall
Lender be obligated or required to return any materials
furnished by any Borrower or any of their Subsidiaries.
Lender agrees that the terms and provisions of this
subsection 9.17 shall survive the payment of the Loans and
the termination of this Agreement and the Loan Documents.
9.18 Counterparts; Effectiveness.
This Agreement and any amendments, waivers, consents
or supplements hereto or in connection herewith may be
executed in any number of counterparts and by different
parties hereto in separate counterparts, each of which
when so executed and delivered shall be deemed an
original, but all such counterparts together shall
constitute but one and the same instrument; signature
pages may be detached from multiple separate counterparts
and attached to a single counterpart so that all signature
pages are physically attached to the same document. This
Agreement shall become effective upon the execution of a
counterpart hereof by each of the parties hereto and
receipt by Borrowers and Lender of written or telephonic
notification of such execution and authorization of
delivery thereof and entry of the Interim Order.
<PAGE> 82
9.19 Parties Including Trustees; Court Proceedings.
This Agreement and the other Loan Documents shall be
binding upon, and inure to the benefit of, the successors
of Lender, and the assigns, transferees and endorsees of
Lender. The security interests and Liens created in this
Agreement, the Collateral Documents and the other Loan
Documents shall be and remain valid and perfected, and the
claims of Lender hereunder valid and enforceable in
accordance with the terms hereof, notwithstanding the
discharge of any Borrower pursuant to 11 U.S.C. ss 1141,
the conversion of the Chapter 11 Case or any other
bankruptcy case of any Borrower to a case under Chapter 7
of the Bankruptcy Code or the dismissal of the Chapter 11
Case. Further, the security interests and Liens created
in this Agreement, the Collateral Documents and the other
Loan Documents shall be and remain valid and perfected
without the necessity that Lender file financing
statements or otherwise perfect its security interests or
Liens under applicable law. This Agreement and the other
Loan Documents, the claims of Lender hereunder and
thereunder, and all security interests or Liens created
hereby or pursuant hereto or by or pursuant to the
Collateral Documents or any other Loan Document shall at
all times be binding upon Borrowers, the estates of
Borrowers and any trustee or official committee appointed
in the Chapter 11 Case or any Chapter 7 case, or any other
successor in interest to Borrowers notwithstanding the
discharge of any Borrower pursuant to section 1141 of
the Bankruptcy Code, the conversion of the Chapter 11
Cases to a case under Chapter 7 of the Bankruptcy Code or
the dismissal of any of the Chapter 11 Cases. This
Agreement shall not be subject to Section 365 of the
Bankruptcy Code.
[Remainder of page intentionally left blank]
<PAGE>
<PAGE> S-1
IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be duly executed and delivered by their
respective officers thereunto duly authorized as of the
date first written above.
BORROWERS:
FRUEHAUF TRAILER CORPORATION
By: /s/ Kenneth A. Minor
---------------------
Name: Kenneth A. Minor
Title: Vice President - Treasurer
Notice Address:
111 Monument Circle
Suite 3200
Indianapolis, Indiana 46204
Attention: President
Fax: (317) 630-3090
With a copy to:
Rick Cieri, Esq.
Jones Day Reavis & Pogue
901 Lakeside Avenue
Cleveland, Ohio 44114
Fax: (216) 579-0212
FGR, INC.
By: /s/ Kenneth A. Minor
---------------------
Name: Kenneth A. Minor
Title: Vice President - Treasurer
Notice Address:
111 Monument Circle
Suite 3200
Indianapolis, Indiana 46204
Attention: President
Fax: (317) 630-3090
With a copy to:
Rick Cieri, Esq.
Jones Day Reavis & Pogue
901 Lakeside Avenue
Cleveland, Ohio 44114
Fax: (216) 579-0212
<PAGE> S-2
FRUEHAUF CORPORATION
By: /s/ Kenneth A. Minor
---------------------
Name: Kenneth A. Minor
Title: Vice President - Treasurer
Notice Address:
111 Monument Circle
Suite 3200
Indianapolis, Indiana 46204
Attention: President
Fax: (317) 630-3090
With a copy to:
Rick Cieri, Esq.
Jones Day Reavis & Pogue
901 Lakeside Avenue
Cleveland, Ohio 44114
Fax: (216) 579-0212
<PAGE> S-3
MARYLAND SHIPBUILDING & DRYDOCK
COMPANY
By: /s/ Gary K. Lorenz
---------------------
Name: Gary K. Lorenz
Title: President
Notice Address:
111 Monument Circle
Suite 3200
Indianapolis, Indiana 46204
Attention: President
Fax: (317) 630-3090
With a copy to:
Rick Cieri, Esq.
Jones Day Reavis & Pogue
901 Lakeside Avenue
Cleveland, Ohio 44114
Fax: (216) 579-0212
<PAGE> S-4
THE MERCER CO.
By: /s/ Kenneth A. Minor
---------------------
Name: Kenneth A. Minor
Title: Vice President - Treasurer
Notice Address:
111 Monument Circle
Suite 3200
Indianapolis, Indiana 46204
Attention: President
Fax: (317) 630-3090
With a copy to:
Rick Cieri, Esq.
Jones Day Reavis & Pogue
901 Lakeside Avenue
Cleveland, Ohio 44114
Fax: (216) 579-0212
FRUEHAUF INTERNATIONAL LIMITED
By: /s/ Kenneth A. Minor
---------------------
Name: Kenneth A. Minor
Title: Vice President - Treasure
Notice Address:
111 Monument Circle
Suite 3200
Indianapolis, Indiana 46204
Attention: President
Fax: (317) 630-3090
With a copy to:
Rick Cieri, Esq.
Jones Day Reavis & Pogue
901 Lakeside Avenue
Cleveland, Ohio 44114
Fax: (216) 579-0212
<PAGE> S-5
DEUTSCHE-FRUEHAUF HOLDING
CORPORATION
By: /s/ Kenneth A. Minor
---------------------
Name: Kenneth A. Minor
Title: Vice President - Treasurer
Notice Address:
111 Monument Circle
Suite 3200
Indianapolis, Indiana 46204
Attention: President
Fax: (317) 630-3090
With a copy to:
Rick Cieri, Esq.
Jones Day Reavis & Pogue
901 Lakeside Avenue
Cleveland, Ohio 44114
Fax: (216) 579-0212
<PAGE> S-6
JACKSONVILLE SHIPYARDS, INC.
By: /s/ Gary K. Lorenz
---------------------
Name: Gary K. Lorenz
Title: President
Notice Address:
111 Monument Circle
Suite 3200
Indianapolis, Indiana 46204
Attention: President
Fax: (317) 630-3090
With a copy to:
Rick Cieri, Esq.
Jones Day Reavis & Pogue
901 Lakeside Avenue
Cleveland, Ohio 44114
Fax: (216) 579-0212
M.J. HOLDINGS, INC.
By: /s/ Kenneth A. Minor
---------------------
Name: Kenneth A. Minor
Title: Vice President - Treasurer
Notice Address:
111 Monument Circle
Suite 3200
Indianapolis, Indiana 46204
Attention: President
Fax: (317) 630-3090
With a copy to:
Rick Cieri, Esq.
Jones Day Reavis & Pogue
901 Lakeside Avenue
Cleveland, Ohio 44114
Fax: (216) 579-0212
<PAGE> S-7
E.L. DEVICES, INC.
By: /s/ Gary K. Lorenz
---------------------
Name: Gary K. Lorenz
Title: President
Notice Address:
111 Monument Circle
Suite 3200
Indianapolis, Indiana 46204
Attention: President
Fax: (317) 630-3090
With a copy to:
Rick Cieri, Esq.
Jones Day Reavis & Pogue
901 Lakeside Avenue
Cleveland, Ohio 44114
Fax: (216) 579-0212
<PAGE> S-8
LENDER:
MADELINE, L.L.C.
By:/s/ Joyce Johnson-Miller
-------------------------
Name: Joyce Johnson-Miller
Title: Managing Director
Notice Address and Lending Office:
950 Third Avenue
20th Floor
New York, NY 10022
Attention: Joyce Johnson-Miller
Fax: (212) 750-5212
With a copy to:
O'Melveny & Myers
153 East 53rd Street
New York, NY 10022
Attention: Joel B. Zweibel, Esq.
Fax: (212) 326-2061
PLEDGE AND SECURITY AGREEMENT
This PLEDGE AND SECURITY AGREEMENT (this
``Agreement'') is dated as of October [9], 1996 and
entered into by and between FRUEHAUF TRAILER CORPORATION,
a Delaware corporation, as debtor and debtor-in-possession
(``FTC''), EACH OF THE SUBSIDIARIES OF FTC LISTED ON THE
SIGNATURE PAGES HERETO (the ``Subsidiaries''), as debtor
and debtor-in-possession (FTC and such Subsidiaries, shall
be individually referred to herein as a ``Grantor'' or
``Borrower'' and jointly and severally as ``Grantors'' or
``Borrowers''), and MADELINE, L.L.C., a Delaware limited
liability company (``Secured Party'' or ``Lender'') .
R E C I T A L S
WHEREAS, Borrowers and Lender have entered into that
certain Debtor-In-Possession Credit Agreement, dated as of
October [9], 1996 (said Credit Agreement, as it may
hereafter be amended, restated, supplemented or otherwise
modified from time to time, being the ``Credit
Agreement''; the terms defined therein and not otherwise
defined herein being used herein as therein defined),
pursuant to which the Lender has made certain commitments,
subject to the terms and conditions set forth in the
Credit Agreement, to extend certain credit facilities to
Borrowers;
WHEREAS, each of the Borrowers is jointly and
severally liable for the performance of the Obligations
and desires to secure all of its Obligations under the
Credit Agreement and the other Loan Documents to which it
is a party;
WHEREAS, it is a condition precedent to the initial
extensions of credit by the Lender under the Credit
Agreement that Grantors shall have granted the security
interests and undertaken the obligations contemplated by
this Agreement; and
WHEREAS, each Grantor will receive value and obtain
benefits in exchange for delivering this Agreement
securing their Obligations arising from time to time under
the Credit Agreement, the receipt of which value and
benefits are hereby acknowledged, and each Grantor,
accordingly, desires to enter into this Agreement in order
to satisfy the condition precedent described in the
foregoing paragraph.
NOW, THEREFORE, in consideration of the premises and
in order to induce the Lender to enter into the Credit
Agreement and extend credit thereunder and for other good
and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Grantors hereby agree with
Secured Party as follows:
<PAGE> 2
Section 1. Grant of Security
As collateral security for the prompt payment or
performance in full when due of the Secured Obligations
(as hereinafter defined) as more fully set forth in
Section 2 below, each Grantor hereby pledges and assigns
to Secured Party, and hereby grants to Secured Party a
security interest in, all of such Grantor's right, title
and interest in and to the following (including, without
limitation, all right, title and interest in, to and under
all property of the estate of such Grantor, as such term
is defined in Section 541 of the Bankruptcy Code), in
each case whether now or hereafter existing or in which
such Grantor now has or hereafter acquires an interest and
wherever the same may be located (the ``Collateral''):
(a) all equipment in all of its forms
including, but not limited to, all machinery, furnishings,
tools, supplies, motor vehicles and other equipment of any
kind and nature, together with all parts thereof
(including spare parts) and accessions thereto (any and
all such equipment, parts and accessions being the
``Equipment'');
(b) all inventory in all of its forms,
including, but not limited to, (i) all goods and
merchandise held by such Grantor for sale or lease or to
be furnished under contracts of service or so leased or
furnished, (ii) all raw materials, work in process,
finished goods, and materials used or consumed in the
manufacture, packing, shipping, advertising, selling,
leasing, furnishing or production of such inventory or
otherwise used or consumed in such Grantor's business,
(iii) all such goods in which such Grantor has a joint or
other interest or right of any kind, and (iv) all such
goods which are returned to or repossessed by such Grantor
and all accessions thereto and products thereof (all such
inventory, accessions and products being the "Inventory'')
and all non-negotiable and negotiable documents of title
(including, without limitation, warehouse receipts, dock
receipts and bills of lading) issued by any Person
covering any Inventory (any such negotiable document of
title being a ``Negotiable Document of Title'');
(c) all accounts, accounts receivables, rights
to payment and other receivables of any kind or nature
(including without limitation all of the foregoing arising
in connection with the sale or lease of Inventory) and all
contract rights, chattel paper, documents, instruments,
notes, general intangibles related to the foregoing,
whether or not earned by performance (collectively, the
``Accounts'') and all rights in, to and under all security
agreements, leases and other contracts securing or
otherwise relating to any of the Accounts (the ``Related
Contracts'');
(d) the agreements and contracts to which such
Grantor is a party, including without limitation those
listed in Schedule I annexed hereto, as each such
agreement may be amended, supplemented or otherwise
modified from time to time (said agreements, as so
amended, supplemented or otherwise modified, being
referred to herein individually as an ``Assigned
Agreement'' and collectively as the ``Assigned
agreements''), including without limitation (i) all rights
of such Grantor to receive moneys due or to become due
under or pursuant to the Assigned Agreements, (ii) all
rights of such Grantor to receive proceeds of any
insurance, indemnity, warranty or guaranty with respect to
the Assigned Agreements, (iii) all claims of such Grantor
for damages arising out of any breach of or default under
the Assigned Agreements, and (iv) all rights of such
Grantor to terminate, amend, supplement, modify or
exercise rights or options under the Assigned Agreements,
to perform thereunder and to compel performance and
otherwise exercise all remedies thereunder;
<PAGE> 3
(e) all of the Grantors' right, title and
interest in or other claim or demand both in law or
equity, in any real property or estate including without
limitation (i) all fee simple interests in real property,
(ii) all easements, rights-of-way and all right, title
and interest of the Grantors to sidewalks, alleys, strips
and gores of land adjacent to or used in connection with
any real property, (iii) all leasehold estates, and all
right, title and interest of the Grantors in and to any
and all leases, subleases, licenses, concessions,
franchises or similar agreements affecting or relating to
any real property or any portion thereof, and all right,
title and interest of the Grantors thereunder, including
all cash, security deposits, rentals, and deposits or
payments of similar nature,including without limitation
the list of real property in Schedule II hereto (the
``Real Property'');
(f) all right, title and interest, whether as
owner, lessee or otherwise, in and to any and all
buildings, constructions and improvements now or hereafter
erected, including fixtures, attachments, appliances,
equipment, machinery, and those other articles which are
attached to said buildings, constructions and
improvements, all of which shall be deemed and construed
to be part of the realty (the ``Improvements and
Fixtures'');
(g) all right, title and interest of the
Grantor in, to and under all plans, specifications, maps,
surveys, studies, reports, permits, licenses,
architectural, engineering and construction contracts,
books of account and other documents, of whatever kind or
character, relating to use, construction upon, occupancy,
leasing, sale or operation of the Real Property or the
Improvements and Fixtures (the ``Intangible Real Property
Collateral,'' and together with the Real Property and the
Improvements and Fixtures, the ``Real Property
Collateral'');
(h) all cash, money and currency;
(i) all demand, time, savings, passbook or like
accounts or deposits with any bank, savings and loan
association, credit union or like organization, including,
without limitation, the Collection Accounts and the
Disbursement Accounts (the ``Deposit Accounts'') and all
post office boxes, mail stops or like mechanisms for the
receipt of Accounts (collectively, the ``Lockboxes'')
together with (i) all funds held therein and all notes,
certificates, certificates of deposit, or other
instruments representing or evidencing any such funds, the
Deposit Accounts or the Lockboxes or issued in
substitution therefor or in addition thereto, (ii) all
investments from time to time credited thereto and all
certificates and instruments, if any representing or
evidencing such investments and (iii) all interest,
dividends, cash, instruments or other property from time
to time received, receivable or otherwise distributed in
respect of or in exchange for any such Collateral (the
Collateral in this clause (i) is referred to as the
``Deposit Account Collateral'');
<PAGE> 4
(j) to the extent not included in any other
paragraph of this Section 1, all cash equivalents,
securities, certificates of deposit and other investments
and all certificates and instruments, if any, from time to
time representing or evidencing such investments and all
interest, dividends, cash, instruments and other property
from time to time received, receivable or otherwise
distributed in respect thereof or in exchange therefor;
(k) Each of the various published and
unpublished works of authorship, including, without
limitation, the designs used by the Grantors in their
business (collectively, the ``Copyrights''), all right,
title and interest in and to the Copyrights and works
protectable by copyright, which are presently, or in the
future may be, owned, created, authored (as a work for
hire), acquired or used (whether pursuant to a license or
otherwise) by such Grantor, in whole or in part, and all
common law and other rights in and to the Copyrights
throughout the world, including all copyright licenses
(the ``Copyright Rights'') and all copyright registrations
and applications for copyright registration which have
heretofore or may hereafter be issued thereon or applied
for with the United States Copyright Office and throughout
the world (the ``Copyright Registrations''), and all
renewals and extensions thereof, throughout the world,
including all proceeds thereof (such as, by way of example
and not by limitation, license royalties and proceeds of
infringement suits), and all goodwill associated with the
foregoing, including, without limitation: (i) all of
Grantors' right, title and interest, to the extent that it
has the same, in and to all Copyrights or rights or
interests in Copyrights registered or recorded in the
United States Copyright Office, including, without
limitation, the Copyright Registrations listed on Schedule
III annexed hereto, as the same may be amended pursuant
hereto from time to time; (ii) all of Grantors' right,
title and interest, to the extent that it has the same, in
and to all renewals and extensions of any such Copyrights
that may be secured under the law now or hereafter in
force and effect; and (iii) all of Grantors' right, title
and interest, to the extent that it has the same, to make
and exploit all derivative works based on or adopted from
all works covered by the Copyrights referred to herein; it
being understood and agreed that the Collateral assigned
hereby shall include, without limitation, rights and
interests pursuant to licensing or other contracts in
favor of Grantors pertaining to Copyrights and works
protectable by copyright presently or in the future
owned or used by third-parties, but in the case of
third-parties which are not Affiliates of the Grantors
only to the extent permitted by such licensing or other
contracts and, if not so permitted, only with the consent
of such third-parties;
<PAGE> 5
(l) each of the various intangible assets,
including trademarks, service marks, designs, logos,
indicia, trade names, corporate names, company names,
business names, fictitious business names, trade styles
and/or other source or business identifiers and
applications pertaining thereto (the ``Trademarks'') and
rights and interests in Trademarks which are presently, or
in the future may be, owned, held (whether pursuant to a
license or otherwise) or used by Grantors, in whole or in
part (including, without limitation, the Trademarks
specifically identified in Schedule IV annexed hereto, as
the same may be amended pursuant hereto from time to
time), and including all common law and other rights in
and to the Trademarks in the United States and worldwide
(the ``Trademark Rights'') and all federal, state and
foreign registrations thereof (the ``Trademark
Registrations'') heretofore or hereafter granted or
applied for, and all rights (but not obligations)
corresponding thereto in the United States and any foreign
country, and all goodwill associated with any of the
foregoing; it being understood that the rights and
interests included herein shall include, without
limitation, all rights and interests pursuant to licensing
or other contracts in favor of such Grantor pertaining to
the Trademarks, Trademark Registrations or Trademark
Rights presently or in the future owned or used by third
parties but, in the case of third parties which are not
Affiliates of Grantors, only to the extent permitted by
such licensing or other contracts and, if not so
permitted, only with the consent of such third parties;
(m) all patents and the patent applications
(the ``Patents'') and rights and interests in Patents
which are presently, or in the future, may be, owned, held
(whether pursuant to a license or otherwise) or used by
Grantors, in whole or in part, (including without
limitation the Patents listed on Schedule V annexed
hereto, as the same may be amended pursuant hereto from
time to time), and including all common law and other
rights in and to the Patents in the United States and
worldwide (the ``Patent Rights'') and all federal, state
and foreign registrations thereof (the ``Patent
Registrations'') heretofore or hereafter granted or
applied for, and all rights (but not obligations)
corresponding thereto in the United States and any foreign
country, and all goodwill associated with any of the
foregoing; it being understood that the rights and
interests included herein shall include, without
limitation, all rights and interests pursuant to
licensing or other contracts in favor of such Grantor
pertaining to the Patents, Patent Rights and Patent
Registrations presently or in the future owned or used by
third parties but, in the case of third parties which are
not Affiliates of Grantors, only to the extent permitted
by such licensing or other contracts and, if not so
permitted, only with the consent of such third parties;
(n) to the extent not included in any other
paragraph of this Section 1, all other general
intangibles (including, without limitation, tax refunds,
rights to payment or performance, causes of action and
judgments taken on any rights or claims included in the
Collateral and contract rights) and all goodwill;
<PAGE> 6
(o) all shares of capital stock (``Stock'') or
other equity interests, including, without limitation,
partnership interests, limited liability company interests
and any securities convertible into, and warrants, options
and other rights to acquire, Stock, partnership interests
or limited liability company interests (``Other Equity
Interests''), together with certificates and instruments
representing all of such shares of Stock or Other Equity
Interests, including without limitation all shares of
Stock and Other Equity Interests owned by such Grantor on
the date hereof as set forth on Schedule VI annexed hereto
as the same may be amended pursuant hereto from time to
time (the ``Pledged Shares''), and any interest of such
Grantor in the entries on the books of any financial
intermediary pertaining to the Pledged Shares and, all
dividends, cash, options, warrants, rights, instruments
and other property or proceeds from time to time received,
receivable or otherwise distributed in respect of, or in
exchange for, any and all of the Pledged Shares;
(p) all indebtedness from time to time owed to
such Grantor by any Affiliate of such Grantor or any other
Person whether or not represented by any note or
instrument, including without limitation the indebtedness
owned by such Grantor on the date hereof set forth on
Schedule VII annexed hereto as the same may be amended
pursuant hereto from time to time (the ``Pledged Debt''),
and all interest, cash, instruments and other property or
proceeds from time to time received, receivable or
otherwise distributed in respect of or in exchange for any
or all of such indebtedness, and all collateral pledged to
secure such indebtedness and all notes, security
agreements and other documents and instruments relating
to, or evidencing, such collateral (the Pledged Shares,
the Pledged Debt and the other Collateral described in
paragraphs (o) and (p) of this Section 1, collectively the
``Pledged Collateral'');
(q) all books, records, ledger cards, files,
correspondence, computer programs, tapes, disks and
related data processing software that at any time evidence
or contain information relating to any of the Collateral
or are otherwise necessary or helpful in the collection
thereof or realization thereupon; and
(s) to the extent not covered by any other
paragraph of this Section 1, all other property and assets
of such Grantor real, personal and mixed;
(t) all proceeds, products, rents and profits
of or from any and all of the foregoing Collateral and, to
the extent not otherwise included, all payments under
insurance (whether or not Secured Party is the loss payee
thereof), or any indemnity, warranty or guaranty, payable
by reason of loss or damage to or otherwise with respect
to any of the foregoing Collateral. For purposes of this
Agreement, the term ``proceeds'' includes whatever is
receivable or received when Collateral or proceeds are
sold, exchanged, collected or otherwise disposed of,
whether such disposition is voluntary or involuntary.
<PAGE> 7
In addition to, and not by way of limitation of, the
pledge of and grant of security interest in any Collateral
set forth above, each Grantor hereby, effective upon the
occurrence of an Event of Default and written notice from
Secured Party, assigns, grants, sells, conveys, transfers
and sets over to Secured Party for its benefit and all of
such Grantor's rights, title and interest in and to the
Copyrights, Copyright Rights, Copyright Registrations,
Trademarks, Trademark Rights, Trademark Registrations,
Patents, Patent Rights and Patent Registrations and all
associated goodwill.
Section 2. Security for Obligations
This Agreement secures, and the Collateral is
collateral security for, the prompt payment or performance
in full when due, whether at stated maturity, by required
prepayment, declaration, acceleration, demand or otherwise
(including, to the extent applicable, the payment of
amounts that would become due but for the operation of the
automatic stay under Section 362(a) of the Bankruptcy
Code, of all Obligations of every nature of each Grantor
now or hereafter existing under or arising out of or in
connection with the Credit Agreement and the other Loan
Documents to which such Grantor is a party and all
extensions or renewals thereof, whether for principal,
interest (including without limitation, to the extent
applicable, interest that, but for the filing of a
petition in bankruptcy with respect to any Grantor, would
accrue on such obligations and whether or not allowed,
fees, expenses, indemnities or otherwise, whether
voluntary or involuntary, direct or indirect, absolute or
contingent, liquidated or unliquidated, whether or not
jointly owed with others, and whether or not from
time to time decreased or extinguished and later
increased, created or incurred, and all or any portion of
such Obligations that are paid, to the extent all or any
part of such payment is avoided or recovered directly or
indirectly from Secured Party as a preference, fraudulent
transfer or otherwise (all such Obligations being the
``Underlying Debt''), and all Obligations of every nature
of each Grantor now or hereafter existing under this
Agreement (all such Obligations of Grantors, together with
the Underlying Debt, being the ``Secured Obligations'').
Section 3. Each Grantor Remains Liable
Anything contained herein to the contrary
notwithstanding, (a) each Grantor shall remain liable
under any contracts and agreements included in the
Collateral, to the extent set forth therein, to perform
all of its duties and obligations thereunder to the same
extent as if this Agreement had not been executed, (b) the
exercise by Secured Party of any of its rights hereunder
shall not release any Grantor from any of its duties or
obligations under the contracts and agreements included in
the Collateral, and (c) Secured Party shall not have any
obligation or liability under any contracts and agreements
included in the Collateral by reason of this Agreement,
nor shall Secured Party be obligated to perform any of the
obligations or duties of any Grantor thereunder or to take
any action to collect or enforce any claim for payment
assigned hereunder.
<PAGE> 8
Section 4. The Deposit Accounts; Cash Management System
(a) All Deposit Accounts of the Grantors (including
without limitation the Collection Accounts and the
Restricted Disbursement Accounts) are subject to the sole
dominion and control of Secured Party (subject only to the
rights of Grantors to make withdrawals from the Restricted
Disbursement Accounts in accordance with subsection 6.10
of the Credit Agreement).
(b) Each Grantor hereby agrees to instruct all
obligors with respect to Accounts to make all payments
with respect to Accounts to a Collection Account included
in the Cash Management System.
(c) Each Grantor hereby acknowledges, and hereby
agrees and covenants to comply with, the provisions of the
Credit Agreement specifically applicable to it and the
Cash Management System including, without limitation,
subsection 6.10 of the Credit Agreement.
Section 5. Representations and Warranties
Each Grantor represents and warrants as follows:
(a) Credit Agreement Representations. Each of
the representations and warranties set forth in Section 5
of the Credit Agreement are true, correct and complete
to the extent specifically applicable to such Grantor and
the Collateral of such Grantor therein and each such
representation and warranty is hereby incorporated herein
by this reference.
(b) Ownership of Collateral. Except for the
security interest created by this Agreement and the other
Loan Documents in favor of Secured Party and other Liens
permitted by the terms of the Credit Agreement, such
Grantor owns the Collateral held by it free and clear of
any Lien. Except as may have been filed in favor of
Secured Party relating to this Agreement and the other
Loan Documents, and other Liens and financing statement
filings or other recordings permitted by the terms of the
Credit Agreement, no effective financing statement,
mortgage or other instrument similar in effect covering
all or any part of such Grantor's Collateral is on file in
any filing or recording office other than financing
statements for which executed termination statements have
been delivered to the Secured Party;
<PAGE> 9
(c) Location of Equipment and Inventory. All
of the Equipment and Inventory is, as of the date hereof,
located at the places specified in Schedule 5.1 to the
Credit Agreement.
(d) Office Locations; Fictitious Names. As of
the Closing Date, the principal place of business, the
chief executive office and the office where such Grantor
keeps its records regarding the Accounts and all originals
of all chattel paper that evidence Accounts is, and has
been for the six month period preceding the date hereof,
located as set forth in Schedule 5.1 to the Credit
Agreement. At all times after the Closing Date, the chief
place of business, chief executive office and the office
where such Grantor keeps its records regarding the
Accounts and all originals of chattel paper that evidence
payment rights are located as set forth in Schedule 5.1 to
the Credit Agreement or are locations identified on a
notice delivered to Secured Party pursuant to Section 7(c)
of this Agreement. Such Grantor has not in the past done,
and does not now do, business under any other name
(including any trade-name or fictitious business name)
except as set forth in Schedule 5.1 to the Credit
Agreement.
(e) Delivery of Certain Collateral. All
Pledged Shares, Pledged Debt, chattel paper and all notes
and other instruments (excluding checks) comprising any
and all items of Collateral have been delivered to Secured
Party duly endorsed and accompanied by duly executed
instruments of transfer or assignment in blank.
(f) Governmental Authorizations. No
authorization, approval or other action by, and no notice
to or filing with, any governmental authority or
regulatory body (except for the Court which has been
obtained) is required for either (i) the grant by such
Grantor of the security interest granted hereby or for the
execution, delivery or performance of this Agreement by
such Grantor or (ii) the perfection of or the exercise by
Secured Party of its rights and remedies hereunder (except
as may have been taken by or at the direction of such
Grantor).
(g) Perfection. The security interests in the
Collateral granted to the Secured Party hereunder
constitute valid and perfected first priority security
interests in the Collateral.
(h) Description of Copyrights. A true and
complete list of all Copyrights, Copyright Rights,
Copyright Registrations and applications for Copyright
Registrations owned, held (whether pursuant to a license
or otherwise) or used by Grantors, in whole or in part, in
conducting its business is set forth in Schedule III
attached hereto. Grantors have full right, title and
interest in such Copyrights, Copyright Rights and
Copyright Registrations except as otherwise expressly set
forth on Schedule III and no third parties have any
interests in, or rights to use such Copyrights, Copyrights
Rights or Copyright Registrations except pursuant to the
license agreements set forth on Part A of Schedule VIII
annexed hereto.
<PAGE> 10
(i) Validity and Enforceability of Copyrights.
Each of the Copyrights, Copyright Registrations and
Copyright Rights are valid, subsisting and enforceable and
Grantors are not aware of any pending or threatened claim
by any third party that any of the Copyrights, Copyright
Registrations or Copyright Rights are invalid or
unenforceable or that the use of any of the Copyrights,
Copyright Registrations or Copyright Rights violates the
rights of any third person or any basis for any such
claim.
(j) Description of Trademarks. A true and
complete list of all Trademarks, Trademark Registrations
and Trademark Rights and applications for Trademark
Registrations owned, held (whether pursuant to a license
or otherwise) or used by Grantors, in whole or in part, as
of the date of this Agreement is set forth in Schedule
IV annexed hereto. Grantors have full right, title and
interest in such Trademarks, Trademark Rights and
Trademark Registrations except as otherwise expressly set
forth on Schedule IV and no third parties have any
interests in, or rights to use such Trademarks, Trademark
Rights or Trademark Registrations except pursuant to the
license agreements set forth on Part B of Schedule VIII
annexed hereto.
(k) Validity and Enforceability of Trademarks.
Each of the Trademarks, Trademark Registrations and
Trademark Rights is valid, subsisting and enforceable and
the Grantors are not aware of any pending or threatened
claim by any third party that any of the Trademarks,
Trademark Registrations or Trademark Rights is invalid or
unenforceable or that the use of any of the Trademarks,
Trademark Registrations or Trademark Rights violates the
rights of any third person or of any basis for any such
claim.
(l) Description of Patents. A true and
complete list of all Patents, Patent Registrations and
Patent Rights and applications for Patent Registrations
owned, held (whether pursuant to a license or otherwise)
or used by Grantors, in whole or in part, as of the date
of this Agreement is set forth in Schedule V annexed
hereto. Grantors have full right, title and interest in
such Patents, Patent Registrations and Patent Rights
except as otherwise expressly set forth on Schedule V and
no third parties have any interest in or rights to use
such Patents, Patent Registrations or Patent Rights except
pursuant to the license agreements set forth on Part C of
Schedule VIII annexed hereto.
(m) Validity and Enforceability of Patents.
Each of the Patents, Patent Registrations and Patent
Rights is valid, subsisting and enforceable and the
Grantors are not aware of any pending or threatened claim
by any third party that any of the Patents, Patent
Registrations or Patent Rights is invalid or unenforceable
or that the use of any of the Patents, Patent
Registrations or Patent Rights violates the rights of any
third person or of any basis for any such claim.
<PAGE> 11
(n) Due Authorization etc. of the Pledged
Collateral. All of the Pledged Shares have been duly
authorized and validly issued and are fully paid and
non-assessable. All of the Pledged Debt has been duly
authorized, authenticated or issued, and delivered and is
the legal, valid and binding obligation of the issuers
thereof and is not in default.
(o) Description of Pledged Collateral. The
Pledged Shares constitute all of the issued and
outstanding shares of capital stock or other equity
interests of each issuer thereof except as otherwise
expressly noted in Schedule VI and there are no
outstanding warrants, options or other rights to purchase,
or other agreements outstanding with respect to, or
property that is now or hereafter convertible into, or
that requires the issuance or sale of, any Pledged Shares.
The Pledged Debt listed on Schedule VII constitutes all of
the issued and outstanding intercompany indebtedness
evidenced by a promissory note of the respective issuers
thereof owing to any Grantor.
(p) Real Property Collateral. Grantors do not
own, lease or otherwise hold any interest in Real Property
Collateral other than that described on Schedule II
annexed hereto.
(q) Other Information. All information
heretofore, herein or hereafter supplied to Secured Party
by or on behalf of such Grantor with respect to the
Collateral is accurate and complete in all material
respects.
Section 6. Further Assurances
(a) Each Grantor agrees that from time to time, at
the expense of such Grantor, such Grantor will promptly
execute and deliver all further instruments and documents,
and take all further action, that may be necessary or
desirable, or that Secured Party may request, in order to
perfect and protect any security interest granted or
purported to be granted hereby or by the Interim Order or
Final Order or to enable Secured Party to exercise and
enforce its rights and remedies hereunder with respect to
any Collateral. Without limiting the generality of the
foregoing, such Grantor will: (i) upon the request of
Secured Party, mark conspicuously each item of chattel
paper included in the Accounts, and each of its records
pertaining to the Collateral, with a legend, in form and
substance reasonably satisfactory to Secured Party,
indicating that such Collateral is subject to the security
interest granted hereby, (ii) at the request of Secured
Party, deliver and pledge to Secured Party hereunder all
promissory notes and other instruments (including at any
time during the occurrence and continuance of any Event of
Default or Potential Event of Default, checks) and all
original counterparts of chattel paper constituting
Collateral, duly endorsed and accompanied by duly
executed instruments of transfer or assignment, all in
form and substance satisfactory to Secured Party, (iii)
execute and file such financing or continuation
statements, or amendments thereto, and such other
instruments or notices, as may be necessary or desirable,
or as Secured Party may request, (iv) upon the request of
Secured Party execute and record mortgages and fixture
filings in form and substance satisfactory to Secured
Party covering the Real Property Collateral, (v) at any
reasonable time during business hours and upon the terms
set forth in the Credit Agreement, upon request by Secured
Party, exhibit the Collateral to and allow inspection of
the Collateral by Secured Party, or persons designated by
Secured Party, and (vi) at Secured Party's reasonable
request, appear in and defend any action or proceeding
that may affect Secured Party's security interest in all
or any part of the Collateral.
<PAGE> 12
(b) Each Grantor hereby authorizes Secured Party to
file one or more financing or continuation statements, and
amendments thereto, relative to all or any part of the
Collateral without the signature of such Grantor. Such
Grantor agrees that a carbon, photographic or other
reproduction of this Agreement or of a financing statement
signed by such Grantor shall be sufficient as a financing
statement and may be filed as a financing statement in any
and all jurisdictions.
(c) Such Grantor will furnish to Secured Party from
time to time statements and schedules further identifying
and describing the Collateral and such other reports in
connection with the Collateral as Secured Party may
reasonably request, all in reasonable detail.
(d) The Grantors shall promptly notify Secured Party
in writing of any rights to any new Copyrights, Copyright
Rights, Trademarks, Trademark Rights, Patents or Patent
Rights acquired by Grantors after the date hereof and of
any Copyright Registrations, Trademark Registrations or
Patent Registrations issued or applications for Copyright
Registrations, Trademark Registrations or Patent
Registrations made after the date hereof.
(e) Grantors hereby authorize Secured Party to
modify this Agreement without obtaining Grantors' approval
of or signature to such modification by amending Schedules
III, IV and V annexed hereto, as the case may be, to
include reference to any right, title or interest
in any Copyright, Copyright Registration, Copyright Right,
Trademark, Trademark Registration, Trademark Right,
Patent, Patent Registration, or Patent Right now existing
or hereafter acquired or developed by Grantor after the
execution hereof, provided that the failure to make any
such amendment or modification with respect to any
existing or new Copyright, Copyright Registration,
Copyright Right, Trademark, Trademark Registration,
Trademark Right, Patent, Patent Registration or Patent
Right shall not impair the security interest of Secured
Party therein or otherwise adversely affect the rights and
remedies of Secured Party hereunder with respect thereto.
Section 7. Certain Covenants of the Grantors
Each Grantor shall:
<PAGE> 13
(a) not use or permit any Collateral to be used
in violation of any provision of this Agreement or any
other Loan Document or any applicable statute, regulation
or ordinance or any policy of insurance covering the
Collateral;
(b) notify Secured Party in writing of any
change in such Grantor's name, identity or corporate
structure at least 30 days prior to such change;
(c) not change such Grantor's principal place
of business, chief executive office, the office where such
Grantor keeps its records regarding the Accounts and all
originals of all chattel paper that evidence Accounts,
locations of Equipment or Inventory (or new locations
therefor), unless Grantor provides Secured Party notice in
writing at least 30 days in advance of such change and has
taken all action that may be necessary or desirable, or
that Secured Party may request, in order to perfect and
protect any security interest granted or purported to be
granted hereby or by the Interim Order or the Final Order
or to enable Secured Party to exercise and enforce its
rights and remedies hereunder, with respect to Collateral
affected by such change; and
(d) except as otherwise permitted by the Credit
Agreement, pay promptly when due all property and other
taxes, assessments and governmental charges or levies
imposed upon, and all claims (including claims for labor,
materials and supplies) against, the Collateral.
Section 8. Special Covenants with Respect to Inventory
Each Grantor shall:
(a) keep correct and accurate records of the
Inventory consistent with customary industry standards and
practices for businesses of a comparable size, itemizing
and describing the kind, type and quantity of Inventory
and such Grantor's cost therefor;
(b) upon the occurrence and during the
continuance of an Event of Default and at the request of
the Secured Party, instruct all agents and processors for
any Inventory to hold all such Inventory for the account
of Secured Party and subject to the instructions of
Secured Party; and
(c) promptly upon the issuance and delivery to
such Grantor of any Negotiable Document of Title, deliver
such Negotiable Document of Title to Secured Party.
<PAGE> 14
Section 9. Special Covenants with Respect to Insurance
(a) Each Grantor shall, at its own expense, maintain
insurance with respect to the Real Property Collateral,
Equipment and Inventory in such amounts, against such
risks, in such form and with such insurers as required by
the Credit Agreement. Grantor shall, if so requested by
Secured Party, deliver to Secured Party original or
duplicate policies of such insurance and, as often as
Secured Party may reasonably request, a report of a
reputable insurance broker with respect to such insurance.
Further, such Grantor shall, at the request of Secured
Party, duly execute and deliver instruments of assignment
of such insurance policies in a form satisfactory to the
Secured Party and cause the respective insurers to
acknowledge notice of such assignment.
(b) All proceeds of insurance maintained by Grantors
shall be paid directly to the Collection Accounts. So
long as no Event of Default has occurred and is
continuing, in case of any loss involving damage to any
Real Property Collateral, Equipment or Inventory, the
applicable Grantor shall make or cause to be made the
necessary repairs to or replacements of such Real Property
Collateral, Equipment or Inventory and any payments by
Grantors in connection therewith shall constitute
Permitted Payments to the extent set forth in an Approved
Budget.
Section 10. Special Covenants with Respect to Accounts
and Related Contracts
(a) Each Grantor shall maintain (i) complete records
of each Account, including records of all payments
received, credits granted and merchandise returned, and
(ii) all documentation relating thereto, in accordance
with its customary practices and procedures for retention
of such information consistent with practices in effect on
the date hereof and shall permit representatives of
Secured Party at any time upon notice during normal
business hours to inspect and make abstracts from such
records and chattel paper, and such Grantor agrees for
purposes of enabling Secured Party to exercise its rights
and remedies hereunder to render to Secured Party, at such
Grantor's cost and expense, such clerical and other
assistance as may be reasonably requested with regard
thereto. Promptly upon the request of Secured Party, such
Grantor shall deliver to Secured Party complete and
correct copies of specific Related Contracts as identified
by Secured Party.
(b) Subject to subsection 6.10 of the Credit
Agreement and except as otherwise provided in this
subsection (b), each Grantor shall continue to collect, at
its own expense, all amounts due or to become due to such
Grantor under the Accounts and Related Contracts. In
connection with such collections, such Grantor may take
(and, upon the occurrence and during the continuance of an
Event of Default, at Secured Party's direction, shall
take) such action as such Grantor or Secured Party may
deem necessary or advisable to enforce collection of
amounts due or to become due under the Accounts; provided,
however, that Secured Party shall have the right at any
time, upon the occurrence and during the continuation of
an Event of Default, and upon written notice to such
Grantor of its intention to do so, to notify the
account debtors or obligors under any Accounts of the
assignment of such Accounts to Secured Party and to direct
such account debtors or obligors to make payment of all
amounts due or to become due to such Grantor thereunder
directly to Secured Party, to notify each Person
<PAGE> 15
maintaining a lockbox or similar arrangement to which
account debtors or obligors under any Accounts have been
directed to make payment to remit all amounts representing
collections on checks and other payment items from time to
time sent to or deposited in such lockbox or other
arrangement directly to Secured Party and, upon such
notification and at the expense of such Grantor, to
enforce collection of any such Accounts and to adjust,
settle or compromise the amount or payment thereof, in the
same manner and to the same extent as such Grantor
might have done. Without limiting the duties or
obligations of any Grantor under Section 4 hereof and
subsection 6.10 of the Credit Agreement (or any trusts
created thereunder), after receipt by such Grantor of the
notice from Secured Party referred to in the proviso to
the preceding sentence, (i) all amounts and proceeds
(including checks and other instruments) received by such
Grantor in respect of the Accounts and the Related
Contracts shall be received in trust and held for the
benefit of Secured Party hereunder, shall be segregated
from other funds of such Grantor and shall be forthwith
paid over or delivered to Secured Party in the same form
as so received (with any necessary endorsement) to be held
as Collateral and applied as provided by Section 20, and
(ii) such Grantor shall not adjust, settle or compromise
the amount or payment of any Account, or release wholly or
partly any account debtor or obligor thereof, or allow any
credit or discount thereon.
Section 11. [Reserved]
Section 12. Covenants as to Pledged Collateral
(a) Each Grantor shall deliver to Secured Party all
notes, certificates or instruments representing or
evidencing the Pledged Collateral, and such notes,
certificates or instruments shall be in suitable form for
transfer by delivery, or shall be accompanied by duly
executed instruments of transfer or assignment in blank,
all in form and substance satisfactory to Secured Party.
Secured Party shall have the right, at any time upon the
occurrence and during the continuance of an Event of
Default and without notice to such Grantor, to transfer to
or to register in the name of Secured Party or any of its
nominees any or all of the Pledged Collateral. In
addition, Secured Party shall have the right at any time
to exchange notes, certificates or instruments
representing or evidencing Pledged Collateral for notes,
certificates or instruments of smaller or larger
denominations.
(b) Upon obtaining any additional shares of Stock or
Other Equity Securities or certificates, instruments or
notes required to be pledged hereunder, promptly (and in
any event within five Business Days) deliver to Secured
Party a Pledge Amendment, duly executed by Grantor in
substantially the form of Schedule IX annexed hereto (a
``Pledge Amendment''), in respect of the additional
Pledged Shares or Pledged Debt to be pledged pursuant to
this Agreement. Each Grantor hereby authorizes Secured
Party to attach each Pledge Amendment to this Agreement
and agrees that all Pledged Shares or Pledged Debt listed
on any Pledge Amendment delivered to Secured Party shall
for all purposes hereunder be considered Collateral;
provided that the failure of a Grantor to execute a Pledge
Amendment with respect to any additional Pledged Shares or
Pledged Debt pledged pursuant to this Agreement shall not
impair the security interest of Secured Party therein or
otherwise adversely affect the rights and remedies of
Lender hereunder with respect thereto.
<PAGE> 16
Section 13. Voting Rights; Dividends; etc.
(a) So long as no Event of Default shall have
occurred and be continuing: (i) each Grantor shall be
entitled to exercise any and all voting rights pertaining
to the Pledged Collateral of such Grantor or any part
thereof for any purpose not inconsistent with the terms
of this Agreement, the Credit Agreement or any other Loan
Document and (ii) Secured Party shall execute and deliver
(or cause to be executed and delivered) to Grantor all
such proxies and other instruments as such Grantor may
reasonably request for the purpose of enabling such
Grantor to exercise the voting and other consensual rights
which it is entitled to exercise pursuant to clause (i)
above.
(b) In addition to the rights of Secured Party under
this Agreement and the other Loan Documents, upon the
occurrence and during the continuance of an Event of
Default, at the election of Secured Party: (i) all rights
of any Grantor to exercise the voting and other consensual
rights which it would otherwise be entitled to exercise
pursuant to subsection 13(a)(i) shall cease, and all such
rights shall thereupon become vested in Secured Party
who shall thereupon have the sole right to exercise such
voting and other consensual rights and (ii) Grantor shall
execute and deliver (or cause to be executed and
delivered) to Secured Party all such proxies and other
instruments as Secured Party may reasonably request for
the purpose of enabling Secured Party to exercise the
voting and other consensual rights which it is entitled
to exercise pursuant to clause (i) above. Without
limiting the effect of the immediately preceding clause
(ii), each Grantor hereby grants to Secured Party an
irrevocable proxy to vote the Pledged Collateral and to
exercise all other rights, powers, privileges and remedies
to which a holder of the Pledged Collateral would be
entitled (including, without limitation, giving or
withholding written consents of shareholders, calling
special meetings of shareholders and voting at such
meetings), which proxy shall be effective, automatically
and without the necessity of any action (including any
transfer of any Pledged Collateral on the record books of
the issuer thereof) by any other Person (including the
issuer of the Pledged Collateral or any officer or agent
thereof), upon the occurrence of an Event of Default and
which proxy shall only terminate upon the payment in full
of the Secured Obligations and the termination of the
Commitments.
<PAGE> 17
Section 14. License of Patents, Trademarks, Copyrights,
etc.
Without limiting any security interest or assignment
thereof pursuant to Section 1, each Grantor hereby
assigns, transfers and conveys to Secured Party, effective
upon the occurrence of any Event of Default, the
nonexclusive right and license to use all trademarks,
tradenames, copyrights, patents or technical processes
owned or used by Grantors that relate to the Collateral,
together with any goodwill associated therewith, all to
the extent necessary to enable Secured Party to use,
possess and realize on the Collateral and to enable any
successor or assign to enjoy the benefits of the
Collateral. This right and license shall inure to the
benefit of all successors, assigns and transferees of
Secured Party and its successors, assigns and transferees,
whether by voluntary conveyance, operation of law,
assignment, transfer, foreclosure, deed in lieu of
foreclosure or otherwise. Such right and license is
granted free of charge, without requirement that any
monetary payment whatsoever be made to Grantors.
Section 15. Transfers and Other Liens
Except in accordance with the Credit Agreement, no
Grantor shall (i) sell, assign (by operation of law or
otherwise) or otherwise dispose of any of the Collateral
or (ii) except for the security interest created by this
Agreement or the other Loan Documents in favor of Secured
Party and other Liens permitted by the Credit Agreement,
create or suffer to exist any Lien upon or with respect to
any of the Collateral.
Section 16. Secured Party Appointed Attorney-In-Fact
Each Grantor hereby irrevocably appoints Secured
Party as such Grantor's attorney-in-fact, with full
authority in the place and stead of such Grantor and in
the name of such Grantor, Secured Party or otherwise, from
time to time in Secured Party's discretion to take
any action and to execute any instrument that Secured
Party may deem necessary or advisable to accomplish the
purposes of this Agreement, including without limitation:
(a) to obtain and adjust insurance required to
be maintained by such Grantor or paid to Secured Party
pursuant to Section 9;
(b) upon and during the continuance of an Event
of Default, to ask for, demand, collect, sue for, recover,
compound, receive and give acquittance and receipts for
moneys due and to become due under or in respect of any of
the Collateral;
(c) to receive, endorse and collect any drafts
or other instruments, documents and chattel paper in
connection with clauses (a) and (b) above;
<PAGE> 18
(d) to file any claims or take any action or
institute any proceedings that Secured Party may deem
necessary or desirable for the collection of any of the
Collateral or otherwise to enforce the rights of Secured
Party with respect to any of the Collateral;
(e) to pay or discharge taxes or Liens (other
than Liens permitted under the Credit Agreement) levied or
placed upon or threatened against the Collateral, the
legality or validity thereof and the amounts necessary to
discharge the same to be determined by Secured Party in
its sole discretion, any such payments made by Secured
Party to become Secured Obligations of such Grantor to
Secured Party, due and payable immediately without demand;
(f) to sign and endorse any invoices, freight
or express bills, bills of lading, storage or warehouse
receipts, drafts against debtors, assignments,
verifications and notices in connection with Accounts and
other documents relating to the Collateral;
(g) upon the occurrence and during the
continuation of an Event of Default, generally to sell,
transfer, pledge, make any agreement with respect to or
otherwise deal with any of the Collateral as fully and
completely as though Secured Party were the absolute owner
thereof for all purposes, and to do, at Secured Party's
option and such Grantor's expense, at any time or from
time to time, all acts and things that Secured Party deems
necessary to protect, preserve or realize upon the
Collateral and Secured Party's security interest therein
in order to effect the intent of this Agreement, all as
fully and effectively as such Grantor might do; and
(h) to take any and all action permitted by
subsection 6.10 of the Credit Agreement, which subsection
is hereby incorporated herein by this reference.
Section 17. Secured Party May Perform
If such Grantor fails to perform any agreement
contained herein, Secured Party may itself perform, or
cause performance of, such agreement, and the expenses of
Secured Party incurred in connection therewith shall be
payable by such Grantors and be part of the Secured
Obligations.
Section 18. Standard of Care
(a) The powers conferred on Secured Party hereunder
are solely to protect its interest in the Collateral and
shall not impose any duty upon it to exercise any such
powers. Except for the exercise of reasonable care in the
custody of any Collateral in its possession and the
accounting for moneys actually received by it hereunder,
Secured Party shall have no duty as to any Collateral or
as to the taking of any necessary steps to preserve rights
against prior parties or any other rights pertaining to
any Collateral. Secured Party shall be deemed to have
exercised reasonable care in the custody and preservation
of Collateral in its possession if such Collateral is
accorded treatment substantially equal to that which
Secured Party accords its own property.
<PAGE> 19
(b) Secured Party shall not be liable to any Grantor
(i) for any loss or damage sustained by it, or (ii) for
any loss, damage, depreciation or other diminution in the
value of any of the Collateral that may occur as a result
of, in connection with or that is in any way related to
(1) any exercise by Secured Party of any right or remedy
under this Agreement or (2) any other act of or failure to
act by Secured Party, except to the extent that the same
shall be determined by a final judgment of a court of
competent jurisdiction that is final and not subject to
review on appeal, to be the result of acts or omissions on
the part of Secured Party - constituting gross negligence
or willful misconduct.
(c) NO CLAIM MAY BE MADE BY ANY GRANTOR AGAINST
SECURED PARTY OR ITS AFFILIATES, DIRECTORS, OFFICERS,
EMPLOYEES OR ATTORNEYS FOR ANY SPECIAL, INDIRECT OR
CONSEQUENTIAL DAMAGES IN RESPECT OF ANY BREACH OR WRONGFUL
CONDUCT (WHETHER THE CLAIM THEREFOR IS BASED ON CONTRACT,
TORT OR DUTY IMPOSED BY LAW) IN CONNECTION WITH, ARISING
OUT OF OR IN ANY WAY RELATED TO THE TRANSACTIONS
CONTEMPLATED AND RELATIONSHIP ESTABLISHED BY THIS
AGREEMENT, OR ANY ACT, OMISSION OR EVENT OCCURRING IN
CONNECTION THEREWITH; AND GRANTOR HEREBY WAIVES, RELEASES
AND AGREES NOT TO SUE UPON ANY SUCH CLAIM FOR ANY SUCH
DAMAGES, WHETHER OR NOT ACCRUED AND WHETHER OR NOT KNOWN
OR SUSPECTED TO EXIST IN ITS FAVOR.
Section 19. Remedies
(a) Notwithstanding anything herein to the contrary,
Secured Party shall give Grantors, Haynes & Boone (counsel
to certain holders of Senior Notes), the trustee under the
Existing Indenture and counsel to any official creditors'
committee in respect of the Chapter 11 Cases, five
Business Days' prior written notice (which notice shall be
delivered by facsimile or overnight courier) of the
intention to exercise its rights and remedies with respect
to the Collateral and file a copy of such notice with the
clerk of the Court all in accordance with the Borrowing
Orders. Secured Party shall not have any obligation of
any kind to make a motion or application to the Bankruptcy
Court to exercise its rights and remedies set forth or
referred to in this Agreement or in the other Loan
Documents. The enumeration of the rights and
remedies set forth in this section is not intended to be
exhaustive and the exercise of any right or remedy shall
not preclude the exercise of any other rights or remedies,
all of which shall be cumulative and not alternative.
<PAGE> 20
(b) If any Event of Default shall have occurred and
be continuing, Secured Party may (i) instruct any
Depository Institution at which a Deposit Account of any
Grantor is maintained or which holds Deposit Account
Collateral to (x) sell any of the Deposit Account
Collateral, (y) transfer any or all of the Deposit Account
Collateral constituting cash to a Collection Account or
transfer any or all of the Deposit Account Collateral to
another account established in Secured Party's name
(whether at Secured Party or otherwise), or (z) register
title to any Deposit Account Collateral in the name of
Secured Party or one of its nominees or agents, without
reference to any interest of any Grantor and/or (ii)
exercise any and all rights of set-off available to Lender
under the Credit Agreement, any other Loan Document or
otherwise.
(c) If any Event of Default shall have occurred and
be continuing, Secured Party may exercise in respect of
the Collateral, in addition to all other rights and
remedies provided for herein, in the Credit Agreement, in
any other agreement between any Grantor and Secured
Party or otherwise available to it, all the rights and
remedies of a secured party on default under the Uniform
Commercial Code as in effect in any relevant jurisdiction
(the ``Code'') (whether or not the Code applies to the
affected Collateral), and also may (i) require any
Grantor to, and each Grantor hereby agrees that it will at
its expense and upon request of Secured Party forthwith,
assemble all or part of the Collateral as directed by
Secured Party and make it available to Secured Party at a
place to be designated by Secured Party that is reasonably
convenient to both parties, (ii) enter onto the property
where any Collateral is located and take possession
thereof with or without judicial process, (iii) prior to
the disposition of the Collateral, store, process, repair
or recondition the Collateral, lease or license use of any
Collateral or otherwise prepare the Collateral for
disposition in any manner to the extent Secured Party
deems appropriate, (iv) take possession of any Grantor's
premises or place custodians in exclusive control thereof,
remain on such premises and use the same and any of such
Grantor's equipment for the purpose of completing any work
in process, taking any actions described in the preceding
clause (iii) and collecting any Secured Obligation, and
(v) without notice except as specified in clause (a) above
and below in this clause (c) sell, lease, or otherwise
dispose, of the Collateral or any part thereof in one or
more parcels at public or private sale, or other
disposition, at any of Secured Party's offices or
elsewhere, for cash, on credit or for future delivery, at
such time or times and at such price or prices and
upon such other terms as Secured Party may deem
commercially reasonable. Secured Party or
may be the purchaser of any or all of the Collateral at
any such sale and Secured Party shall be entitled, for the
purpose of bidding and making settlement or payment of the
purchase price for all or any portion of the Collateral
sold at any such public sale, to use and apply any of the
Secured Obligations as a credit on account of the purchase
price for any Collateral payable by Secured Party at such
sale. Each purchaser at any such sale shall hold the
property sold absolutely free from any claim or right on
the part of any Grantor, and each Grantor hereby
waives (to the extent permitted by applicable law) all
rights of redemption, stay and/or appraisal which it now
has or may at any time in the future have under any rule
of law or statute now existing or hereafter enacted. Each
Grantor agrees that, to the extent notice of sale shall be
required by law, at least five days' notice to such
Grantor of the time and place of any public sale or the
time after which any private sale is to be made shall
constitute reasonable notification. Secured Party shall
not be obligated to make any sale of Collateral regardless
of notice of sale having been given. Secured Party may
adjourn any public or private sale from time to time by
announcement at the time and place fixed therefor, and
such sale may, without further notice, be made at the time
and place to which it was so adjourned. Each Grantor
hereby waives any claims against Secured Party arising by
reason of the fact that the price at which any Collateral
may have been sold at such a private sale was less than
the price which might have been obtained at a public sale,
even if Secured Party accepts the first offer received
and does not offer such Collateral to more than one
offeree. If the proceeds of any sale or other disposition
of the Collateral are insufficient to pay all the Secured
Obligations, such Grantor shall be liable for the
deficiency and the reasonable fees of any attorneys
employed by Secured Party to collect such deficiency.
<PAGE> 21
(d) Each Grantor recognizes that, by reason of
certain prohibitions contained in the Securities Act of
1933, as from time to time amended (the ``Securities
Act''), and applicable state securities laws, Secured
Party may be compelled, with respect to any sale of all or
any part of the Pledged Shares conducted without prior
registration or qualification of such Pledged Shares under
the Securities Act and/or such state securities laws, to
limit purchasers to those who will agree, among other
things, to acquire the Pledged Shares for their own
account, for investment and not with a view to the
distribution or resale thereof. Grantor acknowledges that
any such private sales may be at prices and on terms less
favorable than those obtainable through a public sale
without such restrictions (including, without limitation,
a public offering made pursuant to a registration
statement under the Securities Act) and, notwithstanding
such circumstances, each Grantor agrees that any such
private sale shall be deemed to have been made in a
commercially reasonable manner and that Secured Party
shall have no obligation to engage in public sales and no
obligation to delay the sale of any Pledged Shares for the
period of time necessary to permit the issuer thereof to
register it for a form of public sale requiring
registration under the Securities Act or under applicable
state securities laws, even if such issuer would, or
should, agree to so register it.
(e) If Secured Party determines to exercise its
right to sell any or all of the Pledged Shares, upon
written request, each Grantor shall and shall cause each
issuer of any Pledged Shares to be sold hereunder from
time to time to furnish to Secured Party all such
information as Secured Party may request in order to
determine the number of shares and other instruments
included in the Pledged Shares which may be sold by
Secured Party in exempt transactions under the Securities
Act and the rules and regulations of the Securities and
Exchange Commission thereunder, as the same are from time
to time in effect.
(f) Secured Party may, by one or more motions, which
Borrowers agree not to oppose, cause any part or all of
the assets and properties of the Borrowers to be sold at
one or more sales pursuant to Section 363 of the
Bankruptcy Code, or Secured Party may request that
Borrowers file and prosecute such motion or motions and
Borrowers agree to do so.
<PAGE> 22
Section 20. Application of Proceeds
Except as expressly provided elsewhere in this
Agreement or the Credit Agreement, all proceeds received
by Secured Party in respect of any sale of, (subject to
Section 6.10 of the Credit Agreement) collection from, or
other realization upon all or any part of the Collateral
may, in the discretion of Secured Party, be held by
Secured Party as Collateral for, and/or then, or at any
other time thereafter, applied in full or in part by
Secured Party against, the Secured Obligations in the
following order of priority:
FIRST: To the payment of all costs and expenses
of such sale, collection or other realization, including
reasonable compensation to Secured Party and its agents
and counsel, and all other reasonable expenses,
liabilities and advances made or incurred by Secured Party
in connection therewith, and all fees, expenses,
indemnities and other amounts to which Secured Party is
entitled hereunder and all advances made by Secured Party
hereunder for the account of any Grantor, and to the
payment of all costs and expenses paid or incurred by
Secured Party in connection with the exercise of
any right or remedy hereunder, all in accordance with
Section 21;
SECOND: To the payment of all other Secured
Obligations in accordance with the terms of the Credit
Agreement in such order as Secured Party may elect; and
THIRD: To the payment to or upon the order of
any Grantor, or to whosoever may be lawfully entitled to
receive the same or as a court of competent jurisdiction
may direct, of any surplus then remaining from such
proceeds.
Section 21. Indemnity and Expenses
(a) Each Grantor jointly and severally agrees to
indemnify Secured Party from and against any and all
claims, losses and liabilities in any way relating to,
growing out of or resulting from this Agreement and the
transactions contemplated hereby (including, without
limitation, enforcement of this Agreement), except to the
extent such claims, losses or liabilities result solely
from Secured Party's (or its officer's, employee's or
agent's) gross negligence or willful misconduct as finally
determined by a court of competent jurisdiction.
(b) Each Grantor jointly and severally agrees to pay
to Secured Party upon demand the amount of any and all
reasonable costs and expenses, including the reasonable
fees and expenses of its counsel and of any experts and
agents, that Secured Party may incur in connection with
(i) the administration of this Agreement, (ii) the
custody, preservation, use or operation of, or the sale
of, collection from, or other realization upon, any of the
Collateral, (iii) the exercise or enforcement of any of
the rights of Secured Party hereunder, or (iv) the failure
by any Grantor to perform or observe any of the provisions
hereof.
<PAGE> 23
(c) The obligations of Grantors under this Section
21 shall survive the termination of this Agreement and the
discharge of Grantors' other obligations under the Loan
Documents.
Section 22. Continuing Security Interest
This Agreement shall create a continuing security
interest in the Collateral and shall (a) remain in full
force and effect until the payment in full of the Secured
Obligations and the cancellation or termination of the
Commitments, (b) be binding upon each Grantor, its
successors and assigns, and (c) inure, together with the
rights and remedies of Secured Party hereunder, to the
benefit of Secured Party and its successors, transferees
and assigns. Upon the payment in full of all Secured
Obligations in respect of the Loan Documents and the
cancellation or termination of the Commitments, the
security interest granted hereby shall terminate and all
rights to the Collateral owned by a Grantor shall revert
to such Grantor. Upon any such termination Secured Party
will, at Grantors' expense, execute and deliver to
Grantors such documents as Grantors shall reasonably
request to evidence such termination and the release of
the Secured Party's security interest in such Collateral.
Section 23. Amendments; etc.
No amendment or waiver of any provision of this
Agreement, or consent to any departure by any Grantor
herefrom, shall in any event be effective unless the same
shall be in writing and signed by Secured Party and, in
the case of an amendment, each Grantor, and then such
waiver or consent shall be effective only in the specific
instance and for the specific purpose for which it was
given.
Section 24. Notices
Any notice or other communication herein required or
permitted to be given shall be in writing and may be
personally served, telecopied, telexed or sent by United
States mail or courier service and shall be deemed to have
been given when delivered in person or by courier service,
upon confirmation of receipt of telecopy or telex, or four
Business Days after depositing it in the United States
mail, registered or certified, with postage prepaid and
properly addressed; provided that notices to Secured Party
shall not be effective until received. For the purposes
hereof, the address of each party hereto shall be as set
forth in the Credit Agreement or as to any party, such
other address as shall be designated by such party in a
written notice delivered to the other parties in
accordance with this Agreement.
<PAGE> 24
Section 25. Failure or Indulgence not Waiver; Remedies
Cumulative
No failure or delay on the part of Secured Party in
the exercise of any power, right or privilege hereunder
shall impair such power, right or privilege or be
construed to be a waiver of any default or acquiescence
therein, nor shall any single or partial exercise of any
such power, right or privilege preclude any other or
further exercise thereof or of any other power, right or
privilege. All rights and remedies existing under this
Agreement are cumulative to, and not exclusive of, any
rights or remedies otherwise available.
Section 26. Pledge, Grant and Obligations Several
The pledge and grant of the Collateral of, and the
obligations hereunder of, each Grantor are independent and
several, and may be enforced against such Grantor
separately, whether or not enforcement of any right or
remedy hereunder has been sought against any other
Grantor.
Section 27. Marshalling; Payments Set Aside
Secured Party shall not be under any obligation to
marshal any assets in favor of any Grantor or any other
party or against or in payment of any or all of the
Secured Obligations. To the extent that any Grantor makes
a payment or payments to Secured Party or Secured
Party enforces its security interests or exercises its
rights of setoff, and such payment or payments or the
proceeds of such enforcement or setoff or any part thereof
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
recovery, the Obligation or part thereof originally
intended to be satisfied, and all Liens, rights and
remedies therefor, shall be revived and continued in full
force and effect as if such payment had not been made or
such enforcement or setoff had not occurred.
Section 28. Waiver of Hearing
Each Grantor expressly waives, to the maximum extent
permitted by law, any constitutional or other right to a
judicial hearing prior to the time Secured Party takes
possession or disposes of the Collateral as provided in
Section 19 hereof.
Section 29. Severability
In case any provision in or obligation under this
Agreement shall be invalid, illegal or unenforceable in
any jurisdiction, the validity, legality and
enforceability of the remaining provisions or obligations,
or of such provision or obligation in any other
jurisdiction, shall not in any way be affected or impaired
thereby.
<PAGE> 25
Section 30. Headings
Section and subsection headings in this Agreement are
included herein for convenience of reference only and
shall not constitute a part of this Agreement for any
other purpose or be given any substantive effect.
Section 31. Governing Law; Terms
THIS AGREEMENT SHALL BE GOVERNED BY, AND SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL
LAWS OF THE STATE OF NEW YORK (INCLUDING, WITHOUT
LIMITATION, SECTION 5-1401 OF THE GENERAL OBLIGATION LAWS
OF THE STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS OF
LAWS PRINCIPLES, EXCEPT TO THE EXTENT THAT FEDERAL LAW OR
THE UNIFORM COMMERCIAL CODE PROVIDES THAT THE VALIDITY OR
PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES
HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE
GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE
STATE OF NEW YORK. Unless otherwise defined herein or
in the Credit Agreement, terms used in Article 9 of the
Uniform Commercial Code in the State of New York are used
herein as therein defined.
Section 32. Counterparts
This Agreement may be executed in one or more
counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered
shall be deemed an original, but all such counterparts
together shall constitute but one and the same instrument;
signature pages may be detached from multiple separate
counterparts and attached to a single counterpart so that
all signature pages are physically attached to the same
document.
Section 33. Reassignment.
If (a) an Event of Default shall have occurred and,
by reason of cure, waiver, modification, amendment or
otherwise, no longer be continuing, (b) no other Event of
Default shall have occurred and be continuing, (c) an
assignment to Secured Party of any rights, title
and interests in and to any of the Copyrights, Copyright
Rights, Copyright Registrations, Trademarks, Trademark
Rights, Trademark Registrations, Patents, Patent Rights or
Patent Registrations shall have been previously made and
shall have become absolute and effective pursuant to the
<PAGE> 26
last paragraph of Section 1, and (d) the Secured
Obligations shall not have been Accelerated, upon the
written request of Grantors and the written consent of
Secured Party, Secured Party shall promptly execute and
deliver to Grantors such assignments as may be necessary
to reassign to Grantors any such rights, title and
interests as may have been assigned to Secured Party as
aforesaid, subject to any disposition thereof that may
have been made by Secured Party pursuant hereto; provided
that, after giving effect to such reassignment, Secured
Party's security interest and conditional assignment
granted pursuant to Section 1, as well as all other rights
and remedies of Secured Party granted hereunder, shall
continue to be in full force and effect.
Section 34. Conflicting Provisions
Notwithstanding anything to the contrary contained in
this Agreement (i) to the extent that the provisions of
this Agreement are in direct conflict with the express
provisions of the Credit Agreement, the Credit Agreement
shall control and (ii) to the extent that any provisions
of this Agreement relating to Real Property Collateral are
in direct conflict with the provisions of any Mortgage
entered into pursuant to the Credit Agreement for the
benefit of Secured Party, the express provisions of such
Mortgage shall control.
[Remainder of page intentionally left blank]
<PAGE> S-1
IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be duly executed and delivered by their
respective officers thereunto duly authorized as of the
date first written above.
GRANTORS:
FRUEHAUF TRAILER CORPORATION
By: /s/ Kenneth A. Minor
---------------------
Name: Kenneth A. Minor
Title: Vice President - Treasurer
FGR, INC.
By: /s/ Kenneth A. Minor
---------------------
Name: Kenneth A. Minor
Title: Vice President - Treasurer
FRUEHAUF CORPORATION
By: /s/ Kenneth A. Minor
---------------------
Name: Kenneth A. Minor
Title: Vice President - Treasurer
<PAGE> S-2
MARYLAND SHIPBUILDING & DRYDOCK
COMPANY
By: /s/ Gary K. Lorenz
---------------------
Name: Gary K. Lorenz
Title: President
THE MERCER CO.
By: /s/ Kenneth A. Minor
---------------------
Name: Kenneth A. Minor
Title: Vice President - Treasurer
FRUEHAUF INTERNATIONAL LIMITED
By: /s/ Kenneth A. Minor
---------------------
Name: Kenneth A. Minor
Title: Vice President - Treasure
DEUTSCHE-FRUEHAUF HOLDING
CORPORATION
By: /s/ Kenneth A. Minor
---------------------
Name: Kenneth A. Minor
Title: Vice President - Treasurer
JACKSONVILLE SHIPYARDS, INC.
By: /s/ Gary K. Lorenz
---------------------
Name: Gary K. Lorenz
Title: President
M.J. HOLDINGS, INC.
By: /s/ Kenneth A. Minor
---------------------
Name: Kenneth A. Minor
Title: Vice President - Treasurer
<PAGE> S-3
E.L. DEVICES, INC.
By: /s/ Gary K. Lorenz
---------------------
Name: Gary K. Lorenz
Title: President
SECURED PARTY:
MADELEINE, L.L.C.
By:/s/ Joyce Johnson-Miller
-------------------------
Name: Joyce Johnson-Miller
Title: Attorney-In-Fact
FRUEHAUF TRAILER CORPORATION
AND SUBSIDIARIES
$55,000,000 New York, New York
October 9, 1996
FOR VALUE RECEIVED, FRUEHAUF TRAILER CORPORATION, a
Delaware corporation, as debtor and debtor-in possession
("FTC"), and EACH OF THE SUBSIDIARIES OF FTC LISTED ON THE
SIGNATURE PAGES HERETO, as debtor and debtor-in
possession, (FTC and such Subsidiaries jointly and
severally, ``Borrowers'' and, individually, each a
``Borrower''), jointly and severally promise to pay to the
order of MADELEINE, L.L.C., a Delaware limited liability
company (``Lender''), on or before the Commitment
Termination Date (as defined in the Credit Agreement
referred to below), the lesser of (i) FIFTY FIVE
MILLION DOLLARS ($55,000,000) and (ii) the unpaid
principal amount of all Loans made by Lender to Borrowers
as Borrowing Base Loans and/or Overadvance Loans under the
Credit Agreement referred to below.
Borrowers also, jointly and severally, promise to pay
interest on the unpaid principal amount of the Borrowing
Base Loans and Overadvance Loans, from the date hereof
until paid in full, at the rates and at the times which
shall be determined in accordance with the provisions of
that certain Debtor-In-Possession Credit Agreement, dated
as of October 9, 1996, by and among Borrowers and Lender
(said Credit Agreement, as may be amended, restated,
supplemented or otherwise modified from time to time,
being the ``Credit Agreement''; the terms defined therein
and not otherwise defined herein being used herein as
therein defined).
This Note is issued pursuant to and entitled to the
benefits of the Credit Agreement, to which reference is
hereby made for a more complete statement of the terms and
conditions under which the Loans evidenced hereby were
made and are to be repaid, and to the benefits of all
collateral security therefor.
All payments of principal and interest in respect of
this Note shall be made in lawful money of the United
States of America in same day funds in accordance with the
terms of the Credit Agreement. Until notified in writing
of the transfer or assignment of this Note in accordance
with and subject to the terms of the Credit Agreement,
Borrowers shall be entitled to deem Lender or any
subsequent permitted assignee of this Note as the owner
and holder of this Note. Each of Lender and any
subsequent permitted assignee of this Note agrees, by its
acceptance hereof, that before disposing of this Note or
any part hereof it will make a notation hereon of all
principal payments previously made hereunder and of the
date to which interest hereon has been paid; provided,
however, that the failure to make a notation of any
payment made on this Note shall not limit or otherwise
affect the obligations of Borrowers hereunder with respect
to payments of principal of or interest on this Note.
<PAGE> 2
Whenever any payment on this Note shall be stated to
be due on a day which is not a Business Day, such payment
shall be made on the next succeeding Business Day and such
extension of time shall be included in the computation of
the payment of interest on this Note.
This Note is subject to mandatory prepayment as
provided in subsection 2.4A(ii) of the Credit Agreement.
THE CREDIT AGREEMENT AND THIS NOTE SHALL BE GOVERNED
BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE
WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK
(INCLUDING, WITHOUT LIMITATION, SECTION 5-1401 OF THE
GENERAL OBLIGATION LAWS OF THE STATE OF NEW YORK), WITHOUT
REGARD TO CONFLICTS OF LAWS PRINCIPLES.
Upon the occurrence of an Event of Default, the
unpaid balance of the principal amount of this Note,
together with all accrued and unpaid interest thereon, may
become, or may be declared to be, due and payable in the
manner, upon the terms and conditions and with the effect
provided in the Credit Agreement.
The terms of this Note are subject to amendment only
in the manner provided in the Credit Agreement.
No reference herein to the Credit Agreement and no
provision of this Note or the Credit Agreement shall alter
or impair the obligations of Borrowers, which are absolute
and unconditional, to pay the principal of and interest on
this Note at the place, at the respective times, and in
the currency herein prescribed.
Borrowers promise to pay all reasonable costs and
expenses, including reasonable attorneys' fees, all as
provided in subsection 9.2 of the Credit Agreement,
incurred in the collection and enforcement of this Note.
Borrowers and any endorsers of this Note hereby consent
to renewals and extensions of time at or after the
maturity hereof, without notice, and hereby waive
diligence, presentment, protest, demand and notice of
every kind and, to the full extent permitted by law, the
right to plead any statute of limitations as a defense to
any demand hereunder.
<PAGE> 3
IN WITNESS WHEREOF, Borrowers have caused this Note
to be duly executed and delivered by its officer thereunto
duly authorized as of the date and at the place first
written above.
FRUEHAUF TRAILER CORPORATION
By: /s/ Kenneth A. Minor
---------------------
Name: Kenneth A. Minor
Title: Vice President - Treasurer
FGR, INC.
By: /s/ Kenneth A. Minor
---------------------
Name: Kenneth A. Minor
Title: Vice President - Treasurer
FRUEHAUF CORPORATION
By: /s/ Kenneth A. Minor
---------------------
Name: Kenneth A. Minor
Title: Vice President - Treasurer
MARYLAND SHIPBUILDING & DRYDOCK
COMPANY
By: /s/ Gary K. Lorenz
---------------------
Name: Gary K. Lorenz
Title: President
<PAGE> 4
THE MERCER CO.
By: /s/ Kenneth A. Minor
---------------------
Name: Kenneth A. Minor
Title: Vice President - Treasurer
FRUEHAUF INTERNATIONAL LIMITED
By: /s/ Kenneth A. Minor
---------------------
Name: Kenneth A. Minor
Title: Vice President - Treasure
DEUTSCHE-FRUEHAUF HOLDING
CORPORATION
By: /s/ Kenneth A. Minor
---------------------
Name: Kenneth A. Minor
Title: Vice President - Treasurer
JACKSONVILLE SHIPYARDS, INC.
By: /s/ Gary K. Lorenz
---------------------
Name: Gary K. Lorenz
Title: President
M.J. HOLDINGS, INC.
By: /s/ Kenneth A. Minor
---------------------
Name: Kenneth A. Minor
Title: Vice President - Treasurer
<PAGE> 5
E.L. DEVICES, INC.
By: /s/ Gary K. Lorenz
---------------------
Name: Gary K. Lorenz
Title: President
October 8, 1996
Fruehauf Trailer Corporation
Bank One Center/Tower
111 Monument Circle
Suite 3200
Indianapolis, Indiana 46204
Attn: Ken Minor
Re: Payoff of Indebtedness of Fruehauf Trailer
Corporation to Congress Financial Corporation
(Central)
Dear Ken:
Reference is made to that certain Accounts Financing
Agreement [Security Agreement] (as amended, the "Accounts
Financing Agreement") by and between Fruehauf Trailer
Corporation ("Debtor") and Congress Financial Corporation
(Central) ("Congress"), that certain Inventory and
Equipment Security Agreement Supplement to Accounts
Financing Agreement [Security Agreement] (as amended, the
"Inventory and Equipment Supplement") by and between
Debtor and Congress, that certain Rider No. 1 to Accounts
Financing Agreement [Security Agreement] and Inventory and
Equipment Security Agreement Supplement to Accounts
Financing Agreement [Security Agreement] (as amended, the
"Rider") by and between Debtor and Congress and that
certain letter regarding Inventory Loans by and between
Debtor and Congress, 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, 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, that
certain Fourth Amendment to Accounts Financing Agreement
[Security Agreement] entered into as of April 19, 1996, by
and between Debtor and Congress and that certain Fifth
Amendment to Accounts Financing Agreement [Security
Agreement] and Limited Waiver ("Fifth Amendment")
entered into as of June 21, 1996, by and between Debtor
and Congress (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, collectively, the "Loan
Documents"). Capitalized terms used herein and not
otherwise defined herein shall have the meanings set forth
in the Loan Agreement.
<PAGE> 2
The Debtor has requested that the Loan Documents be
terminated and intends to pay all Obligations under the
Loan Documents from the proceeds of a new
debtor-in-possession working capital facility provided by
Madeleine, L.L.C. (the "DIP Lender"). This letter
agreement is intended to set forth the terms and
conditions regarding the payment of the Obligations.
1. If received by 12:00 p.m. (Chicago time) on October
8, 1996, the amount necessary to pay all Obligations
outstanding as of such date, including the Letter of
Credit Accommodations incurred in connection with
the Loan Agreement, is $14,519,763.80 (as it may be
increased pursuant to the immediately following sentence,
the "Payoff Amount"), comprised of (i) $7,279,261.47 in
respect of the principal of the outstanding Revolving
Loans, (ii) $22,049.79 in respect of accrued interest for
the period October 1 through October 8, 1996, (iii)
$34,765.63 in respect of letter of credit fees under
Section 2.6 of the Accounts Financing Agreement for the
period from September 1 through October 8, 1996, (iv)
$13,786.44 in accrued unused facility fees under Section
3.5 of the Accounts Financing Agreement from September 1
through October 8, 1996, (v) $50,000 in servicing fees
under Section 3.6 of the Accounts Financing Agreement for
the months of January through October, 1996, (vi) $40.00
in wire charges, (vii) $450,000 constituting the early
termination fee set forth in Section 9.2 of the Accounts
Financing Agreement, (viii) $10,000 constituting the
Forbearance Fee due on October 1, 1996, under Section V.D.
of the Fifth Amendment, (ix) $95,000 in estimated
attorneys' fees and related expenses for the period from
September 1, 1996 to October 8, 1996, (x) $312,448.85
constituting a reserve of 5.0% of the principal amount of
the Letters of Credit (as defined below) for the Indemnity
Obligations (as defined below) (such reserve, the "L/C
Extension Reserve"), (xi) $6,248,977 representing the
outstanding principal amount of those certain letters of
credit (collectively, the "Letters of Credit") issued in
connection with the Loan Agreement and set forth in
Exhibit A attached hereto, and (xii) $3,430.62
representing the accrued interest payable for the period
from September 1 through October 8, 1996 under Section 11
of that certain Note Purchase and Assignment Agreement
dated April 19, 1996 and Section 11 of that certain
Supplemental Note Purchase and Assignment Agreement dated
June 21, 1996, in each case by and between Congress and
K-H Corporation and accepted and acknowledged by Debtor.
If the Payoff Amount is received by Congress in accordance
with the provisions hereof after 12:00 p.m. (Chicago time)
on October 8, 1996 (it being understood that any payment
received after 12:00 p.m. (Chicago time) on any particular
day shall be deemed received on the immediately following
Business Day), then the Payoff Amount shall be increased
by the per diem amount of $2,741.08. If the Payoff Amount
has been received by Congress in accordance with the
provisions hereof, and Congress receives additional
collections from any blocked accounts, Congress will
promptly remit same to the DIP Lender to be held or
applied by DIP Lender in accordance with its agreements
with Debtor.
2. Congress shall hold the amounts paid to Congress
pursuant to clauses (ix), (x) and (xi) of Paragraph 1 of
this letter agreement (collectively, the "L/C Security
Deposit") as collateral for the Indemnity Obligations
(as defined below). Congress shall have no duty to invest
the amount of the L/C Security Deposit, but shall pay the
Debtor (at the time of the final remittance of any unused
L/C Security Deposit) interest on the unapplied balance
thereof outstanding from time to time at the prime
commercial rate from time to time announced by CoreStates
Bank, N.A. ("CoreStates") minus 5%, as interest would be
calculated on the Revolving Loans to Debtor under the Loan
Documents. The amount of any such interest shall be added
to and constitute a part of the L/C Security Deposit at
the end of each month that any L/C Security Deposit is
outstanding.
<PAGE> 3
3. From time to time, Congress may, without any
requirement for notice to the Debtor, and without any
application or motion to, or order from, the Bankruptcy
Court, charge any and all Indemnity Obligations to
the L/C Security Deposit. Congress shall have any and all
of the rights of a secured creditor with respect to the
L/C Security Deposit and shall be entitled to charge the
same with any and all out-of-pocket costs (including legal
fees and expenses) related to administering or defending
its interest therein. From time to time as Letters of
Credit are terminated without drawings being made thereon,
Congress shall promptly remit to the Debtor an appropriate
portion of the L/C Security Deposit so long as the balance
retained is sufficient to continue to protect Congress for
all reasonably anticipated remaining Indemnity
Obligations; provided that any remaining balance shall be
remitted to the Debtor on the later of (A) the date on
which the last outstanding Letter of Credit has been
terminated or drawn in its entirety (the "Letter of Credit
Termination Date") and (B) if there are any outstanding
Indemnity Obligations on the Letter of Credit Termination
Date or if any claims which would give rise to an
Indemnity Obligation have been asserted or threatened
against Congress or any affiliate on or before the Letter
of Credit Termination Date, the date on which all such
actual or contingent Indemnity Obligations have been paid
or discharged in full.
4. This letter agreement will also confirm that at the
time, which shall be on or before October 11, 1996, (the
"Effective Date") (i) Congress has received duly executed
counterparts to this letter agreement by each of the
Debtor and the Guarantors listed on the signature pages
hereto, (ii) the Bankruptcy Court has entered an order (in
form and substance satisfactory to Congress, it being
understood that the proposed form of order initially filed
with the Bankruptcy Court is satisfactory to Congress)
approving this letter agreement, including the releases
contained herein (the "Approval Order") as to which no
stay is in effect and no appeal has been filed and is
pending, (iii) Congress has received an original of the
indemnification letter agreement duly executed by the DIP
Lender in the form attached hereto as Exhibit B and (iv)
Congress has received payment by a federal funds wire
transfer of the Payoff Amount in the following account:
CHASE MANHATTAN BANK, New York, NY
for credit to Congress Financial
Corporation (Central)
ABA #021000021
Account #322-020557
re: Fruehauf Trailer Corporation
then, (i) all liabilities, obligations and indebtedness
owing by Debtor to Congress shall be hereby satisfied in
full, (ii) all Loan Documents shall be hereby terminated
in full and (iii) except for the L/C Security Deposit, the
liens and security interests of Congress in any and all of
the Collateral shall be hereby released and terminated;
provided, however, that (A) all of the respective
indemnification and reimbursement obligations of the
Debtor and the Guarantors under the Loan Documents shall
survive such payment and shall remain solely secured by
the L/C Security Deposit; (B) the Indemnity Obligations
(as defined below) shall constitute an expense of
administration in the respective bankruptcy cases of the
Debtor and each applicable Guarantor, which is junior to
the claims of the DIP Lender and (C) all rights of
Congress as secured party with respect to the L/C Security
Deposit shall survive such payment.
<PAGE> 4
5. Each of the Debtor and the Guarantors jointly
and severally hereby reaffirms and agrees to promptly pay
and perform all of their respective indemnification and
reimbursement obligations under the Loan Documents,
including, without limitation, their respective
obligations, jointly and severally, to indemnify
and reimburse Congress for (i) any payments made by
Congress to any depository bank involved in Debtor's cash
management system for fees, returned or dishonored checks
or any other amounts owing to such depository bank by the
Debtor or any Guarantor or Congress in connection with
the administration of such cash management system
(including the blocked accounts or lockboxes established
at or maintained by such bank), (ii) any reasonable unpaid
attorneys' fees and expenses or other costs chargeable
under the Loan Documents, (iii) any previously paid
principal, interest, attorneys' fees and expenses or other
costs chargeable under the Loan Documents as to which
payment therefor is subsequently invalidated, set aside or
otherwise required to be disgorged for any reason by
Congress to any person or entity, and (iv) any drawings
under any Letter of Credit or any fees or other amounts
incurred or payable by Congress or CoreStates in respect
of any Letter of Credit or other Letters of Credit
Accommodations, (all of the respective indemnification and
reimbursement obligations of the Debtor and the
Guarantors, collectively the "Indemnity Obligations").
6. Promptly following the Effective Date, Congress
will also deliver to the DIP Lender, or at the request of
DIP Lender, the Debtor executed release and termination
documents covering Congress' liens and security interests
in all of the Collateral except for the L/C Security
Deposit. Congress shall have no responsibility for the
filing of such documents, and the full cost of making such
filings shall be borne by the Debtor. Thereafter,
Congress will from time to time upon the reasonable
request of the DIP Lender or the Debtor (and payment in
advance of any expected associated expenses) further
execute and deliver to the DIP Lender or the Debtor, such
other termination statements, releases and other
agreements reasonably requested and provided by the DIP
Lender or the Debtor which are reasonably necessary to
evidence Congress' release and termination of all of its
liens and security interests in the Collateral other
than the L/C Security Deposit.
7. To further assure Congress of its rights to the L/C
Security Deposit, the Debtor hereby (i) grants Congress a
security interest in all of its rights thereto to secure
the Indemnity Obligations, (ii) acknowledges and agrees
that the only interest of the Debtor in the L/C Security
Deposit is the right to receive the remaining amount, if
any, after payment of the Indemnity Obligations to the
extent provided in Paragraph 3 of this letter agreement,
for the account of DIP Lender with payment to be made
directly to DIP Lender in accordance with this letter
agreement and (iii) represents that no other person, firm
or corporation claiming by or through the Debtor
(including the DIP Lender) has or will have any interest
in the L/C Security Deposit that is prior to the rights of
Congress.
<PAGE> 5
8. Although the Debtor and the Guarantors do not
believe they have any claims against Congress, in order to
facilitate the discharge in full of all Obligations (which
discharge is a precondition under the Loan Agreement for
termination of the Loan Agreement and the liens of
Congress on the Collateral), each of the Debtor and
the Guarantors (in the case of the Debtor and the debtor
Guarantors, as debtors and debtors-in-possession) on
behalf of themselves, their estates and their successors
(including any trustee or estate representative in any
bankruptcy case of which the Debtor or any Guarantor is
the subject or in any subsequent case or proceeding under
the Bankruptcy Code) hereby releases and discharges
Congress and its affiliates (including CoreStates) and
their respective successors and assigns and the officers,
directors, employees, counsel, agents and other
representatives of each of the foregoing (each, a
"Releasee") from any and all actions, causes of action,
suits, suits 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 the Debtor or any Guarantor ever had, now
has or hereafter can, shall or may have against any
Releasee for, upon or by reason of any matter, cause or
theory whatsoever from the beginning of the world to and
including the Effective Date other than any obligations of
Congress under this Letter Agreement.
This letter agreement shall terminate and be null and void
if the Effective Date has not occurred on or
before 12:00 p.m. (Chicago time) October 11, 1996.
This letter agreement may be executed in one or more
counterparts, each of which shall be deemed an original
but all of which shall constitute one and the same
agreement to this letter. Please acknowledge your
agreement to this letter by signing your name where
indicated below, and fax a signed copy of this letter to
our attention at (312) 332-0424.
Very truly yours,
CONGRESS FINANCIAL CORPORATION
(CENTRAL)
By:/s/ Thomas Lannon
-----------------
Its:Vice President
ACKNOWLEDGED AND AGREED:
FRUEHAUF TRAILER CORPORATION
By:/s/ Kenneth A. Minor
-----------------------
Its: Vice President - Treasurer
FGR, INC.
By:/s/ Kenneth A. Minor
-----------------------
Its: Vice President - Treasurer
FRUEHAUF CORPORATION
By:/s/ Kenneth A. Minor
-----------------------
Its: Vice President - Treasurer
MARYLAND SHIPBUILDING & DRYDOCK COMPANY
By:/s/ Gary K. Lorenz
-----------------------
Its: President
THE MERCER CO.
By:/s/ Kenneth A. Minor
-----------------------
Its: Vice President - Treasurer
FRUEHAUF INTERNATIONAL LIMITED
By:/s/ Kenneth A. Minor
-----------------------
Its: Vice President - Treasurer
DEUTSCHE-FRUEHAUF HOLDING CORPORATION
By:/s/ Kenneth A. Minor
-----------------------
Its: Vice President - Treasurer
JACKSONVILLE SHIPYARDS, INC.
By:/s/ Gary K. Lorenz
-----------------------
Its: President
M.J. HOLDINGS, INC.
By:/s/ Kenneth A. Minor
-----------------------
Its: Vice President - Treasurer
E.L. DEVICES, INC.
By:/s/ Gary K. Lorenz
-----------------------
Its: President
<PAGE>
<PAGE>
EXHIBIT A
FRUEHAUF TRAILER CORPORATION
LETTERS OF CREDIT
L/C Number Beneficiary Amount
- ---------- -------------------------- ------
515485P St. Paul Fire & Marine $2,500,000.00
Insurance Co.
515486P Continental Casualty Co. $2,000,000.00
515484P Alabama Dept. of $1,748,977.00
Environmental Management
October 8, 1996
Fruehauf Trailer Corporation
Bank One Center/Tower
111 Monument Circle
Suite 3200
Indianapolis, Indiana 46204
Attn: Ken Minor
Re: Payoff of Indebtedness of Fruehauf Trailer
Corporation to K-H Corporation
Dear Ken:
Reference is made to (i) that certain Working
Capital Term Note dated April 19, 1996 from Fruehauf
Trailer Corporation ("Debtor") to K-H Corporation ("K-H")
as assignee of Congress Financial Corporation (Central)
("Congress") and the Term Loan Financing Agreements
referred to therein; (ii) that certain Supplemental
Working Capital Term Note dated June 21, 1996 from Debtor
to K-H as assignee of Congress and the Term Loan Financing
Agreements referred to therein and (iii) that certain
Subordinated Revolving Note dated June 21, 1996 from
Debtor to K-H and the Revolving Loan Documents referred to
therein (collectively the"Loan Documents"). Capitalized
terms used herein and not otherwise defined herein shall
have the meanings set forth in the Loan Documents.
The Debtor has requested that the Loan Documents
be terminated and intends to pay all Term Loan Obligations
and Loan Obligations referred to in the Loan Documents
(collectively "Obligations") from the proceeds of a new
debtor-in-possession working capital facility provided by
Madeleine, L.L.C. (the "DIP Lender"). This letter
agreement is intended to set forth the terms and
conditions regarding the payment of the Obligations.
If received by 1:00 p.m. (New York time) on
October 9, 1996, the amount necessary to pay all
Obligations outstanding as of such date is $6,737,118.10
(as it may be increased pursuant to the immediately
following sentence, the "Payoff Amount"), comprised of
<PAGE> 2
(i) $6,500,000 in respect of principal of such Working
Capital Term Note and Supplemental Working Capital Term
Note; (ii) $125,000 in respect of principal of such
Subordinated Revolving Note; (iii)$70,326.39 in respect of
accrued and unpaid interest on such Working Capital Term
Note and Supplemental Working Capital Term Note from
September 1, 1996 through October 9, 1996 (it being
understood that this amount is net of the amounts payable
by K-H to Congress pursuant to Section 11 of each of that
certain Note Purchase and Assignment Agreement dated April
19, 1996 and that certain Supplemental Note Purchase and
Assignment Agreement dated June 21, 1996 between Congress
and K-H which shall be paid directly by Debtor to Congress
on behalf of and at the direction of K-H); (iv) $1,791.67
in respect of accrued and unpaid interest on such
Subordinated Revolving Note from August 22, 1996 through
October 9, 1996; and (v) $40,000 in respect of estimated
attorneys fees and expenses included in the Obligations.
If the Payoff Amount is received by K-H in accordance with
the provisions hereof after 1:00 p.m. (New York time) on
October 9, 1996 (it being understood that any payment
received after 1:00 p.m. (New York time) on any particular
day shall be deemed received on the immediately following
Business Day), then the Payoff Amount shall be increased
by the per diem amount of $ 1,888.02.
This letter agreement will also confirm that
at the time (i) K-H has received duly executed
counterparts of this letter agreement by each of the
Debtor and each subsidiary of the Debtor listed on the
signature pages hereto that has guaranteed the Obligations
(the "Guarantors"), (ii) the Bankruptcy Court has entered
an order (in form and substance satisfactory to K-H, it
being understood that the proposed form of order initially
filed with the Bankruptcy Court is satisfactory to K-H)
approving this letter agreement, including the releases
contained herein, as to which no stay is in effect
and no appeal has been filed and is pending and (iii) K-H
has received payment by a federal funds wire transfer of
the Payoff Amount in the following account:
Comerica Bank
Detroit, Michigan
ABA Routing # 072000096
K-H Corporation General Account
Account #1076-139045
then (i) all liabilities, obligations and indebtedness by
Debtor to K-H under the Loan Documents shall have been
<PAGE> 3
satisfied in full, (ii) all of the Loan Documents shall
hereby terminate, (iii) the right and commitment to
borrow any additional funds thereunder shall be hereby
terminated and (iv) the liens and security interests of
K-H in any and all of the Collateral shall be hereby
released and terminated; provided, however, that all of
the respective indemnification and reimbursement
obligations of the Debtor and the Guarantors under the
Loan Documents (including, without limitation, their
respective obligations, jointly and severally, to
indemnify and reimburse K-H for (i) any reasonable unpaid
attorneys' fees and expenses or other costs chargeable
under the Loan Documents and (ii) any previously paid
principal, interest, attorneys' fees and expenses or other
costs chargeable under the Loan Documents as to which
payment therefor is subsequently invalidated, set aside or
otherwise required to be disgorged for any reason by
K-H to any person or entity) (i) shall survive such
payment and (ii) shall constitute an expense of
administration in the respective bankruptcy cases of the
Debtor and each applicable Guarantor junior to the claims
of the DIP Lender.
Promptly following the Effective Date, K-H
will also deliver to the DIP Lender or, at the request of
the DIP Lender, the Debtor executed release and
termination documents covering K-H's liens and security
interests in all of the Collateral. K-H shall have no
responsibility for the filing of such documents, and the
full cost of making such filings shall be borne by the
Debtor. Thereafter, K-H will from time to time
upon the reasonable request of the DIP Lender or the
Debtor (and payment in advance of any expected associated
expenses) further execute and deliver to the DIP Lender or
the Debtor such other termination statements, releases and
other agreements reasonably requested and provided by the
DIP Lender or the Debtor which are reasonably necessary to
evidence K-H's release and termination of its liens and
security interests in the Collateral.
Although the Debtor and the Guarantors do not
believe they have any claims against K-H, in order to
facilitate the discharge in full of all Obligations, each
of the Debtor and the Guarantors (in the case of the
Debtor and the debtor Guarantors, as debtors and
debtors-in-possession) on behalf of themselves, their
estates and their successors (including any trustee or
estate representative in any bankruptcy case of
which the Debtor or any Guarantor is the subject or in any
subsequent case or proceeding under the Bankruptcy Code)
hereby releases and discharges K-H and its affiliates and
their respective successors and assigns and the officers,
directors, employees, counsel, agents and other
representatives of each of the foregoing (each, a
<PAGE> 4
"Releasee") from any and all actions, causes of action,
suits, suits 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 the Debtor or any Guarantor ever had, now
has or hereafter can, shall or may have against any
Releasee for, upon or by reason of any matter, cause or
theory whatsoever from the beginning of the world to and
including the Effective Date arising out of or relating to
the Loan Documents.
This letter agreement relates only to the
Obligations and shall not affect any other amounts now or
hereafter owed to K-H by Debtor and the Guarantors.
This letter agreement shall terminate and be
null and void if the Effective Date has not occurred on or
before 1:00 p.m. (New York time) October 11, 1996.
This letter agreement may be executed in one
or more counterparts, each of which shall be deemed an
original but all of which shall constitute one and the
same agreement to this letter. Please acknowledge your
agreement to this letter by signing your name where
indicated below, and fax a signed copy of this letter to
our attention at 716-888-8010.
Very truly yours,
K-H CORPORATION
By:/s/ Fred J. Chapman
--------------------
Its: Treasurer
ACKNOWLEDGED AND AGREED:
FRUEHAUF TRAILER CORPORATION
By:/s/ Kenneth A. Minor
-----------------------
Its: Vice President - Treasurer
FGR, INC.
By:/s/ Kenneth A. Minor
-----------------------
Its: Vice President - Treasurer
FRUEHAUF CORPORATION
By:/s/ Kenneth A. Minor
-----------------------
Its: Vice President - Treasurer
MARYLAND SHIPBUILDING & DRYDOCK COMPANY
By:/s/ Gary K. Lorenz
-----------------------
Its: President
THE MERCER CO.
By:/s/ Kenneth A. Minor
-----------------------
Its: Vice President - Treasurer
FRUEHAUF INTERNATIONAL LIMITED
By:/s/ Kenneth A. Minor
-----------------------
Its: Vice President - Treasurer
DEUTSCHE-FRUEHAUF HOLDING CORPORATION
By:/s/ Kenneth A. Minor
-----------------------
Its: Vice President - Treasurer
JACKSONVILLE SHIPYARDS, INC.
By:/s/ Gary K. Lorenz
-----------------------
Its: President
M.J. HOLDINGS, INC.
By:/s/ Kenneth A. Minor
-----------------------
Its: Vice President - Treasurer
ALVAREZ & MARSAL. INC.
885 Third Avenue - Suite 1700
New York, New York 10022-4802
-----------------------------
(212) 230-3304
Fax (212) 230-3307
11100 Santa Monica Blvd. 201 East Kennedy Blvd.
Suite 1990 Suite 1400
Los Angeles, CA 90025 Tampa, FL 33602
- --------------------- ---------------
(310) 444-0946 (813) 222-8912
Fax (310) 444-0956 Fax (813) 222-8913
October 8, 1996
Board of Directors
Fruehauf Trailer Corporation
111 Monument Circle - Suite 3200
Indianapolis, IN 46204
Dear Sirs:
The purpose of this letter is to set forth the terms of the agreement
between Alvarez & Marsal, Inc. ("A&M") and Fruehauf Trailer Corporation
(the "Company") and to provide an understanding of the scope of services
to be provided by A&M to the Company.
1. Description of Services
A&M will act as crisis managers and will provide
the services of Thomas E. Ireland, a Managing
Director of A&M, as Chief Executive Officer of
the Company. A&M will report to the Board of
Directors regarding the performance of its
obligations under this agreement. A&M will have
all the rights, powers and duties customarily
accorded to the Chief Executive Officer
including those set forth in the Company's
bylaws. In addition, due to the Chapter 11
filing, A&M shall have responsibility for the
following:
(a) Assisting the Company in assessing its
liquidity situation, forecasting its
liquidity needs and providing for those
needs.
(b) Assisting the Company in developing a
business plan as required under the DIP
Credit Agreement which will identify core
and non-core operations, project the
operating cash performance of those
operations and set out projected
administrative capital expenditure
requirements and sale of assets.
<PAGE> 2
Page Two
October 8, 1996
(c) Assisting the Company in identifying and
exploring alternatives to a stand-alone
plan.
(d) Assisting the Company in formulating and
negotiating a plan of reorganization with
its creditors and other constituents.
(e) Assisting the Company in managing the
Chapter 11 process, in particular by
directing in all respects the work of all
legal and financial professionals
representing the Company.
(2) Compensation
As compensation for services rendered and to be
rendered hereunder, Fruehauf agrees, subject to
Paragraph 3 below and to Bankruptcy Court
approval, to pay A&M non-refundable fees as
follows:
(a) For the first three months of this
engagement, A&M shall be paid monthly at
a rate of $125,000 per month.
(b) Thereafter A&M shall be paid monthly at
a rate of $100,000 for each additional
month of this engagement.
(c) A&M shall request payment of an additional
fee upon the successful completion of this
engagement. For purposes of this letter,
the criteria for successful completion
shall be negotiated and the amount of such
fee shall be agreed upon within ninety days
of the date hereof, but in no event shall
A&M request a fee less than $750,000,
provided that such a fee shall be subject
to Court approval after notice and hearing.
(d) In addition, A&M shall be reimbursed on
a monthly basis for its actual and
necessary out-of-pocket expenses.
(e) Immediately upon Court approval of this
agreement the Company will pay A&M a
retainer of $125,000 to be credited
against A&M's final bill.
<PAGE> 3
Page Three
October 8, 1996
3. Term
The term of this engagement shall commence
October 7, 1996, and may be terminated by either
party at any time, without cause, by giving ten
days' written notice to the other party.
However, if Fruehauf terminates A&M, Fruehauf
shall promptly pay any unpaid fees or expenses
due under Paragraph 2 hereof.
4. Indemnification
The attached Indemnification Agreement contains
A&M's standard terms.
Alvarez & Marsal, Inc.
By: /s/ Thomas E. Ireland
----------------------
Thomas E. Ireland
Accepted and Agreed:
Fruehauf Trailer Corporation
By: /s/ Derek L. Nagle
--------------------
President
EXHIBIT 11
FRUEHAUF TRAILER CORPORATION AND SUBSIDIARIES
(Debtor-in-Possession)
COMPUTATION OF LOSS PER SHARE
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1996 1995 1996 1995
------ ------ ---- ------
<S> <C> <C> <C> <C>
PRIMARY:
Average shares outstanding. . 39,462 39,198 39,296 35,316
Net effect of dilutive stock
options and warrants based
on the treasury stock
method using average
market price . . . . . . . -- (1) -- (1) -- (1) -- (1)
------ ------ ------ ------
Totals . . . . . . . . . . 39,462 39,198 39,296 35,316
====== ====== ====== ======
Net loss. . . . . . . . . $(10,264) $(2,990) $(8,833) $ (42)
====== ====== ====== ======
Primary loss per share. . $ (.26) $ (.08) $ (.22) $ (.00)
====== ====== ====== ======
FULLY DILUTED:
Average shares outstanding. . 39,462 39,198 39,296 35,316
Net effect of dilutive stock
options and warrants based
on the treasury stock
method using average
market price . . . . . -- (1) -- (1) -- (1) -- (1)
------ ------ ------ ------
Totals . . . . . . . . . 39,462 39,198 39,296 35,316
====== ====== ====== ======
Net loss . . . . . . . . $(10,264) $(2,990) $(8,833) $ (42)
====== ====== ====== ======
Fully diluted loss
per share. . . . . . . $ (.26) $ (.08) $ (.22) $ (.00)
====== ====== ====== ======
<FN>
<F1> Not applicable as inclusion is anti-dilutive.
</TABLE>
<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 SEPTEMBER 30,
1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 3,613
<SECURITIES> 0
<RECEIVABLES> 21,091
<ALLOWANCES> 0
<INVENTORY> 24,959
<CURRENT-ASSETS> 52,561
<PP&E> 31,353
<DEPRECIATION> 12,672
<TOTAL-ASSETS> 102,033
<CURRENT-LIABILITIES> 144,386
<BONDS> 51,182
0
0
<COMMON> 397
<OTHER-SE> (109,168) <F1>
<TOTAL-LIABILITY-AND-EQUITY> 102,033
<SALES> 222,706
<TOTAL-REVENUES> 222,706
<CGS> 198,800
<TOTAL-COSTS> 230,888
<OTHER-EXPENSES> (13,585) <F2>
<LOSS-PROVISION> 2,143
<INTEREST-EXPENSE> 10,617
<INCOME-PRETAX> (7,357)
<INCOME-TAX> 276
<INCOME-CONTINUING> (7,633)
<DISCONTINUED> 0
<EXTRAORDINARY> (1,200)
<CHANGES> 0
<NET-INCOME> (8,833)
<EPS-PRIMARY> (.22)
<EPS-DILUTED> (.22)
<FN>
<F1>
Amount includes: Accumulated Deficit of ($249,068),
Additional paid-in capital of $131,114, Common
stock purchase warrants of $9,102 and Foreign
currency translation adjustment of ($316).
<F2>
Amount includes: Gain on sale of excess assets of
($14,202) and other expense of $617.
</FN>
</TABLE>
