<PAGE>
<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 1O-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended June 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
----- ------
Number of outstanding shares of common stock: 39,212,454 as
of August 14, 1996.
<PAGE>
<PAGE> 2
INDEX
FRUEHAUF TRAILER CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION Page No.
--------------------- --------
Item 1 Condensed Financial Statements
Condensed Consolidated Statement of Operations -
Three months and six months ended
June 30, 1996 and 1995 . . . . . . . . . . 3
Condensed Consolidated Balance Sheet -
June 30, 1996 and December 31, 1995. . . . 4
Condensed Consolidated Statement of Cash Flows -
Six months ended June 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 . . . . . . . . . . . . . . . . 16
PART II - OTHER INFORMATION
Item 1 Legal Proceedings. . . . . . . . . . . . . . 31
Item 3 Defaults Upon Senior Securities. . . . . . . 31
Item 6 Exhibits and Reports on Form 8-K . . . . . . 32
SIGNATURES . . . . . . . . . . . . . . . . . . . . . 34
<PAGE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
FRUEHAUF TRAILER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share amounts, unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
------------------ -----------------
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net sales. . . . . . . . . . $67,458 $109,695 $157,764 $221,397
Cost of goods sold . . . . . 61,165 94,896 140,766 192,406
------- -------- -------- --------
Gross margin . . . . . . . 6,293 14,799 16,998 28,991
Engineering, selling and
administrative expenses . . 11,432 13,369 23,747 26,210
Royalty income . . . . . . . (273) (771) (964) (1,233)
Nonrecurring gain. . . . . . -- -- (3,000) --
Restructuring credit . . . . -- (2,970) -- (2,970)
------- -------- -------- --------
Income (loss) from
operations. . . . . . . (4,866) 5,171 (2,785) 6,984
Other income (expense):
Interest expense . . . . . (3,360) (3,849) (7,211) (7,203)
Equity in net income of
affiliate companies. . . -- 853 -- 1,718
Gain on sale of excess
assets. . . . . . . . . 14,014 715 14,051 1,638
Impairment in value of
promissory note . . . . -- -- (2,143) --
Other income (expense)-net 42 24 (268) 141
------- -------- -------- --------
Income before income taxes 5,830 2,914 1,644 3,278
Provision for income taxes 92 165 213 270
------- -------- -------- --------
Income before
extraordinary items. . . 5,738 2,749 1,431 3,008
Extraordinary items:
Gain on satisfaction of
payable to Terex
Corporation . . . . -- 1,156 -- 1,156
Loss on early
extinguishment
of debt . . . . . . . -- (1,216) -- (1,216)
------- -------- -------- -------
Net income . . . . . . . $ 5,738 $ 2,689 $ 1,431 $ 2,948
======= ======== ======== =======
Primary and fully diluted
earnings per share:
Income before
extraordinary items . $ .15 $ .07 $ .04 $ .09
Gain on satisfaction
of payable to
Terex Corporation. . -- .03 -- .03
Loss on early
extinguishment of debt -- (.03) -- (.03)
----- ------ ------ ------
Primary and fully
diluted earnings
per share. . . . . $ .15 $ .07 $ .04 $ .09
===== ===== ===== =====
Dividends per share. . . . $ -- $ -- $ -- $ --
===== ===== ===== =====
Weighted average common
and common equivalent
shares outstanding
(See Exhibit 11). . . . 39,212 37,055 39,212 34,250
====== ====== ====== ======
</TABLE>
The accompanying notes are
an integral part of these statements.
<PAGE> 4
FRUEHAUF TRAILER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
----------- ------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents . . . . . $ 2,574 $ 3,804
Net receivables . . . . . . . . . . 25,837 38,589
Net inventories (See Note B). . . . 32,130 55,162
Other current assets. . . . . . . . 1,657 841
-------- --------
Total current assets. . . . . . 62,198 98,396
Restricted cash. . . . . . . . . . . 10,464 1,427
Prepaid pension cost . . . . . . . . 12,104 11,757
Investments in affiliate
companies (See Note D). . . . . . -- 3,441
Assets held for sale . . . . . . . . 4,030 6,986
Unamortized deferred debt
issuance costs . . . . . . . . . 6,173 6,232
Other assets . . . . . . . . . . . . 7,694 7,255
Property, plant and equipment
Property, plant and equipment . . . 31,521 32,906
Less - accumulated depreciation . . (12,320) (11,887)
------- -------
Net property, plant and equipment 19,201 21,019
Total assets. . . . . . . . . . $121,864 $156,513
======== ========
</TABLE>
The accompanying notes are an
integral part of these statements.<PAGE>
<PAGE> 5
FRUEHAUF TRAILER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET (Continued)
(in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
----------- ------------
(unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Trade accounts payable. . . . . . . . . . $ 36,702 $ 51,703
Accrued compensation and benefits . . . . 6,745 7,835
Accrued warranties and products liability 6,604 6,876
Other current liabilities . . . . . . . . 20,693 19,762
Current portion of long-term
debt (See Note C). . . . . . . . . . . 82,157 33,592
-------- --------
Total current liabilities . . . . . . 152,901 119,768
Long-term debt, less current
portion (See Note C). . . . . . . . . 169 67,374
Postretirement benefits. . . . . . . . . . 33,776 34,353
Other long-term liabilities. . . . . . . . 34,400 36,041
Contingencies and litigation (See Note E)
Stockholders' deficit
Common Stock $0.01 par value-authorized
60,000 shares; issued and outstanding
39,212 shares . . . . . . . . . . . . . 392 392
Additional paid-in capital. . . . . . . . 130,244 130,244
Common Stock Purchase Warrants . . . . . 9,102 8,892
Accumulated deficit . . . . . . . . . . . (238,804) (240,235)
Foreign currency translation adjustment . . (316) (316)
-------- --------
Total stockholders' deficit . . . . . (99,382) (101,023)
-------- --------
Total liabilities and stockholders'
deficit. . . . . . . . . . . . . . . $121,864 $156,513
======== ========
</TABLE>
The accompanying notes are an
integral part of these statements.<PAGE>
<PAGE> 6
FRUEHAUF TRAILER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands, unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------
1996 1995
------ ------
<S> <C> <C>
Operating Activities:
Net income (loss) . . . . . . . . . . . . $ 1,431 $ 2,948
Adjustments to reconcile net income
to net cash from (used in) operating
activities:
Depreciation. . . . . . . . . . . . . . . 830 804
Amortization of deferred debt issuance costs. 669 366
Unremitted earnings from affiliate companies. -- (1,718)
Gain on sale of excess assets . . . . . . . . (14,051) (1,638)
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. . . . . . . . . . . . . . . . . . . -- 1,216
Increase (decrease) in cash due to changes
in operating assets and liabilities:
Net receivables . . . . . . . . . . . . 12,208 (7,971)
Net inventories . . . . . . . . . . . . 23,032 (3,982)
Trade accounts payable. . . . . . . . . (15,507) 111
Other assets and liabilities. . . . . . (3,907) (14,725)
------- -------
Net cash from (used in) operating activities. . 6,848 (28,715)
Investing Activities:
Capital expenditures . . . . . . . . . . . . (231) (878)
Proceeds from sale of excess assets. . . . . 20,414 9,500
Decrease (increase) in restricted cash . . . (9,037) 4,883
------- -------
Net cash from investing activities. . . . . . . 11,146 13,505
Financing Activities:
Net increase (decrease) in Revolving Credit
Facility borrowings. . . . . . . . . . . . (25,254) 5,810
Issuance of Working Capital Term Note. . . . 6,500 --
Net repayments under notes payable . . . . . -- (77)
Principal repayments of long-term debt . . . (147) (9,013)
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 . . . . . . . . . . . . (323) (4,403)
------- -------
Net cash from (used in) financing activities . (19,224) 12,983
------- -------
Net decrease in cash and cash equivalents. . . (1,230) (2,227)
Cash and cash equivalents at beginning
of period . . . . . . . . . . . . . . . . . 3,804 7,789
-------- --------
Cash and cash equivalents at end of period . . $ 2,574 $ 5,562
======== ========
</TABLE>
The accompanying notes are an
integral part of these statements.
<PAGE>
<PAGE> 7
FRUEHAUF TRAILER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, unless otherwise denoted)
June 30, 1996
NOTE A - BASIS OF PRESENTATION
The accompanying condensed consolidated financial
statements of Fruehauf Trailer Corporation and
Subsidiaries ("Fruehauf" or the "Company") as of June 30,
1996 and for the three and six months ended June
30, 1996 have been prepared in accordance with generally
accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required
by generally accepted accounting principles for
complete financial statements. The accompanying
consolidated balance sheet as of December 31, 1995 has
been derived from the audited consolidated financial
statements as of that date. Certain prior year amounts
have been conformed to the current year presentation.
The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the
date of the financial statements and reported amounts of
revenues and expenses during the period. Actual results
could differ from those estimates.
In the opinion of management, all adjustments considered
necessary for a fair presentation have been made.
Such adjustments consist only of those of a normal
recurring nature, other than those adjustments discussed
in Note D. Operating results for the three and six
months ended June 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").
NOTE B - INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
-------- ------------
<S> <C> <C>
New trailers. . . . . . . . . . . . . $10,791 $19,324
Used trailers . . . . . . . . . . . . 2,320 4,288
Finished parts. . . . . . . . . . . . 9,105 14,923
Work-in-process and raw materials . . 13,213 19,926
------- -------
Gross inventories. . . . . . . 35,429 58,461
FIFO inventory value over LIFO costs. (3,299) (3,299)
------- -------
Net inventories. . . . . . . . $32,130 $55,162
======= =======
</TABLE>
<PAGE> 8
NOTE C - LONG-TERM DEBT
Long-term debt consisted of the following at:
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
-------- ------------
<S> <C> <C>
Senior Notes bearing interest at 14.75% due April 2002
(net of unamortized debt discount of $3,908 at
June 30, 1996 and $4,094 at December 31, 1995) . . . . $ 58,666 $ 58,480
Revolving Credit Facility bearing interest at prime
(8.25% at June 30, 1996) plus 2.5%, due May 1997. . . . 8,089 33,343
Working Capital Term Note bearing interest at prime
(8.25% at June 30, 1996) plus 2.5%, due May 1997
(net of unamortized debt discount of $175 at
June 30, 1996) . . . . . . . . . . . . . . . . . . . . 6,325 --
Subordinated Revolving Note bearing interest at prime
(8.25% at June 30, 1996) plus 2.5%, due the later
of December 1, 1999 or 15 days after the full
redemption of the Senior Notes . . . . . . . . . . . . -- --
Warrant Notes bearing interest at 15% due October 1998. . 8,692 8,692
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 554 451
-------- --------
Total long-term debt. . . . . . . . . . . . . . . . . 82,326 100,966
Less: Current portion of long-term debt . . . . . . . . (82,157) (33,592)
-------- --------
Long-term debt, less current portion . . . . . . . . . $ 169 $ 67,374
======== ========
</TABLE>
Balance Sheet Classification at June 30, 1996
The Company's revolving credit facility (the "Revolving
Credit Facility") and Working Capital Term Note (as
hereinafter defined) mature on May 1, 1997. While it is
the Company's intent to either (i) seek lender consent
to extend the maturity of the Revolving Credit Facility
and the Working Capital Term Note or (ii) refinance such
borrowings, there can be no assurance that the Company
will be able to refinance the borrowings beyond the May
1, 1997 maturity date. Accordingly, the Revolving Credit
Facility and Working Capital Term Note have been
classified as current in the Condensed Consolidated
Balance Sheet at June 30, 1996. In addition, the Company
had received and was operating under a limited waiver
through August 31, 1996 from its Revolving Credit
Facility lender, Congress Financial Corporation (Central)
("Congress"), regarding certain noncompliance with
covenants relating to the payment of trailing liabilities
with advances under the Revolving Credit Facility. In
connection with the recent amendment to the Revolving
Credit Facility on June 21, 1996, Congress extended a
forbearance to the Company, subject to the payment of a
forbearance fee, in lieu of the limited waiver with
respect to the same matters. See further discussion in
Note F - "Management's Action Plan and Outlook".
Interest on the Company's unsecured promissory notes due
October 1998 (the "Warrant Notes") is payable
semiannually on June 30 and December 31. The Company has
not yet made the required June 30, 1996 interest
payment. Pursuant to the terms of a subordination
agreement between the holders of the Warrant Notes, the
Revolving Credit Facility lenders and the trustee (the
"Trustee") under the indenture (the "Indenture")
governing the issuance of the Company's senior secured
notes (the "Senior Notes"), the holders of the Warrant
Notes are prohibited from exercising their remedies,
including acceleration of the principal balance of the
Warrant Notes for a period of 180 days. However, the
holders of the Warrant Notes have indicated to the
Company their intent to accelerate the Warrant Notes for
purposes of commencing the 180 day standstill provisions.
At the current time, there can be no assurance that the
Company will be able to make the required interest
payment prior to the expiration of the standstill period.
Accordingly, the Warrant Notes have been classified as
current in the Condensed Consolidated Balance Sheet at
June 30, 1996.
<PAGE> 9
Acceleration by the holders of the Warrant Notes would
constitute an event of default under the Indenture. As
such, the Senior Notes may be callable by the holders of
the Senior Notes within one year of the balance sheet
date. Accordingly, the Company has presented the Senior
Notes as current in the Condensed Consolidated
Balance Sheet at June 30, 1996.
Interest on the Company's Senior Notes is payable
semiannually on May 1 and November 1 on each year. The
Company did not make the required May 1, 1996 interest
payment within the 30 day grace period, which resulted
in an event of default under the Indenture. However, the
Company made the required interest payment on June
21, 1996. See further discussion in Note F -
"Management's Action Plan and Outlook".
Offer to Repurchase Senior Notes
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.
NOTE D - MATERIAL NONRECURRING ADJUSTMENTS
On February 10, 1995, Jacksonville Shipyards, Inc., a
wholly-owned subsidiary of the Company ("Jacksonville"),
completed the sale of substantially all of its remaining
real estate in three separate transactions. With respect
to one purchaser, the proceeds from the sale of
Jacksonville's properties consisted of an interest
bearing promissory note 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. As a
result of the termination of such discussions, on May 8,
1996 Jacksonville initiated a foreclosure proceeding on
the real property securing the promissory note. Such
discussions, however, including the proposed economic
terms, indicated that the entire carrying amount of the
promissory note may not be recoverable. As such,
Jacksonville recorded a non-cash impairment write-down of
approximately $2.1 million in the first quarter of 1996
to reflect the diminution in value of the promissory note
and underlying real property. More recently,
Jacksonville has entered into a Note and Mortgage
purchase agreement whereby Jacksonville will sell the
note and underlying mortgage for $2.6 million in cash and
assumption of liabilities of approximately $0.1 million.
Jacksonville expects to close the sale in the fourth
quarter of 1996.
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 Europeene 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, S.A. de
C.V.), (ii) certain trademark and technology license
agreements currently 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
<PAGE> 10
recognized a gain of approximately $14.0 million related
to the Foreign Sale. As a result of the Foreign Sale,
the Company will no longer generate income from equity
affiliates, dividend income or royalty income.
The Company recognized a gain of $3.0 million in the
first quarter of 1996 in connection with the settlement
of litigation.
NOTE E - CONTINGENCIES AND LITIGATION
Litigation
In December 1992, a class action complaint was filed on
behalf of all persons who purchased the Company's
Common Stock during the period June 28, 1991 through
December 4, 1992 against the Company, Terex, certain of
the Company's present and former officers and Directors,
and certain of the underwriters in the Company's initial
public offering (the "IPO") in the United States District
Court for the Eastern District of Michigan, Southern
Division, seeking unspecified compensatory and punitive
damages. A related action against the Company's former
auditors, Deloitte & Touche LLP ("Deloitte & Touche"),
was subsequently filed on behalf of the same persons, and
the cases have been consolidated for some purposes.
Discussions held among the Company, on behalf of itself
and certain of its present and former Directors and
officers, Terex, the underwriter defendants, and the
plaintiffs resulted in a settlement of the litigation as
to all defendants other than Deloitte & Touche. Formal
settlement documentation was approved by the District
Court on August 17, 1995. The settlement terms require
the Company, as its share of the settlement, to (a)
pay $0.1 million in cash to a settlement fund, (b) issue
a note or notes 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 is currently in the process of attempting to
develop the specific terms of the notes and warrants.
The Company has experienced difficulties in negotiating
terms acceptable to the Company. As such, there can be
no assurance that the Company and the plaintiffs will
reach an agreement with respect to the terms and
conditions of the notes and warrants.
The Company is involved in other various legal
proceedings which have arisen in the normal course of
business. Most of these legal proceedings involve
products liability or other various claims for which the
Company is principally self-insured. In addition,
certain of the Company's former maritime operations are
one of a number of defendants in legal proceedings
wherein the plaintiffs claim to have been damaged by
exposure to asbestos fibers and silica dust. The Company
has reviewed the products liability and other cases
that have arisen in the normal course of Company's
business. The Company evaluates the possible impact of
this litigation, including the uncertainties as to the
timing of expenditures for settlements and/or bonding on
appeal, on the Company in light of current circumstances.
Although the Company has established reserves
for loss contingencies based on available information, it
is reasonably possible that such estimates will change
in the near future and the Company is at risk of being
obligated to pay substantial damages to claimants.
The Company had litigation reserves totaling $12.5
million at June 30, 1996. However, the Company's
present liquidity situation may make settlements in one
or more of these cases difficult. Existing or potential
judgments against the Company in one or more of these
cases could require expenditures of funds beyond the
Company's available cash resources and could, depending
on their size, result in the violation of certain
covenants contained in the Revolving Credit Facility and
the Indenture. In the event that judgments require
the expenditure of funds beyond the Company's available
resources or result in covenant violations that are
not waived or otherwise cured, those judgments could have
a material adverse impact on the Company. In the event
<PAGE> 11
that any litigation is settled by the issuance of
additional equity securities, there may be an adverse
effect on earnings per share. In December 1995, the
Company reached a settlement of a product liability suit
whereby the Company will be required, as part of the
settlement, to issue 500,000 shares of common stock
during 1996.
The Company settled its previously announced litigation
against Deloitte & Touche on April 24, 1996, which
settlement by its terms is confidential.
Environmental Matters
The Company has facilities at numerous geographic
locations which are subject to a range of federal, state
and local environmental laws and regulations. Compliance
with these laws has, and will, require expenditures on
a continuing basis. The Company and/or Jacksonville has
been identified as a "Potentially Responsible Party"
at several multi-party Superfund sites, and has also
identified environmental exposures at certain other sites
not designated as Superfund sites. The Company and/or
Jacksonville is currently participating in administrative
or court proceedings involving a number of sites. Many
of the proceedings are at a preliminary stage, and the
total costs of remediation, the timing and extent of
remedial actions which may be required, and the amount of
the Company's liability with respect to these sites
cannot presently be estimated. When it is possible to
make reasonable estimates of the Company's liability with
respect to such matters, a provision is recorded. When
it is possible to estimate a range of liability but
management is unable to determine the amount within the
range that is the best estimate, a provision is recorded
for the minimum amount of the range. The Company's
reserve for Superfund sites and other environmental
contingencies totaled $11.9 million at June 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.
If the amount of payments required with respect to these
sites exceed the Company's available cash resources,
there could be a material adverse effect on the Company.
Even if these liabilities do not otherwise impact the
Company, incremental environmental reserve requirements,
if any, in excess of current reserves could have a
material adverse effect on results of a particular
period.
Other
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 expires 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 Company
intends to vigorously defend itself in this matter. 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. This investigation followed an informal
inquiry by the SEC that had existed for some period of
time. The SEC is 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> 12
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 F - MANAGEMENT'S ACTION PLAN AND OUTLOOK
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 from cash
solely provided by operations has been adversely affected
by the reduced retail market demand in the trailer
industry and resultant lower than anticipated operating
performance. In response to such liquidity constraints,
the Company: (i) has significantly reduced its
investment in working capital, (ii) has increased the
borrowing capacity under its Revolving Credit Facility,
(iii) has entered into a loan agreement to provide for
assistance in the funding of the payment of trailing
liabilities with the financial assistance of a party
potentially liable for certain of the Company's trailing
liabilities and (iv) received the consent of the holders
of the Senior Notes to a noncomforming split of the
Foreign Sale proceeds, a portion of which will be used
for operating capital purposes.
During the six months ended June 30, 1996, the Company
reduced its investment in operating working capital
(defined as net receivables and net inventories less
trade accounts payable) by approximately $19.7 million.
This reduction in operating working capital was the
result of (i) focused efforts to improve days sales
outstanding of trade receivables and inventory turns,
(ii) the reduced production levels experienced during the
first half of 1996 and (iii) an increase in days payables
outstanding. The increase in the days payables
outstanding, however, has increased the level of trade
accounts payable past normal terms and has affected
material flow to the Company's operating locations. A
substantial number of the Company's trade vendors
have placed the Company on "cash-in-advance" or
"cash-on-delivery" terms for new shipments of goods. The
Company has proposed to its suppliers that they agree to
"standstill" with respect to past due accounts payable.
The initial supplier response has been favorable,
however, there can be no assurance that all suppliers
will comply or for how long with the Company's proposed
terms.
On April 19, 1996, the Company entered into a letter
agreement (the "K-H Letter Agreement") with K-H
Corporation, a Delaware Corporation ("K-H"), pursuant to
which, among other things, K-H agreed to purchase an
initial $5.5 million interest, and agreed to purchase an
additional $1.0 million interest upon successful
completion of the Consent Solicitation (as hereinafter
defined), in the Revolving Credit Facility (the
aggregate $6.5 million collectively referred to as the
"Working Capital Term Note"). As part of the K-H
Letter Agreement, K-H received five-year warrants to
purchase 2,000,000 shares of the Company's common
stock for an exercise price of $2.50 per share. The fair
value of the K-H warrant (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. The initial funding of $5.5
million of the Working Capital Term Note was consummated
<PAGE> 13
on April 25, 1996 and the additional funding of $1.0
million of the Working Capital Term Note was consummated
on June 21, 1996, resulting in a $6.5 million expansion
of the Company's liquidity under its Revolving Credit
Facility. The K-H Letter Agreement also contemplated,
subject to successful completion of the Consent
Solicitation, the incurrence of additional indebtedness
subordinated to the indebtedness represented by the
Senior Notes through future financing arrangements with
K-H or one of its affiliates and the grant by the Company
of security interests subordinate to those of the holders
of the Senior Notes to secure such arrangements. On June
21, 1996, the Company and K-H entered into a loan
agreement (the "Subordinated Revolving Note"), whereby
K-H has agreed to lend at least $3.5 million to the
Company and K-H may, in its sole discretion, lend
additional amounts to be used to resolve trailing
liabilities for which it may have contingent liability.
Pursuant to this commitment, K-H will determine which
trailing liabilities will be paid with the proceeds of
the loans. These loans bear interest at prime plus 2.5%
and are secured by a lien on collateral subordinate to
the security interests of Congress and the Trustee and
Collateral Agent under the Indenture and such loans will
be fully subordinate to the indebtedness of the Company
to Congress and the indebtedness represented by the
Senior Notes. Interest is payable monthly and the
Subordinated Revolving Note matures the later of December
1, 1999 or 15 days after the full redemption of the
Senior Notes. There were no advances under the
Subordinated Revolving Note as of June 30, 1996.
During the second quarter of 1996, the Company mailed a
consent solicitation statement (the "Consent Solicitation
Statement") to the holders of the Senior Notes seeking
consent to, among other things, a nonconforming split of
the Foreign Sale proceeds (the "Consent Solicitation").
Pursuant to the terms of the Consent Solicitation, the
Company, the holders of the Senior Notes and Congress
agreed to apply the proceeds of the Foreign Sale as
follows: (i) the interest payment on the Senior Notes
scheduled for May 1, 1996 in the amount of approximately
$4.6 million was deposited with the trustee (the
"Trustee") to be paid to the holders, (ii) approximately
$0.2 million was deposited with the Trustee to be used to
pay a consent fee equal to .25% of the outstanding
principal amount of the Senior Notes to the holders of
the Senior Notes, (iii) $6.0 million of the proceeds were
paid to Congress for application to the Revolving Credit
Facility (and available for reborrowing by the Company in
accordance with the terms of the Revolving Credit
Facility), (iv) amounts totaling approximately $1.0
million held in escrow related to the Foreign Sale would
be paid either to Congress (if and to the extent there
are any Congress obligations outstanding on the date of
release) for application to the Congress obligations and
application to a reserve under the Revolving Credit
Facility, which would not be available to the Company for
re-borrowing, or to the Trustee and used to make an asset
sale offer, and (v) the balance of all other net cash
proceeds generated from the Foreign Sale (including
proceeds, if any, received upon the sale of certain
property located in Germany) and up to $0.1 million held
in escrow related to the Foreign Sale were deposited with
the Trustee to be held in trust for the benefit of the
holders of the Senior Notes and used to make an asset
sale offer. 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 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. The Company will be required to write
off approximately $1.2 million during the third quarter
of 1996, representing a proportionate share of the
remaining unamortized deferred debt issuance costs and
debt discount.
In connection with the Foreign Sale, the Company and
Congress entered into an Amendment to the Revolving
Credit Facility, pursuant to which, among other things,
Congress has waived the provisions of the Revolving
Credit Facility to permit the Foreign Sale to occur as
set forth above. In addition, Congress and the Trustee
under the Indenture entered into an amendment to the
intercreditor agreement by and among Congress and the
Trustee (the "Intercreditor Agreement"): (i) permitting
the portion of the net cash proceeds of the Foreign Sale
which are paid to Congress to be applied as set forth in
the paragraph above, (ii) providing that any failure by
Congress to apply or otherwise increase the asset sale
reserve (the "Asset Sale Reserve") or the permanent
<PAGE> 14
reserve (the "Permanent Reserve') will not limit
Congress's ability or right to apply future net cash
proceeds from asset sales to the Asset Sale Reserve or
Permanent Reserve, and (iii) an amendment by Congress and
the Company to the Revolving Credit Facility permitting
such application and such ability.
The Intercreditor Agreement was also amended to provide
that the Asset Sale Reserve be reduced to zero and
the Permanent Reserve be immediately increased by the
amount of the Asset Sale Reserve and the proceeds
of any future asset sale - up to a maximum of $7.5
million would be applied to the Permanent Reserve. The
Permanent Reserve totaled approximately $2.8 million at
June 30, 1996.
The Revolving Credit Facility imposes certain limitations
on the Company's ability to fund trailing liabilities
with borrowings under the Revolving Credit Facility. The
Company is required to measure its borrowing availability
each month end. In order to borrow under the Revolving
Credit Facility to fund trailing liabilities the
following month, the Company is currently required to
maintain a minimum borrowing availability of $10.0
million at the previous month end. As a result of the
lower than anticipated operating performance, borrowing
availability at June 30, 1996 was less than the required
minimum of $10.0 million.
The payment of trailing liabilities represents a
technical violation of the Revolving Credit Facility
constituting an event of default thereunder. Congress
has granted a forebearance whereby, among other things,
Congress has agreed to refrain from exercising its rights
or remedies it may have as a result of the payment of
trailing liabilities with borrowings under the Revolving
Credit Facility as long as (i) no other event of default
has occurred and (ii) the Company has paid a forbearance
fee in a timely manner. On the first day of each month
after August 31, 1996, if the Permanent Reserve is not
equal to at least $7.5 million, the Company is required
to pay Congress a forbearance fee of $10,000. At such
time as the Permanent Reserve equals $7.5 million,
Congress has agreed, upon request by the Company, to
enter into a agreement pursuant to which Congress
permanently waives any and all forbearance events which
have occurred prior to such time. However, there can be
no assurance that the conditions precedent to the
amendment of the Revolving Credit Facility will be met or
that the Company will maintain the minimum month end
borrowing availability in the future.
The Company and the Trustee also entered into an
amendment of the Indenture providing for the creation of
(i) an asset sale account (the "Asset Sale Account"),
with amounts deposited therein to be available to the
Company under certain circumstances for the repair,
replacement or acquisition of machinery and equipment
substantially related to the design, manufacture or sale
of truck trailers, components and related parts, and (ii)
an interest payment account (the "Interest Payment
Account"), with amounts deposited therein held for
application to the interest payment due under the Senior
Notes on November 1, 1996. Once the Permanent Reserve
totals $7.5 million, these accounts will be filled with
net cash proceeds from asset sales, without regard to
classification as core or non-core under the Indenture.
The first $0.2 million of such proceeds will be deposited
in the Asset Sale Account and the next approximately $4.0
million (the amount required to make the November 1, 1996
interest payment) of such proceeds will be deposited in
the Interest Payment Account. Once the Interest Payment
Account has been filled, all additional net cash proceeds
of asset sales will be applied under the Indenture as
follows:
(a) Proceeds from the sale of Core Assets and
Class I Non-Core Assets (both as defined in the
Indenture) are to be used to make an offer to repurchase
Senior Notes; and
(b) 85% of the proceeds of Class II Non-Core
Assets (as defined in the Indenture) will be used to make
an offer to repurchase Senior Notes, with the remaining
proceeds to be retained by the Company for general
corporate purposes.
Other amendments to the Indenture included changes
to (i) the provisions relating to the requirement to make
an offer to repurchase Senior Notes upon a change of
control occurring on or prior to March 31, 1997 to (a)
reduce the repurchase price from 101% to 100% and (b)
provide for the elimination of certain covenants in the
<PAGE> 15
Indenture relating to limitations on debt, liens,
restricted payments and transactions with affiliates and
(ii) reduce the 30-day interest payment grace period to
10 days. In connection with and in consideration of
securing the consent of the holders of the Senior Notes
to these and other amendments to the Indenture, the
Company increased by two the number of directors on its
Board of Directors and appointed Messrs. Chriss W. Street
and Worth W. Frederick to fill such vacancies.
Despite the actions consummated to date, the Company
continues to operate within severe liquidity constraints
and is confronted by several substantial issues
including: (i) the Company has not yet made the required
June 30, 1996 interest payment on the Warrant Notes, and
the holders of the Warrant Notes have indicated their
intent to accelerate the indebtedness represented by the
Warrant Notes following the expiration of a "standstill"
period, (ii) the Company's efforts to increase days
payables outstanding has increased the level of trade
accounts payable past normal terms and has affected
material flow to the Company's operating locations, (iii)
a substantial number of the Company's trade vendors have
placed the Company on "cash-in-advance" or
"cash-on-delivery" terms for new shipments of goods, (iv)
the Company expects that the reduced retail market demand
in the trailer industry will continue into the second
half of 1996, and (v) the ability of the Company to fund
the scheduled November 1, 1996 interest payment on the
Senior Notes is uncertain.
As a result of these issues, the Company must complete
some form of liquidity generating strategic transaction
in the near future. While the Company has been exploring
various strategic alternatives for some period of time,
management now believes that an outright sale of the
Company is unlikely. As a consequence, the Company is
currently exploring an alternative strategy whereby: (i)
one or more of the Company's business units would be
sold, (ii) the proceeds of such sales would be used to
repay indebtedness, and (iii) the Company would endeavor
to restructure around the remaining core business.
Management currently believes that the foregoing plan
will need to include the following three elements: (i)
the receipt of non-core asset sale proceeds in an amount
sufficient to (a) generate liquidity to the Company, (b)
repurchase all or substantially all the Senior Notes
currently outstanding ($54.5 million after giving effect
to the August 5, 1996 repurchase) and (c) reduce
borrowings under the Revolving Credit Facility, (ii)
additional extensions of credit by K-H to fund the
payment of trailing liabilities and (iii) satisfactory
agreements with the Company's unsecured creditors.
Due to the Company's limited liquidity, there can be no
assurance that the Company will have sufficient time
to consummate such a strategic transaction. If the
Company is unsuccessful in consummating a liquidity
generating strategic transaction in the near future, the
Company will likely not have sufficient liquidity both
to operate its business and to satisfy its obligations to
its various lenders. In these circumstances, the Company
may be forced to seek the protection of the bankruptcy
laws. Although it would be the intention of management
of the Company to seek reorganization under chapter 11 of
the Bankruptcy Code, management currently believes that a
successful reorganization would likely require a similar
strategic transaction of one or more of the Company's
businesses to generate a source of liquidity during the
chapter proceeding. If the Company would be unsuccessful
in generating such liquidity, liquidation might occur.
<PAGE>
<PAGE> 16
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company's results of operations, liquidity,
resolution of material contingencies and outlook are
subject to a number of risks and uncertainties, some of
which are outside the control of the Company, as are set
forth on page 3 of the Company's Annual Report on Form
10-K for the year ended December 31, 1995. 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."
RESULTS OF OPERATIONS
Six Months Ended June 30, 1996 versus June 30, 1995
Sales
The Company generated sales of $157.7 million during the
first six months of 1996 compared to $221.4 million for
the corresponding 1995 period. The table below is a
comparison of net sales by product line for the six
months ended June 30, 1996 and 1995 (in millions of
dollars):
<TABLE>
June 30, June 30,
1996 1995
--------- --------
<S> <C> <C>
New trailers. . . . . . . . . . . . . . . $ 96.3 $143.2
Used trailers . . . . . . . . . . . . . . 10.3 16.9
Replacement parts and accessories . . . . 33.8 37.9
Service . . . . . . . . . . . . . . . . . 11.1 12.1
International . . . . . . . . . . . . . . 6.2 11.3
------ ------
$157.7 $221.4
====== ======
</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 six months of 1996 and the
related additional constraints on the Company's
liquidity. The order cancellation activity experienced
by the Company in the first six 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. The Company's
backlog of new trailer orders decreased to approximately
$70 million at June 30, 1996 as compared to $172 million
as of December 31, 1995, which is reflective of the
substantial reduction in industry demand. The Company
has experienced and continues to experience cancellations
of new trailer orders prior to scheduled production. As
such, there can be no assurance that no cancellations
will occur with respect to the current backlog of new
trailer orders.
Domestic new trailer production for the first six months
of 1996 totaled approximately 4,900 as compared to
approximately 8,600 for the first six months of 1995.
Domestic new trailer unit sales totaled approximately
5,500 and 8,600 for the six months ended June 30, 1996
and 1995, respectively, reflective of the reduced retail
market demand. In addition, the Company's Mexican
subsidiary revenue sources continue to be adversely
<PAGE> 17
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
six months of 1996 due to excess manufacturing capacity
and resultant price competition in the domestic trailer
market.
Replacement parts/service sales and used trailer sales
for the six months ended June 30, 1996 decreased by $5.1
million and $6.6 million, respectively, over the
comparable 1995 period. The decreased sales levels are
primarily attributable to the Company's lower than
planned liquidity levels and resultant impact on
availability of replacement parts and used trailers to
fill orders. Parts availability percentages at the
Company's wholesale parts distribution center decreased
to below 60% during the second quarter of 1996.
Improvement in parts and used trailer availability and
resultant replacement parts and used trailer sales are
dependent on improved liquidity.
The Company's Mexican trailer manufacturing subsidiary
continued to experience decreases in Mexican domestic
sales volume. Sales were $2.7 million for the first six
months of 1996 compared to $5.0 million for the first six
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 six
months of 1996 totaled $3.5 million compared to export
sales of $6.3 million for the first six months of 1995.
Gross Margin
The Company's consolidated gross margin decreased to
$17.0 million for the first six months of 1996 from $29.0
million for the first six 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 six
months of 1996 declined to 10.8% as compared to 13.1% for
the first six 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 half of 1996 due
to an increase in certain product liability reserves.
Engineering, Selling and Administrative Expenses
Engineering, selling and administrative expenses
decreased to $23.7 million for the first six months of
1996 from $26.2 million for the six months ended June 30,
1995. The decrease in engineering, selling and
administrative expenses is primarily attributable to cost
containment measures taken at all the Company's
locations, lower variable costs associated with reduced
sales volume and lower professional fees due, in part, to
the completion of the restatement during the first
quarter of 1995, offset, in part, by costs associated
with the reimbursement of K-H in connection with the
assumption agreement entered into at the time of the
Fruehauf acquisition (approximately $0.5 million).
The Company recognized a gain of $3.0 million in
connection with the settlement of litigation.
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
<PAGE> 18
the branch restructuring program. During the second
quarter of 1995, management concluded 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.
Income (Loss) from Operations
The loss from operations for the six months ended June
30, 1996 was $2.8 million compared to income from
operations of $7.0 million for the first six months of
1995. Excluding the impact of the $3.0 million
litigation settlement in the first six months of 1996 and
the $3.0 million restructuring credit in the first six
months of 1995, the $9.8 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. 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 third and fourth
quarters of 1996.
Other Income (Expense)
Interest expense was $7.2 million for the six months
ended June 30, 1996 compared to $7.2 million for the six
months ended June 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 increase in interest expense
resulting from the interest rate on the Senior Notes was
offset, in part, by the repurchase of $11.5 million of
Senior Notes during the fourth quarter of 1995 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 $1.7
million for the six months ended June 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.
As a result of the termination of such discussions, on
May 8, 1996 Jacksonville initiated a foreclosure
proceeding on the real property securing the promissory
note. Such discussions, however, including the proposed
economic terms, indicated that the entire carrying amount
of the promissory note may not be recoverable. As such,
Jacksonville recorded a non-cash impairment write-down of
approximately $2.1 million in the first quarter of 1996
to reflect the diminution in value of the promissory note
and underlying real property. More recently,
Jacksonville has entered into a Note and Mortgage
purchase agreement whereby Jacksonville will sell the
note and underlying mortgage for $2.6 million in cash and
assumption of liabilities of approximately $0.1 million.
Jacksonville expects to close the sale in the fourth
quarter of 1996.
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
<PAGE> 19
$0.1 million during the six months ended June 30, 1996 as
compared to a gain of approximately $1.6 million
during the six months ended June 30, 1995.
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.
Quarter Ended June 30, 1996 versus June 30, 1995
Sales
The Company generated sales of $67.4 million during the
three months ended June 30, 1996 compared to $109.7
million for the corresponding 1995 period. The table
below is a comparison of net sales by product line for
the three months ended June 30, 1996 and 1995 (in
millions of dollars):
<TABLE>
June 30, June 30,
1996 1995
-------- --------
<S> <C> <C>
New trailers. . . . . . . . . . . . . . . $ 38.1 $ 71.4
Used trailers . . . . . . . . . . . . . . 4.3 8.1
Replacement parts and accessories . . . . 16.0 18.3
Service . . . . . . . . . . . . . . . . . 5.5 6.1
International . . . . . . . . . . . . . . 3.5 5.8
------ ------
$ 67.4 $109.7
====== ======
</TABLE>
Consistent with the decrease in sales for the
year-to-date period, this 39% decrease in quarter to
quarter sales principally reflects the significantly
reduced retail demand in the new trailer industry through
the second quarter of 1996 and the additional constraints
on the Company's liquidity. New trailer production
decreased to approximately 1,900 units in the second
quarter of 1996 from 4,100 in the second quarter of 1995.
Domestic new trailer unit sales totaled approximately
2,200 and 4,100 for the three months ended June 30,
1996 and 1995, respectively.
<PAGE> 20
Replacement parts/service sales and used trailer sales
for the second quarter ended June 30, 1996 decreased
by $2.9 million and $3.8 million, respectively, as
compared to the respective 1995 period. The decreased
sales levels are primarily attributable to lower than
planned liquidity levels and the resultant impact on
availability of replacement parts and used trailer to
fill orders.
The Company's Mexican trailer manufacturing subsidiary
experienced a decrease in sales volume from $2.2 million
for the second quarter of 1995 to $1.3 million for the
second 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 June 30, 1996 totaled $2.2 million
compared to export sales of $3.6 million for the three
months ended June 30, 1995.
Gross Margin
Gross margin for the second quarter of 1996 decreased to
$6.3 million compared to $14.8 million for the second
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 June 30, 1996 declined to 9.3%
as compared to 13.5% for the three months ended June 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. Gross margin was also adversely affected in the
second quarter of 1996 due to an increase in certain
product liability reserves.
Engineering, Selling and Administrative Expenses
Engineering, selling and administrative expenses
decreased to $11.4 million for the second quarter of 1996
from $13.4 million for the second quarter of 1995. The
decrease in engineering, selling and administrative
expenses is primarily attributable to cost containment
measures taken at all the Company's locations, lower
variable costs associated with the reduced sales volume
and lower professional fees.
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 concluded 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.
Income (Loss) from Operations
The loss from operations for the three months ended June
30, 1996 was $4.9 million compared to income from
operations of $5.2 million for the second quarter of
1995. Excluding the impact of the $3.0 million
restructuring credit in the second quarter of 1995,
income from operations decreased by $7.1 million. The
decrease in income from operations is primarily
attributable to decreased sales volumes and resultant
lower gross margin dollars and lower royalty income,
partially offset by the decreased engineering, selling
and administrative expenses. 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 third and fourth
quarters of 1996.
<PAGE> 21
Other Income (Expense)
Interest expense was $3.4 million for the three months
ended June 30, 1996 compared to $3.8 million for the
three months ended June 30, 1995. This decrease in
interest expense is primarily attributable to the
repurchase of $11.5 million of Senior Notes during the
fourth quarter of 1995 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 $0.9 million
for the three months ended June 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.
As previously discussed, the Company recognized a gain of
$14.0 million in the second quarter of 1996 on the
Foreign Sale. The Company recognized a gain on the sale
of excess assets of approximately $0.7 million during the
three months ended June 30, 1995.
Extraordinary Gain on Satisfaction of Payable to
Terex Corporation
In November 1992, 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 a 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 extinguishment 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.
LIQUIDITY AND CAPITAL RESOURCES
Discussion of Cash Flows
The Company's cash and cash equivalents totaled $2.6
million and $3.8 million at June 30, 1996 and
December 31, 1995, respectively. Cash and cash
equivalents represent funds received through the
Company's cash concentration system not yet applied to
reduce borrowings under the Revolving Credit Facility.
The provisions of the Indenture require the Company in
certain circumstances to offer to repurchase Senior Notes
out of the proceeds of asset sales. 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
$10.5 million and $1.4 million at June 30, 1996 and
<PAGE> 22
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 $6.8
million during the six months ended June 30, 1996 and
used cash for operating activities of $28.7 million
during the six months ended June 30, 1995. Cash
generated from operating activities during the six months
ended June 30, 1996 principally related to a reduction in
operating working capital (defined as net receivables and
net inventories less trade accounts payable) of $19.7
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 improve days sales outstanding of trade
receivables and inventory turns, (ii) a reduction in the
run rate of the business as a result of the reduced
production levels experienced during the first six months
of 1996 and (iii) an increase in the days payables
outstanding with the Company's trade suppliers. See
further discussion under "Management's Action Plan and
Outlook" below.
Cash used for operating activities during the six months
ended June 30, 1995 principally related to (i) increased
receivables ($8.0 million), (ii) increased inventories
($4.0 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 six months of 1995 was
largely funded by borrowings pursuant to the Revolving
Credit Facility and the portion of the excess asset sale
proceeds retained by the Company pursuant to the former
bank credit facility.
The Company has expended and continues to expend
substantial amounts of cash flow to service certain
liabilities related to the former maritime business,
closed facilities and certain other liabilities, as well
as restructuring activities. As of June 30, 1996, other
current liabilities, noncurrent postretirement benefits
and other long-term liabilities of approximately $20.7
million, $33.8 million and $34.4 million, respectively,
were included in the Company's Condensed Consolidated
Balance Sheet. Trailing liabilities associated with the
former maritime business and other closed facilities
include workers compensation, postretirement benefits,
environmental, products liability and certain other
litigation, the cost of maintaining closed facilities and
certain other matters are included in such captions in
the Condensed Consolidated Balance Sheet. Although the
Company believes that the majority of such anticipated
costs are nonrecurring and reserves for such loss
contingencies have been established based upon available
information, the Company will be required to expend
substantial amounts of cash over the next several years
to service such trailing liabilities. While the Company
is exploring various alternatives to minimize the funding
necessitated by such liabilities, the Company projects
that it will be required to expend approximately $4
million for the remainder of 1996 and $3 million in 1997,
with annual funding requirements continuing to decline
thereafter. The Company will be required to fund a
substantial amount of such liabilities with cash to be
generated by future operations.
As discussed previously, the Company's borrowing
availability under the Revolving Credit Facility at June
30, 1996 was less than the required minimum of $10.0
million. The payment of trailing liabilities represents
a technical violation of the Revolving Credit Facility
constituting an event of default thereunder. Congress
has granted a forebearance whereby, among other things,
Congress has agreed to refrain from exercising its rights
or remedies it may have as a result of the payment of
trailing liabilities with borrowings under the Revolving
Credit Facility as long as (i) no other event of default
has occurred and (ii) the Company has paid a forbearance
fee in a timely manner. On the first day of each month
after August 31, 1996, if the Permanent Reserve is not
equal to at least $7.5 million, the Company is required
to pay Congress a forbearance fee of $10,000. Should
<PAGE> 23
the Company not be in compliance with such forbearance
provision and Congress prohibit the payment of trailing
liabilities, the Company would be forced to discontinue
payment of trailing liabilities or commit a technical
default. The Company currently has outstanding letters
of credit in the amount of $7.4 million which generally
serve as collateral for certain trailing liabilities
included in the Condensed Consolidated Balance Sheet.
Should the Company discontinue the payment of trailing
liabilities, beneficiaries of the letters of credit would
have the ability to draw on the letters of credit. Draws
on letters of credit constitute loans under the Revolving
Credit Facility. While other trailing liabilities are
not secured by letters of credit, nonpayment of such
trailing liabilities would likely have a material adverse
effect on the Company.
Investing Activities
During the first six months of 1996, the Company sold
property, plant and equipment and other excess assets,
including the Foreign Sale, with proceeds totaling $20.4
million. Excess assets sale proceeds in the
corresponding period of 1995 totaled $9.5 million. The
Company made capital expenditures of $0.2 million
during the first six months of 1996 compared to capital
expenditures of $0.9 million during the first six months
of 1995.
The significant increase in restricted cash at June 30,
1996 as compared to December 31, 1995 principally relates
to the $8.1 million held by the Trustee at June 30, 1996
to repurchase Senior Notes ($7.5 million of which
resulted from the Foreign Sale) and an additional $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 $25.3 million during the six
months ended June 30, 1996 and net borrowings of $5.8
million during the six months ended June 30, 1995. The
source of cash to fund the reduction in Revolving Credit
Facilities borrowings principally includes 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 $8.1 million at
June 30, 1996.
As discussed previously, the K-H Letter Agreement
provided for, among other things, that K-H purchase an
initial $5.5 million interest and, upon successful
completion of the Consent Solicitation, 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.
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 six months
<PAGE> 24
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
six months ended June 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 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.
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.
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
<PAGE> 25
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
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 from cash
solely provided by operations has been adversely affected
by the reduced retail market demand in the trailer
industry and resultant lower than anticipated operating
performance. In response to such liquidity constraints,
the Company: (i) has significantly reduced its
investment in working capital, (ii) has increased the
borrowing capacity under its Revolving Credit Facility,
(iii) has entered into a loan agreement to provide for
assistance in the funding of the payment of trailing
liabilities with the financial assistance of a party
potentially liable for certain of the Company's trailing
liabilities and (iv) received the consent of the holders
of the Senior Notes to a noncomforming split of the
Foreign Sale proceeds, a portion of which will be used
for operating capital purposes.
During the six months ended June 30, 1996, the Company
reduced its investment in operating working capital
(defined as net receivables and net inventories less
trade accounts payable) by approximately $19.7 million.
This reduction in operating working capital was the
result of (i) focused efforts to improve days sales
outstanding of trade receivables and inventory turns,
(ii) the reduced production levels experienced during the
first half of 1996 and (iii) an increase in days payables
outstanding. The increase in the days payables
outstanding, however, has increased the level of trade
accounts payable past normal terms and has affected
material flow to the Company's operating locations. A
substantial number of the Company's trade vendors
have placed the Company on "cash-in-advance" or
"cash-on-delivery" terms for new shipments of goods. The
Company has proposed to its suppliers that they agree to
"standstill" with respect to past due accounts payable.
The initial supplier response has been favorable,
however, there can be no assurance that all suppliers
will comply or for how long with the Company's proposed
terms.
On April 19, 1996, the Company entered into the K-H
Letter Agreement with K-H, pursuant to which, among
other things, K-H agreed to purchase an initial $5.5
million interest, and agreed to purchase an additional
$1.0 million interest upon successful completion of the
Consent Solicitation, in the Revolving Credit Facility.
As part of the K-H Letter Agreement, K-H received
five-year warrants to purchase 2,000,000 shares of the
Company's common stock for an exercise price of $2.50 per
share. The 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. The initial funding of $5.5 million 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 expansion of the Company's
liquidity under its Revolving Credit Facility. The K-H
Letter Agreement also contemplated, subject to successful
completion of the Consent Solicitation, the incurrence of
additional indebtedness subordinated to the indebtedness
represented by the Senior Notes through future financing
arrangements with K-H or one of its affiliates and the
grant by the Company of security interests subordinate to
<PAGE> 26
those of the holders of the Senior Notes to secure such
arrangements. On June 21, 1996, the Company and K-H
entered into the Subordinated Revolving Note, whereby K-H
has agreed to lend at least $3.5 million to the Company
and K-H may, in its sole discretion, lend additional
amounts to be used to resolve trailing liabilities for
which it may have contingent liability. Pursuant to this
commitment, K-H will determine which trailing liabilities
will be paid with the proceeds of the loans. The
Subordinated Revolving Note bears interest at prime plus
2.5% and is secured by a lien on collateral subordinate
to the security interests of Congress and the Trustee
and Collateral Agent under the Indenture and such loans
will be fully subordinate to the indebtedness of the
Company to Congress and the indebtedness represented by
the Senior Notes. Interest is payable monthly and
the Subordinated Revolving Note matures the later of
December 1, 1999 or 15 days after the full redemption
of the Senior Notes. There were no advances under the
Subordinated Revolving Note as of June 30, 1996.
During the second quarter of 1996, the Company mailed a
Consent Solicitation Statement to the holders of the
Senior Notes seeking consent to, among other things, a
nonconforming split of the Foreign Sale proceeds.
Pursuant to the terms of the Consent Solicitation, the
Company, the holders of the Senior Notes and Congress
agreed to apply the proceeds of the Foreign Sale as
follows: (i) the interest payment on the Senior Notes
scheduled for May 1, 1996 in the amount of approximately
$4.6 million was deposited with the Trustee to be
paid to the holders, (ii) approximately $0.2 million was
deposited with the Trustee to be used to pay a consent
fee equal to .25% of the outstanding principal amount of
the Senior Notes to the holders of the Senior Notes,
(iii) $6.0 million of the proceeds were paid to Congress
for application to the Revolving Credit Facility (and
available for reborrowing by the Company in accordance
with the terms of the Revolving Credit Facility), (iv)
amounts totaling approximately $1.0 million held in
escrow related to the Foreign Sale would be paid either
to Congress (if and to the extent there are any Congress
obligations outstanding on the date of release) for
application to the Congress obligations and application
to a reserve under the Revolving Credit Facility, which
would not be available to the Company for re-borrowing,
or to the Trustee and used to make an asset sale offer,
and (v) the balance of all other net cash proceeds
generated from the Foreign Sale (including proceeds,
if any, received upon the sale of the certain property
located in Germany) and up to $0.1 million held in
escrow related to the Foreign Sale were deposited with
the Trustee to be held in trust for the benefit of the
holders of the Senior Notes and used to make an asset
sale offer. Pursuant to the terms of the Indenture, the
Company commenced an offer dated June 28, 1996 to
repurchase Senior Notes with an aggregate principal,
plus accrued interest, of approximately $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).
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. The Company will be required to write
off approximately $1.2 million during the third quarter
of 1996, representing a proportionate share of the
remaining unamortized deferred debt issuance costs and
debt discount.
In connection with the Foreign Sale, the Company and
Congress entered into an amendment to the Revolving
Credit Facility, pursuant to which, among other things,
Congress has waived the provisions of the Revolving
Credit Facility to permit the Foreign Sale to occur as
set forth above. The Trustee entered into an amendment
to the Intercreditor Agreement: (i) permitting the
portion of the net cash proceeds of the Foreign Sale
which are paid to Congress to be applied as set forth in
the paragraph above, (ii) providing that any failure by
Congress to apply or otherwise increase the Asset Sale
Reserve or the Permanent Reserve will not limit
Congress's ability or right to apply future net cash
proceeds from asset sales to the Asset Sale Reserve or
Permanent Reserve, and (iii) an amendment by Congress and
the Company to the Revolving Credit Facility
permitting such application and such ability.
The Intercreditor Agreement was also amended to provide
that the Asset Sale Reserve be reduced to zero and
the Permanent Reserve be immediately increased by the
amount of the Asset Sale Reserve and the proceeds
of any future asset sale - up to a maximum of $7.5
million would be applied to the Permanent Reserve. The
Permanent Reserve totaled approximately $2.8 million at
June 30, 1996.
<PAGE> 27
The Revolving Credit Facility imposes certain limitations
on the Company's ability to fund trailing liabilities
with borrowings under the Revolving Credit Facility. The
Company is required to measure its borrowing availability
each month end. In order to borrow under the Revolving
Credit Facility to fund trailing liabilities the
following month, the Company is currently required to
maintain a minimum borrowing availability of $10.0
million at the previous month end. As a result of the
lower than anticipated operating performance, borrowing
availability at June 30, 1996 was less than the required
minimum of $10.0 million.
The payment of trailing liabilities represents a
technical violation of the Revolving Credit Facility
constituting an event of default thereunder. Congress
has granted a forebearance whereby, among other things,
Congress has agreed to refrain from exercising its rights
or remedies it may have as a result of the payment of
trailing liabilities with borrowings under the Revolving
Credit Facility as long as (i) no other event of default
has occurred and (ii) the Company has paid a forbearance
fee in a timely manner. On the first day of each month
after August 31, 1996, if the Permanent Reserve is not
equal to at least $7.5 million, the Company is required
to pay Congress a forbearance fee of $10,000. At such
time as the Permanent Reserve equals $7.5 million,
Congress has agreed, upon request by the Company, to
enter into a agreement pursuant to which Congress
permanently waives any and all forbearance events which
have occurred prior to such time. However, there can be
no assurance that the conditions precedent to the
amendment of the Revolving Credit Facility will be met or
that the Company will maintain the minimum month end
borrowing availability in the future.
The Company and the Trustee also entered into an
amendment of the Indenture providing for the creation of
(i) the Asset Sale Account, with amounts deposited
therein to be available to the Company under certain
circumstances for the repair, replacement or acquisition
of machinery and equipment substantially related to the
design, manufacture or sale of truck trailers, components
and related parts, and (ii) the Interest Payment Account,
with amounts deposited therein held for application to
the interest payment due under the Senior Notes on
November 1, 1996. Once the Permanent Reserve totals $7.5
million, these accounts will be filled with net cash
proceeds from asset sales, without regard to
classification as core or non-core under the Indenture.
The first $0.2 million of such proceeds will be deposited
in the Asset Sale Account and the next approximately $4.0
million (the amount required to make the November 1, 1996
interest payment) of such proceeds will be deposited in
the Interest Payment Account. Once the Interest Payment
Account has been filled, all additional net cash proceeds
of asset sales will be applied under the Indenture as
follows:
(a) Proceeds from the sale of Core Assets and
Class I Non-Core Assets (both as defined in the
Indenture) are to be used to make an offer to repurchase
Senior Notes; and
(b) 85% of the proceeds of Class II Non-Core
Assets (as defined in the Indenture) will be used to make
an offer to repurchase Senior Notes, with the remaining
proceeds to be retained by the Company for general
corporate purposes.
Other amendments to the Indenture included changes to (i)
the provisions relating to the requirement to make an
offer to repurchase Senior Notes upon a change of control
occurring on or prior to March 31, 1997 to (a) reduce
the repurchase price from 101% to 100% and (b) provide
for the elimination of certain covenants in the Indenture
relating to limitations on debt, liens, restricted
payments and transactions with affiliates and (ii) reduce
the 30-day interest payment grace period to 10 days. In
connection with and in consideration of securing the
consent of the holders of the Senior Notes to these and
other amendments to the Indenture, the Company increased
by two the number of directors on its Board of Directors
and appointed Messrs. Chriss W. Street and Worth W.
Frederick to fill such vacancies.
Despite the actions consummated to date, the Company
continues to operate within severe liquidity constraints
and is confronted by several substantial issues
including: (i) the Company has not yet made the required
<PAGE> 28
June 30, 1996 interest payment on the Warrant Notes, and
the holders of the Warrant Notes have indicated their
intent to accelerate the indebtedness represented by the
Warrant Notes following the expiration of a "standstill"
period, (ii) the Company's efforts to increase days
payables outstanding has increased the level of trade
accounts payable past normal terms and has affected
material flow to the Company's operating locations, (iii)
a substantial number of the Company's trade vendors have
placed the Company on "cash-in-advance" or
"cash-on-delivery" terms for new shipments of goods, (iv)
the Company expects that the reduced retail market
demand in the trailer industry will continue into the
second half of 1996, and (v) the ability of the Company
to fund the scheduled November 1, 1996 interest payment
on the Senior Notes is uncertain.
As a result of these issues, the Company must complete
some form of liquidity generating strategic transaction
in the near future. While the Company has been exploring
various strategic alternatives for some period of
time, management now believes that an outright sale of
the Company is unlikely. As a consequence, the Company
is currently exploring an alternative strategy whereby:
(i) one or more of the Company's business units would be
sold, (ii) the proceeds of such sales would be used to
repay indebtedness, and (iii) the Company would endeavor
to restructure around the remaining core business.
Management currently believes that the foregoing plan
will need to include the following three elements: (i)
the receipt of non-core asset sale proceeds in an amount
sufficient to (a) generate liquidity to the Company, (b)
repurchase all or substantially all the Senior Notes
currently outstanding ($54.5 million after giving effect
to the August 5, 1996 repurchase) and (c) reduce
borrowings under the Revolving Credit Facility, (ii)
additional extensions of credit by K-H to fund the
payment of trailing liabilities and (iii) satisfactory
agreements with the Company's unsecured creditors.
Due to the Company's limited liquidity, there can be no
assurance that the Company will have sufficient time
to consummate such a strategic transaction. If the
Company is unsuccessful in consummating a liquidity
generating strategic transaction in the near future, the
Company will likely not have sufficient liquidity both
to operate its business and to satisfy its obligations to
its various lenders. In these circumstances, the Company
may be forced to seek the protection of the bankruptcy
laws. Although it would be the intention of management
of the Company to seek reorganization under chapter 11 of
the Bankruptcy Code, management currently believes that a
successful reorganization would likely require a similar
strategic transaction of one or more of the Company's
businesses to generate a source of liquidity during the
chapter proceeding. If the Company would be unsuccessful
in generating such liquidity, liquidation might occur.
STATUS OF MATERIAL CONTINGENCIES
Litigation
In December 1992, a class action complaint was filed on
behalf of all persons who purchased the Company's
Common Stock during the period June 28, 1991 through
December 4, 1992 against the Company, Terex, certain of
the Company's present and former 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
<PAGE> 29
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 is currently in the process of attempting to
develop the specific terms of the notes and warrants.
The Company has experienced difficulties in negotiating
terms acceptable to the Company. As such, there can be
no assurance that the Company and the plaintiffs will
reach an agreement with respect to the terms and
conditions of the notes and warrants.
The Company is involved in other various legal
proceedings which have arisen in the normal course of
business. Most of these legal proceedings involve
products liability or other various claims for which the
Company is principally self-insured. In addition,
certain of the Company's former maritime operations are
one of a number of defendants in legal proceedings
wherein the plaintiffs claim to have been damaged by
exposure to asbestos fibers and silica dust. The Company
has reviewed the products liability and other cases
that have arisen in the normal course of Company's
business. The Company evaluates the possible impact of
this litigation, including the uncertainties as to the
timing of expenditures for settlements and/or bonding on
appeal, on the Company in light of current circumstances.
Although the Company has established reserves
for loss contingencies based on available information, it
is reasonably possible that such estimates will change
in the near future and the Company is at risk of being
obligated to pay substantial damages to claimants.
The Company had litigation reserves totaling $12.5
million at June 30, 1996. However, the Company's
present liquidity situation may make settlements in or
more of these cases difficult. Existing or potential
judgments against the Company in one or more of these
cases could require expenditures of funds beyond the
Company's available cash resources and could, depending
on their size, result in the violation of certain
covenants contained in the Revolving Credit Facility and
the Indenture. In the event that judgments require
the expenditure of funds beyond the Company's available
resources or result in covenant violations that are
not waived or otherwise cured, those judgments could have
a material adverse on the Company. In the event
that any litigation is settled by the issuance of
additional equity securities, there may be an adverse
effect on earnings per share. In December 1995, the
Company reached a settlement of a product liability suit
whereby the Company will be required, as part of the
settlement, to issue 500,000 shares of Common Stock
during 1996.
Environmental Matters
The Company has facilities at numerous geographic
locations, which are subject to a range of federal, state
and local environmental laws and regulations. Compliance
with these laws has, and will, require expenditures
on a continuing basis. The Company and/or Jacksonville
has been identified as a "Potentially Responsible Party"
at several multi-party Superfund sites, and has also
identified environmental exposures at certain other
sites not designated as Superfund sites. The Company
and/or Jacksonville is currently participating in
administrative or court proceedings involving a number of
sites. Many of the proceedings are at a preliminary
stage, and the total costs of remediation, the timing and
extent of remedial actions which may be required, and
the amount of the Company's liability with respect to
these sites cannot presently be estimated. When it is
possible to make reasonable estimates of the Company's
liability with respect to such matters, a provision is
recorded. When it is possible to estimate a range of
liability but management is unable to determine the
amount within the range that is the best estimate, a
provision is recorded for the minimum amount of the
range. The Company's reserve for Superfund sites and
other environmental contingencies totaled $11.9 million
at June 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. If the amount of payments
required with respect to these sites exceed the Company's
available cash resources, there could be a material
adverse effect on the Company. Even if these liabilities
<PAGE> 30
do not otherwise impact the Company, incremental
environmental reserve requirements, if any, in excess of
current reserves could have a material adverse effect on
results of a particular period.
Other
The Company is party to the Fort Worth Lease, which
expires pursuant to its terms in October 1996. The
landlord recently notified the Company of its belief that
the Company is 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 Company intends to vigorously defend itself in this
matter. 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.
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 on the Company.
<PAGE>
<PAGE> 31
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
Not applicable.
Item 3 - Defaults Upon Senior Securities
The Revolving Credit Facility imposes certain limitations
on the Company's ability to fund trailing liabilities
with borrowings under the Revolving Credit Facility. The
Company is required to measure its borrowing availability
each month end. In order to borrow under the Revolving
Credit Facility to fund trailing liabilities the
following month, the Company is currently required to
maintain a minimum borrowing availability of $10.0
million at the previous month end. As a result of the
lower than anticipated operating performance, borrowing
availability at June 30, 1996 was less than the required
minimum of $10.0 million.
The payment of trailing liabilities represents a
technical violation of the Revolving Credit Facility
constituting an event of default thereunder. Congress
has granted a forebearance whereby, among other things,
Congress has agreed to refrain from exercising its rights
or remedies it may have as a result of the payment of
trailing liabilities with borrowings under the Revolving
Credit Facility as long as (i) no other event of default
has occurred and (ii) the Company has paid a forbearance
fee in a timely manner. On the first day of each month
after August 31, 1996, if the Permanent Reserve is not
equal to at least $7.5 million, the Company is required
to pay Congress a forbearance fee of $10,000. At such
time as the Permanent Reserve equals $7.5 million,
Congress has agreed, upon request by the Company, to
enter into a agreement pursuant to which Congress
permanently waives any and all forbearance events which
have occurred prior to such time.
The Company has not yet made the required June 30, 1996
interest payment on the Warrant Notes. Pursuant to
the terms of a subordination agreement between the
holders of the Warrant Notes, the Revolving Credit
Facility lenders and the Trustee, the holders of the
Warrant Notes are prohibited from exercising their
remedies, including acceleration of the principal balance
of the Warrant Notes for a period of 180 days. However,
the holders of the Warrant Notes have indicated to the
Company their intent to accelerate the Warrant Notes for
purposes of commencing the 180 day standstill provisions.
At the current time, there can be no assurance that the
Company will be able to make the required interest
payment prior to the expiration of the standstill period.
Acceleration by the holders of the Warrant Notes would
constitute an event of default under the Indenture. As
such, the Senior Notes may be callable by the holders of
the Senior Notes within one year of the balance sheet
date.
Interest on the Company's Senior Notes is payable
semiannually on May 1 and November 1 on each year. The
Company did not make the required May 1, 1996 interest
payment within the 30 day grace period, which resulted
in an event of default under the Indenture. However, the
Company made the required interest payment on June
21, 1996.
For further discussion, see Note F - "Management's Action
Plan and Outlook" in the Condensed Consolidated
Financial Statements and Item 2 - "Management's
Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources
- - -- Management's Action Plan and Outlook."
<PAGE> 32
Item 6 - Exhibits and Reports on Form 8-K
(a) The following exhibits have been filed as part of
this Form 10-Q:
<TABLE>
Exhibit No. Exhibit
- - ----------- -------
<S> <C>
4.40 Fifth Amendment, dated as of June 21,
1996, to Accounts Financing Agreement
[Security Agreement] and Limited Waiver
by and between Congress Financial
Corporation (Central) and Fruehauf
Trailer Corporation.
4.41 Amendment No. 1 to First Amended and
Restated Intercreditor Agreement, dated
as of June 21, 1996, by and between
Congress Financial Corporation (Central)
and IBJ Schroder Bank & Trust Company.
4.42 Supplemental Working Capital Term Note,
dated as of June 21, 1996, payable to
the order of Congress Financial
Corporation (Central), in the principal
amount of $1,000,000, due May 1, 1997.
4.43 Multi-Party Subordination Agreement,
dated as of June 21, 1996, by and
between K-H Corporation, IBJ Schroder
Bank & Trust Company and Congress
Financial Corporation (Central).
4.44 First Supplemental Indenture, dated as
of June 21, 1996, by and between
Fruehauf Trailer Corporation and IBJ
Schroder Bank & Trust Company, as
Trustee.
4.45 Subordinated Revolving Note, dated as of
June 21, 1996, by and between Fruehauf
Trailer Corporation and K-H Corporation.
4.46 Guarantor General Security Agreement,
dated as of June 21, 1996, by and
between 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
K-H Corporation.
4.47 Guarantee, dated as of June 21, 1996, by
and between 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 K-H Corporation.
11 Computation of Earnings per Share.
27 Financial Data Schedule.
(b) Reports on Form 8-K
On April 18, 1996, the Company filed a Current
Report on Form 8-K under Item 5 regarding the status of
increased borrowing availability, the potential sale of
foreign assets and an operations update. On May 10,
1996, the Company filed a Current Report on Form 8-K
under Item 5 reporting the Consent Solicitation to the
Holders of the 14.75% Senior Secured Notes due 2002
seeking certain waivers and amendments to the Indenture
under which the Senior Notes were issued. On June 4,
1996, the Company filed a Current Report on Form 8-K
<PAGE> 33
under Item 5 updating the status of discussions with
bondholders. On June 18, 1996, the Company filed a
Current Report on Form 8-K under Item 5 regarding an
Amended and Restated Consent Solicitation to the Holders
of the 14.75% Senior Secured Notes due 2002. On June
25, 1996, the Company filed a Current Report on Form 8-K
reporting the completion of the foreign asset sale, the
interest payment on the Senior Notes, and improved
liquidity. No financial statements were required to be
filed with any of these reports.
<PAGE>
<PAGE> 34
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: August 14, 1996 /s/ Timothy J. Wiggins
----------------------
Timothy J. Wiggins
Executive Vice President
and Chief Financial
Officer (Duly Authorized
Officer)
Date: August 14, 1996 /s/ Gregory G. Fehr
----------------------
Gregory G. Fehr
Vice President - Corporate
Controller (Principal
Accounting Officer)
</TABLE>
FIFTH AMENDMENT TO ACCOUNTS FINANCING
AGREEMENT [SECURITY AGREEMENT]
AND LIMITED WAIVER
This FIFTH AMENDMENT TO ACCOUNTS FINANCING
AGREEMENT [SECURITY AGREEMENT] AND LIMITED WAIVER (the
"Fifth Amendment") is entered into as of June 21, 1996
by and between FRUEHAUF TRAILER CORPORATION, a Delaware
corporation ("Debtor") and CONGRESS FINANCIAL
CORPORATION (CENTRAL), an Illinois corporation
("Congress"). Except for terms which are expressly
defined herein, all capitalized terms used herein shall
have the meanings ascribed to them in the Loan Agreement
(as defined below).
R E C I T A L S:
WHEREAS, Debtor and Congress are parties to
that certain Accounts Financing Agreement [Security
Agreement] (the "Accounts Financing Agreement"), that
certain Inventory and Equipment Security Agreement
Supplement to Accounts Financing Agreement [Security
Agreement], that certain Rider No. 1 to Accounts
Financing Agreement [Security Agreement] and Inventory
and Equipment Security Agreement Supplement to Accounts
Financing Agreement [Security Agreement] (the "Rider")
and that certain letter regarding Inventory Loans, each
dated as of August 20, 1993 (collectively, as amended,
restated, supplemented or otherwise modified from time
to time, the "Loan Agreement");
WHEREAS, Debtor and Congress are parties to
that certain Limited Waiver dated as of April 25, 1996
(the "Limited Waiver"), which, among other things,
provided for Congress' waiver of certain provisions
under the Loan Agreement relating to trailing
liabilities and the Foreign Assets Sale;
WHEREAS, Debtor has requested that Congress
consent to the restructuring of part of the loan
facility (the "Restructuring"); and
WHEREAS, in connection with the Restructuring,
Congress has required that Debtor enter into this Fifth
Amendment upon the terms and conditions contained
herein.
NOW, THEREFORE, in consideration of the
premises contained herein, and for other good and
valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereby agree
as follows:
<PAGE> 2
<PAGE>
I. Amendments to the Loan Agreement.
A. Definitions.
1. The definition of "Indenture" set forth in
Section 1 of the Loan Agreement is hereby amended and
restated in its entirety to read as follows:
"Indenture" shall mean that certain Indenture
dated as of May 1, 1995, by and between Debtor and IBJ
Schroder Bank & Trust Company, as Trustee thereunder, as
amended by that certain First Supplemental Indenture
dated as of June 21, 1996 and as it may be further
amended, supplemented, amended and restated or otherwise
modified from time to time.
2. Clause (b) of the definition of the term "Net
Cash Proceeds" set forth in Section 1 of the Loan
Agreement is hereby amended and restated in its entirety
to read as follows:
(b) amounts deposited in escrow or on deposit as
collateral, in respect of (i)environmental or other
liabilities not assumed by the purchaser in connection
with such Asset Sale (ii) the sale of the Waverly
Equipment and the Partec Receivable or (iii) up to
$100,000 in connection with certain regulatory approvals
required in order to transfer certain of the Foreign
Assets, but, in each case, only so long as such amounts
remain on deposit or in escrow, and
3. The definition of the term "Net Cash Proceeds"
set forth in Section 1 of the Loan Agreement is hereby
amended by inserting "provided, however, that the Cash
Proceeds realized by Jacksonville Shipyards, Inc.
("JSI") from the sale of the Jacksonville Assets shall
not, if JSI has granted Congress a Lien on such proceeds
pursuant to documents in form and substance satisfactory
to Congress, constitute Net Cash Proceeds" immediately
after the words "required to be repaid under the terms
thereof as a result of such Asset Sale" therein.
4. The definition of the term "Required Month End
Availability" set forth in Section 1 of the Loan
Agreement is hereby amended and restated to read in its
entirety as follows:
"Required Month End Availability" shall mean
(a) at all times prior to the time at which the
Permanent Reserve shall equal $7,500,000, $10,000,000
and (b) at all times thereafter, $2,500,000.
5. The definition of the term "Intercreditor
Agreement" set forth in Section 1 of the Loan Agreement
is hereby amended and restated in its entirety to read
as follows:
<PAGE> 3
"Intercreditor Agreement" shall mean that certain
First Amended and Restated Intercreditor Agreement dated
as of May 1, 1995 by and between Congress, the Trustee,
the Collateral Agent and certain other parties, as
amended by that certain Amendment No. 1 to First Amended
and Restated Intercreditor Agreement dated as of June
21, 1996 and as it may be further amended, supplemented,
restated or otherwise modified from time to time.
6. Section 1 of the Loan Agreement is hereby
amended by adding the following defined terms in the
appropriate alphabetical order:
a. "Bankruptcy Case" shall mean any
voluntary or involuntary case arising under the
Bankruptcy Code.
b. "Consent Solicitation" shall mean that
letter dated June 14, 1996 from Borrower to the Holders
(as defined in the Indenture) regarding the Amended and
Restated Consent Solicitation.
c. "Congress Consent Fee" shall mean a
consent fee payable to Congress and equal to $112,500.
d. "DIP Collateral" shall have the
definition ascribed to such term in the Interim Order.
e. "Escrow Account" shall mean that certain
Escrow Account established under the Escrow Agreement
into which the certain proceeds from the sale of the
Partec Receivable, the Waverly Equipment and certain
other proceeds (in an amount equal to $100,000) from the
Foreign Assets Sale shall be deposited and held by
Congress as escrow agent under and pursuant to the
Escrow Agreement.
f. "Escrow Agreement" shall mean that
certain Escrow Agreement dated as of June __, 1996, by
and between FIL Partners, L.P., Congress, Borrower,
Fruehauf Corporation and Fruehauf International Limited,
as the same may from time to time be amended, restated,
supplemented or otherwise modified.
g. "Escrow Reserve" shall mean an amount
equal to the distributions made out of the Escrow
Account to Congress which are to be applied to increase
the Escrow Reserve.
h. "Foreign Assets" shall mean (i) the
Debtor's current ownership interest in Societe
Europeenne de Semi-Remorques, S.A., a French
corporation,
<PAGE> 4
(ii) the stock or other ownership
interests currently owned by Fruehauf International
Limited, a wholly owned subsidiary of the Debtor
("FIL"), in Henred Fruehauf (PTY) Limited, Henred
Fruehauf Properties (PTY) Limited, Nippon Fruehauf
Company Ltd., and F.L.A. Licensing, L.L.C., (iii) the
Debtor's and FIL's current interests in certain
trademark and technology license agreements currently
operative outside North America (including, without
limitation, all of the Debtor's and FIL's rights to any
fees payable under any such existing agreements and any
renewals thereof that may be made in the future), (iv)
all of the Debtor's current interests in (a) the
trademark, service mark, trade or corporate name
"Fruehauf" and (b) patents and patent applications, in
each case, outside North America and (v) the Debtor's
indirect ownership interest in certain real property
located in Germany.
i. "Foreign Assets Sale" shall mean the sale
of the Foreign Assets by Debtor, Fruehauf Corporation or
FIL, as the case may be, to Private Equity Investors,
Inc. or an affiliate thereof in one or more transactions
described in the Consent Solicitation.
j. "Interim Order" shall mean the draft of
that certain Interim Order (1) Authorizing
Debtors-In-Possession To Incur Post-Petition Secured
Indebtedness, (2) Granting Security Interests And
Priority Pursuant To 11 U.S.C. Section 364, (3)
Modifying Automatic Stay And (4) Setting Further
Hearing, which is dated April 11, 1996, relating to
Debtor and its Subsidiaries.
k. "Jacksonville Assets" shall mean (i) that
certain real property owned by Jacksonville Shipyards,
Inc. and located at Mayport Road, Jacksonville, Florida
and (ii) that certain Pledged Note made by Jacksonville
Riverfront Development, Ltd., dated February 10, 1995.
l. "K-H Loan Agreement" shall mean that
certain Subordinated Revolving Note dated as of June 21,
1996 made by Debtor in favor of K-H Corporation, as the
same may from time to time be amended, restated,
supplemented or otherwise modified.
m. "K-H Security Documents" shall mean those
security agreements, pledge agreements, mortgages and
similar documents each dated June 21, 1996 and executed
by Debtor and/or its Subsidiaries in favor of K-H
Corporation, as the same may from time to time be
amended, restated, supplemented or otherwise modified.
<PAGE> 5
n. "Partec Receivable" shall mean those
accounts receivable in the face amount of approximately
$639,000 owed the Debtor and FIL by U.S. Partec
Licensing, Inc. and U.S. Partec Corporation.
o. "Pre-Petition Collateral" shall have the
definition ascribed to such term in the Interim Order.
p. "Pre-Petition Guarantor Collateral" shall
have the definition ascribed to such term in the Interim
Order.
q. "Waverly Equipment" shall mean that
certain idle trailer manufacturing equipment owned by
the Debtor and located, as of June 13, 1996, in
Waverly, Ohio.
II. Amendments to the Accounts Financing Agreement.
A. Section 2.1. Section 2.1 of the Accounts
Financing Agreement is hereby amended by deleting "(vi)
the Asset Sale Reserve at such time;" in the eighteenth
line thereof and inserting "(vi) the Escrow Reserve at
such time;" in its place.
B. Section 2.3. Section 2.3 of the Accounts
Financing Agreement is hereby amended by amending and
restating the first sentence thereof to read as follows:
"Except in your discretion, the outstanding principal
amount of all loans by you to us hereunder, under any
rider or supplement hereto and/or evidenced by any
promissory note executed in connection herewith shall
not at any time exceed (i) the Maximum Credit minus
(ii) the Escrow Reserve at such time, minus (iii) the
Permanent Reserve at such time minus (iv) an amount
equal to the aggregate amount of all outstanding Letter
of Credit Accommodations hereunder."
C. Merger of Fruehauf Holdings Corporation. Section
6.2 of the Accounts Financing Agreement is hereby
amended by inserting ", except for the merger of
Fruehauf Holdings Corporation into Debtor in accordance
with the terms of the Consent Solicitation" immediately
between the word "us" and the period in the third line
thereof.
D. Notices. Section 10 of the Accounts Financing
Agreement is hereby amended and restated in its entirety
to read as follows:
Section 10. NOTICES.
<PAGE> 6
10.1 All notices, requests and demands
hereunder shall be in writing and (a) made to Congress
at its address as set forth below and to Debtor at its
chief executive office set forth below, or to such other
address as either party may designate by written notice
to the other in accordance with this provision, and (b)
deemed to have been given or made: if delivered in
person, immediately upon delivery; if by telex, telegram
or facsimile transmission, immediately upon sending and
upon confirmation of receipt, if by nationally
recognized overnight courier service with instructions
to deliver the next business day, one (1) business day
after sending; and if by certified mail, return receipt
requested, five (5) days after mailing.
Congress Debtor
Congress Financial Fruehauf Trailer
Corporation (Central) Corporation
100 South Wacker Drive 111 Monument Circle
Suite 1940 Suite 3200
Chicago, IL 60606 Indianapolis, IN 46204
E. Addresses on Signature Page. The Debtor's address
as set forth on the signature page to the Accounts
Financing Agreement is hereby deleted in its entirety.
III. Amendments to the Rider.
A. Section 6(bb)(b). Section 6(bb)(b) of the Rider is
hereby amended and restated in its entirety to read as
follows:
"(b) use any Advances to make a payment of or on
any Trailing Liabilities (as defined in the Indenture)
to the extent Debtor can obtain funds under or pursuant
to the K-H Loan Agreement to make such payment (it being
agreed that to the extent available, Debtor shall borrow
amounts under the K-H Loan Agreement to make payments of
or on Trailing Liabilities). Amounts to make payments
of or on Trailing Liabilities that may not be obtained
under or pursuant to the K-H Loan Agreement may be
funded by Advances; provided that Debtor make only a
payment of or on a particular Trailing Liability if as
of the last Business Day of the calendar month
immediately preceding the month in which such payment is
to be made, the Excess Loan Availability was at least
equal to the Required Month End Availability; provided,
additionally, Debtor may only use Advances to make
payments of or on Trailing Liabilities during a
particular month in an amount not to exceed the amount
set forth opposite such month below (each such monthly
permitted payment, a "Permitted Monthly Payment"):
Month Permitted Monthly Payment
June 1 - June 30 $ 750,000
<PAGE> 7
July 1 - July 31 $ 750,000
August 1 - August 31 $ 700,000
September 1 - September 30 $ 700,000
October 1 - October 31 $ 700,000
November 1 - November 30 $ 650,000
December 1 - December 31 $ 600,000
The unused amount of any Permitted Monthly Payment for a
particular month may be carried forward to the next
successive month.
B. Exhibit 6(a). Exhibit 6(a) of the Rider is hereby
amended to add the text accompanying, immediately
following the text accompanying number 13 thereof, "14.
Liens in favor of K-H Corporation granted pursuant to
the K-H Security Documents and/or the Assigned Documents
(as defined in that certain Note Purchase and Assignment
Agreement dated as of April 19, 1996, by and between
Congress and K-H Corporation). 15. Those Liens
pursuant to the put-call arrangement related to the
Sindorf Property as described in the Consent
Solicitation. 16. Subordinate Liens securing the
indebtedness of the Debtor incurred in connection with
the settlement of the lawsuit styled Rebenstock v.
Fruehauf Trailer Corporation, et al., Case No. 92 CV
77050 DT, United States District Court for the Eastern
District of Michigan, Southern Division, as long as (a)
such Liens and indebtedness are subordinated, pursuant
to documentation in form and substance satisfactory to
Congress in its sole discretion, to the Liens and
indebtedness of or owing to Congress and (b) no payments
are made or permitted to be made on or with respect to
such indebtedness until the Obligations have been
indefeasibly paid in full."
C. Section 6. Section 6 of the Rider is hereby
amended by adding the new Section 6 (oo), 6 (pp), 6(qq),
(6)(rr) and 6(ss) thereto, immediately following Section
6(nn) thereof, wherein such sections shall read as
follows:
(oo) In anticipating the potential need for the
filing by Debtor of a Chapter 11 proceeding pursuant to
the Bankruptcy Code, Debtor and Congress have negotiated
the terms of the Interim Order and Debtor agrees that,
in the event of such a filing, it will use its best
efforts to assure that an order substantially similar to
the Interim Order is obtained prior to using any Cash
Collateral (as defined below) for the payment of any
outstanding debts under any interim or final order
pursuant to a Bankruptcy Case. As used herein, "Cash
Collateral" shall mean all property of Debtor and the
Subsidiaries (whether as pre-petition debtors or as
debtors-in-possession or otherwise) that constitutes
cash collateral in which Congress has an interest as
provided in Section 363(a) of the Bankruptcy Code and shall
include, without limitation:
<PAGE> 8
(i) All cash proceeds arising from the
collection, sale, lease or other disposition, use or
conversion of any property upon which Congress holds a
lien or a replacement lien, whether as part of the
Pre-Petition Collateral, Pre-Petition Guarantor
Collateral or other DIP Collateral or pursuant to an
order of the bankruptcy court or applicable law or
otherwise; and
(ii) All deposits of Debtor and its
Subsidiaries.
All of Debtor's and its Subsidiaries' cash on
hand and cash flow from operations consists of proceeds
of pre-petition Revolving Loans, or Accounts or
Inventory that are Pre-Petition Collateral or
Pre-Petition Guarantor Collateral and, therefore, all
such cash is Cash Collateral.
(pp) Debtor shall not seek to modify the terms of
the Interim Order.
(qq) In the event that a Bankruptcy Case is
commenced by or against Debtor, Debtor shall use its
best effort to provide that all amounts under the Loan
Documents are paid on a current basis.
(rr) Whenever Debtor shall be entitled, pursuant to
the Indenture, to obtain funds aggregating more than
$10,000 from the Asset Sale Account (as defined in the
Indenture), Debtor shall promptly obtain such funds from
the Asset Sale Account pursuant to the procedures set
forth in the Indenture prior to borrowing any funds
under the Loan Agreement to be used for any or all of
the purposes for which funds may be obtained from the
Asset Sale Account.
(ss) Debtor shall use its best efforts to undertake
(i) the orderly sale, assignment or other transfer of
its assets or (ii) the merger, consolidation or other
business combination of its business into or with
another business entity. Debtor shall generate Net Cash
Proceeds from Asset Sales in an amount sufficient to
cause the Permanent Reserve to be at least (a)
$6,000,000 as of December 31, 1996 and (b) $7,500,000 as
of March 31, 1997.
D. Section 13. Section 13 of the Rider is hereby
amended and restated in its entirety to read as follows:
<PAGE> 9
13. Application of Proceeds of Collateral.
The provisions of this Section 13 shall govern
the application and payment to Congress, the Trustee
and/or the Collateral Agent, as the case may be, of Net
Cash Proceeds of any Asset Sale of the Partec Receivable
or any Other Collateral (as defined in the Intercreditor
Agreement) and shall be applicable in all circumstances,
including, without limitation, in any Bankruptcy Case of
which the Debtor or any Subsidiary is the subject or any
other circumstance involving the distribution, division
or application, partial or complete, voluntary or
involuntary, by operation of law or otherwise, of all or
any part of the Collateral or any other Property of the
Debtor or any Subsidiary.
(a) Foreign Assets Sale. The Debtor,
either directly or through the actions of one or more of
its subsidiaries, shall cause the Purchaser thereof to
pay, upon the Receipt Date, the Net Cash Proceeds of the
Foreign Assets Sale as follows: (i) the first
$4,614,832.50 shall be directly deposited with the
Trustee to be held in trust for the benefit of the
Holders to be paid to the Holders by the Trustee as the
interest payment on the Noteholder Debt originally
scheduled to be made May 1, 1996, (ii) the next $156,435
shall be directly deposited with the Trustee to be held
in trust for the benefit of the Holders and used to pay
the Noteholders Consent Fee (as defined in the
Intercreditor Agreement), (iii) the next $6,000,000
shall be paid directly to Congress for application to
the Congress Obligations in such order as Congress in
its sole discretion shall elect, but shall not be
applied to the Permanent Reserve and shall not limit or
otherwise affect Congress' ability or right to have Net
Cash Proceeds from Asset Sales (other than the Foreign
Assets Sale) be paid to Congress to be applied to the
Congress Obligations and/or the Permanent Reserve and
(iv) the balance shall be directly deposited with the
Trustee to be held in trust for the benefit of the
Holders and used to make an Asset Sale Offer (as defined
in the Indenture) in accordance with the Indenture.
(b) Partec Receivable and Waverly
Equipment. The proceeds from the sale of the Partec
Receivable and the Waverly Equipment shall immediately
be deposited into the Escrow Account and be subject to
the Escrow Agreement. When and to the extent that funds
are released to Congress pursuant to such Escrow
Agreement, Congress shall apply such funds to the
Congress Obligations in such order as Congress in its
sole discretion shall elect and the Escrow Reserve shall
be increased by the amount of such funds so released to
Congress.
(c) All Other Asset Sales. All Net Cash
Proceeds of any Asset Sale (other than the Foreign
Assets Sale, the sale of the Partec Receivable and the
sale of the Waverly Equipment) of any Other Collateral
shall be paid and applied as follows:
(1) Prior to the Turnover Time, to the extent the
Permanent Reserve will not, after application of such
Net Cash Proceeds to the Permanent Reserve, exceed the
Maximum Deficiency Amount, such Net Cash Proceeds (or
<PAGE> 10
such lesser portion equal to the difference between the
Maximum Deficiency Amount and the Permanent Reserve
immediately prior to such Asset Sale) shall be
immediately paid to Congress for application to the
Congress Obligations in such order as Congress in its
sole discretion shall elect (and at such time the amount
of such payment shall be credited to the Permanent
Reserve and the Permanent Reserve shall be increased by
the amount of such payment);
(2) After the Turnover Time, the remainder of such
Net Cash Proceeds, if any, shall be immediately paid to
the Trustee for application in accordance with the
Indenture until the Noteholder Debt has been paid in
full;
(3) In all other circumstances thereafter, the
remainder of such Net Cash Proceeds, if any, shall be
paid to Congress for application to the Congress
obligations in such order as Congress in its sole
discretion shall elect (and at such time the Permanent
Reserve shall be increased by the amount of such
payment).
E. Section 14. Section 14 of the Rider is hereby
amended and restated in its entirety to read as follows:
"14. The Permanent Reserve.
(a) The Permanent Reserve shall be increased
from time to time as provided in Sections 13(c)(1) and
13(c)(3) hereof.
(b) If (i) the aggregate principal amount of
the Securities (as defined in the Indenture) tendered
pursuant to an Asset Sale Offer (as defined in the
Indenture), together with accrued interest thereon, is
less than the aggregate amount of the Net Cash Proceeds
available to make such Asset Sale Offer, and (ii) the
Trustee is obligated pursuant to the Indenture to pay
over such excess Net Cash Proceeds to Debtor, such
excess Net Cash Proceeds shall be paid by the Trustee
directly to Congress for application to the Obligations
in such order as Congress in its sole discretion shall
elect (and at such time the Permanent Reserve shall be
increased by the amount of such payment), and Debtor
hereby irrevocably authorizes and directs the Trustee to
pay any such excess Net Cash Proceeds directly to
Congress.
IV. Conditions to Effectiveness of Fifth Amendment. The
effectiveness of this Fifth Amendment is subject to the
satisfaction of the following conditions:
<PAGE> 11
A. Fifth Amendment. Debtor shall have duly executed
and delivered this Fifth Amendment.
B. Other Documents. All of the following documents
shall have been executed and delivered by the relevant
parties in form and substance satisfactory to Congress:
1. that certain Amendment No. 1 to First Amended
and Restated Inter-creditor Agreement dated as of the
date hereof, by and between Congress and IBJ Schroder
Bank & Trust Company, as Trustee and Collateral Agent,
and accepted and acknowledged by Debtor;
2. that certain Multi-Party Subordination
Agreement dated as of the date hereof, by and among
Congress, K-H Corporation and IBJ Schroder Bank & Trust
Company, as Trustee and as Collateral Agent;
3. that certain Supplemental Note Purchase and
Assignment Agreement dated as of the date hereof, by and
among Congress and K-H Corporation and accepted and
acknowledged by Debtor;
4. that certain Supplemental Working Capital Term
Note dated as of the date hereof, made by Debtor in
favor of Congress;
5. the Escrow Agreement;
6. that certain First Supplemental Indenture
dated as of the date hereof, by and among Debtor, the
Trustee and the Collateral Agent;
7. the K-H Loan Agreement;
8. the K-H Security Documents;
9. the release by the Trustee and/or the
Collateral Agent of all liens and security interests and
the relinquishment of all Collateral as contemplated by
the Consent Solicitation; and
10. the letter agreement with respect to certain
representations and warranties and the amendment to the
Jacksonville Security Agreement (as defined in the
Indenture) as contemplated by the Consent Solicitation.
C. Congress Consent Fee. Debtor shall have paid
Congress the Congress Consent Fee.
<PAGE> 12
D. No Injunction. No law or regulation shall have
been adopted, no order, judgment or decree of any
governmental authority shall have been issued, and no
litigation shall be pending or threatened, which in the
reasonable judgment of Congress would enjoin, prohibit
or restrain, or impose or result in the imposition of
any material adverse condition upon, the execution,
delivery or performance by Debtor or any of the
Subsidiaries of the Loan Documents, the making or
repayment of the Advances, the consummation of the
transactions effected pursuant to the terms of the Loan
Documents or the completion of the Foreign Assets
Sale, the sale of the Partec Receivable or the sale of
the Waverly Equipment.
E. Additional Matters. Congress shall have
received such other certificates, opinions, documents
and instruments relating to the obligations or the
transactions contemplated hereby and by the Loan
Documents as may have been reasonably requested by
Congress, and all corporate and other proceedings and
all other documents and all legal matters in connection
with the transactions contemplated hereby and by the
Loan Documents shall be reasonably satisfactory in form
and substance to Congress.
V. Limited Waiver.
A. This Section V of this Fifth Amendment hereby
replaces and supersedes that certain Limited Waiver
dated as of April 25, 1996 by and between Debtor and
Congress which shall cease to have any further force and
effect.
B. Congress hereby waives the provisions of the
Loan Agreement to the extent necessary to permit (i) the
Foreign Assets Sale to occur strictly in accordance with
the definition of Foreign Assets Sale and (ii) the sale
of the Partec Receivable and the Waverly Equipment.
C. Each of Debtor and Congress acknowledge and
agree that (i) an Event of Default exists pursuant to
Section 8(b) of the Rider as a result of the failure to
pay the interest due on the Noteholder Debt on or about
May 1, 1996 when due and (ii) an Event of Default has
occurred or may occur as a result of Debtor's breach of
Section 6(bb)(b) of the Rider (any and all such Events
of Default, the "Forbearance Events").
D. As long as (i) no Event of Default (other
than a Forbearance Event) has occurred, and (ii) Debtor
has paid the Forbearance Fee (as defined below) in a
timely manner, Congress agrees to refrain from
exercising any rights or remedies it may have as a
result of a Forbearance Event. On the first day of each
month after August 31, 1996, if the Permanent Reserve is
not equal to at least $7,500,000, the Debtor shall pay
Congress a Forbearance Fee of $10,000 (which fee shall
be fully earned and payable as of the first day of each
such month) (such fee, the "Forbearance Fee"). At such
time as the Permanent Reserve equals $7,500,000,
Congress agrees, upon the request of Debtor, to enter
into an agreement, in form and substance satisfactory to
<PAGE> 13
Congress, pursuant to which Congress permanently waives
any and all Forbearance Events which have occurred prior
to such time.
VI. Representations and Warranties. In order to induce
Congress to enter into this Fifth Amendment, Debtor
represents and warrants to Congress, upon the
effectiveness of this Fifth Amendment, which
representations and warranties shall survive the
execution and delivery of this Fifth Amendment, that:
A. Unencumbered Assets. Neither Debtor, nor any
of its Subsidiaries, has any assets that are free from a
security interest, mortgage, pledge, lien, charge or
other encumbrance.
B. Priority of Liens. The security interests and
liens granted to Congress under the Loan Agreement and
the other Loan Documents constitute valid and perfected
first priority liens and security interests in and upon
the Collateral subject only to existing liens indicated
on Exhibit 6(a) to the Loan Agreement or the other liens
expressly permitted pursuant to Section 6(a) of the
Rider.
C. Adequate Collateral. The fair market value
of Debtor's Collateral is greater than the sum of the
outstanding balance of (i) the amounts owing to Congress
pursuant to the Loan Agreement, (ii) all amounts owing
to K-H Corporation pursuant to the K-H Loan Agreement,
that certain Working Capital Term Note dated April 19,
1996 and that certain Supplemental Working Capital Term
Note dated June 21, 1996 and originally made by Debtor
in favor of Congress and (iii) the Noteholder Debt.
D. Due Incorporation; etc. Debtor and each of
the Subsidiaries is a corporation duly incorporated,
validly existing and in good standing under the laws of
its jurisdiction of incorporation, and has all requisite
authority to conduct its business in each jurisdiction
in which its business is conducted.
E. No Default; etc. No Default or Event of
Default (other than Forbearance Events (as defined
above) has occurred and is continuing after giving
effect to this Fifth Amendment or would result from the
execution or delivery of this Fifth Amendment or the
consummation of the transactions contemplated hereby.
F. Corporate Power and Authority; Authorization.
Debtor has the corporate power and authority to execute,
deliver and carry out the terms and provisions of this
Fifth Amendment and the Loan Documents to which it is a
party and each Subsidiary has the corporate power and
authority to execute, deliver and carry out the terms
and provisions of each of the Loan Documents to which it
is a party and the execution and delivery by Debtor and
each of the Subsidiaries, and the performance by Debtor
and each of the Subsidiaries of its obligations
hereunder and the Loan Documents to which it is a party,
have been duly authorized by all requisite corporate
action by Debtor and each of the Subsidiaries.
<PAGE> 14
G. Execution and Delivery. Debtor has duly
executed and delivered this Fifth Amendment. Debtor and
each of the Subsidiaries has duly executed and delivered
each Loan Document to which it is a party.
H. Enforceability. The Loan Agreement, as
amended by this Fifth Amendment, and each other Loan
Document to which Debtor is a party, each constitutes a
legal, valid and binding obligation of Debtor and each
Loan Document to which a Subsidiary is a party
constitutes a legal valid and binding obligation of such
Subsidiary, enforceable against Debtor and each
Subsidiary, as applicable, in accordance with its
respective terms, except as enforcement may be limited
by bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the enforcement of creditors'
rights generally, and by general principles of
equity.
I. No Conflicts; etc. Neither the execution,
delivery or performance by Debtor of this Fifth
Amendment, the K-H Loan Agreement and the K-H Security
Documents, nor compliance by Debtor with the terms and
provisions hereof or thereof, nor the completion of
the Foreign Assets Sale nor the execution, delivery and
performance by each Subsidiary of each Loan Document or
K-H Security Document to which it is a party, nor
compliance with each Subsidiary with the terms and
provisions thereof (i) will contravene any applicable
provision of any law, statute, rule, regulation, order,
writ, injunction or decree of any court or governmental
instrumentality or (ii) will conflict or be inconsistent
with, or result in any breach of, any of the terms,
covenants, conditions or provisions of, or constitute a
default under, or result in the creation or imposition
of (or the obligation to create or impose) any Lien upon
any property or assets owned by it pursuant to the terms
of any indenture, mortgage, deed of trust, agreement or
other instrument to which the Debtor and/or a Subsidiary
is a party or by which the Debtor and/or a Subsidiary or
any of their respective property or assets is bound or
to which the Debtor and/or a Subsidiary of Debtor may be
subject, or (iii) will violate any provision of Debtor's
and/or any Subsidiary's certificate of incorporation or
by-laws.
J. Consents; etc. Other than the filing of
mortgages and deeds of trust and the Uniform Commercial
Code financing statements which have been executed and
delivered to Congress on or before the date of the Fifth
Amendment, no order, consent, approval, license,
authorization, or validation of, or filing, recording or
registration with or exemption by, any governmental or
public body or authority, or any subdivision thereof, is
required to authorize, or is required in connection with
the execution, delivery and performance of this Fifth
Amendment or the consummation of any of the transactions
contemplated hereby.
<PAGE> 15
K. K-H Loan Agreement. The K-H Loan Agreement
has been duly executed and delivered and a certified
copy of the K-H Loan Agreement has been delivered to
Congress.
L. First Supplemental Indenture. The execution
and delivery of the First Supplemental Indenture dated
as of June 21, 1996, by and between Debtor and Trustee
has been duly authorized by, and consented to by an
affirmative vote of, the Holders (as defined in the
Indenture) required to authorize and/or consent to the
execution and delivery of such document.
M. Supplemental Indenture. The Supplemental
Indenture has been duly approved by a vote of the
Holders (as defined in the Indenture).
N. Representations and Warranties. All of the
representations and warranties contained in the Loan
Agreement and in the other Loan Documents (other than
those which speak expressly only as of a different date)
are true and correct as of the date of this Fifth
Amendment after giving effect to this Fifth Amendment.
VII. Miscellaneous.
A. Effect; Ratification. The amendments set
forth herein are effective solely for the purposes set
forth herein and shall be limited precisely as written,
and shall not be deemed to (i) be a consent to any
amendment, waiver or modification of any other term or
condition of the Loan Agreement or of any other Loan
Document or (ii) prejudice any right or rights that
Congress may now have or may have in the future under or
in connection with the Loan Agreement or any other Loan
Document. Each reference in the Loan Agreement to "this
Agreement", "herein", "hereof" and words of like import
and each reference in the other Loan Documents to the
Loan Agreement shall mean the Loan Agreement as amended
hereby. This Fifth Amendment shall be construed in
connection with and as part of the Loan Agreement and
all terms, conditions, representations, warranties,
covenants and agreements set forth in the Loan Agreement
and each other Loan Document, except as herein amended
or waived, are hereby ratified and confirmed and shall
remain in full force and effect.
B. Costs and Expenses. Debtor shall pay to
Congress on demand all reasonable out-of-pocket costs,
expenses, filing fees and taxes paid or payable in
connection with the preparation, negotiation, execution,
delivery, recording, administration, collection,
liquidation, enforcement and defense of the Obligations,
Congress's rights in the Collateral, this Fifth
Amendment, the Loan Agreement, the other Loan Documents
and all other documents related hereto or thereto,
including any amendments, supplements or consents
which may hereafter be contemplated (whether or not
executed) or entered into in respect hereof and thereof,
including, but not limited to: (a) all costs and
expenses of filing or recording (including Uniform
Commercial Code financing statement filing taxes and
<PAGE> 16
fees, documentary taxes, intangibles taxes and mortgage
recording taxes and fees, if applicable); (b) costs and
expenses and fees for title insurance and other
insurance premiums, environmental audits, surveys,
assessments, engineering reports and inspections,
appraisal fees and search fees; (c) costs and expenses
of remitting loan proceeds, collecting checks and other
items of payment; (d) charges, fees or expenses charged
by any bank or issuer in connection with the Letter of
Credit Accommodations; (e) costs and expenses of
preserving and protecting the Collateral; (f) costs and
expenses paid or incurred in connection with obtaining
payment of the Obligations, enforcing the security
interests and liens of Congress, selling or otherwise
realizing upon the Collateral, and otherwise enforcing
the provisions of this Fifth Amendment, the Loan
Agreement and the other Loan Documents or defending any
claims made or threatened against Congress arising out
of the transactions contemplated hereby and thereby
(including, without limitation, preparations for and
consultations concerning any such matters); (g) all
out-of-pocket expenses and costs heretofore and from
time to time hereafter incurred by Congress during the
course of periodic field examinations of the Collateral
and Debtor's operations, plus a per diem charge at the
rate of $600 per person per day for Congress's examiners
in the field and office; and (h) the fees and
disbursements of counsel (including legal assistants) to
Congress in connection with the Foreign Assets Sale or
any of the foregoing.
C. Certain Waivers; Release. (i) Debtor, for
itself and any successor (including any trustee or
debtor in possession in a case under the Bankruptcy
Code), hereby knowingly, voluntarily, intentionally and
irrevocably waives (to the extent permitted by
applicable law) any right which it may have upon the
commencement of a case under the Bankruptcy Code to
(a) seek enforcement of the automatic stay provided
under Section 362 of the Bankruptcy Code to prohibit
Congress from exercising such remedies as it may deem
appropriate under the Loan Documents in respect of the
Collateral, (b) oppose any motion or application brought
by Congress seeking relief from the automatic stay
provided under Section 362 of the Bankruptcy Code in
respect of all or any portion of the Collateral, (c)
file any motion or application seeking to obtain credit
pursuant to Section 364(d) of the Bankruptcy Code or (d)
object to or otherwise seek to disallow or subordinate
any of the Obligations.
(ii) Although Debtor does not believe that it
has any claims against Congress, it is willing to
provide Congress with a general and total release of all
such claims in consideration of the extensions and other
benefits which Debtor will receive pursuant to this
Fifth Amendment. Accordingly, Debtor, for itself, each
of its Subsidiaries and any successor (including any
trustee or debtor in possession in a case under the
Bankruptcy Code) of Debtor or such Subsidiary, hereby
knowingly, voluntarily, intentionally and irrevocably
releases and discharges Congress and its respective
officers, directors, agents and counsel (each a
"Releasee") from any and all actions, causes of action,
suits, sums of money, accounts, reckonings, bonds,
bills, specialties, covenants, contracts, controversies,
agreements, promises, variances, trespasses, damages,
judgments, extents, executions, losses, liabilities,
costs, expenses, debts, dues, demands, obligations or
other claims of any kind whatsoever, in law, admiralty
<PAGE> 17
or equity, which Debtor or any of its Subsidiaries ever
had, now have or hereafter can, shall or may have
against any Releasee for, upon or by reason of any
matter, cause or thing whatsoever from the beginning of
the world to the date of this Fifth Amendment.
D. Effectiveness. This Fifth Amendment shall
immediately become effective as of the date first
written above upon (i) the receipt by Congress of duly
executed counterparts of this Fifth Amendment from
Debtor and (ii) the satisfaction or written waiver of
each condition precedent contained herein.
E. Counterparts. This Fifth Amendment may be
executed in any number of counterparts, each such
counterpart constituting an original but all together
constitute one and the same instrument.
F. Severability. Any provision contained in this
Fifth Amendment that is held to be inoperative,
unenforceable or invalid in any jurisdiction shall, as
to that jurisdiction, be inoperative, unenforceable or
invalid without affecting the remaining provisions of
this Fifth Amendment in that jurisdiction or the
operation, enforceability or validity of that provision
in any other jurisdiction.
G. GOVERNING LAW. THIS FIFTH AMENDMENT SHALL BE
GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK.
[Remainder of page intentionally blank]
<PAGE>
<PAGE> 18
IN WITNESS WHEREOF, the parties hereto have
executed this Fifth Amendment as of the date first above
written.
FRUEHAUF TRAILER CORPORATION
By: /s/ Timothy J. Wiggins
-----------------------
Title: Excutive Vice President
and Chief Financial Officer
CONGRESS FINANCIAL
CORPORATION (CENTRAL)
By: /s/ Thomas C. Lannon
---------------------
Title: Vice President
AMENDMENT NO. 1 TO
FIRST AMENDED AND RESTATED
INTERCREDITOR AGREEMENT
This AMENDMENT NO. 1 TO FIRST AMENDED AND
RESTATED INTERCREDITOR AGREEMENT (the "Amendment") is
made and entered into as of June 21, 1996, by and among
CONGRESS FINANCIAL CORPORATION (CENTRAL) (together with
its successors and assigns, "Congress") and IBJ SCHRODER
BANK & TRUST COMPANY ("IBJS"), solely in the capacities
described below. IBJS is entering into this Amendment
not in its individual capacity but solely in its
capacities (i) as trustee under the Indenture dated as
of May 1, 1995 (as amended, supplemented, amended and
restated or otherwise modified from time to time, the
"Indenture") between Fruehauf Trailer Corporation
("Borrower") and IBJS, as trustee (in such capacity,
together with its successors and assigns as such, the
"Trustee"), providing for the issuance by the Borrower
of its 14.75% Senior Secured Notes due 2002, and (ii) as
Collateral Agent (as defined in the Indenture) and, in
such capacities, on behalf of the Holders (as defined in
the Indenture). Except for terms which are expressly
defined herein, all capitalized terms used herein shall
have the meanings ascribed to them in the Agreement (as
defined below), as amended by this Amendment.
R E C I T A L S
A. Congress and Borrower are parties to that
certain Accounts Financing Agreement [Security
Agreement], that certain Inventory and Equipment
Security Agreement Supplement to Accounts Financing
Agreement [Security Agreement], that certain Rider No.1
to Accounts Financing Agreement [Security Agreement]
(the "Rider") and Inventory and Equipment Security
Agreement Supplement to Accounts Financing Agreement
[Security Agreement] and that certain letter re:
Inventory, each dated as of August 20, 1993 (as
amended from time to time prior to the date hereof,
collectively, the "Existing Loan Agreement").
B. Congress and IBJS are parties to that
certain First Amended and Restated Intercreditor
Agreement dated as of May 1, 1995 (as amended by this
Amendment, the "Agreement").
C. Borrower is undertaking a restructuring
of certain of its indebtedness (the "Restructuring")
pursuant to which, among other things (i) Borrower and
Congress will amend the Existing Loan Agreement by
executing that certain Fifth Amendment to Accounts
Financing Agreement [Security Agreement] and Limited
Waiver dated as of June 21, 1996 (the "Fifth
Amendment"), (ii) Borrower and the Trustee will amend
the Indenture by executing that certain First
Supplemental Indenture, dated as of June 21, 1996,
between the Borrower and IBJS as Trustee and Collateral
Agent (the "Supplemental Indenture") and (iii) Borrower
will refinance a portion of the revolving loans
outstanding pursuant to the Existing Loan
<PAGE> 2
Agreement through that certain Supplemental Working
Capital Term Note dated as of June 21, 1996 executed by
Borrower in favor of Congress.
D. As a condition precedent to the
effectiveness of the Restructuring,
Congress, the Trustee and the Collateral Agent have
agreed to amend the Agreement as
provided in this Amendment.
A G R E E M E N T
NOW, THEREFORE, for good and valuable
consideration, the receipt and adequacy of which are
hereby acknowledged, the parties hereby agree as
follows:
I. Amendments to Agreement.
A. Definitions in Preamble.
1. The first parenthetical phrase in the Preamble
to the Agreement is hereby amended and restated in its
entirety to read as follows:
(as amended by Amendment No. 1 to First Amended and
Restated Intercreditor Agreement dated as of June 21,
1996, the "Amended Agreement")
2. The first parenthetical phrase in clause (i) of
the Preamble to the Agreement is hereby amended and
restated in its entirety to read as follows:
(as amended by the First Supplemental Indenture
dated as of June 21, 1996 (the "Supplemental Indenture")
and as it may be further amended, supplemented, amended
and restated or otherwise modified from time to time,
the "Indenture")
B. Definitions in Recitals. The following defined
terms in Recital D of the Agreement are hereby amended
and restated in their entirety to read as follows:
1. "Accounts Financing Agreement" shall mean the
Existing Accounts Financing Agreement as amended by the
Loan Agreement Amendments and as it may be further
amended, supplemented, amended and restated or otherwise
modified from time to time.
2. "Loan Agreement" shall mean the Existing Loan
Agreement, as amended by that certain Fifth Amendment to
Accounts Financing Agreement [Security Agreement] dated
as of June 21, 1996 (the "Fifth Amendment," and
collectively, with the Third Amendment to Accounts
Financing Agreement [Security Agreement] dated as of May
1, 1995 and the Fourth Amendment to Accounts Financing
Agreement [Security Agreement] dated as of April 19,
<PAGE> 3
1996, the "Loan Agreement Amendments") and as it may be
further amended, supplemented, amended and restated or
otherwise modified from time to time.
C. Loan Agreement Amendment. All references to "Loan
Agreement Amendment" shall be deleted and the term "Loan
Agreement Amendments" shall be substituted therefor.
The definition of "Loan Agreement Amendments" shall have
the meaning ascribed to such term in the definition of
"Loan Agreement".
D. Section 1 Definitions. Section 1 of the Agreement
is hereby amended to add the following definitions in
their appropriate alphabetical location:
1. "Escrow Agreement" shall mean that certain
Escrow Agreement dated as of June 21, 1996, by and
between FIL Partners, L.P., Congress, Borrower, Fruehauf
Corporation and Fruehauf International Limited, as the
same may from time to time be amended, restated,
supplemented or otherwise modified.
2. "Escrow Account" shall mean that certain
Escrow Account established under the Escrow Agreement
into which certain proceeds from the sale of the Partec
Receivable, the Waverly Equipment and certain other
proceeds (in an amount equal to $100,000) from the
Foreign Assets Sale shall be deposited and held by
Congress as escrow agent under and pursuant to the
Escrow Agreement.
3. "Foreign Assets" shall mean (i) the Borrower's
current ownership interest in Societe Europeenne de
Semi-Remorques, S.A., a French corporation, (ii) the
stock or other ownership interests currently owned by
Fruehauf International Limited, a wholly owned
subsidiary of the Borrower ("FIL"), in Henred Fruehauf
(PTY) Limited, Henred Fruehauf Properties (PTY) Limited,
Nippon Fruehauf Company Ltd., and F.L.A. Licensing,
L.L.C., (iii) the Borrower's and FIL's current interests
in certain trademark and technology license agreements
currently operative outside North America (including,
without limitation, all of the Borrower's and FIL's
rights to any fees payable under any such existing
agreements and any renewals thereof that may be made in
the future), (iv) all of the Borrower's current
interests in (a) the trademark, service mark, trade or
corporate name "Fruehauf" and (b) patents and patent
applications, in each case, outside North America, and
(v) the Borrower's indirect ownership interest in
certain real property located in Germany.
4. "Foreign Assets Sale" shall mean the sale of
the Foreign Assets by Borrower, Fruehauf Corporation or
FIL, as the case may be, to Private Equity Investors,
Inc. or an affiliate thereof in one or more transactions
<PAGE> 4
as described in that certain letter (the "Consent
Solicitation") dated June 14, 1996 from Borrower to
the Holders regarding the Amended and Restated Consent
Solicitation.
5. "Noteholders Consent Fee" shall mean a consent
fee payable to the Trustee for the benefit of the
holders of the Notes and equal to $156,435.
6. "Partec Receivable" shall mean those accounts
receivable in the face amount of approximately $639,000
owed the Borrower and FIL by U.S. Partec Licensing, Inc.
and/or U.S. Partec Corporation.
7. "Waverly Equipment" shall mean that certain
idle trailer manufacturing equipment owned by the
Borrower and located, as of June 13, 1996, in Waverly,
Ohio.
E. Amended and Restated Definitions. Each of the
following definitions contained in Section 1 of the
Agreement are hereby amended and restated in their
entirety to read as follows:
1. "Congress Primary Collateral" shall mean all
Accounts, Inventory, Records and all of Borrower's
right, title and interest in and to the Escrow Account.
2. "Maximum Deficiency Amount" shall equal Seven
Million Five Hundred Thousand Dollars ($7,500,000).
F. Deletion of Certain Definitions. The definitions
of "Asset Sale Reserve" and "Asset Sale Account" set
forth in Section 1 of the Agreement are hereby deleted
in their entirety.
G. Section 4 Amendments. Section 4 of the Agreement
is hereby amended and restated in its entirety to read
as follows:
4. Application of Proceeds of Certain
Collateral.
The provisions of this Section 4 shall govern
the application and payment to Congress, the Trustee
and/or the Collateral Agent, as the case may be, of Net
Cash Proceeds of any Asset Sale of the Partec Receivable
or any Other Collateral and shall be applicable in
all circumstances, including, without limitation, in any
Bankruptcy Case of which the Borrower or any Subsidiary
is the subject or any other circumstance involving the
distribution, division or application, partial or
complete, voluntary or involuntary, by operation of law
or otherwise, of all or any part of the Collateral or
any other Property of the Borrower or any Subsidiary.
<PAGE> 5
(a) Foreign Assets Sale. The
Borrower, either directly or through the actions of one
or more of its subsidiaries, shall cause the Purchaser
thereof to pay, upon the Receipt Date, the Net Cash
Proceeds of the Foreign Assets Sale as follows: (i) the
first $4,614,832.50 shall be directly deposited with the
Trustee to be held in trust for the benefit of the
Holders to be paid to the Holders by the Trustee as the
interest payment on the Noteholder Debt originally
scheduled to be made May 1, 1996, (ii) the next $156,435
shall be directly deposited with the Trustee to be held
in trust for the benefit of the Holders and used to pay
the Noteholders Consent Fee, (iii) the next $6,000,000
shall be paid directly to Congress for application to
the Congress Obligations in such order as Congress in
its sole discretion shall elect, but shall not be
applied to the Permanent Reserve and shall not limit or
otherwise affect Congress' ability or right to have Net
Cash Proceeds from Asset Sales (other than the Foreign
Assets Sale) be paid to Congress to be applied to the
Congress Obligations and/or the Permanent Reserve and
(iv) the balance shall be directly deposited with the
Trustee to be held in trust for the benefit of the
Holders and used to make an Asset Sale Offer (as defined
in the Indenture) in accordance with the Indenture.
(b) Partec Receivable and Waverly
Equipment. The proceeds from the sale of the Partec
Receivable and the Waverly Equipment shall immediately
be deposited into the Escrow Account and be subject to
the Escrow Agreement. When and to the extent that funds
are released to Congress pursuant to such Escrow
Agreement, Congress shall apply such funds to the
Congress Obligations in such order as Congress in its
sole discretion shall elect and the Escrow Reserve (as
defined in the Loan Agreement) shall be increased by the
amount of such funds so released to Congress.
(c) All Other Asset Sales. All Net Cash
Proceeds of any Asset Sale (other than the Foreign
Assets Sale, the sale of the Partec Receivable and the
sale of the Waverly Equipment) of any Other Collateral
shall be paid and applied as follows:
(1) Prior to the Turnover Time, to the extent the
Permanent Reserve will not, after application of such
Net Cash Proceeds to the Permanent Reserve, exceed the
Maximum Deficiency Amount, such Net Cash Proceeds (or
such lesser portion equal to the difference between the
Maximum Deficiency Amount and the Permanent Reserve
immediately prior to such Asset Sale) shall be
immediately paid to Congress for application to the
Congress Obligations in such order as Congress in its
sole discretion shall elect (and at such time the amount
of such payment shall be credited to the Permanent
Reserve and the Permanent Reserve shall be increased by
the amount of such payment);
(2) After the Turnover Time, the remainder of such
Net Cash Proceeds, if any, shall be immediately paid to
the Trustee for application in accordance with the
Indenture until the Noteholder Debt has been paid in
full;
<PAGE> 6
(3) In all other circumstances thereafter, the
remainder of such Net Cash Proceeds, if any, shall be
paid to Congress for application to the Congress
Obligations in such order as Congress in its sole
discretion shall elect (and at such time the Permanent
Reserve shall be increased by the amount of such
payment).
(d) Payment of Excess Net Cash Proceeds
After Asset Sale Offer. If the Trustee shall be
required to pay over to Borrower any excess Net Cash
Proceeds remaining on deposit with the Trustee pursuant
to Section 3.16(e) of the Indenture (as in effect on the
date hereof or as modified from time to time with the
written consent of Congress), the Trustee shall,
notwithstanding the terms of Section 3.16(e) of the
Indenture, pay such excess Net Cash Proceeds to Congress
for application to the Congress Obligations in such
order as Congress, in its sole discretion, shall elect
(and at such time the Permanent Reserve shall be
increased by the amount of such payment).
II. Consents.
A. Any reference in the Agreement to any Congress
Loan Document or Noteholder Document shall be deemed to
be a reference to such document, as amended by the
following documents, and solely for such purposes and
for purposes of Section 9 of the Agreement, but
without agreeing to or approving any of the matters
addressed in Sections 6(oo), 6(pp) and 6(qq) of the
Rider, each of Congress, the Trustee and the Collateral
Agent, on behalf of itself and the Holders, hereby
acknowledge and consent to the execution and delivery of
the following documents as in effect on the date hereof
and, solely for such purposes, to all of the
modifications and amendments thereby effected to the
Congress Loan Documents and the Noteholder Documents:
1. that certain Fifth Amendment to Accounts
Financing Agreement [Security Agreement] and Limited
Waiver dated of even date herewith, by and between
Congress and Borrower;
2. that certain Multi-Party Subordination
Agreement dated of even date herewith, by and among
Congress, K-H Corporation and IBJS, as Trustee and as
Collateral Agent (the "Multi-Party Subordination
Agreement");
3. that certain Supplemental Note Purchase and
Assignment Agreement dated of even date herewith, by and
among Congress and K-H Corporation and accepted and
acknowledged by Borrower;
4. that certain Supplemental Working Capital Term
Note dated of even date herewith, made by Borrower in
favor of Congress;
<PAGE> 7
5. the Escrow Agreement;
6. that certain First Supplemental Indenture
dated as of the date hereof, by and among Debtor,
Trustee and the Collateral Agent;
7. that certain Subordinated Revolving Note dated
as of the date hereof made by Borrower in favor of K-H
Corporation (the "Subordinated Revolving Note");
8. the release by the Trustee and/or the
Collateral Agent of all liens and security interests and
the relinquishment of all Collateral as contemplated by
the Consent Solicitation;
9. the letter agreement with respect to certain
representations and warranties and the amendment to the
Jacksonville Security Agreement (as defined in the
Indenture) as contemplated by the Consent Solicitation;
10. the Letter of Pledge dated as of the date
hereof by the Borrower to the Collateral Agent and the
Patent, Trademark, Copyright and Other Intellectual
Property Security Interest dated as of the date hereof
by Borrower in favor of the Collateral Agent; and
11. those security agreements, pledge agreements,
mortgages and similar documents each dated as of the
date hereof and executed by Borrower and/or its
Subsidiaries (as defined in the Loan Agreement) in favor
of K-H Corporation, securing the Subordinated Revolving
Note and subject to the Multi-Party Subordination
Agreement.
B. Any references in the Agreement to any
Congress Loan Document or Noteholder Document shall be
deemed to be a reference to such document, as amended by
the following documents, and solely for such purposes
and for purposes of Section 9 of the Agreement, the
Trustee and the Collateral Agent, on behalf of itself
and the Holders, each hereby acknowledges and consents
to the execution and delivery of the following documents
and, solely for such purposes, to the modifications and
amendments thereby effected to the Congress Loan
Documents (as in effect on the date of original
execution thereof and as amended with the prior written
consent of the Trustee, collectively, the "April 19
Documents"):
1. that certain Fourth Amendment to Accounts
Financing Agreement [Security Agreement] dated as of
April 19, 1996, by and between Borrower and Congress;
2. that certain Working Capital Term Note dated
as of April 19, 1996, executed by Borrower in favor of
Congress;
<PAGE> 8
3. that certain Note Purchase and Assignment
Agreement dated as of April 19, 1996, by and between
Congress and K-H Corporation and accepted by Borrower;
4. that certain Subordination Agreement dated as
of April 19, 1996, by and between Congress and K-H
Corporation;
5. that certain Assignment Agreement dated as of
April 19, 1996, by K-H Corporation and accepted by
Congress; and
6. that certain Limited Waiver dated as of April
19, 1996, by and between Borrower and Congress.
Each of Congress, the Trustee and the Collateral Agent,
on behalf of itself and the Holders, hereby acknowledges
and agrees that (i) all of the indebtedness and
obligations arising at any time under the April 19
Documents constitute Congress Obligations and (ii) the
April 19 Documents constitute Congress Loan Documents.
III. Miscellaneous.
A. Effect; Ratification. The amendments set
forth herein are effective solely for the purposes set
forth herein and shall be limited precisely as written,
and shall not be deemed to (i) be a consent to any
amendment, waiver or modification of any other term or
condition of the Agreement or (ii) prejudice any right
or rights that any of Congress, the Trustee, the
Collateral Agent or the Holders may now have or may have
in the future under or in connection with the Agreement,
the Indenture, the other Documents (as defined in the
Indenture) or the Loan Agreement. This Amendment shall
be construed in connection with and as part of the
Agreement, and all terms, conditions, representations,
warranties, covenants and agreements set forth in the
Agreement, except as herein amended or waived, are
hereby ratified and confirmed and shall remain in full
force and effect.
B. Effectiveness. This Amendment shall be
effective on the date on which the Fifth Amendment and
the Supplemental Indenture have both become effective in
accordance with their respective terms.
C. Counterparts. This Amendment may be executed
in any number of counterparts, each such counterpart
constituting an original but all together constitute one
and the same instrument.
D. Severability. Any provision contained in this
Amendment that is held to be inoperative, unenforceable
or invalid in any jurisdiction shall, as to that
jurisdiction, be inoperative, unenforceable or invalid
without affecting the remaining provisions of this
<PAGE> 9
Amendment in that jurisdiction or the operation,
enforceability or validity of that provision in
any other jurisdiction.
E. GOVERNING LAW. THIS AMENDMENT SHALL BE
GOVERNED BY
AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE
LAWS OF
THE STATE OF NEW YORK.
[remainder of page intentionally blank]
<PAGE>
<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have
executed this Amendment as of the date first above
written.
IBJ SCHRODER BANK & TRUST COMPANY,
not individually but solely as
Trustee and as Collateral Agent
By:/s/ Barbara McCluskey
------------------------
Title: Assistant Vice President
--------------------------
CONGRESS FINANCIAL CORPORATION (CENTRAL)
By:/s/ Thomas C. Lannon
------------------------
Title: Vice President
--------------------
Fruehauf Trailer Corporation hereby accepts,
and acknowledges receipt of a copy of, the foregoing
Amendment as of June 21, 1996, and agrees to be bound by
the Agreement, as amended by the Amendment, and without
limiting the generality of the foregoing, agrees that it
will not make any payments in violation of the
Agreement, as amended by this Amendment.
FRUEHAUF TRAILER CORPORATION
By: /s/ Timothy J. Wiggins
--------------------------
Its: Executive Vice President and
Chief Financial Officer
SUPPLEMENTAL WORKING CAPITAL TERM NOTE
June 21, 1996
FOR VALUE RECEIVED, Fruehauf Trailer Corporation
("Borrower") promises to pay to the order of Congress
Financial Corporation (Central) (together with its
successors and assigns, "Lender") the principal sum of
One Million Dollars ($1,000,000) together with interest
on the outstanding balance thereof at the rate provided
for herein on the dates and upon the terms set forth
herein.
Recitals
A. Borrower and Lender are the parties to that
certain Accounts Financing Agreement [Security
Agreement] (the "Accounts Financing Agreement"), that
certain Inventory and Equipment Security Agreement
Supplement to Accounts Financing Agreement [Security
Agreement], that certain Rider No. 1 to Accounts
Financing Agreement [Security Agreement], that certain
Inventory and Equipment Security Agreement Supplement to
Accounts Financing Agreement [Security Agreement] and
that certain letter regarding Inventory Loans, each
dated as of August 20, 1993 and each as amended by that
certain First Amendment to Accounts Financing Agreement
[Security Agreement] entered into as of April 4, 1994
by and between Borrower and Lender, that certain Second
Amendment to Accounts Financing Agreement [Security
Agreement] and Waiver entered into as of April 12, 1994
by and between Borrower and Lender, that certain Third
Amendment to Accounts Financing Agreement [Security
Agreement] entered into as of May 1, 1995 by and between
Borrower and Lender, that certain Fourth Amendment to
Accounts Financing Agreement [Security Agreement] (the
"Fourth Amendment") entered into as of April 19, 1996 by
and between Borrower and Lender, and that certain Fifth
Amendment to Accounts Financing Agreement [Security
Agreement] entered into as of even date herewith by and
between Borrower and Lender (collectively, as amended,
restated, supplemented or otherwise modified from time
to time, the "Loan Agreement"), and the other Loan
Documents, as defined in the Loan Agreement (all such
Loan Documents, together with the Loan Agreement, in
each case as in existence prior to the execution of this
Supplemental Working Capital Term Note ("Supplemental
Term Note") or any other amendment executed on or after
the date hereof, collectively, the "Revolving Loan
Documents"). Capitalized terms used herein and not
otherwise defined herein shall have the meanings set
forth in the Loan Agreement.
B. Lender is a party to that certain First
Amended and Restated Intercreditor Agreement (the
"Intercreditor Agreement") entered into as of May 1,
1995 by and among Lender, IBJ Schroder Bank & Trust
<PAGE> 2
Company ("IBJS"), as indenture trustee and Collateral
Agent (as that term is defined in the Intercreditor
Agreement) and certain other parties, as amended by that
certain Amendment Number 1 to First Amended and Restated
Intercreditor Agreement entered into as of even date
herewith by and among Lender, IBJS, as indenture trustee
and Collateral Agent, and certain other parties.
C. Borrower is a party to that certain Indenture
(the "Indenture") dated as of May 1, 1995 by and between
Borrower and IBJS, as trustee.
D. Borrower, with the consent of Lender, has
previously converted a portion of the revolving loans
outstanding pursuant to the Revolving Loan Documents to
a term loan to Borrower, as evidenced by that certain
Working Capital Term Note, dated as of April 19, 1996,
in the principal amount of Five Million Five Hundred
Thousand Dollars ($5,500,000) (the "Original Term
Note").
E. Borrower has requested and Lender has agreed
to convert a portion of the revolving loans currently
outstanding pursuant to the Revolving Loan Documents to
a term loan to Borrower, with such refinancing to be
upon the terms and subject to the conditions set forth
in this Supplemental Term Note.
F. The term loan to be made under this
Supplemental Term Note will replace and be a refinancing
of a portion of the obligations of Borrower under the
Revolving Loan Documents, and, prior to the occurrence
of a Transfer Event, as hereinafter defined, will be
entitled to the benefits of all collateral and other
security with respect thereto.
THEREFORE, in consideration of the mutual
conditions and agreements set forth herein, and for
other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties
hereto agree as follows:
SECTION 1. DEFINITIONS
All terms used herein which are defined in Article
1 or Article 9 of the Uniform Commercial Code shall have
the meanings given therein unless otherwise defined in
this Supplemental Term Note. All references to the
plural herein shall also mean the singular and to the
singular shall also mean the plural. All references to
Borrower and Lender pursuant to the definitions set
forth in the recitals hereto, or to any other person
herein, shall include their respective successors and
assigns. The words "hereof", "herein", "hereunder",
"this Supplemental Term Note" and words of similar
import when used in this Supplemental Term Note shall
refer to this Supplemental Term Note as a whole and
not any particular provision of this Supplemental Term
Note and as this Supplemental Term Note now exists or
may hereafter be amended, modified, supplemented,
<PAGE> 3
extended, renewed, restated or replaced. Any accounting
term used herein unless otherwise defined in this
Supplemental Term Note shall have the meaning
customarily given to such term in accordance with GAAP.
For purposes of this Supplemental Term Note, the
following terms shall have the respective meanings given
to them below:
1.1 "Accounts" shall have the meaning set forth in
Section 4 hereof.
1.2 "Average Book Availability" shall mean, for
any period, the arithmetic mean of the Book Availability
for each day in such period.
1.3 "Book Availability" shall mean, at any time,
the amount, as determined by Lender and maintained on
its books and records in accordance with and pursuant to
the terms of the Loan Agreement, equal to the Section
2.1 Amount (as defined in the Fourth Amendment as in
effect on the date hereof), minus the amount of all then
outstanding and unpaid Obligations (but not including
for this purpose the then outstanding principal amount
of the Term Loan).
1.4 "Cash Flow Projections" shall mean detailed
cash flow projections for the Borrower, made in good
faith and in conformity with Borrower's existing
business practices and, to the extent applicable, GAAP,
in sufficient detail to permit the calculation of
Average Book Availability for at least the next ninety
(90) day period.
1.5 "Collateral" shall have the meaning set forth
in Section 4 hereof.
1.6 "Collateral Documents" shall mean those
documents set forth in Exhibit A to the Original Term
Note.
1.7 "Equipment" shall have the meaning set forth
in Section 4 hereof.
1.8 "Event of Default" shall mean the occurrence
or existence of any event or condition described in
Section 8.1 hereof.
1.9 "Excess Availability" shall mean, as of any
Permitted Principal Reduction Assessment Date, the
lesser of (i) Book Availability on such date minus the
sum of (a) the aggregate amount of all Specified
Payables on such date; plus (b) accruals for any tax
liabilities that are or will be due and payable
within the next ninety (90) days; plus (c) accruals for
any Specified Liabilities, to the extent not included in
(a) or (b) above, that are or will be due and payable
<PAGE> 4
during the next twelve (12) month period or (ii) Average
Book Availability for the ninety (90) day period ending
on such date.
1.10 "GAAP" shall mean generally accepted
accounting principles in the United States of America as
in effect from time to time as set forth in the opinions
and pronouncements of the Accounting Principles Board
and the American Institute of Certified Public
Accountants and the statements and pronouncements of the
Financial Accounting Standards Boards which are
applicable to the circumstances as of the date of
determination.
1.11 "Income Projections" shall mean detailed net
income projections for the Borrower for the next twelve
(12) month period, made in good faith and in conformity
with Borrower's existing business practices and, to the
extent applicable, GAAP.
1.12 "Inventory" shall have the meaning set forth
in Section 4 hereof.
1.13 "Obligor" shall mean any guarantor, endorser,
acceptor, surety or other person liable on or with
respect to the Term Loan Obligations or who is the owner
of any property which is security for the Term Loan
Obligations, other than Borrower.
1.14 "Permitted Principal Reduction Assessment
Date" shall mean July 31, 1997 and each October 31,
January 31, April 30 and July 31 thereafter until such
time as the Term Loan is repaid in full.
1.15 "Permitted Principal Reduction Payment Date"
shall mean August 10, 1997 and each November 10,
February 10, May 10 and August 10 thereafter until such
time as the Term Loan is repaid in full.
1.16 "Person" or "person" shall mean any
individual, sole proprietorship, partnership,
corporation (including, without limitation, any
corporation which elects subchapter S status under the
Internal Revenue Code of 1986, as amended), business
trust, unincorporated association, joint stock
corporation, trust, joint venture or other entity or any
government or any agency or instrumentality or political
subdivision thereof.
1.17 "Prime Rate" shall mean the rate from time to
time publicly announced by CoreStates Bank, N.A., or its
successors and assigns, at its office in Philadelphia,
Pennsylvania, as its prime rate, whether or not such
announced rate is the best rate available at such bank.
1.18 "Records" shall have the meaning set forth in
Section 4 hereof.
<PAGE> 5
1.19 "Specified Liabilities" shall mean all
liabilities for taxes, assessments, royalty payments,
insurance, contractual bonus arrangements, term debt
principal amortization (other than the Term Loan) or
capital expenditures, which are or will be due and
payable by Borrower, which will require a payment of at
least One Hundred Thousand Dollars ($100,000) over the
next twelve (12) month period and which are not
reasonably expected to be funded from third party
sources.
1.20 "Specified Payables" shall mean, at any
specified date, the then outstanding and unpaid trade
payables of Borrower which are more than ten (10) days
past due as of the preceding Business Day except for any
such payables which (i) are identified to Congress
Financial Corporation (Central) and approved for
purposes of exclusion from this definition by Congress
Financial Corporation (Central) as being excluded from
"Specified Payables" (which approval shall not be
unreasonably withheld) and (ii) are either (a) not being
paid because of unresolved disputes with respect
thereto, or (b) not being paid because of agreements
with the obligee of the payable which permit the
deferral of payment.
1.21 "Term Loan" shall have the meaning set forth
in Section 2.1 hereof.
1.22 "Term Loan Financing Agreements" shall mean,
collectively, this Supplemental Term Note, all of the
documents identified in Exhibit "A" hereto and any
agreement, document, instrument or amendment to any of
the foregoing documents at any time hereafter which are
executed and/or delivered by Borrower or any Obligor in
favor of Lender in its capacity as holder of this
Supplemental Term Note.
1.23 "Term Loan Obligations" shall mean the Term
Loan and all other obligations, liabilities and
indebtedness of every kind, nature and description owing
by Borrower to Lender and/or its affiliates pursuant to
any or all of the Term Loan Financing Agreements,
including principal, interest, charges, fees, costs
and expenses, however evidenced, whether as principal,
surety, endorser, guarantor or otherwise, whether now
existing or hereafter arising, whether arising before,
during or after the initial or any renewal term of this
Supplemental Term Note or after the commencement of any
case with respect to Borrower under the United States
Bankruptcy Code or any similar statute (including,
without limitation, the payment of interest and other
amounts which would accrue and become due but for the
commencement of such case), whether direct or indirect,
absolute or contingent, joint or several, due or not
due, primary or secondary, liquidated or unliquidated,
secured or unsecured, and however acquired by Lender.
<PAGE> 6
1.24 "Transfer Documents" shall mean (i) that
certain Supplemental Note Purchase and Assignment
Agreement, dated as of even date herewith by and between
Congress Financial Corporation (Central) and K-H
Corporation (the "Supplemental Note Purchase
Agreement"), and (ii) any assignment of any or all of
the Term Loan Financing Agreements executed in
connection with the Supplemental Note Purchase
Agreement.
1.25 "Transfer Event" shall mean a sale or other
transfer of this Supplemental Term Note by Congress
Financial Corporation (Central) to any third party,
which shall then become a "Lender" hereunder.
SECTION 2. CREDIT FACILITIES
2.1 Term Loan. Subject to, and upon the terms and
conditions contained herein, Lender has on the date
first above set forth made a loan (the "Term Loan") to
Borrower in the principal amount of One Million Dollars
($1,000,000), the proceeds of which have been used to
reduce and refinance an equivalent portion of the
revolving loans heretofore made pursuant to the
Revolving Loan Documents. Upon repayment, the Term
Loan, to the extent of such repayment, may not be
reborrowed.
2.2 Repayment of Term Loan. Except as provided in
Sections 2.3, 2.4 and 8.2 hereof, the then outstanding
principal amount of the Term Loan shall be due and
payable on May 1, 1997.
2.3 Extension of Term Loan. In the event Congress
Financial Corporation (Central) extends the term of the
Loan Agreement, then the term of the Term Loan shall be
automatically extended until the earlier of (a) May 1,
1999, and (b) the extended maturity date of the Loan
Agreement. In the event the term of the Term Loan is so
extended, Borrower shall be obligated to pay the
outstanding principal balance at such extended maturity
date and to make a principal payment to Lender in the
amount of Fifty Thousand Dollars ($50,000), for
application to the Term Loan (each such payment
hereinafter referred to as a "Permitted Principal
Reduction Payment"), on each Permitted Principal
Reduction Payment Date on which each of the following
conditions is met:
(i) the Excess Availability as of the
immediately preceding Permitted Principal Reduction
Assessment Date was at least Two Million, Five Hundred
Thousand Dollars ($2,500,000);
(ii) the most recently delivered Cash Flow
Projections show that, after the making of such
Permitted Principal Reduction Payment, the Borrower will
still be able to maintain an Average Book Availability
of at least Two Million, Five Hundred Thousand Dollars
($2,500,000) for the ninety (90) day period commencing
on the first day following the immediately preceding
Permitted Principal Reduction Assessment Date;
<PAGE> 7
(iii) Borrower had a positive net income for
the ninety (90) day period immediately preceding such
Permitted Principal Reduction Assessment Date, as shown
in the income statement delivered by Borrower pursuant
to section 2.8 of this Supplemental Term Note; and
(iv) the most recently delivered Income
Projections show that Borrower is expected to have a
positive net income for the ninety (90) day period
commencing on the first day following the immediately
preceding Permitted Principal Reduction Assessment Date.
If, on any Permitted Principal Reduction Payment Date,
any of the foregoing conditions has not been satisfied,
such Permitted Principal Reduction Payment shall not
thereafter become payable if such condition is satisfied
subsequent to such Permitted Principal Reduction Payment
Date.
2.4 Accelerated Prepayment. The entire principal
balance of the Term Loan shall be immediately due and
payable (i) prior to the occurrence of a Transfer Event,
on the date that the revolving loan made pursuant to the
Revolving Loan Documents is terminated by Borrower in
accordance with the terms of the Revolving Loan
Documents, or (ii) if a Transfer Event does not
occur on or prior to June 21, 1996.
2.5 Interest
(a) Pre-Default Rate. Borrower shall pay to
Lender interest on the outstanding principal amount of
the Term Loan Obligations at the rate of two and
one-half percent (2.5%) per annum in excess of the Prime
Rate.
(b) Post-Default Rate. Borrower shall pay to
Lender interest on the outstanding principal amount of
the Term Loan Obligations, at Lender's option, without
notice, at a rate equal to two percent (2%) per annum in
excess of the pre-default rate set forth above (i) prior
to the occurrence of a Transfer Event, whenever the
default rate is imposed on Borrower's outstanding
Obligations pursuant to the Revolving Loan Documents, or
(ii) from the date of the occurrence of an Event of
Default hereunder, and for so long as such Event of
Default is continuing as determined by Lender. All
interest accruing hereunder on and after the date of any
Event of Default or termination or non-renewal hereof
shall be payable on demand.
(c) Payment of Interest. Accrued interest
shall be due and payable in arrears no later than the
first day of each month during which any of the Term
Loan Obligations remain outstanding and unpaid.
Interest shall be calculated on the basis of a three
hundred sixty (360) day year and actual days elapsed.
The interest rate shall increase or decrease by an
<PAGE> 8
amount equal to each increase or decrease in the Prime
Rate effective on the first day of the month after any
change in such Prime Rate is announced based on the
Prime Rate in effect on the last day of the month in
which any such change occurs. In no event shall charges
constituting interest payable by Borrower to Lender
exceed the maximum amount or the rate permitted under
any applicable law or regulation, and if any part or
provision of any of the Term Loan Financing Agreements
is in contravention of any such law or regulation, such
part or provision shall be deemed amended to conform
thereto. If any interest payment or any other amount
due and payable under any of the Term Loan Financing
Agreements cannot be paid pursuant to the terms of the
Transfer Documents, then such interest payment or other
amount shall be deemed not to be due and payable under
such Term Loan Financing Agreement until such time as
payment thereof is permitted under the Transfer
Documents, and no Event of Default shall result from
the failure of Borrower or any Obligor to pay such
interest payment or other amount until such time as
permitted under the Transfer Documents. Interest shall
accrue at the applicable rate on any Term Loan
Obligation that cannot be paid pursuant to the preceding
sentence of this Section 2.5(c) from the date on which
such Term Loan Obligation would have first become due
and payable under such Term Loan Financing Agreement but
for this Section 2.5(c) until the date on which such
Term Loan Obligation is actually paid.
2.6 Payments. Borrower shall make all payments to
Lender on the Term Loan Obligations free and clear of,
and without deduction or withholding for or on account
of, any setoff, counterclaim, defense, duties, taxes,
levies, imposts, fees, deductions, withholding,
restrictions or conditions of any kind. If, after
receipt of any payment of, or proceeds applied to the
payment of, any of the Term Loan Obligations, Lender is
required to surrender or return such payment to any
Person for any reason, then the Term Loan Obligations
intended to be satisfied by such payment shall be
reinstated and continue and this Supplemental Term Note
shall continue in full force as if such payment had not
been received by Lender. Borrower shall be liable to
pay to Lender, and does indemnify and hold Lender
harmless for the amount of any payments surrendered or
returned. This Section 2.6 shall remain effective
notwithstanding any contrary action which may be taken
by Lender in reliance upon such payment. This Section
2.6 shall survive the termination or non-renewal of this
Supplemental Term Note.
2.7 Instructions on Loan Disbursement and Use of
Proceeds. Lender is authorized to make the Term Loan
upon the execution hereof and Borrower shall use the
proceeds of the Term Loan only to pay down an equivalent
portion of Borrower's obligations in connection with the
loans extended pursuant to Section 2.1 of the Loan
Agreement.
<PAGE> 9
2.8 Reporting Obligations. Borrower shall deliver
to Lender quarterly, and no fewer than five (5) days
before each Permitted Principal Reduction Assessment
Date, the following (i) the Cash Flow Projections, (ii)
an income statement prepared in accordance with GAAP
reflecting the results of operations for the preceding
ninety (90) day period, and (iii) the Income
Projections.
2.9 Term Loan Subject to Intercreditor Agreement
and Transfer Documents. This Supplemental Term Note and
the other Term Loan Financing Agreements are subject to
the terms of the Intercreditor Agreement and, when
executed, the Transfer Documents.
SECTION 3. ACKNOWLEDGMENT OF SECURITY INTEREST
Borrower acknowledges that, prior to the occurrence
of a Transfer Event, the Term Loan Obligations are
included within the term "Obligations" as such term is
defined in the Revolving Loan Documents, and that the
Term Loan Obligations are therefore secured by the
liens, security interests and other security granted in
the Revolving Loan Documents and the other collateral
documents related thereto. After the occurrence of a
Transfer Event, the Term Loan Obligations shall not be
included within the term "Obligations" as defined in the
Revolving Loan Documents (but shall continue to be
"Congress Obligations" under the Intercreditor
Agreement), and shall not be secured by the liens,
security interests or other security granted in the
Revolving Loan Documents or the other collateral
documents related thereto.
SECTION 4. GRANT OF SECURITY INTEREST
In addition to the security interest acknowledged
in the preceding section, and to further secure payment
and performance of, among other things, all Term Loan
Obligations, Borrower has heretofore granted to Lender a
continuing security interest in, a lien upon, and a
right of set off against, and has heretofore assigned to
Lender as security (all of which shall be applicable to
any Lender holding this Supplemental Term Note), the
following property and interests in property, whether
now owned or hereafter acquired or existing, and
wherever located (collectively, the "Collateral"):
All present and future (a) accounts, contract
rights, general intangibles, chattel paper, documents,
letters of credit and instruments, as such terms are
defined in the Uniform Commercial Code, including,
without limitation, all obligations for the payment of
money arising out of Borrower's sale, lease or other
disposition of goods or other property or rendition of
services (collectively, the "Accounts"); (b) moneys,
securities and other property and the proceeds thereof,
<PAGE> 10
now or hereafter held or received by, or in transit to,
Lender from or for Borrower, whether for safekeeping,
pledge, custody, transmission, collection or otherwise,
and all of Borrower's deposits (general or special),
balances, sums and credits with Lender at any time
existing; (c) all of Borrower's right, title and
interest, and all of Borrower's rights, remedies,
security and liens, in, to and in respect of the
Accounts and other Collateral, including, without
limitation, rights of stoppage in transit, replevin,
repossession and reclamation and other rights and
remedies of an unpaid vendor, lienor or secured party,
guaranties or other contracts of suretyship with respect
to the Accounts, deposits or other security for the
obligation of any debtor or obligor in any way obligated
on or in connection with any Account (an "Account
Debtor"), and credit and other insurance; (d) all of
Borrower's right, title and interest in, to and in
respect of all goods relating to, or which by sale have
resulted in, Accounts, including, without limitation,
all goods described in invoices, documents, contracts or
instruments with respect to, or otherwise representing
or evidencing, any Accounts or other Collateral,
including without limitation, all returned, reclaimed or
repossessed goods; (e) all deposit accounts; (f) all
books, records, ledger cards, computer programs, and
other property and general intangibles evidencing or
relating to the Accounts and any other Collateral or any
Account Debtor, together with the file cabinets or
containers in which the foregoing are stored
(collectively, the "Records"); (g) all other general
intangibles of every kind and description, including
without limitation, trade names and trademarks, and the
goodwill of the business symbolized thereby, patents,
copyrights, licenses and federal, state and local tax
refund claims of all kinds; (h) all of Borrower's
equipment, including, without limitation, machinery,
equipment, office equipment and supplies, computers and
related equipment, furniture, furnishings, tools,
tooling, jigs, dies, fixtures, manufacturing implements,
fork lifts, trucks, trailers, motor vehicles and other
equipment (collectively, the "Equipment"); and (i) all
proceeds of the foregoing, in any form, including,
without limitation, any claims against third parties
for loss or damage to or destruction of any or all of
the foregoing;
and
all of Borrower's inventory, including without
limitation: raw materials, work in process, parts,
components, assemblies, supplies and materials used or
consumed in Borrower's business, finished goods, and all
other inventory of whatever kind or nature, wherever
located, whether now owned or hereafter existing or
acquired by Borrower ("Inventory"), including without
limitation, all wrapping, packaging, advertising,
shipping materials, and all other goods consumed in
Borrower's business, all labels and other devices, names
or marks affixed or to be affixed thereto for purposes
of selling or of identifying the same or the seller or
<PAGE> 11
manufacturer thereof and all of Borrower's right title
and interest therein and thereto; all books, records,
documents, other property and general intangibles at any
time relating to the Inventory; all goods, wares and
merchandise, finished or unfinished, held for sale or
lease or furnished or to be furnished under contracts of
service; all goods returned to or repossessed by
Borrower; and all products and proceeds of the
foregoing, in any form, including, without limitation,
insurance proceeds and any claims against third parties
for loss or damage to or destruction of any or all of
the foregoing.
The Collateral also includes all replacements,
additions, accessions, substitutions, repairs, proceeds
and products relating thereto or therefrom, and all
document ledger sheets and files of Borrower relating
thereto. Proceeds hereunder include (i) whatever is now
or hereafter received by Borrower upon the sale,
exchange, collection or other disposition of any item of
Collateral, whether such proceeds constitute inventory,
accounts, accounts receivable, general intangibles,
instruments, securities, credits, documents, letters of
credit, chattel paper, documents of title, warehouse
receipts, leases, deposit accounts, money, contract
rights, goods or equipment; (ii) any such items which
are now or hereafter acquired by Borrower with any
proceeds of Collateral hereunder; and (iii) any
insurance now or hereafter payable by reason of loss or
damage to any item of Collateral or any proceeds
thereof.
SECTION 5. COLLATERAL COVENANTS
5.1 Inventory Covenants. (a) Borrower shall not
remove any Inventory from the locations referenced in
Section 6.3 hereof, without the prior written consent of
Lender, except for sales of Inventory in the ordinary
course of Borrower's business and except to move
Inventory directly from one location referenced in
Section 6.3 hereof to another such location; (b) upon
Lender's request, Borrower shall, at its expense, no
more than once in any twelve (12) month period, but at
any time or times as Lender may request on or after an
Event of Default, deliver or cause to be delivered to
Lender written reports or appraisals as to the Inventory
in form, scope and methodology acceptable to Lender and
by an appraiser acceptable to Lender, addressed to
Lender or upon which Lender is expressly permitted to
rely; (c) Borrower shall produce, use, store and
maintain the Inventory with all reasonable care and
caution and in accordance with applicable standards of
any insurance and in conformity with applicable laws
(including, but not limited to, the requirements of the
Federal Fair Labor Standards Act of 1938, as amended,
and all rules, regulations and orders related thereto);
(d) Borrower assumes all responsibility and liability
arising from or relating to the production, use, sale or
other disposition of the Inventory; (e) Borrower shall
not sell Inventory to any customer on approval, or
any other basis which entitles the customer to return or
<PAGE> 12
may obligate Borrower to repurchase such Inventory; (f)
Borrower shall keep the Inventory in good and marketable
condition; and (g) Borrower shall not, without prior
written notice to Lender, acquire or accept any
Inventory on consignment or approval. In addition, the
representations and warranties contained in Sections 6.5
and 6.6 of the Accounts Financing Agreement are
incorporated herein by reference.
5.2 Equipment Covenants. (a) Borrower shall, at
its expense, at any time or times as Lender may request
on or after an Event of Default, deliver or cause to be
delivered to Lender written reports or appraisals as to
the Equipment in form, scope and methodology acceptable
to Lender and by an appraiser acceptable to Lender; (b)
Borrower shall keep the Equipment in good order, repair,
running and marketable condition (ordinary wear and tear
excepted); (c) Borrower shall use the Equipment with all
reasonable care and caution and in accordance with
applicable standards of any insurance and in conformity
with all applicable laws; (d) the Equipment is and shall
be used in Borrower's business and not for personal,
family, household or farming use; (e) Borrower shall not
remove any Equipment from the locations referenced in
Section 6.3 hereof, except to the extent necessary to
have any Equipment repaired or maintained in the
ordinary course of the business of Borrower or to move
Equipment directly from one location referenced in
Section 6.3 hereof to another such location and except
for the movement of motor vehicles used by or for the
benefit of Borrower in the ordinary course of business;
(f) the Equipment is now and shall remain personal
property and Borrower shall not permit any of the
Equipment to be or become a part of or affixed to real
property; and (g) Borrower assumes all responsibility
and liability arising from the use of the Equipment.
5.3 Power of Attorney. Borrower hereby
irrevocably designates and appoints Lender (and all
persons designated by Lender) as Borrower's true and
lawful attorney-in-fact, and authorizes Lender, in
Borrower's or Lender's name, to: (a) at any time an
Event of Default or event which with notice or passage
of time or both would constitute an Event of Default
exists (i) demand payment of Accounts; (ii) enforce
payment of Accounts by legal proceedings or otherwise;
(iii) exercise all of Borrower's rights and remedies to
collect any Account or other Collateral; (iv) sell or
assign any Account or other Collateral upon such terms,
for such amount and at such time or times as the Lender
deems advisable; (v) settle, adjust, compromise, extend
or renew an Account; (vi) discharge and release any
Account; (vii) prepare, file and sign Borrower's name on
any proof of claim in bankruptcy or other similar
document against an account debtor; (viii) notify the
post office authorities to change the address for
delivery of Borrower's mail to an address designated by
Lender, and open and dispose of all mail addressed to
<PAGE> 13
Borrower; and (ix) do all acts and things which are
necessary, in Lender's determination, to fulfill
Borrower's obligations under the Term Loan Financing
Agreements and the Collateral Documents and (b) at
any time (i) take control in any manner of any item of
payment of proceeds thereof; (ii) have access to any
lockbox or postal box into which Borrower's mail is
deposited; (iii) endorse Borrower's name upon any items
of payment or proceeds thereof and deposit the same in
Lender's account for application to the Term Loan
Obligations; (iv) endorse Borrower's name upon any
chattel paper, document, instrument, invoice, or similar
document or agreement relating to any Account or any
goods pertaining thereto or any other Collateral; (v)
sign Borrower's name on any verification of Accounts and
notices thereof to account debtors and (vi) execute in
Borrower's name and file any UCC financing statements or
amendments thereto. Borrower hereby releases Lender and
its officers, employees and designees from any
liabilities arising from any act or acts under this
power of attorney and in furtherance thereof, whether of
omission or commission, except as a result of Lender's
own gross negligence or wilful misconduct as determined
pursuant to a final non-appealable order of a court of
competent jurisdiction.
5.4 Right to Cure. Lender may, at its option, (a)
cure any default by Borrower under any agreement with a
third party or pay or bond on appeal any judgment
entered against Borrower, (b) discharge taxes, liens,
security interests or other encumbrances at any time
levied on or existing with respect to the Collateral
and (c) pay any amount, incur any expense or perform any
act which, in Lender's judgment, is necessary or
appropriate to preserve, protect, insure, maintain,
enforce and collect the Collateral and the rights of
Lender with respect thereto. All amounts so expended
shall constitute Term Loan Obligations and shall be
repayable by Borrower on demand. Lender shall be under
no obligation to effect such cure, payment or bonding
and shall not, by doing so, be deemed to have assumed
any obligation or liability of Borrower. Any payment
made or other action taken by Lender under this Section
5.4 shall be without prejudice to any right to assert an
Event of Default hereunder and to proceed accordingly.
5.5 Access to Premises. From time to time as
requested by Lender, at the cost and expense of
Borrower, (a) Lender or its designee shall have complete
access to all of Borrower's premises during normal
business hours and after notice to Borrower, or at any
time and without notice to Borrower if an Event of
Default exists, for the purposes of inspecting,
verifying and auditing the Collateral and all of
Borrower's books and records, including, without
limitation, the Records, and (b) Borrower shall promptly
furnish to Lender such copies of such books and records
or extracts therefrom as Lender may request, and (c)
Lender or its designee may use during normal business
hours such of Borrower's personnel, equipment, supplies
and premises as may be reasonably necessary for the
foregoing, and, if an Event of Default exists, for the
collection of Accounts and realization of other
Collateral.
<PAGE> 14
SECTION 6. REPRESENTATIONS AND WARRANTIES
Borrower hereby represents and warrants to Lender
the following (which shall survive the execution and
delivery of this Supplemental Term Note), the truth and
accuracy of which are a condition to the making of the
Term Loan:
6.1 Corporate Existence, Power and Authority;
Nature of Obligation. Borrower is a corporation duly
organized and in good standing under the laws of its
state of incorporation and is duly qualified as a
foreign corporation and in good standing in all states
or other jurisdictions where the nature and extent of
the business transacted by it or the ownership of assets
makes such qualification necessary, except for those
jurisdictions in which the failure to so qualify would
not have a material adverse effect on Borrower's
financial condition, results of operation or business or
the rights of Lender in or to any of the Collateral.
The execution, delivery and performance of this
Supplemental Term Note and the other Term Loan Financing
Agreements and the transactions contemplated hereunder
and thereunder are all within Borrower's corporate
powers, have been duly authorized and are not in
contravention of law or the terms of Borrower's
certificate of incorporation, by-laws or other
organizational documentation, or the Indenture, any
indenture, agreement or undertaking to which Borrower is
a party or by which Borrower or its property is bound.
The Term Loan Financing Agreements constitute legal,
valid and binding obligations of Borrower enforceable in
accordance with their respective terms. The Term Loan
Obligations incurred by Borrower pursuant to this
Supplemental Term Note and the other Term Loan Financing
Agreements shall constitute "Refinancing Debt," as that
term is defined in the Indenture, and shall also
constitute "Congress Obligations," as that term is
defined in the Intercreditor Agreement.
6.2 Financial Statements and Filings; No Material
Adverse Change. All financial statements relating to
Borrower which have been or may hereafter be delivered
by Borrower to Lender or filed with the Securities and
Exchange Commission are or will be prepared in
accordance with GAAP and fairly present the financial
condition and the results of operation of Borrower as of
the dates and for the periods set forth therein. Except
as disclosed in any interim financial statements
furnished by Borrower to Lender prior to the date of
this Supplemental Term Note, there has been no material
adverse change in the assets, liabilities, properties
and condition, financial or otherwise, of Borrower,
since the date of the most recent audited financial
statements furnished by Borrower to Lender prior to the
date of this Supplemental Term Note.
<PAGE> 15
6.3 Chief Executive Office; Collateral Locations.
The chief executive office of Borrower and Borrower's
Records concerning Accounts are located only at the
address set forth in the Revolving Loan Documents and
its only other places of business and the only other
locations of Collateral, if any, are the addresses set
forth in the Revolving Loan Documents, subject to the
right of Borrower to establish new locations in
accordance with Section 7.2 hereof. The Revolving Loan
Documents correctly identify any of such locations which
are not owned by Borrower and set forth the owners
and/or operators thereof, and to the best of Borrower's
knowledge, the holders of any mortgages on such
locations.
6.4 Status of Liens; Title to Properties. The
security interests and liens granted to Lender in
connection with the execution and delivery of the
Original Term Note constitute valid and, upon the filing
of appropriate financing statements, mortgages and deeds
of trust, perfected liens and security interests in and
upon the Collateral subject only to the liens permitted
under Section 7.8 hereof. In addition, prior to the
occurrence of a Transfer Event, (i) the Term Loan
Obligations are included within the term "Obligations,"
as such term is defined in the Revolving Loan Documents,
and (ii) the Term Loan Obligations are secured by the
liens, security interests and other security granted in
the Revolving Loan Documents and the other collateral
documents related thereto. Borrower has good and
marketable title to all of its properties and assets
subject to no liens, mortgages, pledges, security
interests, encumbrances or changes of any kind, except
those granted to Lender and such others as are
specifically permitted under Section 7.8 hereof.
6.5 Litigation. Except as previously disclosed to
Lender, there are no judgments outstanding against
Borrower, there is no present investigation by any
governmental agency pending, or to the best of
Borrower's knowledge threatened, against or affecting
Borrower, its assets or business and there is no action,
suit, proceeding or claim by any Person pending, or to
the best of Borrower's knowledge threatened, against
Borrower or its assets or goodwill, or against or
affecting any transactions contemplated by the Term Loan
Financing Agreements, which if adversely determined with
respect to it would result in any material adverse
change in the assets, business or prospects of Borrower
or which would impair the ability of Borrower to perform
its obligations hereunder or under any of the other Term
Loan Financing Agreements or the Collateral Documents to
which it is a party, or of Lender to enforce this
Supplemental Term Note or any of the other Term Loan
Financing Agreements or the Collateral Documents or
realize upon the Collateral.
<PAGE> 16
6.6 Compliance with Other Agreements and
Applicable Laws. Borrower is not in default under, or
in violation of any of the terms of, any agreement,
contract, instrument, lease or other commitment to which
it is a party or by which it or any of its assets are
bound. Except as previously disclosed in writing by
Borrower to both Lender and K-H Corporation, Borrower is
in compliance in all material respects with all
applicable provisions of laws, rules, regulations,
licenses, permits, approvals and orders of any foreign,
federal, state or local governmental authority.
6.7 Accuracy and Completeness of Information. All
information furnished by or on behalf of Borrower in
writing to Lender in connection with this Supplemental
Term Note or any of the other Term Loan Financing
Agreements or the Collateral Documents or any
transaction contemplated hereby or thereby is and will
be true and correct in all material respects on the date
as of which such information is dated or certified and
does not omit and will not omit any material fact
necessary in order to make such information not
misleading. No event or circumstance has occurred which
has had or could reasonably be expected to have a
material adverse affect on the business, assets or
prospects of Borrower, which has not been fully and
accurately disclosed to Lender in writing.
6.8 Survival of Warranties; Cumulative. All
representations and warranties contained in this
Supplemental Term Note and the other Term Loan Financing
Agreements shall survive the execution and delivery of
this Supplemental Term Note and the other Term Loan
Financing Agreements, and shall be conclusively presumed
to have been relied on by Lender as of the date of this
Supplemental Term Note regardless of any investigation
made or information possessed by Lender. The
representations and warranties set forth herein shall be
cumulative and in addition to any other representations
or warranties which Borrower shall now or hereafter
give, or cause to be given, to Lender.
SECTION 7. AFFIRMATIVE AND NEGATIVE COVENANTS
7.1 Maintenance of Existence. Borrower shall at
all times preserve, renew and keep in full force and
effect its corporate existence and rights and franchises
with respect thereto and maintain in full force and
effect all permits, licenses, trademarks, tradenames,
approvals, authorizations, leases and contracts
necessary to carry on the business as presently or
proposed to be conducted. Borrower shall give Lender
thirty (30) days' prior written notice of any proposed
change in its corporate name, which notice shall set
forth the new name, and Borrower shall deliver to Lender
a copy of the amendment to the Certificate of
Incorporation of Borrower providing for the name change
certified by the Secretary of State of the jurisdiction
of incorporation of Borrower as soon as it is available.
<PAGE> 17
7.2 New Collateral Locations. Borrower may open
any new location within the continental United States
provided Borrower (a) gives Lender thirty (30) days'
prior written notice of the intended opening of any such
new location and (b) executes and delivers, or causes to
be executed and delivered, to Lender such agreements,
documents, and instruments as Lender may deem reasonably
necessary or desirable to protect its interests in the
Collateral at such location, including, without
limitation, UCC financing statements.
7.3 Compliance with Laws, Regulations, Etc.
Borrower shall at all times comply in all material
respects with all laws, rules, regulations, licenses,
permits, approvals and orders applicable to it and duly
observe all requirements of any federal, state or local
governmental authority.
7.4 Payment of Taxes and Claims. Borrower shall
duly pay and discharge all taxes, assessments,
contributions and governmental charges upon or against
it or its properties or assets, except for taxes the
validity of which are being contested in good faith by
appropriate proceedings diligently pursued and available
to Borrower and with respect to which adequate reserves
have been set aside on its books.
7.5 Insurance. Borrower shall, at all times,
maintain with financially sound and reputable insurers
insurance with respect to the Collateral against loss or
damage and all other insurance of the kinds and in the
amounts customarily insured against or carried by
corporations of established reputation engaged in the
same or similar businesses and similarly situated. Said
policies of insurance shall be satisfactory to Lender as
to form, amount and insurer. Borrower shall furnish
such certificates, policies or endorsements to Lender as
Lender shall require as proof of such insurance, and, if
Borrower fails to do so, Lender is authorized, but not
required, to obtain such insurance at the expense of
Borrower. All policies shall provide for at least
thirty (30) days' prior written notice to Lender of any
cancellation or reduction of coverage and that Lender
may act as attorney for Borrower in obtaining, and at
any time an Event of Default exists, adjusting,
settling, amending and canceling, such insurance.
Borrower shall cause Lender to be named as a loss
payee and an additional insured (but without any
liability for any premiums) under such insurance
policies and Borrower shall obtain non-contributory
lender's loss payable endorsements to all insurance
policies in form and substance satisfactory to Lender.
Such lender's loss payable endorsements shall specify
that the proceeds of such insurance shall be payable to
Lender as its interests may appear and further specify
that Lender shall be paid regardless of any act or
omission by Borrower or any of its affiliates. At its
option, Lender may apply any insurance proceeds received
by Lender at any time to the cost of repairs or
replacement of Collateral and/or to payment of the Term
Loan Obligations, whether or not then due, in any order
and in such manner as Lender may determine or hold such
proceeds as cash collateral for Borrowers' obligations
pursuant to the Term Loan Financing Agreements or the
Collateral Documents.
<PAGE> 18
7.6 Financial Statements and Other Information
(a) Borrower shall keep proper books and
records in which full and true entries shall be made of
all dealings or transactions of or in relation to the
Collateral and the business of Borrower in accordance
with GAAP, and Borrower shall furnish or cause to be
furnished to Lender: (i) within forty-five (45) days
after the end of each fiscal month, monthly unaudited
financial statements (including balance sheets,
statements of income and loss and statements of
shareholders' equity), all in reasonable detail, fairly
presenting the financial position and the results of
Borrower's operations as of the end of such fiscal
month; (ii) within ninety (90) days after the end of
each fiscal year, audited financial statements of
Borrower (including balance sheets, statements of income
and loss, statements of cash flow and statements of
shareholders' equity), and the accompanying notes
thereto, all in reasonable detail, fairly presenting the
financial position and the results of Borrower's
operations as of the end of such fiscal year, together
with the opinion of independent certified public
accountants, which accountants shall be an independent
accounting firm selected by Borrower and reasonably
acceptable to Lender, that such financial statements
have been prepared in accordance with GAAP and present
fairly the results of operations and financial condition
of Borrower for the fiscal year then ended.
(b) Borrower shall promptly notify Lender in
writing of the details of (i) any loss, damage,
investigation, action, suit, proceeding or claim
relating to the Collateral or any other property which
is security for the Term Loan Obligations, or which
would result in any material adverse change in
Borrower's business, properties, assets, goodwill or
condition, financial or otherwise, and (ii) the
occurrence of any Event of Default or event which, with
the passage of time or giving of notice or both, would
constitute an Event of Default.
(c) Borrower shall promptly after the sending
or filing thereof furnish or cause to be furnished to
Lender copies of all reports which Borrower sends to its
stockholders generally and copies of all reports and
registration statements which Borrower files with the
Securities and Exchange Commission, any national
securities exchange or the National Association of
Securities Dealers, Inc.
<PAGE> 19
(d) Borrower shall furnish or cause to be
furnished to Lender such budgets, forecasts, projections
and other information respecting the Collateral and the
business of Borrower as Lender may, from time to time,
reasonably request. Lender is hereby authorized to
deliver a copy of any financial statement or any other
information relating to the business of Borrower to any
court or other government agency or to any participant
or assignee or prospective participant or assignee.
Borrower hereby irrevocably authorizes and directs all
accountants or auditors to deliver to Lender, at
Borrower's expense, copies of the financial statements
of Borrower and any reports or management letters
prepared by such accountants or auditors on behalf of
Borrower and to disclose to Lender such information as
they may have regarding the business of Borrower. Any
documents, schedules, invoices or other papers delivered
to Lender may be destroyed or otherwise disposed of by
Lender one (1) year after the same are delivered to
Lender, except as otherwise designated by Borrower to
Lender in writing.
7.7 Sale of Assets, Consolidation, Merger,
Dissolution, Etc. Borrower shall not, directly or
indirectly, (a) merge into or with or consolidate with
any other Person or permit any other Person to merge
into or with or consolidate with it, except for the
merger of Fruehauf Holdings Corporation into Borrower in
accordance with the terms of that certain letter dated
June 14, 1996 from Borrower to the Holders (as defined
in the Indenture) regarding the Amended and Restated
Consent Solicitation, (b) sell, assign, lease or
transfer to any other Person, abandon or otherwise
dispose of any stock or indebtedness or any of its
assets to any other Person (except as expressly
permitted in the Revolving Loan Documents or the
Indenture), (c) form or acquire any subsidiaries, (d)
wind up, (e) liquidate, (f) dissolve or (g) agree to do
any of the foregoing.
7.8 Encumbrances. Borrower shall not create,
incur, assume or suffer to exist any security interest,
mortgage, pledge, lien or other encumbrance of any
nature whatsoever on any of its assets or properties,
including, without limitation, the Collateral, except as
permitted by the Revolving Loan Documents, the Indenture
or any of the other Term Loan Financing Agreements.
7.9 Dividends and Redemptions. Borrower shall
not, directly or indirectly, declare or pay any
dividends on account of any shares of any class of
capital stock of Borrower now or hereafter outstanding,
or set aside or otherwise deposit or invest any sums for
such purpose, or redeem, retire, defease, purchase or
otherwise acquire any shares of any class of capital
stock (or set aside or otherwise deposit or invest any
sums for such purpose) for any consideration other than
common stock or apply or set apart any sum, or make any
other distribution (by reduction of capital or
otherwise) in respect of any such shares or agree to do
any of the foregoing, except as permitted under the
Revolving Loan Documents.
<PAGE> 20
7.10 Transactions with Affiliates. Borrower shall
not enter into any transaction for the purchase, sale or
exchange of property or the rendering of any service to
or by any affiliate, except in the ordinary course of,
and pursuant to the reasonable requirements of,
Borrower's business and upon fair and reasonable terms
no less favorable to Borrower than Borrower would obtain
in a comparable arm's length transaction with an
unaffiliated person.
7.11 Costs and Expenses. Borrower shall pay to
Lender on demand all costs, expenses, filing fees and
taxes paid or payable in connection with the
preparation, negotiation, execution, delivery,
recording, administration, collection, liquidation,
enforcement and defense of Lender's rights in the
Collateral, the Original Term Note, this Supplemental
Term Note, the other Term Loan Financing Agreements and
all other documents related hereto or thereto, including
any amendments, supplements or consents which may
hereafter be contemplated (whether or not executed) or
entered into in respect hereof or thereto, including,
but not limited to: (a) all costs and expenses of filing
or recording (including Uniform Commercial Code
financing statement filing taxes and fees, documentary
taxes, intangibles taxes and mortgage recording taxes
and fees, if applicable); (b) all title insurance
and other insurance premiums, appraisal fees and search
fees; (c) costs and expenses of preserving and
protecting the Collateral; (d) costs and expenses paid
or incurred in connection with obtaining payment of
Borrower's obligations pursuant to the Term Loan
Financing Agreements and the Collateral Documents,
enforcing the security interests and liens of Lender,
selling or otherwise realizing upon the Collateral, and
otherwise enforcing the provisions of the Term Loan
Financing Agreements and the Collateral Documents or
defending any claims made or threatened against Lender
arising out of the transactions contemplated hereby or
thereby (including, without limitation, preparations
for and consultations concerning any such matters); and
(e) the fees and disbursements of counsel (including
legal assistants) to Lender in connection with any of
the foregoing.
7.12 Further Assurances. At the request of Lender
at any time and from time to time, Borrower shall, at
its expense, duly execute and deliver, or cause to be
duly executed and delivered, such further agreements,
documents and instruments, and do or cause to be done
such further acts as may be necessary or proper to
evidence, perfect, maintain and enforce the security
interests and the priority thereof in the Collateral and
to otherwise effectuate the provisions or purposes of
the Term Loan Financing Agreements and the Collateral
Documents. Lender may at any time and from time to time
request a certificate from an officer of Borrower
remaking, as of the date of such certificate, the
<PAGE> 21
representations and warranties set forth in this
Supplemental Term Note or any of the other Term Loan
Financing Agreements. Where permitted by law, Borrower
hereby authorizes Lender to execute and file one or more
UCC financing statements signed only by Lender.
SECTION 8. EVENTS OF DEFAULT AND REMEDIES
8.1 Events of Default. The occurrence or
existence of any one or more of the following events are
referred to herein individually as an "Event of
Default", and collectively as "Events of Default":
(a) Borrower (i) fails to pay when due any
amount due and owing pursuant to the Term Loan Financing
Agreements or the Collateral Documents, (ii) breaches
any of the terms, covenants, conditions or provisions
contained in any of the Term Loan Financing Agreements
or Collateral Documents and such breach is not cured
within fifteen (15) Business Days after it occurs, or
(iii) prior to the occurrence of a Transfer Event, fails
to pay when due any amount due and owing pursuant to any
of the Revolving Loan Documents or fails to perform any
of the terms, covenants, conditions or provisions
contained in any of the Revolving Loan Documents;
(b) any representation, warranty or statement
of fact made by Borrower to Lender either (i) in the
Term Loan Financing Agreements or the Collateral
Documents or (ii) prior to the occurrence of a Transfer
Event, in any of the Revolving Loan Documents, shall
when made be false or misleading in any material
respect;
(c) any Obligor revokes, terminates or fails
to perform any of the terms, covenants, conditions or
provisions of any guarantee, endorsement or other
agreement of such party in favor of Lender;
(d) Borrower or any Obligor becomes insolvent
(however defined or evidenced), makes an assignment for
the benefit of creditors, makes or sends notice of a
bulk transfer or calls a meeting of its creditors or
principal creditors;
(e) a case or proceeding under the bankruptcy
laws of the United States of America now or hereafter in
effect, or under any insolvency, reorganization,
receivership, readjustment of debt, dissolution or
liquidation law or statute of any jurisdiction now or
hereafter in effect (whether at law or in equity), is
filed against Borrower or any Obligor or all or any part
of its properties and such petition or application is
not dismissed within thirty (30) days after the date of
its filing, or Borrower or any Obligor shall file any
answer admitting or not contesting such petition or
application or shall indicate its consent to,
acquiescence in or approval of, any such action or
proceeding or the relief requested;
<PAGE> 22
(f) a case or proceeding under the bankruptcy
laws of the United States of America now or hereafter in
effect, or under any insolvency, reorganization,
receivership, readjustment of debt, dissolution or
liquidation law or statute of any jurisdiction now or
hereafter in effect (whether at law or equity), is filed
by Borrower or any Obligor or for all or any part of its
property;
(g) prior to the occurrence of a Transfer
Event, there shall have occurred an Event of Default, as
defined in the Loan Agreement, under any of the
Revolving Loan Documents; or
(h) Congress Financial Corporation (Central)
shall have accelerated the obligations of Borrower under
the Revolving Loan Documents.
8.2 Remedies
(a) At any time an Event of Default exists or
has occurred and is continuing, Lender shall have all
rights and remedies provided in (i) the Term Loan
Financing Agreements, (ii) the Collateral Documents,
(iii) the Uniform Commercial Code, (iv) any other
applicable law and (v) prior to the occurrence of a
Transfer Event, the Revolving Loan Documents, all of
which rights and remedies may be exercised without
notice to or consent by Borrower, except as such notice
or consent is expressly provided for hereunder or
required by applicable law. All rights, remedies and
powers granted to Lender hereunder, under any of the
Term Loan Financing Agreements, the Collateral
Documents, the Uniform Commercial Code or other
applicable law, are cumulative, not exclusive, and
enforceable, in Lender's discretion, alternatively,
successively, or concurrently on any one or more
occasions, and shall include, without limitation, the
right to apply to a court of equity for an injunction to
restrain a breach or threatened breach by Borrower of
any of the Term Loan Financing Agreements, Collateral
Documents or any of the Revolving Loan Documents.
Lender may, at any time or times, proceed directly
against Borrower to collect any amount which Borrower is
obligated to pay pursuant to the Term Loan Financing
Agreements or the Collateral Documents without prior
recourse to the Collateral.
(b) Without limiting the foregoing, at any
time an Event of Default exists or has occurred and is
continuing, Lender may, in its discretion and without
limitation (i) accelerate the payment of and demand
immediate payment to Lender of (x) all Term Loan
Obligations (provided, that, upon the occurrence of any
Event of Default described in Sections 8.1(e) and 8.1(f)
<PAGE> 23
hereof, all Term Loan Obligations shall automatically
become immediately due and payable) and, (y) prior to
the occurrence of a Transfer Event, all obligations
arising pursuant to the Revolving Loan Documents, (ii)
with or without judicial process or the aid or
assistance of others, enter upon any premises on or in
which any of the Collateral may be located and take
possession of the Collateral or complete processing,
manufacturing and repair of all or any portion of the
Collateral, (iii) require Borrower, at Borrower's
expense, to assemble and make available to Lender any
part or all of the Collateral at any place and time
designated by Lender, (iv) collect, foreclose, receive,
appropriate, setoff and realize upon any part or all of
the Collateral, (v) remove any or all of the Collateral
from any premises on or in which the same may be located
for the purpose of effecting the sale, foreclosure or
other disposition thereof or for any other purpose, (vi)
sell, lease, transfer, assign, deliver or otherwise
dispose of any and all Collateral (including, without
limitation, entering into contracts with respect
thereto, public or private sales at any exchange,
broker's board, at any office of Lender or elsewhere)
at such prices or terms as Lender may deem reasonable,
for cash, upon credit or for future delivery, with
Lender having the right to purchase the whole or any
part of the Collateral at any such public sale, all of
the foregoing being free from any right or equity of
redemption of Borrower, which right or equity of
redemption is hereby expressly waived and released by
Borrower. If any of the Collateral is sold or leased by
Lender upon credit terms or for future delivery, the
Term Loan Obligations shall not be reduced as a result
thereof until payment therefor is finally collected by
Lender. If notice of disposition of Collateral is
required by law, five (5) days' prior notice by Lender
to Borrower designating the time and place of any public
sale or the time after which any private sale or other
intended disposition of Collateral is to be made, shall
be deemed to be reasonable notice thereof and Borrower
waives any other notice. In the event Lender institutes
an action to recover any Collateral or seeks recovery of
any Collateral by way of prejudgment remedy, Borrower
waives the posting of any bond which might otherwise be
required.
(c) Lender may apply the cash proceeds of
Collateral actually received by Lender from any sale,
lease, foreclosure or other disposition of the
Collateral to payment of the Term Loan Obligations, in
whole or in part and in such order as Lender may elect,
whether or not then due. Borrower shall remain liable
to Lender for the payment of any deficiency with
interest at the highest rate provided for herein and all
costs and expenses of collection or enforcement,
including attorneys' fees and legal expenses.
<PAGE> 24
SECTION 9. JURY TRIAL WAIVER; OTHER WAIVERS
AND CONSENTS; GOVERNING LAW
9.1 Governing Law; Choice of Forum; Service of
Process; Jury Trial Waiver
(a) The validity, interpretation and
enforcement of this Supplemental Term Note and any
dispute arising out of the relationship between the
parties hereto, whether in contract, tort, equity or
otherwise, shall be governed by the internal laws (as
opposed to the conflicts of law provisions) of the State
of New York.
(b) Borrower and Lender irrevocably consent
and submit to the non-exclusive jurisdiction of the
federal and state courts sitting in New York County, New
York and waive any objection based on venue or forum non
conveniens with respect to any action instituted
therein, and agree that any dispute arising out of the
relationship between any such persons or the conduct of
any such persons in connection with this Supplemental
Term Note or otherwise shall be heard only in the courts
described above (except that Lender shall have the right
to bring any action or proceeding against Borrower or
its property in the courts of any other jurisdiction
which Lender deems necessary or appropriate in order to
realize on the Collateral).
(c) Borrower hereby waives personal service
of any and all process upon it and consents that all
such service of process may be made by registered mail
(return receipt requested) directed to its address set
forth on the signature pages hereof and service so made
shall be deemed to be completed five (5) days after the
same shall have been so deposited in the U.S. mails,
or, at Lender's option, by service upon CT Corporation,
whom Borrower irrevocably appoints as its agent for the
purpose of accepting service of process within the State
of New York. In addition, Lender agrees promptly to
forward by registered mail any process so served upon
such agent to Borrower at its address set forth on the
signature pages hereof. Borrower hereby consents to
service of process as aforesaid. Within thirty (30)
days after such service, Borrower shall appear in answer
to such process, failing which Borrower shall be deemed
in default and judgment may be entered by Lender against
Borrower for the amount of the claim and other relief
requested.
(d) BORROWER AND LENDER EACH HEREBY WAIVES
ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION
OR CAUSE OF ACTION (i) ARISING UNDER THIS SUPPLEMENTAL
TERM NOTE OR (ii) IN ANY WAY CONNECTED WITH OR RELATED
OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR
EITHER OF THEM IN RESPECT TO THIS SUPPLEMENTAL TERM NOTE
OR THE TRANSACTIONS RELATED HERETO IN EACH CASE WHETHER
NOW EXISTING OR HEREAFTER ARISING, AND WHETHER IN
CONTRACT, TORT, EQUITY OR OTHERWISE. BORROWER AND
<PAGE> 25
LENDER EACH HEREBY AGREES AND CONSENTS THAT ANY SUCH
CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE
DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT ANY OF
THEM MAY FILE A COPY OF THIS SUPPLEMENTAL TERM NOTE WITH
ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE
PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY
JURY.
(e) Nothing in this Section 9.1 shall affect
the rights of Lender to serve legal process in any other
manner permitted by law or affect the rights of Lender
to bring any action or proceeding against Borrower or
its property in the courts of any other jurisdiction.
(f) Lender shall not have any liability to
Borrower (whether in tort, contract, equity or
otherwise) for losses suffered by Borrower in connection
with, arising out of, or in any way related to the
transactions or relationships contemplated by the Term
Loan Financing Agreements or the Collateral Documents,
or any act, omission or event occurring in connection
therewith, unless it is determined by a final and
non-appealable judgment or court order binding on
Lender, that the losses were the result of acts or
omissions constituting gross negligence or willful
misconduct. In any such litigation, Lender shall be
entitled to the benefit of the rebuttable presumption
that it acted in good faith and with the exercise of
ordinary care in the performance by it of the terms of
the Term Loan Financing Agreements and the Collateral
Documents.
9.2 Waiver of Notices. Borrower hereby expressly
waives demand, presentment, protest and notice of
protest and notice of dishonor with respect to any and
all instruments and commercial paper, included in or
evidencing any of the obligations of Borrower pursuant
to the Term Loan Financing Agreements and the Collateral
Documents, and any and all other demands and notices of
any kind or nature whatsoever with respect to Borrower's
obligations, the Collateral, the Collateral Documents
and the Term Loan Financing Agreements, except such as
are expressly provided for therein. No notice to, or
demand on, Borrower which Lender may elect to give shall
entitle Borrower to any other or further notice or
demand in the same, similar or other circumstances.
9.3 Amendments and Waivers. Neither this
Supplemental Term Note, any of the other Term Loan
Financing Agreements nor any provision hereof or thereof
shall be amended, modified, waived or discharged orally
or by course of conduct, but only by a written agreement
signed by an authorized officer of Lender. Lender shall
not, by any act, delay, omission or otherwise be deemed
to have expressly or impliedly waived any of its rights,
powers and/or remedies unless such waiver shall be in
writing and signed by an authorized officer of Lender.
Any such waiver shall be enforceable only to the extent
specifically set forth therein. A waiver by Lender of
any right, power and/or remedy on any one occasion shall
not be construed as a bar to or waiver of any such
right, power and/or remedy which Lender would otherwise
have on any future occasion, whether similar in kind or
otherwise.
<PAGE> 26
9.4 Waiver of Counterclaims. Borrower waives all
rights to interpose any claims, deductions, setoffs or
counterclaims of any nature (other then compulsory
counterclaims) in any action or proceeding with respect
to this Supplemental Term Note, any of the other Term
Loan Financing Agreements, the Collateral or any matter
arising therefrom or relating hereto or thereto.
9.5 Indemnification. Borrower shall indemnify,
defend and hold Lender and its directors, agents,
employees and counsel harmless from and against any and
all losses, claims, damages, liabilities, deficiencies,
judgments, penalties or expenses imposed on, incurred by
or asserted against any of them in connection with any
litigation, investigation, claim or proceeding commenced
or threatened related to the negotiation, preparation,
execution, delivery, enforcement, performance or
administration of the Term Loan Financing Agreements or
any undertaking or proceeding related to any of the
transactions contemplated thereby or any act, omission
to act, event or transaction related or attendant
thereto, including, without limitation, amounts paid in
settlement, court costs, and the fees and expenses of
counsel. To the extent that the undertaking to
indemnify, pay and hold harmless set forth in this
Section 9.5 may be unenforceable because it violates any
law or public policy, Borrower shall pay the maximum
portion which it is permitted to pay under applicable
law to Lender in satisfaction of indemnified matters
under this Section 9.5. The foregoing indemnity shall
survive the payment of the Term Loan Obligations and the
termination of the Term Loan Financing Agreements. All
of the foregoing costs and expenses shall be part of
Borrower's obligations in connection with the Term Loan
and secured by the Collateral.
SECTION 10. GENERAL PROVISIONS
10.1 Notices. All notices, requests and demands
hereunder shall be in writing and (a) made to Lender at
its address set forth below and to Borrower at its chief
executive office or to such other address as either
party may designate by written notice to the other in
accordance with this provision, and (b) deemed to have
been given or made: if delivered in person, immediately
upon delivery; if by telex, telegram or facsimile
transmission, immediately upon sending and upon
confirmation of receipt; if by nationally recognized
overnight courier service with instructions to deliver
the next Business Day, one (1) Business Day after
sending; and if by certified mail, return receipt
requested, five (5) days after mailing.
<PAGE> 27
10.2 Partial Invalidity. If any provision of this
Supplemental Term Note or any of the other Term Loan
Financing Agreements is held to be invalid or
unenforceable, such invalidity or unenforceability shall
not invalidate this Supplemental Term Note or such other
Term Loan Financing Agreement as a whole, but this
Supplemental Term Note or such other Term Loan Financing
Agreement, as appropriate, shall be construed as though
it did not contain the particular provision held to be
invalid or unenforceable and the rights and obligations
of the parties shall be construed and enforced only
to such extent as shall be permitted by applicable law.
10.3 Successors and Transfers. The Term Loan
Financing Agreements shall be binding upon, and inure to
the benefit of and be enforceable by, Lender, Borrower
and their respective successors and assigns, except that
Borrower may not assign its rights under any of the Term
Loan Financing Agreements without the prior written
consent of Lender. Congress Financial Corporation
(Central) may, after notice to Borrower, assign its
rights and delegate its obligations under the Term Loan
Financing Agreements, and further may assign, or sell
participations in, all or any part of the Term Loan
Financing Agreements or any other interest herein to
another financial institution or other Person, in which
event, the assignee or participant shall have, to the
extent of such assignment or participation, the same
rights and benefits as it would have if it were the
Lender hereunder, except as otherwise provided herein or
by the terms of such assignment or participation.
Following the occurrence of a Transfer Event, (i) the
rights, remedies, and obligations of the parties
provided in this Supplemental Term Note and the other
Term Loan Financing Agreements may be subject to the
terms of an intercreditor agreement executed by Congress
Financial Corporation (Central) and any assignee,
transferee or purchaser of Lender's interest in, and
obligations under and pursuant to, this Supplemental
Term Note and (ii) Lender may, after notice to Borrower,
assign its rights and delegate its obligations under
the Term Loan Financing Agreements in their entirety,
but not in part, to another financial institution or
other Person. Upon any such assignment and delegation,
the assigning and delegating lender shall, to the extent
of such assignment and delegation, without the need for
any further action, be released from its obligations
hereunder.
10.4 Entire Agreement. This Supplemental Term
Note, together with the Collateral Documents, the other
Term Loan Financing Agreements and any supplements
hereto or thereto, and any instruments or documents
delivered or to be delivered in connection herewith or
therewith, represents the entire agreement and
understanding concerning the subject matter hereof and
thereof between the parties hereto, and supersedes all
other prior agreements, understandings, negotiations and
discussions, representations, warranties, commitments,
proposals, offers and contracts concerning the subject
matter hereof, whether oral or written.
[Signature page follows]
<PAGE>
<PAGE> S-1
IN WITNESS WHEREOF, Borrower has caused these
presents to be duly executed and delivered as of the day
and year first above written.
BORROWER
FRUEHAUF TRAILER CORPORATION
By:/s/ Timothy J. Wiggins
-----------------------
Title:Executive Vice President and
Chief Financial Officer
CHIEF EXECUTIVE OFFICE:
111 Monument Circle
Suite 3200
Indianapolis, Indiana 46204
Accepted and Agreed:
CONGRESS FINANCIAL CORPORATION
(CENTRAL)
By:/s/ Thomas C. Lannon
----------------------
Title:Vice President
-------------------
Address:
100 South Wacker Drive, Suite 1940
Chicago, Illinois 60606
<PAGE>
<PAGE> A-1
EXHIBIT A
Additional Term Loan Financing Agreements
1. Supplemental Note Purchase and Assignment
Agreement by and between Congress and K-H Corporation
("K-H") and accepted by Fruehauf
2. Multi-Party Subordination Agreement by and
among Lender, K-H Corporation and IBJS, as Trustee and
Collateral Agent
3. Subordination Agreement by and between
Congress and K-H and acknowledged by Fruehauf and its
subsidiaries
MULTI-PARTY SUBORDINATION AGREEMENT
THIS MULTI-PARTY SUBORDINATION AGREEMENT
("Agreement") is made and entered into as of June 21,
1996 by and between the undersigned, K-H Corporation
(together with its successors and assignees, "K-H"), IBJ
Schroder Bank & Trust Company ("IBJS"), solely in the
capacities described below, and Congress Financial
Corporation (Central) (together with its successors and
assignees, "Congress"). IBJS is entering into this
Agreement not in its individual capacity but solely in
its capacity as (i) Trustee (as defined in the Indenture
hereinafter referred to) under the Indenture dated as of
May 1, 1995, between Fruehauf Trailer Corporation
("Fruehauf") and IBJS, as such Trustee, as amended by
that certain First Supplemental Indenture dated as of
June 21, 1996 (collectively, as so amended and as it may
be further amended, supplemented, amended and restated
or otherwise modified from time to time, the
"Indenture") by and between Fruehauf and IBJS, as
Trustee and as Collateral Agent (as defined in the
Indenture), and (ii) Collateral Agent, and, in such
capacities, on behalf of the Holders (as defined in the
Indenture). K-H enters into this Agreement as the
holder of both (i) the Senior K-H Obligations (as
defined herein) and (ii) the Subordinated Debt (as
defined herein).
Capitalized terms used herein which are not
defined herein are used herein as such terms are defined
in (i) that certain Accounts Financing Agreement
[Security Agreement] (the "Accounts Financing
Agreement"), that certain Inventory and Equipment
Security Agreement Supplement to Accounts Financing
Agreement [Security Agreement] (the "Inventory and
Equipment Supplement"), that certain Rider No. 1 to
Accounts Financing Agreement [Security Agreement] and
Inventory and Equipment Security Agreement Supplement to
Accounts Financing Agreement [Security Agreement] (the
"Rider") and that certain letter regarding Inventory
Loans, each dated as of August 20, 1993, each
as amended by that certain First Amendment to Accounts
Financing Agreement [Security Agreement] entered into as
of April 4, 1994 by and between Borrower and Congress,
that certain Second Amendment to Accounts Financing
Agreement [Security Agreement] and Waiver entered into
as of April 12, 1994 by and between Borrower and
Congress, that certain Third Amendment to Accounts
Financing Agreement [Security Agreement] entered into as
of May 1, 1995 by and between Borrower and Congress,
that certain Fourth Amendment to Accounts Financing
Agreement [Security Agreement] entered into as of April
19, 1996 (the "Fourth Amendment") by and between
Borrower and Congress and that certain Fifth Amendment
to Accounts Financing Agreement [Security Agreement]
entered into as of June 21, 1996 (the "Fifth Amendment")
by and between Borrower and Congress (collectively,
as hereinafter amended, restated or otherwise modified
from time to time, the "Loan Agreement"), and (ii) that
certain First Amended and Restated Intercreditor
Agreement, dated as of May 1, 1995, as amended by that
certain Amendment No. 1 to First Amended and Restated
Intercreditor Agreement, dated as of June 21, 1996
<PAGE> 2
(collectively, as hereinafter amended, restated or
otherwise modified from time to time, the "Intercreditor
Agreement") by and among Congress, the Trustee and the
Collateral Agent and acknowledged and accepted by
Borrower. To the extent that both the Loan Agreement
and the Intercreditor Agreement contain capitalized
terms used herein that are not defined herein, the
definitions of capitalized terms in the Loan Agreement
shall be used herein.
WITNESSETH:
WHEREAS, Borrower is indebted to Congress as a
result of loans made or to be made by Congress to
Borrower pursuant to the Loan Agreement and other loan
and security documents relating thereto;
WHEREAS, Borrower is indebted to the Indenture
Persons with respect to the Noteholder Debt;
WHEREAS, Congress and IBJS, as Trustee and
Collateral Agent, and certain Existing Lenders are
parties to the Intercreditor Agreement;
WHEREAS, pursuant to that certain Note Purchase
and Assignment Agreement dated as of April 19, 1996 and
that certain Supplemental Note Purchase and Assignment
Agreement dated as of June 21, 1996 between Congress and
K-H (collectively "Assignment Agreements"), Congress has
assigned to K-H all of its right, title and interest to
(i) that certain Working Capital Term Note dated as of
April 19, 1996 in the total principal amount of Five
Million Five Hundred Thousand Dollars ($5,500,000) and
that certain Supplemental Working Capital Term Note
dated as of June 21, 1996 in the total principal amount
of One Million Dollars ($1,000,000) (collectively, as
the same may from time to time be amended, restated,
supplemented or otherwise modified, the "Term Notes"),
(ii) the other Assigned Documents (as defined in the
Assignment Agreements) and (iii) the Intercreditor
Agreement to the extent that Congress' interest in the
Intercreditor Agreement relates to the Term Notes;
WHEREAS, pursuant to that certain Subordinated
Revolving Note ("Subordinated Revolving Note") dated as
of June 21, 1996 made by Borrower in favor K-H, K-H may
make additional loans to Borrower; and
WHEREAS, the parties hereto wish to better
establish the relationship between and among them;
<PAGE> 3
AGREEMENT
NOW, THEREFORE, for good and valuable
consideration, the receipt and sufficiency of which are
hereby acknowledged by all of the parties hereto, each
of those parties hereby agrees as follows:
As used herein the following terms shall have
the meanings set forth below:
"Affiliate" shall mean, with respect to any
Person, any other Person directly or indirectly
controlling or controlled by or under direct or indirect
common control with such Person.
"Bankruptcy Code" shall mean Title 11 of the
United States Code (11 U.S.C. Section 101 et. seq.) or any
replacement or supplemental federal statute dealing with
the bankruptcy of debtors.
"Borrower" shall mean Fruehauf and any
successor or assign of Fruehauf, including, without
limitation, a receiver, trustee or debtor-in-possession
of or for Fruehauf.
"Collateral" shall mean all Property or
interests in Property of Borrower or any Subsidiary now
or hereafter securing all or any portion of the Senior
Obligations or the Subordinated Debt and all Proceeds of
such Property or interests in such Property.
"Congress Loan Documents" shall mean the Loan
Agreement and all documents, instruments, guaranties,
notes, security agreements, mortgages, deeds of trust
and other agreements executed in connection therewith or
delivered pursuant thereto, in each case as the same may
be amended, supplemented, amended and restated or
otherwise modified from time to time; provided
that the term Congress Loan Documents shall not include
any K-H Loan Documents, K-H Subordinated Loan Documents,
or Noteholder Documents, other than the Intercreditor
Agreement.
"Enforcement Blockage Condition" shall mean any
of the events, conditions or circumstances set forth in
clauses (i), (ii), (iv) or (v) of the first sentence of
Section 2 hereof.
"Indebtedness" shall mean, with respect to any
Person, (a) all indebtedness of such Person for borrowed
money or for the deferred purchase price of Property or
services (other than trade liabilities incurred in the
ordinary course of business and payable in accordance
with customary practices) or which is evidenced by a
note, bond, debenture or similar instrument, (b) all
capitalized lease obligations of such Person, (c) all
obligations of such Person in respect of letters of
credit, banker's acceptances or similar obligations
<PAGE> 4
issued or created for the account of such Person, (d)
liabilities of such Person in respect of foreign
currency hedging arrangements and in respect of interest
rate protection or hedging arrangements entered into
by such Person to fix the floating interest rate or
float the fixed interest rate of any indebtedness or
obligations, (e) all guaranties and other obligations of
any kind of such Person with respect to Indebtedness and
obligations of other Persons of the type described in
this definition and (f) all liabilities secured by any
Lien on any Property owned by such Person even though
such Person has not assumed or otherwise become liable
for the payment thereof.
"Indenture Persons" shall mean the Secured
Parties (as defined in the Indenture).
"K-H Loan Documents" shall mean (i) all of the
Assigned Documents (as such term is defined in the
Assignment Agreements); (ii) the Term Notes; (iii) the
Intercreditor Agreement to the extent that Congress'
interest in the Intercreditor Agreement relates to the
Term Notes; (iv) that certain Subordination Agreement
("Subordination Agreement") dated as of April 25, 1996
by and between K-H and Congress; and (v) all other
documents, instruments, guaranties, notes, security
agreements, mortgages, deeds of trust and other
agreements executed after the date hereof in favor of
K-H as holder of the Term Notes, in each case as the
same may be amended, supplemented, amended and restated
or otherwise modified from time to time.
"K-H Subordinated Loan Documents" shall mean
(i) the Subordinated Revolving Note and (ii) except for
the K-H Loan Documents, any other documents,
instruments, guaranties, notes, security agreements,
mortgages, deeds of trust and other agreements executed
by Borrower in favor of K-H as the holder of the
Subordinated Debt, in each case as the same may be
amended, supplemented, amended and restated or otherwise
modified from time to time in accordance with the terms
hereof.
"Lien" shall mean any mortgage, pledge,
security interest, lien, encumbrance or other charge of
any kind in respect of any Property or interest therein
and shall include any Liens (as defined in the
Indenture).
"Noteholder Documents" shall mean the
Noteholder Documents (as defined in the Intercreditor
Agreement) and the Documents (as defined in the
Indenture).
"Outer Standstill Date" shall mean the earlier
of (i) the date on which the Senior Obligations are Paid
in Full and completely performed and all financing
arrangements under the Congress Loan Documents with
respect to the Senior Obligations have expired or been
terminated and (ii) the later of (A) the final maturity
date of the indebtedness under the K-H Subordinated Loan
<PAGE> 5
Documents and (B) if any Event of Default under the
Congress Loan Documents has occurred and is continuing
as of such maturity date, the thirtieth day after the
earliest date on which any such Event of Default first
occurred or the date on which such Event of Default is
cured or waived in writing if earlier than such
thirtieth day.
"Paid in Full" or "Payment in Full" means, with
respect to the Senior Obligations as of a particular
date, the payment in full in cash on such date of all
Senior Obligations then due and payable (including,
without limitation, the outstanding principal
amount of all Senior Obligations, and all accrued
interest, fees, indemnities and other amounts then due
and payable under the Senior Creditor Loan Documents)
plus a cash collateral reserve equal to 110% of the
aggregate amount of all contingent Senior Obligations
(including, without limitation, all Letter of Credit
Accommodations) as reasonably estimated by the
applicable Senior Creditor.
"Permitted Payments" shall mean (i) any
regularly scheduled payments of interest by Borrower to
K-H on or after the due date thereof and only to the
extent and in the amounts expressly provided in the K-H
Subordinated Loan Documents (as in effect on the date
hereof or as hereafter amended with the prior written
consent of Congress and the Trustee), and (ii) regularly
scheduled payment of principal on or after the date on
which the Senior Noteholder Obligations have been Paid
in Full and only to the extent and in the amounts
expressly provided in the K-H Subordinated Loan
Documents (as in effect on the date hereof or
as hereafter amended with the prior written consent
Congress and IBJS, as Trustee). Permitted Payments may
only be made to K-H to the extent expressly provided in
Section 2 of this Agreement.
"Person" shall mean an individual, partnership,
corporation, company, association, trust or
unincorporated organization, and a government or agency
or political subdivision thereof.
"Proceeds" shall mean and include all
"proceeds" as such term is defined in the UCC, whether
now existing or hereafter acquired, or acquired before
or after the commencement of any bankruptcy case.
"Property" shall mean any interest in any kind
of property or asset, whether real, personal or mixed,
or tangible or intangible.
"Protective Advances" shall mean (i) all
advances, costs, expenses and attorneys' and other
professionals' fees, whensoever made, advanced or
incurred by Congress or any Indenture Person in
connection with the Senior Obligations (including,
without limitation, all insurance-related, storage,
<PAGE> 6
maintenance and other payments respecting any Collateral
which Borrower or any Subsidiary is required to make
under any of the Congress Loan Documents or Noteholder
Documents); (ii) costs, expenses, attorneys' and other
professionals' fees and expenses and all other amounts
for which Borrower or any Subsidiary is obligated to
reimburse Congress or any Indenture Person under any
of the Congress Loan Documents or Noteholder Documents;
(iii) advances, costs, expenses, attorneys' and other
professionals' fees and expenses and other amounts which
are advanced or incurred by Congress or any Indenture
Person in connection with any liquidation or disposition
of any Collateral by Borrower or any Subsidiary; (iv)
all advances, costs, expenses, attorneys' and other
professionals' fees and expenses and other amounts which
are advanced or incurred by Congress or any Indenture
Person in respect of any environmental laws and as
to which Congress or any Indenture Person is entitled to
be reimbursed or indemnified pursuant to any of the
Congress Loan Documents or Noteholder Documents; (v) all
advances made by Congress or any Indenture Person, in
its sole discretion, for payment of any federal excise
taxes or sales taxes owing by Borrower or any
Subsidiary; (vi) all advances made by Congress,
in its sole discretion, for payment of accrued and
unpaid wages, salaries, commissions, vacation, sick
leave or other fringe benefits (including payroll taxes
with respect thereto) to employees of the Borrower or
any Subsidiary as of the date on which Congress
terminates the Loan Agreement; and (vii) all
advances made by Congress, in its sole discretion, for
payment of any liabilities or obligations of Borrower or
any Subsidiary as to which Congress or any officers or
directors of Borrower or any Subsidiary could be
assessed personal liability if such liabilities or
obligations are not otherwise satisfied or discharged.
"Senior Congress Obligations" shall mean any
and all obligations, liabilities and indebtedness of
every kind, nature and description owing by Borrower or
any Subsidiary to Congress and/or its Affiliates,
including principal, interest, charges, fees,
indemnities, costs and expenses, however evidenced,
whether as principal, surety, endorser, guarantor or
otherwise, arising under the Congress Loan Documents,
whether now existing or hereafter arising, whether
arising before, during or after the initial or any
renewal term of the Congress Loan Documents or
after the commencement of any bankruptcy case,
including, without limitation, (i) the payment of
post-petition interest, costs of enforcement or
preservation or protection of any Collateral
(including attorneys' fees and expenses), and any and
all other amounts which would accrue and become due but
for the commencement of any bankruptcy case or the
operation of any provision (including Section 506(b)) of
or doctrine with respect to the Bankruptcy Code, even if
such post-petition amounts are disallowed in any
bankruptcy case, (ii) any and all Protective Advances
made by Congress, and (iii) advances made to or claims
<PAGE> 7
against Borrower or any Subsidiary pursuant to or with
respect to any cash collateral usage, financing or
extension of credit provided to Borrower or any
Subsidiary by Congress pursuant to Sections 363 or 364
of the Bankruptcy Code), in the case of each of the
foregoing clauses whether direct or indirect, absolute
or contingent, joint or several, due or not due, primary
or secondary, liquidated or unliquidated, secured or
unsecured, and however acquired by Congress; provided
however, that Senior Congress Obligations shall not
include any Subordinated Debt.
"Senior Creditors" shall mean, collectively,
Congress, the Indenture Persons, and, only to the extent
that K-H maintains Senior K-H Obligations, K-H, and
"Senior Creditor" shall mean, individually, one of the
Senior Creditors.
"Senior Creditor Loan Documents" shall mean,
collectively, the Congress Loan Documents, the K-H Loan
Documents, and the Noteholder Documents.
"Senior K-H Obligations" shall mean
obligations, liabilities and indebtedness of every kind,
<PAGE> 8
nature and description owing by Borrower or any
Subsidiary to K-H pursuant to the Assignment Agreements,
including principal, interest, charges, fees,
indemnities, costs and expenses, however evidenced,
whether as principal, surety, endorser, guarantor or
otherwise, arising under the K-H Loan Documents;
provided however, that Senior K-H Obligations shall not
include any Subordinated Debt or any obligations,
liabilities or indebtedness of any kind, nature or
description owing by Borrower or any Subsidiary to K-H
pursuant to the K-H Subordinated Loan
Documents.
"Senior Noteholder Obligations" shall mean all
Indenture Obligations (as defined in the Indenture), all
Noteholder Debt, all Protective Advances made by any
Indenture Person and any other obligations, liabilities
and indebtedness of every kind, nature and description
owing by Borrower or any Subsidiary to any Indenture
Person, including principal, interest, charges, fees,
indemnities, costs and expenses, however evidenced,
whether as principal, surety, endorser, guarantor or
otherwise, arising under or in connection with any of
the Noteholder Documents whether now existing or
hereafter arising and whether arising before, during or
after the commencement of a bankruptcy case; provided
however, that Senior Noteholder Obligations shall not
include any Subordinated Debt.
"Senior Obligations" shall mean collectively
the Senior Congress Obligations, the Senior K-H
Obligations and the Senior Noteholder Obligations.
"Subordinated Debt" shall mean any and all
obligations, liabilities and indebtedness of every kind,
nature and description, other than obligations,
liabilities and indebtedness arising pursuant to the K-H
Loan Documents, owing by Borrower or any Subsidiary to
K-H pursuant to the K-H Subordinated Loan Documents
including principal, interest, charges, fees,
indemnities, costs and expenses, however evidenced,
thereon whether as principal, surety, endorser,
guarantor or otherwise, whether now existing or
hereafter arising, whether arising before, during or
after the initial or any renewal term of the K-H
Subordinated Loan Documents or after the commencement of
any bankruptcy case.
"Subsequent Triggering Notice" shall mean any
Triggering Notice delivered after the first Triggering
Notice delivered pursuant to this Agreement.
"Subsidiary" shall mean any corporation,
partnership or other entity as to which Borrower shall
at the time, directly or indirectly though a subsidiary
or other Affiliate, (i) have sufficient voting power to
entitle it to elect immediately or to have had elected a
majority of the board of directors or similar governing
body of such corporation, partnership or other entity,
or (ii) own 50% or more of the equity interests issued
by such corporation, partnership or other entity.
"Triggering Notice" shall mean a written notice
from any Senior Creditor, other than K-H, to K-H stating
that (a) an Event of Default under and as defined in
such Senior Creditor's Senior Creditor Loan Documents
has occurred and is continuing and (b) if such Senior
Creditor is Congress, either (i) such Senior Creditor
intends to accelerate or demand payment of its Senior
Obligations, and/or foreclose its security interests in
or repossess any Collateral, and/or commence an orderly
liquidation of any substantial portion of the Collateral
or (ii) the Borrower intends to commence or has
commenced an orderly liquidation of any substantial
portion of the Collateral.
"UCC" shall mean the Uniform Commercial Code as
in effect in the State of New York from time to time.
1. Standby; Subordination; Subrogation. The
payment and performance of the Subordinated Debt
(whether now existing or hereafter arising and whether
arising before or after the Borrower or any Subsidiary
or the Borrower's or any Subsidiary's estate becomes the
subject of proceedings under the Bankruptcy Code) is
hereby subordinated to the Senior Obligations and,
except as provided in Section 2 or 3 hereof, K-H will
not ask, demand, accelerate, sue for, take or receive
from Borrower or any Subsidiary by setoff or in any
other manner, or otherwise exercise any rights or
remedies in respect of, the whole or any part of the
Subordinated Debt which may now or hereafter be owing
by Borrower or any Subsidiary and will not take any
negotiable instruments evidencing such amounts, nor,
except as expressly granted by the K-H Subordinated Loan
<PAGE> 9
Documents, any security (including guaranties and third
party credit support) for any of the foregoing, unless
and until all such Senior Obligations (whether now
existing or hereafter arising and whether arising
before or after the Borrower or any Subsidiary or the
Borrower's or any Subsidiary's estate becomes the
subject of proceedings under the Bankruptcy Code or
whether such Senior Obligations are acquired outright,
conditionally or as collateral security from another by
any Senior Creditor), shall have been Paid in Full and
completely performed and all financing arrangements
under the Senior Creditor Loan Documents with respect to
the Senior Obligations have expired or been terminated.
Notwithstanding the date, manner or order of attachment
or perfection of any such Lien or any provisions of the
UCC or any other applicable law or judicial decision or
any Senior Creditor Loan Documents or the K-H
Subordinated Loan Documents, and regardless of whether
any Senior Creditor or K-H holds possession of any or
all of the Collateral, and regardless of any invalidity,
unenforceability or lack of perfection of any of the
Senior Obligations or any of the Subordinated Debt or
any of the Liens securing same, all Liens, rights and
interests of or in favor of K-H securing any of the
Subordinated Debt, whether now or hereafter howsoever
existing, in any Property of Borrower or any Subsidiary
or the Proceeds thereof or any other Property securing
any of the Senior Obligations or any of the Subordinated
Debt, shall be and hereby are subordinated to the Liens,
rights and interests of the Senior Creditors in such
Property. K-H shall have no right to possession of any
such Property or to foreclose or otherwise realize upon
or exercise any rights or remedies in respect of any
such Property, whether by judicial action or otherwise,
with respect to the Subordinated Debt, unless and until
all of the Senior Obligations shall have been Paid in
Full and completely performed and all financing
arrangements under the Senior Creditor Loan Documents
with respect to the Senior Obligations have expired or
been terminated. K-H also hereby agrees that,
regardless of whether any of the Senior Obligations are
secured or unsecured, except with respect to Permitted
Payments, the Senior Creditors shall be subrogated for
K-H with respect to K-H's claims against Borrower or any
Subsidiary under the K-H Subordinated Loan Documents and
K-H's rights, liens and security interests, if any, in
any of the Property of Borrower or any Subsidiary or any
of the Proceeds thereof to secure the Subordinated Debt
until all of the Senior Obligations have been Paid in
Full and completely performed and all financing
arrangements under the Senior Creditor Loan Documents
with respect to the Senior Obligations have expired or
been terminated. In the event, in connection with the
disposition of any Collateral which secures any or all
of the Senior Obligations and the Subordinated Debt,
each Senior Creditor, other than K-H, releases any of
its Liens on such Collateral, K-H shall thereupon
execute and deliver to each such Senior Creditor (or if
such Senior Creditor so requests, to Borrower or the
<PAGE> 10
applicable Subsidiary) such termination statements and
releases as such Senior Creditor shall reasonably
request to release K-H's Lien against such Property.
K-H acknowledges and agrees that, to the extent the
terms and provisions of this Agreement are inconsistent
with the K-H Subordinated Loan Documents, the K-H
Subordinated Loan Documents shall be deemed to be
subject to this Agreement. All aspects of this Section
1 shall remain in effect for all purposes should
Borrower or any Subsidiary or the Borrower's estate or
any Subsidiary's estate become the subject of
proceedings under the Bankruptcy Code.
2. Permitted Payments. Notwithstanding the
provisions of Section 1 of this Agreement, unless (i) an
Event of Default under Section 8.1(a)(i) or 8.1(d) of
the Accounts Financing Agreement (in the case of any
Event of Default under Section 8.1(d) thereof, only to
the extent such Event of Default relates to the
Borrower) has occurred and has not been cured or
waived by Congress in writing (regardless of whether a
Triggering Notice is then in effect), (ii) a Triggering
Notice has been delivered to K-H and is then in effect,
(iii) a Default or Event of Default under the Congress
Loan Documents or an Advance in excess of the amounts
otherwise available to Borrower under the Loan Agreement
would result therefrom, (iv) an Event of Default has
occurred under (and as defined in) any of the Noteholder
Documents and has not been cured or waived in writing or
would occur after giving effect to such Permitted
Payment, or (v) K-H has breached any provision of this
Agreement in any material respect and such breach has
not been cured or waived by each of the Senior Creditors
in writing, Borrower may make any Permitted Payment to
K-H. Any Triggering Notice shall be effective from
the date delivered until (i) each Event of Default (as
defined in any Senior Creditor Loan Document) on which
such Triggering Notice is based has been cured or waived
in writing by the Senior Creditor delivering such notice
and no other Default or Event of Default (as defined in
any Senior Creditor Loan Document) has occurred and is
then continuing or (ii) one hundred and thirty-five days
shall have elapsed after the delivery of such
Triggering Notice, and either (A) none of the Senior
Creditors has accelerated any of the Senior Obligations
or commenced the orderly liquidation of a substantial
portion of the Collateral or otherwise commenced in any
material respect the exercise of any of such Senior
Creditor's rights and remedies under the respective
Senior Creditor Loan Documents to obtain repayment of
the Senior Obligations or (B) the Borrower has not
commenced the orderly liquidation of a substantial
portion of the Collateral; provided however, that if any
Event of Default (as defined in any Senior Creditor Loan
Document) on which such Triggering Notice is based
occurred during the pendency of any prior Triggering
Notice and was relied on by any Senior Creditor (either
as a matured Event of Default or an unmatured Default)
to extend the effectiveness of any such prior Triggering
Notice, then the aforesaid 135 day period shall commence
<PAGE> 11
from the earliest date on which such Senior Creditor
first relied on any such Event of Default (either as a
matured Event of Default (as defined in any Senior
Creditor Loan Document) or an unmatured Default (as
defined in any Senior Creditor Loan Document)) in
extending the effectiveness of any such prior Triggering
Notice. Notwithstanding anything to the contrary in
this Agreement, the Senior Creditor's right to deliver a
Triggering Notice shall be subject to the following
limitations:
(i) no Triggering Notice may be based on
any Event of Default (as defined in any Senior Creditor
Loan Document) which occurred before the date of
delivery of any prior Triggering Notice and of which
such Senior Creditor then had actual knowledge;
(ii) no Event of Default under Section
8.1(e) of the Accounts Financing Agreement may serve as
the basis for a Triggering Notice unless (A) in the case
of the first Triggering Notice which is based on an
Event of Default under Section 8.1(e) of the Accounts
Financing Agreement, such Event of Default consists of a
material adverse change in Borrower's business, assets
or condition (financial or otherwise) from the date of
the Fifth Amendment, and (B) in the case of any
Subsequent Triggering Notice delivered by Congress, such
Event of Default is based on events or other
circumstances occurring after the delivery of the
immediately preceding Triggering Notice which is based
on an Event of Default under Section 8.1(e) of the
Accounts Financing Agreement and such Event of Default
consists of a material adverse change in Borrower's
business, assets or condition (financial or otherwise)
which has occurred since the date of such prior
Triggering Notice;
(iii) no Event of Default under Section
8.1(f) of the Accounts Financing Agreement may serve as
the basis for any Subsequent Triggering Notice unless
it is based on events or other circumstances occurring
after the delivery of the immediately preceding
Triggering Notice; and
(iv) Congress shall not, at any time, be
entitled to deliver any Triggering Notice as a result
of any event or circumstance which, pursuant to the
terms of the Fifth Amendment, Congress is, at such time,
refraining from exercising rights or remedies it may
have as a result of such event or circumstance.
<PAGE> 12
Solely for the purposes of this Section and not for any
other purpose, any failure of any Senior Creditor to
waive any Default or Event of Default (as both are
defined in any Senior Creditor Loan Document) shall not
preclude a determination that such Default or Event of
Default has been cured.
3. Enforcement Rights. Except with the prior
written consent of each of the Senior Creditors or as
specifically provided in subsections (a) and (b) below,
K-H shall not, and shall not be entitled to, exercise
(and, if applicable, shall discontinue any exercise of)
any right or remedy in respect of the Subordinated Debt
or enforce or otherwise realize on any Lien on any
Property of the Borrower or any Subsidiary or any other
Property securing any portion of the Subordinated Debt
or otherwise take any action against Borrower or any
Subsidiary or any Property of Borrower or any Subsidiary
or any other Property securing any portion of the
Subordinated Debt, in each case with respect to its
rights and remedies under the K-H Subordinated Loan
Documents.
Notwithstanding the foregoing provisions of
this Section 3:
(a) If the Senior Obligations of all Senior
Creditors, other than K-H, have been accelerated by such
Senior Creditors and remain due and payable, K-H may
exercise any right under the K-H Subordinated Loan
Documents (as in effect on the date hereof or as
hereafter amended with the prior written consent of the
Senior Creditors in accordance with the terms hereof) to
accelerate the Subordinated Debt.
(b) In the event any Senior Creditor, other
than K-H, commences any judicial proceedings in
connection with the exercise of its rights and remedies
under the Senior Creditor Loan Documents, K-H may
intervene in such proceedings to the extent permitted by
applicable law and the K-H Subordinated Loan Documents
(as in effect on the date hereof or as hereafter
amended with the prior written consent of the Senior
Creditors in accordance with the terms hereof); provided
however, that (i) K-H shall not, directly or indirectly,
in such proceedings or otherwise (A) oppose or otherwise
dispute any Senior Creditor's right to exercise in good
faith such rights or remedies through such proceedings
or any Senior Creditor's, other than K-H's, right to
seek the relief sought by such Senior Creditor in such
proceedings or (B) seek in good faith any relief which
is inconsistent with the relief sought by any Senior
Creditor, other than K-H, in good faith or with any of
the provisions of this Agreement, and (ii) in such
proceedings, K-H shall enforce its applicable rights and
<PAGE> 13
remedies and otherwise act in such manner as Congress or
the Trustee directs in accordance with commercially
reasonable standards. If such directions are
inconsistent, K-H shall nevertheless be permitted to
enforce such rights and remedies so long as it acts in
accordance with commercially reasonable standards and in
compliance with the other provisions of this Section
3(b).
4. Subordinated Debt Owed Only to K-H;
Enforceability. K-H warrants and represents that K-H
has not previously assigned any interest in the
Subordinated Debt or any Liens in connection
therewith, that no other person, firm or corporation
owns an interest in the Subordinated Debt or security
therefor other than K-H (whether as joint holders of the
Subordinated Debt, participants or otherwise) and that
the entire Subordinated Debt is owing only to K-H and
covenants that the entire Subordinated Debt shall
continue to be owing only to K-H and all security
therefor shall continue to be held solely for the
benefit of K-H unless assigned in accordance with the
terms of this Agreement. K-H, as the holder of the
Subordinated Debt, hereby represents and warrants to the
Senior Creditors that this Agreement has been
duly authorized, executed and delivered by K-H and
constitutes the legal, valid and binding obligation of
K-H, enforceable against K-H in accordance with its
terms except as may be limited by bankruptcy,
insolvency, reorganization, fraudulent conveyance,
moratorium or similar laws relating to or affecting
creditors' rights generally and except as such
enforceability may be limited by the application of
general principles of equity (regardless of
whether such enforceability is considered in a
proceeding in equity or at law).
5. Lender Priority. (a) In the event of any
distribution, division, or application, partial or
complete, voluntary or involuntary, by operation of law
or otherwise, of all or any part of the Property of
Borrower or any Subsidiary or the Proceeds thereof to
the creditors of Borrower or any Subsidiary, or
readjustment of the Senior Obligations and Subordinated
Debt of Borrower or any Subsidiary (whether by reason of
liquidation, bankruptcy, arrangement, receivership,
assignment for the benefit of creditors, any marshalling
of liens or assets or any other action or proceeding
involving the readjustment of all or any part of the
Senior Obligations or the Subordinated Debt), or upon
the dissolution or other winding up of Borrower's or any
Subsidiary's business, or upon the sale of all or
substantially all of Borrower's or any Subsidiary's
assets, or upon any disposition or liquidation by or on
behalf of any of the Senior Creditors or to the holder
of the Subordinated Debt, of any Collateral or other
Property of the Borrower or any Subsidiary, then, and in
any such event, (i) the Senior Creditors shall be
entitled to receive Payment in Full of any and all of
the Senior Obligations then owing prior to the payment
of all or any part of the Subordinated Debt, to be
<PAGE> 14
distributed among the Senior Creditors in the manner set
forth in subsection (b) below, and (ii) any payment or
distribution of any kind or character, whether in cash,
securities or other Property, which shall be payable or
deliverable upon or with respect to any or all of the
Subordinated Debt shall be paid or delivered directly to
Congress, or its designee (or, if the Senior Congress
Obligations have then been Paid in Full, to the Trustee
or its designee), on behalf of all the Senior Creditors,
for application on any of the Senior Obligations, due or
not due, in the manner set forth in subsection (b) below
until such Senior Obligations shall have first been Paid
in Full and completely performed.
(b) Upon the occurrence of any event set forth
in subsection (a) above or a K-H Distribution (as
defined in Section 7 below), then any payment or
distribution of any kind or character therefrom, whether
in cash, securities or other Property ("Distribution
Payments"), shall be distributed to the Senior Creditors
as follows: (i) any K-H Distribution, to the extent that
it can be identified as proceeds of an advance made
by Congress to Borrower pursuant to the Congress Loan
Documents (a "Congress K-H Distribution") shall be
distributed to Congress for application to the Senior
Congress Obligations, (ii) Distribution Payments of,
from, or related to Collateral, or any Proceeds thereof,
that can be identified as Congress Primary Collateral or
Other Collateral (both as defined in the Intercreditor
Agreement) shall be distributed among the Senior
Creditors in accordance with the terms of the
Intercreditor Agreement and (as between Congress and
K-H) the Subordination Agreement, and (iii) Distribution
Payments ("Unidentified Distribution Payments") of, from
or related to Collateral, or any Proceeds thereof, that
cannot be identified as a Congress K-H Distribution,
Congress Primary Collateral or Other Collateral (both as
defined in the Intercreditor Agreement) shall, to the
extent that the Permanent Reserve is then less than
$7,500,000, be distributed to Congress until the
Permanent Reserve equals $7,500,000, and thereafter, to
Congress (or, if the Senior Congress Obligations have
then been Paid in Full, to the Trustee or its designee)
to be held in trust for the benefit of the Senior
Creditors and to be promptly distributed to each Senior
Creditor in an amount equal to, for each such Senior
Creditor, the product of (x) the value of Unidentified
Distribution Payments multiplied by (y) a fraction, the
numerator of which is the Senior Obligations owing to
such Senior Creditor on the date such funds are to be
distributed (provided that with respect to any such
distribution to be made while the Borrower is the
subject of a proceeding under Chapter 11 of the
Bankruptcy Code, such numerator for such Senior Creditor
shall be equal to the amount of the claims of such
Senior Creditor relating to such Senior Creditor's
Senior Creditor Loan Documents which has been
filed with and approved by the applicable bankruptcy
court), and the denominator of which is the total amount
of Senior Obligations outstanding on such date (provided
that with respect to any such distribution to be made
<PAGE> 15
while the Borrower is the subject of a proceeding under
Chapter 11 of the Bankruptcy Code, such denominator
shall be equal to the total amount of all the
claims of all Senior Creditors relating to the Senior
Creditor Loan Documents which have been filed with and
approved by the applicable bankruptcy court).
6. Grant of Authority to Congress and the
Senior Creditors. In the event of the occurrence of any
event described in Section 5(a) above, and in order to
enable the Senior Creditors to enforce Senior Creditors'
rights hereunder in any of the aforesaid actions or
proceedings until such time as the Senior Obligations
are Paid in Full and completely satisfied:
(a) Congress and the Trustee are hereby
irrevocably authorized and empowered to jointly make and
present for and on behalf of K-H such proofs of claims
against Borrower and/or any Subsidiary on account of the
Subordinated Debt or other motions or pleadings as such
Senior Creditor may deem expedient or proper; provided
however, in the event that, after consulting with each
other in good faith, Congress and the Trustee cannot
agree upon any such proofs or claims or other motions or
pleadings to be jointly made and presented, then each
such Senior Creditor may make and present such proofs of
claims against Borrower and/or any Subsidiary on account
of the Subordinated Debt or other motions or pleadings
as each such Senior Creditor deems expedient or proper.
(b) Congress is hereby irrevocably authorized
and empowered, in Congress' discretion, to exercise the
voting rights in respect of the Subordinated Debt in any
such proceeding for and on behalf of K-H; provided
however, that upon the written request of the Trustee,
Congress shall exercise the voting rights in respect of
the Subordinated Debt in the manner requested by the
Trustee with respect to any plan of reorganization that
provides for Payment in Full of, and complete
satisfaction of, the Senior Congress Obligations on or
before the effective date of such plan.
(c) K-H irrevocably authorizes and empowers
either Congress or, if Congress refuses to act within
ten (10) business days after receiving written notice
requesting Congress to act pursuant to this Section
6(c), the Trustee (the "Designated Creditor") to demand,
sue for, collect and receive each of the aforesaid
payments and distributions described in Section 5(a)
above and give acquittance therefor and to file claims
and take such other actions, in the Designated
Creditor's own name or in the name of K-H or otherwise,
as the Designated Creditor may deem necessary or
advisable for the enforcement of this Agreement. To
the extent that payments or distributions are made in
Property other than cash, K-H authorizes the Designated
Creditor to sell such Property to such buyers and on
such terms as the Designated Creditor, in the Designated
<PAGE> 16
Creditor's reasonable discretion, shall determine and
apply the same towards the Senior Obligations in the
manner set forth in Section 5(b) above. K-H will
execute and deliver to the Designated Creditor such
powers of attorney, assignments and other instruments or
documents, including notes and stock certificates
(together with such assignments or endorsements as the
Designated Creditor shall deem necessary), as may be
requested by the Designated Creditor in order to enable
the Designated Creditor to enforce any and all claims
upon or with respect to any or all of the Subordinated
Debt and to collect and receive any and all payments and
distributions which may be payable or deliverable at any
time upon or with respect to the Subordinated Debt, all
for the Senior Creditors' benefit in the manner set
forth in Section 5(b) above. Following Payment in
Full and complete performance of the Senior Obligations,
the Designated Creditor will remit to K-H, to the extent
of K-H's interest therein, all dividends or other
payments or distributions paid to and held by the Senior
Creditors in excess of the Senior Obligations.
7. Payments Received by K-H. Except for
Permitted Payments received by K-H in accordance with
the provisions of Section 2 above, should any payment or
distribution or security or instrument or proceeds
thereof ("K-H Distribution") be received by K-H upon or
with respect to the Subordinated Debt prior to the
Payment in Full and complete performance of all of
the Senior Obligations and termination or expiration of
all financing arrangements under the Senior Creditor
Loan Documents with respect to the Senior Obligations,
K-H shall receive and hold the same in trust, as
trustee, for the benefit of the Senior Creditors, and
shall forthwith deliver the same to Congress, or
its designee, or the Trustee, or its designee, in
accordance with Section 5(b) above, for distribution to
the Senior Creditors in the manner set forth in Section
5(b) above, in precisely the form received (except for
the endorsement or assignment of K-H where necessary),
for application on any of the Senior Obligations, due
or not due, and, until so delivered, the same shall be
held in trust by K-H as the Property of the Senior
Creditors. In the event of the failure of K-H to make
any such endorsement or assignment to the Senior
Creditors, or any of their officers or employees, are
hereby irrevocably authorized to make the same.
8. Instrument Legend. Any instrument or other
writing evidencing any of the Subordinated Debt
(including, without limitation, the Subordinated
Revolving Note), or any portion thereof, will, on the
date hereof or promptly hereafter, be inscribed with a
legend conspicuously indicating that payment thereof is
subordinated to the claims of the Senior Creditors
pursuant to the terms of this Agreement, and (i) a copy
thereof will be delivered to each Senior Creditor on the
date hereof, and (ii) the original of any such
instrument will be immediately delivered, upon request
therefor by any Senior Creditor, to Congress, or its
<PAGE> 17
designee, (or, if the Senior Congress Obligations have
then been Paid in Full, to the Trustee or its designee)
to be held on behalf of the Senior Creditors after the
occurrence of an Event of Default (under and as defined
in any Senior Creditor Loan Document) to the extent
reasonably necessary for any Senior Creditor to enforce
its rights under this Agreement or to protect, enforce
or perfect its interest in the K-H Subordinated Loan
Documents or K-H's interest in the collateral. Any
instrument or other writing evidencing any of the
Subordinated Debt, or any portion thereof, which is
hereafter executed by Borrower or any Subsidiary, will,
on the date thereof, be inscribed with the aforesaid
legend and a copy thereof will be delivered to each
Senior Creditor on the date of its execution or within
five (5) business days thereafter, and the original
thereof will be delivered as and when described
hereinabove.
9. Reimbursements for Expenses from Borrower.
K-H agrees that until the Senior Obligations have been
Paid in Full and completely performed and all financing
arrangements under the Senior Creditor Loan Documents
with respect to the Senior Obligations have expired or
been terminated, K-H will not, directly or indirectly,
accept or receive the benefit of any remuneration or
reimbursement for expenses (other than attorney's
fees and expenses payable by Borrower in connection with
the closing for the K-H Subordinated Loan Documents)
from or on behalf of Borrower or any Subsidiary pursuant
to or in connection with the K-H Subordinated Loan
Documents and will not assign or transfer to others any
claim K-H has or may have against Borrower or any
Subsidiary pursuant to or in connection with the K-H
Subordinated Loan Documents, unless such assignment or
transfer is made expressly subject to this Agreement.
10. Continuing Nature of Subordination. This
Agreement shall be effective and may not be terminated
or otherwise revoked by K-H until the Senior Obligations
shall have been Paid in Full and completely performed
and all financing arrangements under the Senior Creditor
Loan Documents with respect to the Senior Obligations
have expired or been terminated. In the event K-H shall
have any right under applicable law or otherwise to
terminate or revoke this Agreement which right cannot be
waived, such termination or revocation shall not be
effective until written notice of such termination
or revocation, signed by K-H, is actually received by
each Senior Creditor's officer responsible for such
matters. In the absence of the circumstances described
in the immediately preceding sentence, this is a
continuing agreement of subordination and, except to the
extent (if any) restricted by the terms of any of
the Senior Creditor Loan Documents, Congress may
continue, at any time and without notice to K-H, to
extend credit or other financial accommodations and loan
monies to or for the benefit of Borrower or any
Subsidiary on the faith hereof. Any termination
<PAGE> 18
or revocation described hereinabove shall not affect
this Agreement in relation to (a) any of the Senior
Obligations which arose prior to receipt thereof, (b)
any of the Senior Obligations which represent Protective
Advances or interest on Senior Obligations, or (c) any
of the Senior Obligations created after receipt thereof,
if such Obligations were incurred through extensions of
credit by Congress under the Congress Loan Documents in
the thirty day period after receipt of such notice
or in accordance with the terms of any financing order
entered by any bankruptcy court pursuant to either
Sections 363 or 364 of the Bankruptcy Code. If, in
reliance on this Agreement Congress makes loans or other
Advances to or for the benefit of Borrower or any
Subsidiary or takes other action under any of the
Congress Loan Documents after such aforesaid termination
or revocation by K-H but prior to the receipt by
Congress of said written notice as set forth above, the
rights of Congress shall be the same as if such
termination or revocation had not occurred; and, in any
event, no obligation of K-H hereunder shall be affected
pursuant to this Section 10 by the written revocation of
K-H or any officer thereof or any other subordinated
party, pledgor, endorser, or guarantor, if any.
11. Additional Agreements Between Senior
Creditors and Borrower. Except for K-H, any of the
Senior Creditors, at any time and from time to time,
either before or after any such aforesaid notice of
termination or revocation, may enter into such agreement
or agreements with Borrower or any Subsidiary as such
Senior Creditor may deem proper, extending the time of
payment of or renewing or otherwise altering in any
manner the terms of all or any of the Senior Obligations
or affecting the security underlying any or all of the
Senior Obligations, and may exchange, sell, release,
surrender or otherwise deal with any such security,
without in any way thereby impairing or affecting
this Agreement.
12. Undersigned's Waivers. All of the Senior
Obligations shall be deemed to have been made or
incurred in reliance upon this Agreement. K-H expressly
waives all notice of the acceptance by the Senior
Creditors of the subordination and other provisions of
this Agreement and all other notices not specifically
required pursuant to the terms of this Agreement
whatsoever, and K-H expressly waives reliance by Senior
Creditors upon the subordination and other agreements as
herein provided. K-H agrees that Senior Creditors have
made no warranties or representations with respect to
the due execution, legality, validity, completeness or
enforceability of any of the Senior Creditor Loan
Documents, or the collectability of the Senior
Obligations, that Senior Creditors shall be entitled to
manage and supervise their loans, extensions of credit
or other financial accommodations to Borrower in
accordance with applicable law and Senior Creditors'
usual practices, modified from time to time as Senior
Creditors deem appropriate, in their sole discretion,
<PAGE> 19
under the circumstances, without regard to the
existence of any rights that K-H may now or hereafter
have in or to any of the Property of Borrower or any
Subsidiary, and that Senior Creditors shall have no
liability to K-H for, and K-H waives any claim which K-H
may now or hereafter have against, Senior Creditors
arising out of any and all actions which any
Senior Creditor, in good faith and without gross
negligence, takes or omits to take (including, without
limitation, actions with respect to the creation,
perfection or continuation of Liens in the Collateral
and other security for the Senior Obligations,
actions with respect to the occurrence of an Event of
Default (as defined in any Senior Creditor Loan
Document), actions with respect to the foreclosure upon,
sale, release, or depreciation of, or failure to realize
upon, any of the Collateral and actions with respect to
the collection of any claim for all or any part
of the Senior Obligations from any account debtor,
guarantor or any other party) with respect to any of the
Senior Creditor Loan Documents or any other agreement
related thereto or to the collection of the Senior
Obligations or the valuation, use, protection or release
of the Collateral and/or other security for the Senior
Obligations.
13. Bankruptcy Issues. If Borrower or any
Subsidiary or Borrower's or any Subsidiary's estate
becomes the subject of a bankruptcy case under the
Bankruptcy Code and if each Senior Creditor (other than
K-H) desires to permit the use of cash collateral or to
provide financing to Borrower or any Subsidiary
under either Section 363 or Section 364 of the
Bankruptcy Code, K-H agrees that adequate notice of such
financing to K-H, in its capacity as a holder of the
Subordinated Debt, shall have been provided if K-H
received notice two (2) business days prior to the entry
of any order approving such cash collateral usage or
financing. Notice of a proposed financing or use of
cash collateral shall be deemed given upon the sending
of such notice by telegraph, telecopy or hand delivery
to K-H at the address indicated below. All allocations
of payments between the Senior Creditors, in their
capacity as holder of the Senior Creditor Obligations,
and K-H, in its capacity as holder of the Subordinated
Debt, shall continue to be made after the filing of
a petition under the Bankruptcy Code on the same basis
that the payments were to be allocated prior to the date
of such filing. On behalf of itself (in any capacity)
and its Affiliates, K-H hereby consents to, and waives
any objections to (or any right to object to), and
agrees to cause its Affiliates not to object to,
the entry of any interim or final order entered in any
such bankruptcy case approving any use of cash
collateral permitted by Congress or financing provided
by Congress so long as (i) the interim order contains
terms substantially similar to (or less favorable to
Congress than) those in the April 11, 1996 draft
Interim Order (1) Authorizing Debtors-In-Possession To
Incur Post-Petition Secured Indebtedness, (2) Granting
Security Interests And Priority Pursuant To 11 U.S.C.
<PAGE> 20
Section 364, (3) Modifying Automatic Stay And (4)
Setting Further Hearing and (ii) the final order
contains terms substantially similar to (or less
favorable to Congress than) those in the aforesaid draft
Interim Order except that the provisional findings of
fact, conclusions of law and decretal provisions in the
Interim Order shall not be provisional and shall instead
be binding on all creditors, equity interest holders and
other parties in interest. In its capacity as the
holder of the Subordinated Debt, K-H agrees that in any
bankruptcy case of which Borrower or any Subsidiary is
the subject, it will not, without the prior written
consent of each Senior Creditor, (i) assert any right it
may have to "adequate protection" of its interest in any
Property of the Borrower or any Subsidiary, (ii) seek
any relief from the automatic stay of Section 362 of the
Bankruptcy Code, or (iii) object to any aspect of any
Senior Creditor's claims in such bankruptcy case or
otherwise take any position inconsistent with any Senior
Creditor's position in such bankruptcy case. In
its capacity as holder of the Subordinated Debt, K-H
waives any objection, claim or defense K-H may now or
hereafter have arising out of the election by any Senior
Creditor, in any bankruptcy case under the Bankruptcy
Code, of the application of Section 1111(b)(2) of the
Bankruptcy Code, and notwithstanding any such election
by any such Senior Creditor, such Senior Creditor shall
be entitled to have all of its Senior Obligations Paid
in Full from any and all Property of the Borrower or any
Subsidiary prior to any payment or distribution made in
respect of any Subordinated Debt. To the extent that
any Senior Creditor receives payments on, or proceeds of
Collateral for, any of the Senior Obligations which are
subsequently invalidated, declared to be fraudulent or
preferential, set aside and/or required to be repaid to
a trustee, receiver or any other party under any
bankruptcy law, state or federal law, common law, or
equitable cause, then, to the extent of such payment or
proceeds received, the Senior Obligations, or part
thereof, intended to be satisfied shall be revived and
continue in full force and effect as if such payments or
proceeds had not been received by the Senior Creditor.
Nothing in this Section 13 shall limit K-H's right to
take any action as, or to recommend any action to, a
member of any committee in any such bankruptcy case.
14. Senior Creditors' Waivers. No waiver
shall be deemed to be made by any Senior Creditor of its
rights hereunder, unless the same shall be in writing
signed on behalf of such Senior Creditor and each
waiver, if any, shall be a waiver only with respect to
the specific instance involved and shall in no way
impair the rights of such Senior Creditor or the
obligations of K-H to such Senior Creditor in any other
respect at any other time.
15. Modifications. K-H shall not, without the
prior written consent of each of the Senior Creditors,
amend or otherwise modify any of the K-H Subordinated
Loan Documents; provided, however, that K-H may amend or
modify the K-H Subordinated Loan Documents to increase
the principal amount of loans thereunder.
<PAGE> 21
16. Information Concerning Financial Condition
of the Borrower. K-H hereby assumes responsibility for
keeping itself informed of the financial condition of
the Borrower and each Subsidiary, any and all endorsers
and any and all guarantors of the Senior Obligations and
of all other circumstances bearing upon the risk of
nonpayment of the Senior Obligations and/or Subordinated
Debt that diligent inquiry would reveal, and K-H hereby
agrees that the Senior Creditors shall have no duty to
advise K-H of information known to the Senior Creditors
regarding such condition or any such circumstances. In
the event any Senior Creditor, in such Senior Creditor's
sole discretion, undertakes, at any time or from time to
time, to provide any such information to K-H, such
Senior Creditor and all other Senior Creditors shall be
under no obligation to (i) provide any such information
to K-H on any subsequent occasion, or (ii) undertake
any investigation not a part of such Senior Creditors'
regular business routine and shall be under no
obligation to disclose any information which any Senior
Creditor wishes to maintain confidential. K-H hereby
(i) agrees that, subject to the terms of Section 5(b)
above, all payments received by any Senior Creditor may
be applied, reversed, and reapplied, in whole or in
part to any of the Senior Obligations as such Senior
Creditor deems appropriate and (ii) assents to any
extension or postponement of the time of payment of the
Senior Obligations or to any other indulgence with
respect thereto, to any substitution, exchange or, in
connection with any disposition, the release of
Collateral or any other security which may at any
time secure the Senior Obligations and to the addition
or release of any other Person primarily or secondarily
liable therefor.
17. No Offset. In the event K-H at any time
purchases goods or services from Borrower or any
Subsidiary, K-H hereby irrevocably agrees that it shall
pay for such goods or services in cash or cash
equivalents in accordance with the terms of such
purchases and shall not deduct from or setoff against
any amounts billed to K-H by Borrower or such Subsidiary
in connection with such purchases any amounts K-H claims
are due to it with respect to the Subordinated Debt and
that the non-monetary terms and conditions of any such
purchases shall be not more favorable to K-H than
arms'-length terms and conditions made available by
Borrower or such Subsidiary to third parties.
18. Appointment of Agent Each Senior Creditor
hereby appoints each other as their respective agent
(and K-H, in its capacity as holder of the Subordinated
Debt, hereby appoints the Collateral Agent and Congress
or its agents) for purposes of perfecting any of their
respective Liens on the Collateral which may at any time
come into their respective control or possession.
<PAGE> 22
19. Notices. Unless otherwise provided
herein, all notices required or desired to be given
hereunder shall be deemed validly given or delivered: if
by hand, telex, telegram or facsimile, immediately upon
sending; if by Federal Express, Express Mail or any
other overnight delivery service, one (1) day after
dispatch; and if mailed by certified mail, return
receipt requested, five (5) days after mailing. All
notices, requests and demands are to be given or made to
Congress, K-H, the Trustee or the Collateral Agent at
the following addresses:
Congress Financial Corporation (Central)
100 South Wacker Drive, Suite 1940
Chicago, Illinois 60606
Attention: Mr. William Bloom
with a copy to:
Latham & Watkins
233 South Wacker Drive
Suite 5800 Sears Tower
Chicago, Illinois 60606
Attention: Mr. Donald L. Schwartz
K-H Corporation
c/o Treasurer
672 Delaware Avenue
Buffalo, New York 14209
IBJ Schroder Bank & Trust Company
One State Street
New York, New York 10004
Attention: Corporate Trust and Agency
Administration
with a copy to:
Hughes Hubbard & Reed, LLP
One Battery Park Plaza
New York, New York 10004-1482
Attention: James J. Pastore
20. Severability. Wherever possible, each
provision of this Agreement shall be interpreted in such
manner as to be effective and valid under applicable
law, but if any provision of this Agreement shall be
prohibited by or invalid under applicable law, such
provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the
remainder of such provision or the remaining provisions
of this Agreement.
21. Headings. The headings contained in this
Agreement are and shall be without substantive meaning
or content of any kind whatsoever and are not a part of
the agreement between the parties hereto.
<PAGE> 23
22. Authority. K-H hereby certifies that it
has all necessary authority to grant the subordination
evidenced hereby and to execute this Agreement on behalf
of K-H.
23. Binding Effect. This Agreement shall be
immediately binding upon K-H and its successors and
assigns, and shall inure to the benefit of the
successors and assigns of the Senior Creditors, and no
other Person shall have any rights under this Agreement,
whether as a third party beneficiary or otherwise.
24. Restrictions on Pledges, Assignments and
Participations.
(a) K-H shall not pledge its rights under this
Agreement, or any other K-H Subordinated Loan Documents
to any Person, and any attempted pledge in violation of
this Section 23 shall be void ab initio.
(b) K-H shall not assign or sell
participations in its rights or obligations under this
Agreement or any other K-H Subordinated Loan Documents
or in or to the Collateral or any other security for the
Subordinated Debt to any other Person without prior
written consent of each Senior Creditor which shall
not be unreasonably withheld so long as such proposed
assignee is reasonably acceptable to the Senior
Creditors.
(c) Without the consent of K-H, and subject to
the provisions of the Intercreditor Agreement, each
Senior Creditor may (i) sell further participations in
the Senior Obligations to any Person under one or more
separate agreements without in any way affecting any of
the rights and obligations of the parties to this
Agreement and (ii) assign all or any portion of such
Senior Creditors' interest in the Senior Obligations to
any Person.
(d) No assignment made by K-H or any Senior
Creditor in violation of this Section 23 shall release
K-H from its obligations and liabilities under this
Agreement.
(e) K-H will promptly and duly execute and
deliver any and all such further instruments,
endorsements and other documents, make such filings,
give such notices and take such further action regarding
the Subordinated Debt as the Senior Creditors may
reasonably deem desirable to obtain the full benefits of
this Agreement.
25. GOVERNING LAW; SUBMISSION TO JURISDICTION;
WAIVER OF JURY TRIAL; WAIVER OF DAMAGES. (a) THIS
AGREEMENT SHALL BE GOVERNED BY AND INTERPRETED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK AND
<PAGE> 24
ANY DISPUTE ARISING OUT OF, CONNECTED WITH,
RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP
ESTABLISHED BETWEEN K-H AND THE SENIOR CREDITORS IN
CONNECTION WITH THIS AGREEMENT, AND WHETHER ARISING IN
CONTRACT, TORT, EQUITY OR OTHERWISE, SHALL BE RESOLVED
IN ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED TO
THE CONFLICTS OF LAWS PROVISIONS) AND DECISIONS OF THE
STATE OF NEW YORK.
(b) EXCEPT AS PROVIDED IN THE NEXT PARAGRAPH,
K-H AND THE SENIOR CREDITORS AGREE THAT ALL DISPUTES
BETWEEN K-H AND ANY SENIOR CREDITOR ARISING OUT OF,
CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE
RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH
THIS AGREEMENT, AND WHETHER ARISING IN CONTRACT, TORT,
EQUITY, OR OTHERWISE, SHALL BE RESOLVED ONLY BY STATE OR
FEDERAL COURTS LOCATED IN NEW YORK, NEW YORK, BUT K-H
AND THE SENIOR CREDITORS ACKNOWLEDGE THAT ANY APPEALS
FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT
LOCATED OUTSIDE OF NEW YORK, NEW YORK. IN ALL DISPUTES
K-H WAIVES ANY OBJECTION THAT IT MAY HAVE TO THE
LOCATION OF THE COURT CONSIDERING THE DISPUTE INCLUDING,
WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE
OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS.
(c) K-H AGREES THAT THE SENIOR CREDITORS SHALL
HAVE THE RIGHT, TO THE EXTENT PERMITTED BY APPLICABLE
LAW, TO PROCEED AGAINST K-H OR ITS PROPERTY IN A COURT
IN ANY LOCATION REASONABLY SELECTED IN GOOD FAITH TO
ENABLE CONGRESS TO REALIZE ON SUCH PROPERTY, OR TO
ENFORCE A JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR
OF CONGRESS. K-H AGREES THAT IT WILL NOT ASSERT ANY
PERMISSIVE COUNTERCLAIMS IN ANY PROCEEDING BROUGHT BY
ANY SENIOR CREDITOR TO REALIZE ON SUCH PROPERTY, OR TO
ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF ANY
SENIOR CREDITOR. K-H WAIVES ANY OBJECTION THAT IT MAY
HAVE TO THE LOCATION OF THE COURT IN WHICH ANY SENIOR
CREDITOR HAS COMMENCED A PROCEEDING DESCRIBED IN THIS
PARAGRAPH INCLUDING, WITHOUT LIMITATION, ANY OBJECTION
TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM
NON CONVENIENS.
(d) EACH OF K-H AND THE SENIOR CREDITORS
WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING
ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR
OTHERWISE ARISING OUT OF, CONNECTED WITH, RELATED TO OR
INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM
IN CONNECTION WITH THIS AGREEMENT. INSTEAD, ANY
DISPUTES RESOLVED IN COURT WILL BE RESOLVED IN A
BENCH TRIAL WITHOUT A JURY.
(e) K-H (I) AGREES THAT EACH SENIOR CREDITOR
SHALL HAVE NO LIABILITY TO K-H (WHETHER SOUNDING IN
TORT, CONTRACT OR OTHERWISE) FOR LOSSES SUFFERED BY K-H
IN CONNECTION WITH, ARISING OUT OF, OR IN ANY WAY
RELATED TO, THE TRANSACTIONS CONTEMPLATED AND THE
RELATIONSHIP ESTABLISHED BY THIS AGREEMENT, OR ANY ACT,
OMISSION OR EVENT OCCURRING IN CONNECTION THEREWITH,
UNLESS IT IS DETERMINED BY A JUDGMENT OF A COURT THAT IS
<PAGE> 25
BINDING ON SUCH SPECIFIED SENIOR CREDITOR, (WHICH
JUDGMENT SHALL BE FINAL AND NOT SUBJECT TO REVIEW ON
APPEAL), THAT SUCH LOSSES WERE THE RESULT OF
ACTS OR OMISSIONS ON THE PART OF SUCH SPECIFIC SENIOR
CREDITOR, CONSTITUTING WILLFUL MISCONDUCT, GROSS
NEGLIGENCE, BAD FAITH, OR KNOWING VIOLATIONS OF LAW AND
(II) WAIVES, RELEASES AND AGREES NOT TO SUE UPON ANY
CLAIM AGAINST ANY SENIOR CREDITOR (WHETHER SOUNDING IN
TORT, CONTRACT OR OTHERWISE), EXCEPT A CLAIM BASED
UPON WILLFUL MISCONDUCT, GROSS NEGLIGENCE, BAD FAITH,
OR KNOWING VIOLATIONS OF LAW BY SUCH SENIOR CREDITOR.
WHETHER OR NOT SUCH DAMAGES ARE RELATED TO A CLAIM THAT
IS SUBJECT TO THE WAIVER EFFECTED ABOVE AND WHETHER OR
NOT SUCH WAIVER IS EFFECTIVE, EACH SENIOR CREDITOR SHALL
NOT HAVE ANY LIABILITY WITH RESPECT TO, AND K-H HEREBY
WAIVES, RELEASES AND AGREES NOT TO SUE UPON ANY CLAIM
FOR, ANY SPECIAL, INDIRECT, CONSEQUENTIAL OR PUNITIVE
DAMAGES SUFFERED BY K-H IN CONNECTION WITH, ARISING OUT
OF, OR IN ANY WAY RELATED TO THE TRANSACTIONS
CONTEMPLATED OR THE RELATIONSHIP ESTABLISHED BY THIS
AGREEMENT, OR ANY ACT, OMISSION OR EVENT OCCURRING IN
CONNECTION THEREWITH, UNLESS IT IS DETERMINED BY A
JUDGMENT OF A COURT THAT IS BINDING ON SUCH SPECIFIED
SENIOR CREDITOR (WHICH JUDGMENT SHALL BE FINAL AND NOT
SUBJECT TO REVIEW ON APPEAL), THAT SUCH DAMAGES WERE THE
RESULT OF ACTS OR OMISSIONS ON THE PART OF SUCH
SPECIFIED SENIOR CREDITOR, CONSTITUTING WILLFUL
MISCONDUCT, GROSS NEGLIGENCE, BAD FAITH, OR KNOWING
VIOLATIONS OF LAW.
[Signature Page Follows]<PAGE>
<PAGE> S-1
IN WITNESS WHEREOF, this instrument has been
signed and sealed as of the first date above written.
K-H CORPORATION, as holder of
the Subordinated Debt
By:/s/ Keith L. Walker
----------------------
Title: Secretary
------------------
Acknowledged and accepted in
New York, New York as of the
first date above written.
CONGRESS FINANCIAL CORPORATION (Central)
By:/s/ Thomas C. Lannon
----------------------
Title: Vice President
------------------
IBJ SCHRODER BANK & TRUST COMPANY,
as Trustee and Collateral Agent
By:/s/ Barbara McCluskey
----------------------------
Title: Assistant Vice President
------------------------
K-H CORPORATION,
as holder of the Term Notes
By:/s/ Keith L. Walker
-----------------------
Title: Secretary
-------------------
<PAGE>
<PAGE> S-2
Each of FRUEHAUF TRAILER CORPORATION and the
undersigned direct and indirect subsidiaries of Fruehauf
Trailer Corporation, hereby accepts, and acknowledges
receipt of a copy of, and agrees to be bound by, the
foregoing Multi-Party Subordination Agreement (the
"Agreement") this 21st day of June, 1996, and, without
limiting the generality of the foregoing, further agrees
and acknowledges, jointly and severally, as follows:
1. Each of the undersigned will not pay any
amount due under any of the K-H Subordinated Loan
Documents (this term and all other capitalized terms
used and not otherwise defined herein shall have the
respective meanings given such terms in the Agreement)
or grant any security therefor, except as the Agreement
provides.
2. The breach by K-H of any of the provisions
of the Agreement shall constitute an "Event of Default"
under and as defined in the Congress Loan Documents and
the Noteholder Documents.
3. Any Senior Creditor shall be entitled, but
not obligated, to make any Permitted Payment on behalf
of the Borrower to K-H or to cure any event of default
under any of the K-H Subordinated Loan Documents, and
each of the undersigned shall be, jointly and severally,
obligated to reimburse and indemnify such Senior
Creditor, upon demand, for all payments made or other
obligations incurred by such Senior Creditor in
exercising any such cure rights, and all such
reimbursement and indemnification obligations to such
Senior Creditor shall constitute part of the obligations
under such Senior Creditor's Senior Creditor Loan
Documents and shall be secured by the Collateral subject
to such Senior Creditor's Senior Creditor Loan
Documents.
4. The terms of this Agreement shall not give
any undersigned any substantive rights vis-a-vis the
Senior Creditors and/or K-H. If any Senior Creditor
and/or K-H shall enforce its rights or remedies in
violation of the terms of this Agreement, the
undersigned shall not use such violation as a defense to
the enforcement by any of the foregoing Persons of any
of their respective rights and remedies under the Senior
Creditor Loan Documents or the K-H Subordinated Loan
Documents, as applicable, and shall not assert such
violation as a counterclaim or basis for setoff or
recoupment against Congress and/or K-H.
[signature page follows]<PAGE>
<PAGE> S-3
FRUEHAUF TRAILER CORPORATION
By: /s/ Timothy J. Wiggins
-----------------------
Name: Timothy J. Wiggins
Title: Executive Vice President
FGR, INC.
By: /s/ Timothy J. Wiggins
-----------------------
Name: Timothy J. Wiggins
Title: Executive Vice President
FRUEHAUF CORPORATION
By: /s/ Timothy J. Wiggins
-----------------------
Name: Timothy J. Wiggins
Title: Executive Vice President
MARYLAND SHIPBUILDING AND
DRYDOCK COMPANY
By:/s/ Gary K. Lorenz
-----------------------
Name: Gary K. Lorenz
Title: President
THE MERCER CO.
By: /s/ Timothy J. Wiggins
-----------------------
Name: Timothy J. Wiggins
Title: Executive Vice President
DEUTSCHE-FRUEHAUF HOLDING
CORPORATION
By: /s/ Timothy J. Wiggins
-----------------------
Name: Timothy J. Wiggins
Title: Executive Vice President
<PAGE> S-4
FRUEHAUF HOLDINGS CORP.
By: /s/ Timothy J. Wiggins
-----------------------
Name: Timothy J. Wiggins
Title: Executive Vice President
FRUEHAUF INTERNATIONAL LIMITED
By: /s/ Timothy J. Wiggins
-----------------------
Name: Timothy J. Wiggins
Title: Executive Vice President
M.J. HOLDINGS, INC.
By: /s/ Timothy J. Wiggins
-----------------------
Name: Timothy J. Wiggins
Title: Executive Vice President
E.L. DEVICES, INC.
By: /s/ Gary K. Lorenz
-----------------------
Name: Gary K. Lorenz
Title: President
FRUEHAUF TRAILER CORPORATION
and
IBJ SCHRODER BANK & TRUST COMPANY,
as Trustee and Collateral Agent
----------------------------
FIRST SUPPLEMENTAL INDENTURE
Dated as of June 21, 1996
----------------------------
To
The Indenture
dated as of May 1, 1995
Between
Fruehauf Trailer Corporation
and
IBJ Schroder Bank & Trust Company, as Trustee
Relating to
$74,117,000 Aggregate Principal Amount
of 14.75% Senior Secured Notes Due 2002
and the
Collateral Agency Agreement defined therein
<PAGE>
<PAGE>
FIRST SUPPLEMENTAL INDENTURE
THIS FIRST SUPPLEMENTAL INDENTURE (this
"Supplemental Indenture"), dated as of June 21, 1996,
between FRUEHAUF TRAILER CORPORATION, a corporation duly
organized and existing under the laws of the
State of Delaware (the "Issuer"), and IBJ SCHRODER BANK
& TRUST COMPANY, a New York banking
corporation, as Trustee (the "Trustee") and Collateral
Agent:
RECITALS OF THE ISSUER
A. The Issuer and the Trustee heretofore executed
and delivered an Indenture, dated as of May 1, 1995
(the "Indenture"; capitalized terms used herein and not
defined herein shall have the respective meanings
ascribed thereto
in the Indenture).
B. Pursuant to the Indenture, the Issuer issued
and the Trustee authenticated and delivered $74,117,000
aggregate principal amount of the Issuer's 14.75% Senior
Secured Notes Due 2002.
C. Since the original issuance of the Securities
on May 4, 1995, the Issuer has repurchased $11,543,000
in aggregate principal amount of Securities pursuant to
fully subscribed Asset Sale Offers dated September 15
and October
2.
D. K-H Corporation, a Delaware corporation
("KHC"), has agreed to lend $3.5 million, and may, in
its sole discretion, agree to lend additional amounts,
to the Issuer to be used by the Issuer to resolve
certain trailing liabilities all in accordance with
documentation to be executed by KHC and the Issuer.
E. On April 21, 1996 the Issuer entered into a
non-binding letter of intent for the sale of certain of
the Issuer's assets to Private Equity Investors, Inc.
Such letter of intent was amended on May 3, 1996.
F. The Issuer did not make the interest payment
on the Senior Notes due on May 1, 1996 within the grace
period provided for in the Indenture.
G. Section 8.2 of the Indenture provides, among
other things, that with the consent of the Holders of
not less than a majority in aggregate principal amount
of the Securities at the time Outstanding (the
"Requisite Consents"),
the Issuer, when authorized by a resolution of its Board
of Directors, and the Trustee, may, from time to time,
enter into an indenture or indentures supplemental to
the Indenture for the purpose of adding any provisions
to or changing in any manner or eliminating certain
provisions of the Indenture, subject to certain
exceptions specified in Section 8.2 of the
Indenture.
H. The Issuer has furnished to the Holders a
letter dated May 3, 1996 as amended and restated in its
entirety by a letter dated June 14, 1996 (the "Consent
Solicitation Statement"), pursuant to which the Issuer
solicited consents from the Holders relating to the
transactions set forth in recitals D and E, and certain
other amendments to or clarifications of the Indenture
and the Documents. As contemplated by the Consent
Solicitation Statement, the Issuer has obtained the
Requisite Consents to amend the Indenture as set forth
herein.
I. This Supplemental Indenture has been duly
authorized by all necessary corporate action on the part
of the Issuer.
J. The Issuer has delivered, or caused to be
delivered, to the Trustee, an Officers' Certificate and
an Opinion of Counsel stating that this Supplemental
Indenture complies with the requirements of the
Indenture.
<PAGE> 2
NOW, THEREFORE, each party agrees for the benefit
of the other party and for the equal and ratable benefit
of all Holders of the Securities, as follows:
ARTICLE 1
AMENDMENTS TO CERTAIN PROVISIONS OF INDENTURE
SECTION 1.01. Amendment to Add Definitions to the
Indenture. (a) Section 1.1 of the Indenture is hereby
amended to add the following definitions thereto in
proper alphabetical order:
"Asset Sale Account" means a segregated
account with the Collateral Agent subject to a first
priority perfected security interest created pursuant to
the Security Documents for the benefit of the Secured
Parties.
"Consent Fee" means a fee equal to 0.25%
of the outstanding principal amount of Securities, as
calculated on April 22, 1996.
"First Consent Solicitation Statement"
means the letter, dated May 3, 1996 as amended and
restated in its entirety by the letter dated June 14,
1996, from the Issuer to the Holders of the Securities,
which solicits the consents of the Holders with respect
to the matters set forth therein.
"Foreign Assets" means:
(i) the Issuer's current ownership
interest in Societe Europeenne de Semi-Remorques, S.A.,
a French corporation;
(ii) the stock or other ownership
interests currently owned by Fruehauf International
Limited ("FIL") in Henred Fruehauf (PTY) Limited, Henred
Fruehauf Properties (PTY) Limited, Nippon Fruehauf
Company Ltd. and F.L.A. Licensing L.L.C.;
(iii) the Issuer's and FIL's current
interests in certain trademark and technology license
agreements currently operative outside North America,
(including, without limitation, all of the Issuer's and
FIL's rights to any fees payable under any such existing
agreements and any renewals thereof that may be made in
the future);
(iv) all of the Issuer's current interest
in (a) the trademark, service mark, trade or corporate
name "Fruehauf" and (b) patents and patent applications,
in each case, outside North America;
(v) certain idle trailer manufacturing
equipment owned by the Issuer, located in Waverly, Ohio
(the "Waverly Equipment");
(vi) the accounts receivable owed the
Issuer and FIL by U.S. Partec Corporation and U.S.
Partec Licensing, Inc. (the "Partec Receivable"); and
(vii) the Issuer's indirect
ownership interest in certain real property located in
Germany (the "Sindorf Property").
"Foreign Proceeds" means any and all Net
Cash Proceeds derived from the sale of the Foreign
Assets.
<PAGE> 3
"Interest Payment Account" means a
segregated account with the Collateral Agent subject to
a first priority perfected security interest created
pursuant to the Security Documents for the benefit of
the Secured Parties.
"May 1 Payment" means the interest due
and payable on the Securities on May 1, 1996 as provided
in Section 3.1(a).
"November 1 Payment" means the interest
due and payable on the Securities on November 1, 1996 as
provided in Section 3.1(a).
SECTION 1.02. Amendment to Definition of Asset
Sale. (a) Clause (f) of the definition of Asset Sale
contained in Section 1.1 of the Indenture is hereby
amended to delete the word "and" after the semicolon in
such clause.
(b) The definition of the term Asset Sale contained
in Section 1.1 of the Indenture is hereby further
amended by inserting after the phrase "accidental loss
of property" in clause (g) thereof and prior to the
period which follows such phrase, the following:
;
(h) the sale by Jacksonville Shipyards, Inc.
("Jacksonville") of the JSI Promissory Note (as such
term is defined in the First Consent Solicitation
Statement) and the related mortgage interest or the
foreclosure of any mortgage or security interest
securing the JSI Promissory Note; and
(i) the sale by Jacksonville of
Jacksonville-Mayport (as defined in the First Consent
Solicitation Statement)
SECTION 1.03. Amendment to Definition of Net Cash
Proceeds. The definition of the term "Net Cash
Proceeds" contained in Section 1.1 of the Indenture is
hereby amended by deleting clause (b) thereof in its
entirety and replacing it with the following:
(b) amounts deposited in escrow or on deposit
as collateral, in respect of (i) environmental
or other liabilities not assumed by the purchaser in
connection with such Asset Sale or (ii) the sale of the
Waverly Equipment and the Partec Receivable or (iii) up
to $100,000 in connection with certain regulatory
approvals required in order to transfer certain of the
Foreign Assets, but, in each case, only so long as such
amounts remain on deposit or in escrow, and
SECTION 1.04. Amendment to Definition of Permitted
Debt. (a) Clause (n) of the definition of Permitted Debt
contained in Section 1.1 of the Indenture is hereby
amended to delete the word "and" after the semicolon in
such clause.
(b) The definition of the term Permitted Debt
contained in Section 1.1 of the Indenture is hereby
further amended by inserting after the phrase "(as
defined in any of the Security Documents)" in clause (o)
thereof and prior to the period which follows such
phrase, the following:
; and
(p) Debt Incurred by the Issuer or any of its
Subsidiaries to KHC (as defined in the First Consent
Solicitation Statement) or any of its affiliates that is
fully subordinated to the Indenture Obligations ("KHC
Debt"), provided that such KHC Debt and the
subordination thereof shall be pursuant to documentation
acceptable in form and substance to the Trustee, the
Collateral Agent and counsel to the Holders' Committee
(as defined in the First Consent Solicitation Statement)
<PAGE> 4
SECTION 1.05. Amendment to Definition of Permitted
Liens. (a) Clause (o) of the definition of Permitted
Liens contained in Section 1.1 of the Indenture is
hereby amended to delete the word "and" after the
semicolon in such
clause.
(b) The definition of the term Permitted Liens
contained in Section 1.1 of the Indenture is hereby
further amended by inserting after the phrase "not in
excess of $500,000 at any time" in clause (p) thereof
and prior to the period which follows such phrase, the
following:
;
(q) Liens securing KHC Debt; provided that
such KHC Debt and the subordination thereof shall be
pursuant to documentation acceptable in form and
substance to the Trustee, the Collateral Agent and
counsel to the Holders' Committee (as defined in the
First Consent Solicitation Statement)
(r) the put-call arrangement related to the
Sindorf Property as described in the First Consent
Solicitation Statement; and
(s) Liens securing the Debt (to the extent
that it would be Permitted Debt if it were unsecured)
incurred by the Issuer or any Subsidiary in connection
with the settlement of the lawsuit styled Rebenstock v.
Fruehauf Trailer Corporation et al., Case No. 92 CV
77050 DT, United States District Court for the Eastern
District of Michigan, Southern Division, that are fully
subordinated to the Liens in favor of any of the Secured
Parties; provided that the subordination of such Liens
shall be pursuant to documentation acceptable in form
and substance to the Trustee, the Collateral Agent and
counsel to the Holders' Committee
SECTION 1.06. Amendment to Section 2.4(d) of the
Indenture. Section 2.4(d) of the Indenture is hereby
amended by inserting the following sentence immediately
preceding the last sentence of such Section:
Notwithstanding the foregoing, the record date
for the May 1 Payment and the payment thereof to the
Holders shall be as set forth in the First Consent
Solicitation Statement.
SECTION 1.07. Amendment to Section 3.1 of the
Indenture. Section 3.1(a) of the Indenture is hereby
amended by inserting the following sentence immediately
after the first sentence of such Section:
The November 1 Payment will be made to the
extent possible from the Interest Payment Account, and,
notwithstanding any other provision of this Indenture or
any Document, no Event of Default will result from this
use of the Interest Payment Account.
SECTION 1.08. Amendments to Section 3.15 of the
Indenture. (a) The first sentence of Section 3.15 of
the Indenture is hereby amended by inserting after the
phrase "Change of Control Repurchase Date" and prior to
the period which follows such phrase, the following:
; provided, however, and notwithstanding
any provision of this Section 3.15 to the contrary, that
if such Change of Control occurs at any time on or
before March 31, 1997, such repurchase price will be
100% of the principal amount thereof, together with
accrued and unpaid interest thereon to the Change of
<PAGE> 5
Control Repurchase Date, and, as of the Change of
Control Repurchase Date, the covenants of the Issuer
contained in Sections 3.9, 3.10, 3.11, 3.12 and 3.13
will be automatically and without further action
considered deleted from the Indenture and is of no
further force or effect
(b) The second sentence of Section 3.15 of the
Indenture is hereby amended by replacing the phrase
"forty-five (45) days" with the phrase "twenty-five (25)
days."
SECTION 1.09. Amendments to Section 3.16 of the
Indenture. (a) The first sentence of Section 3.16(b)
is hereby amended by inserting "and Sections 3.16(h) and
3.16(i)" after the phrase "of Non-Core Proceeds)" and
prior to the comma which follows such phrase.
(b) The first sentence of Section 3.16(c) is
hereby amended by inserting "and Sections 3.16(h) and
3.16(i)" after the phrase "of Non-Core Proceeds)" and
prior to the comma which follows such phrase.
(c) The first sentence of Section 3.16(c) of the
Indenture is hereby further amended by inserting after
the phrase "general corporate purposes" last appearing
therein and prior to the period which follows such
phrase the following:
; provided further that, notwithstanding the
foregoing, any Excess Class II Non-Core Proceeds
resulting from the sale of the Foreign Assets shall be
applied as provided in Section 3.16(h) hereof
(d) Section 3.16(d) of the Indenture is hereby
deleted in its entirety and replaced by the following:
(d) Core Asset Proceeds. Subject to the
provisions of the Intercreditor Agreement and Sections
3.16(h) and 3.16(i), upon an Asset Sale of any Core
Asset, the Issuer shall, or shall cause its applicable
Subsidiary to, directly deposit all Core Asset Proceeds
from such Asset Sale with the Trustee to be held in
trust for the benefit of the Holders and used to make an
Asset Sale Offer as provided in Section 3.16(e).
(e) The first two sentences of the second full
paragraph of Section 3.16(e) of the Indenture are hereby
deleted in their entirety and replaced by the following:
Unless otherwise required by applicable
law the Issuer shall provide (or cause to be provided)
to the Holders (with a copy to the Trustee and the
Collateral Agent) a notice of the Asset Sale Offer at
least twenty-five (25) business days (as such term is
defined in Rule 14d-1 promulgated under Regulation 14D
of the Securities Exchange Act of 1934) prior to the
applicable Advance Purchase Date at their last
registered addresses by first class mail, postage
prepaid. The Trustee will, upon written request from,
and in the name and at the expense of, the Issuer,
provide such notice to the Holders provided that the
Trustee receives such request, together with all the
information, instructions and materials required to be
given to the Holders pursuant to this Section 3.16(e),
not less than thirty (30) business days (as such term is
defined in Rule 14d-1 promulgated under Regulation 14D
of the Securities Exchange Act of 1934) prior to the
applicable Advance Purchase Date.
(f) Section 3.16 of the Indenture is hereby
further amended by adding new Sections 3.16(h) and
3.16(i), which read in their entirety as follows:
<PAGE> 6
(h) Sale of Foreign Assets. Subject to
the provisions of the Intercreditor Agreement, upon the
sale of the Foreign Assets, the Issuer shall, or shall
cause its applicable Subsidiary to, apply the Foreign
Proceeds as follows: FIRST directly deposit
$4,614,832.50 with the Trustee to be held in trust for
the benefit of the Holders to make the May 1 Payment in
accordance with the terms of this Indenture; SECOND
directly deposit $156,435 of the remaining Foreign
Proceeds with the Trustee to be held in trust for the
benefit of the Holders and used to pay the Consent Fee
in accordance with the provisions of the First Consent
Solicitation Statement; THIRD directly deposit 6,000,000
of the Foreign Proceeds with Congress, to be applied to
the Working Capital Facility in accordance with the
provisions of the Intercreditor Agreement; and FOURTH
directly deposit the remaining Foreign Proceeds with the
Trustee to be held in trust for the benefit of the
Holders and used to make an Asset Sale Offer as provided
in Section 3.16(e).
(i) Asset Sale Account and Interest
Payment Account. Subject to the provisions of the
Intercreditor Agreement and notwithstanding anything to
the contrary contained in Sections 3.16(b)-3.16(d), upon
any Asset Sale (other than the sale of the Foreign
Assets) prior to the time at which the amount set forth
in clause (ii) below has been deposited in the Interest
Payment Account, the Issuer shall, or shall cause its
applicable Subsidiary to, directly deposit all Asset
Sale proceeds from such Asset Sale to the Asset Sale
Account or the Interest Payment Account (as the case may
be) as follows to be held and applied as set forth in
this Section 3.16(i): (i) until such time as an
aggregate of $200,000 has been deposited in the Asset
Sale Account, to the Asset Sale Account and (ii) after
an aggregate of $200,000 has been deposited in the Asset
Sale Account and until an aggregate of $4.5 million (or
such lesser sum as the Issuer can certify in an
Officers' Certificate delivered to the Trustee is
sufficient to make the November 1 Payment) has been
deposited in the Interest Payment Account, to the
Interest Payment Account. The Asset Sale Account and
the Interest Payment Account shall be deemed to be
additional Collateral Accounts under (and as defined in)
the Collateral Agency Agreement for all purposes under
the Documents (including, but not limited to, Section 27
of the Collateral Agency Agreement).
On any Business Day on or prior to the date
one hundred and eighty (180) days after the receipt by
the Collateral Agent of the applicable Asset Sale
proceeds (a "Cut Off Date"), upon delivery to the
Trustee and Collateral Agent of an Officers' Certificate
stating that (i) no Event of Default has occurred and is
continuing or will result from the release requested,
(ii) the Issuer will, on the date the applicable Asset
Sale proceeds (or the specified portion thereof) are
released to it, use such Asset Sale proceeds (or, if
applicable, the specified portion thereof) to repair,
replace or acquire machinery or equipment, in each case
substantially related to the design, manufacture or sale
of truck trailers, components and related parts, and, if
necessary, (iii) the Issuer and its Subsidiaries have
taken all actions (other than the acquisition of the
applicable property) and executed and delivered to the
Collateral Agent all documents necessary to grant
(subject to the provisions of the Intercreditor
Agreement) a first priority perfected Lien in favor of
the Collateral Agent on behalf of the Secured Parties in
any such property and its proceeds or otherwise required
pursuant to Section 12.8(b) hereof, then the Trustee
shall direct the Collateral Agent to release to the
Issuer or as the Issuer may direct in written
instructions delivered to the Collateral Agent prior to
such release all or the specified portion of the
<PAGE> 7
applicable Asset Sale proceeds. Any Asset Sale proceeds
with respect to which an Officers' Certificate is not
received by the Trustee and the Collateral Agent as
provided in this Section 3.16(i) on or prior to the
applicable Cut Off Date ("Excess Core Proceeds") shall
be transferred by the Collateral Agent to the Trustee to
be held in trust for the benefit of the Holders and used
to make an Asset Sale Offer as provided in Section
3.16(e).
SECTION 1.10. Amendment to Section 5.1(a) of the
Indenture. Clause (a) of Section 5.1 is hereby amended
by replacing the phrase "thirty (30) days" with the
phrase "ten (10) days" prior to the semicolon which
follows such phrase.
SECTION 1.11. Amendment to Section 12.4 of the
Indenture. Section 12.4 is hereby amended to add a new
subsection 12.4(c), which reads in its entirety as
follows:
(c) Notwithstanding anything to the contrary
in this Indenture, the release of the Foreign Assets
from the Lien of the Indenture and the Security
Documents in connection with the sale of the Foreign
Assets pursuant to Section 3.16 of this Indenture shall
not be deemed to impair the security under this
Indenture in contravention of the provisions hereof
within the meaning of Section 314(d) of the Trust
Indenture Act.
ARTICLE 2
SUNDRY PROVISIONS
SECTION 2.01. Effect of Supplemental Indenture.
Upon the execution and delivery of this Supplemental
Indenture by the Issuer and the Trustee, the Indenture
and the Collateral Agency Agreement shall be
supplemented in accordance herewith, and this
Supplemental Indenture shall form a part of the
Indenture and the Collateral Agency Agreement for all
purposes, and every Holder of Securities heretofore or
hereafter authenticated and delivered under the
Indenture shall be bound thereby.
SECTION 2.02. Indenture and Collateral Agency
Agreement Remain in Full Force and Effect. Except
as supplemented hereby, all provisions in the Indenture
and the other Documents shall remain in full force and
effect.
SECTION 2.03. Indenture, Collateral Agency
Agreement and Supplemental Indenture Construed
Together. This Supplemental Indenture is an indenture
supplemental to and in implementation of the Indenture
and the Collateral Agency Agreement, and the Indenture,
the Collateral Agency Agreement and this Supplemental
Indenture shall henceforth be read and construed
together.
SECTION 2.04. Confirmation and Preservation of
Indenture and Collateral Agency Agreement. The
Indenture and the Collateral Agency Agreement as
supplemented by this Supplemental Indenture are in all
respects confirmed and preserved.
SECTION 2.05. Conflict with Trust Indenture Act.
If any provision of this Supplemental Indenture limits,
qualifies or conflicts with any provision of the Trust
Indenture Act that is required under such Act to be part
of and govern any provision of this Supplemental
Indenture, the provision of such Act shall control. If
any provision of this Supplemental Indenture modifies or
excludes any provision of the Trust Indenture Act that
may be so modified or excluded, the provision of such
Act shall be deemed to apply to the Indenture as so
modified or to be excluded by this Supplemental
Indenture, as the case may be.
<PAGE> 8
SECTION 2.06. Separability Clause. In case any
provision in this Supplemental Indenture shall be
invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions
shall not in any way be affected or impaired thereby.
SECTION 2.07. Effect of Headings. The Article and
Section headings herein are for convenience only and
shall not affect the construction hereof.
SECTION 2.08. Benefits of Supplemental Indenture,
etc. Nothing in this Supplemental Indenture, the
Indenture or the Securities, express or implied, shall
give to any Person, other than the parties hereto and
thereto and their successors hereunder and thereunder,
the Collateral Agent and the Holders of Securities, any
benefit of any legal or equitable right, remedy or claim
under the Indenture, this Supplemental Indenture or the
Securities.
SECTION 2.09. Successors and Assigns. All
covenants and agreements in this Supplemental Indenture
by the Issuer shall bind its successors and assigns,
whether so expressed or not.
SECTION 2.10. Trustee Not Responsible for
Recitals, etc. The recitals contained herein shall be
taken as the statements of the Issuer, and the Trustee
assumes no responsibility whatsoever for their
correctness nor for the validity or sufficiency of this
Supplemental Indenture or for the due execution hereof
by the Issuer.
SECTION 2.11. Certain Duties and Responsibilities
of the Trustee. In entering into this Supplemental
Indenture, the Trustee and the Collateral Agent shall be
entitled to the benefit of every provision of the
Indenture and the Collateral Agency Agreement relating
to the conduct or affecting the liability of or
affording protection to the Trustee and/or the
Collateral Agent, as the case may be, whether or not
elsewhere herein so provided.
SECTION 2.12. New York Law to Govern. THIS
SUPPLEMENTAL INDENTURE SHALL BE DEEMED TO BE A CONTRACT
UNDER THE LAWS OF THE STATE OF NEW YORK AND FOR ALL
PURPOSES SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE
WITH SUCH LAWS OF SAID STATE, EXCEPT AS MAY OTHERWISE BE
REQUIRED BY MANDATORY PROVISIONS OF LAW.
SECTION 2.13. Counterparts. This Supplemental
Indenture may be executed in any number of counterparts,
each of which shall be an original; but such
counterparts shall together constitute but one and the
same instrument.
[The balance of this page is left intentionally blank.]<PAGE>
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have caused
this Supplemental Indenture to be duly executed as
of the date and year first above written.
FRUEHAUF TRAILER CORPORATION
By:/s/ Timothy J. Wiggins
-------------------------
Title: Executive Vice President and
Chief Financial Officer
IBJ SCHRODER BANK & TRUST COMPANY,
as Trustee and Collateral Agent
By:/s/ Barbara McCluskey
-------------------------
Title: Assistant Vice President
PAYMENT OF THIS NOTE IS SUBORDINATED
PURSUANT TO THE TERMS OF THE MULTI-PARTY
SUBORDINATION AGREEMENT (AS DEFINED HEREIN)
TO THE CLAIMS OF THE SENIOR CREDITORS (AS
DEFINED IN THE MULTI-PARTY SUBORDINATION AGREEMENT)
SUBORDINATED REVOLVING NOTE
June 21,
1996
FOR VALUE RECEIVED, Fruehauf Trailer
Corporation
("Borrower") promises to pay to the order of K-H
Corporation (together with its successors and assigns,
"Lender") the unpaid principal amount of Revolving Loans
(as defined below) made by Lender to Borrower from time
to
time hereunder together with interest on the outstanding
balance thereof at the rate provided for herein on the
dates and upon the terms set forth herein.
Recitals
A. Borrower and Congress Financial
Corporation
(Central) ("Congress") are parties to that certain
Accounts Financing Agreement [Security Agreement] (the
"Accounts Financing Agreement"), that certain Inventory
and Equipment Security Agreement Supplement to Accounts
Financing Agreement [Security Agreement], that certain
Rider No. 1 to Accounts Financing Agreement [Security
Agreement], that certain Inventory and Equipment Security
Agreement Supplement to Accounts Financing Agreement
[Security Agreement] and that certain letter regarding
Inventory Loans, each dated as of August 20, 1993 and
each
as amended by that certain First Amendment to Accounts
Financing Agreement [Security Agreement] entered into as
of April 4, 1994 by and between Borrower and Congress,
that certain Second Amendment to Accounts Financing
Agreement [Security Agreement] and Waiver entered into as
of April 12, 1994 by and between Borrower and Congress,
that certain Third Amendment to Accounts Financing
Agreement [Security Agreement] entered into as of May 1,
1995 by and between Borrower and Congress, that certain
Fourth Amendment to Accounts Financing Agreement
[Security
Agreement] entered into as of April 19, 1996 by and
between Borrower and Congress and that certain Fifth
Amendment to Accounts Financing Agreement [Security
Agreement] entered into as of June 21, 1996 by and
between
Borrower and Congress (collectively, as amended,
restated,
supplemented or otherwise modified from time to time,
the "Congress Loan Agreement"), and the other Loan
Documents, as defined in the Congress Loan Agreement (all
such Loan Documents, together with the Congress Loan
Agreement, collectively, the "Congress Loan Documents").
<PAGE>
B. Borrower and Congress are parties to
those certain Working Capital Term Notes in the aggregate
amount of $6.5 million, one dated as of April 19, 1996
and
the other dated as of June 21, 1996, and the other Term
Loan Financing Agreements, as defined in the Working
Capital Term Notes (the Working Capital Term Notes and
all
such Term Loan Financing Agreements, collectively, the
"Working Capital Term Note Documents"), all of which have
been assigned to Lender.
C. Borrower is a party to that certain
Indenture (as amended to the date hereof and as it may be
further amended, restated, supplemented or otherwise
modified from time to time, the "Indenture") dated as of
May 1, 1995 by and between Borrower and IBJ Schroder Bank
& Trust Company ("IBJS"), as trustee, the Security
Documents and the other Documents, as each such term is
defined in the Indenture (all such Documents, together
with the Indenture, as each is amended to the date hereof
and as it may be further amended, restated, supplemented
or otherwise modified from time to time, collectively,
the
"Bondholder Documents").
D. Lender is a party to that certain
Multi-Party Subordination Agreement (as it may be
amended,
restated, supplemented or otherwise modified as permitted
therein, the "Multi-Party Subordination Agreement")
entered into as of even date herewith by and among
Lender,
Congress and IBJS, as Trustee (as defined in the
Indenture) and Collateral Agent (as defined in the
Indenture).
E. Borrower has requested and Lender has
agreed to make revolving loans on a subordinated basis
(the "Revolving Loans") to Borrower from time to time to
pay Trailing Liabilities (as defined herein) upon the
terms and conditions set forth herein.
THEREFORE, in consideration of the mutual
conditions and agreements set forth herein, and for other
good and valuable consideration, the receipt and adequacy
of which are hereby acknowledged, the parties hereto
agree
as follows:
SECTION 1. DEFINITIONS
All terms used herein which are defined in
Article 1 or Article 9 of the Uniform Commercial Code
shall have the meanings given therein unless otherwise
defined in this Note. All references to the plural herein
shall also mean the singular and to the singular shall
also mean the plural. All references to Borrower and
Lender pursuant to the definitions set forth in the
recitals hereto, or to any other person herein, shall
include their respective successors and assigns. The
words
"hereof", "herein", "hereunder", "this Note" and words of
similar import when used in this Note shall refer to this
Note as a whole and not any particular provision of this
Note and as this Note now exists or may hereafter be
amended, modified, supplemented, extended, renewed,
restated or replaced. Any accounting term used herein
unless otherwise defined in this Note shall have the
meaning customarily given to such term in accordance with
GAAP. For purposes of this Note, the following terms
shall have the respective meanings given to them below:
1.1 "Account" shall have the meaning set
forth in Section 4 hereof.
1.2 "Additional Collateral" shall mean all
property and assets of whatever kind or nature pledged
pursuant to the Security Documents.
1.3 "Collateral" shall have the meaning set
forth in Section 4 hereof.
1.4 "Equipment" shall have the meaning set
forth in Section 4 hereof.
1.5 "Event of Default" shall mean the
occurrence or existence of any event or condition
described in Section 8.1 hereof.
1.6 "GAAP" shall mean generally accepted
accounting principles in the United States of America as
in effect from time to time as set forth in the opinions
and pronouncements of the Accounting Principles Board and
the American Institute of Certified Public Accountants
and
the statements and pronouncements of the Financial
Accounting Standards Boards which are applicable to the
circumstances as of the date of determination.
1.7 "Guarantees" shall mean each guarantee
executed and delivered by Borrower's subsidiaries as set
forth on Annex A.
1.8 "Inventory" shall have the meaning set
forth in Section 4 hereof.
1.9 "Loan Obligations" shall mean the
Revolving Loans and all other obligations, liabilities
and
indebtedness of every kind, nature and description owing
by Borrower to Lender and/or its affiliates pursuant to
any or all of the Revolving Loan Documents, including
principal, interest, charges, fees, costs and expenses,
however evidenced, whether as principal, surety endorser,
guarantor or otherwise, whether now existing or hereafter
arising, whether arising before, during or after the
initial or renewal term of this Note or after the
commencement of any case with respect to Borrower under
the United States Bankruptcy Code or any similar statute
(including, without limitation, the payment of interest
and other amounts which would accrue and become due but
for the commencement of such case), whether direct or
indirect, absolute or contingent, joint or several, due
or
not due, primary or secondary, liquidated or
unliquidated,
secured or unsecured, and however acquired by Lender.
1.10 "Maturity Date" shall mean December 1,
1999; provided that if the securities issued pursuant to
the Indenture are outstanding on such date, such date
shall be automatically extended to the date 15 business
days after the securities issued pursuant to the
Indenture
are no longer outstanding.
1.11 "Obligor" shall mean any guarantor,
endorser, acceptor, surety or other person liable on or
with respect to the Loan Obligations or who is the owner
of any property which is security for the Loan
Obligations, other than Borrower.
1.12 "Person" or "person" shall mean any
individual, sole proprietorship, partnership, corporation
(including, without limitation, any corporation which
elects subchapter S status under the Internal Revenue
Code
of 1986, as amended), business trust, unincorporated
association, joint stock corporation, trust, joint
venture
or other entity or any government or any agency or
instrumentality or political subdivision thereof.
1.13 "Prime Rate" shall mean the rate from
time to time publicly announced by CoreStates Bank, N.A.,
or its successors and assigns, at its office in
Philadelphia, Pennsylvania, as its prime rate, whether or
not such announced rate is the best rate available at
such
bank.
1.14 "Records" shall have the meaning set
forth in Section 4 hereof.
1.15 "Revolving Loan" shall have the meaning
set forth in Recital F hereof.
1.16 "Revolving Loan Documents" shall mean,
collectively, this Note, all of the documents identified
in Exhibit "A" hereto and any agreement, document,
instrument or amendment to any of the foregoing documents
at any time hereafter which are executed and/or delivered
by Borrower or any Obligor in favor of Lender in its
capacity as holder of this Note.
1.17 "Security Documents" means each
mortgage, pledge agreement, and general security document
utilized to pledge, as Collateral for the Loan
Obligations, any property or assets of whatever kind or
nature.
1.18 "Trailing Liabilities" shall mean
current and long term liabilities of Borrower and its
subsidiaries for which Lender may be contingently liable.
<PAGE>
SECTION 2. CREDIT FACILITIES
2.1 Loan. Subject to and upon the terms and
conditions contained herein, Lender agrees at any time
and
from time to time on or after the date hereof and prior
to
the Maturity Date, to make a Revolving Loan or Revolving
Loans to Borrower, which loans shall be available as
follows:
(a) Borrower shall cooperate with Lender on
an on- going basis in efforts to reduce Borrower's
Trailing Liabilities and to utilize opportunities to
settle or reduce the Trailing Liabilities at a discount.
(b) Upon identifying opportunities to settle
Trailing Liabilities at a discount or otherwise,
Lender, in its sole discretion, shall advance funds
hereunder for such identified Trailing Liabilities;
provided that Lender shall have so advanced at least
$1.75
million on or before September 1, 1996 and an additional
$l.75 million on or before November 1, 1996 to pay
Trailing Liabilities identified by Lender or, if none
have
been identified, to pay Trailing Liabilities selected by
Borrower. Borrower will cooperate to discharge those
identified liabilities funded by Lender.
2.2 Repayment of Revolving Loan. Borrower
shall have the right to prepay Revolving Loans in whole
or
in part from time to time, without premium or penalty.
Except as provided in Section 8.2 hereof, the then
outstanding principal amount of the Revolving Loans shall
be due and payable on the Maturity Date.
2.3 Interest. (a) Pre-Default Rate.
Borrower shall pay to Lender interest on the outstanding
principal amount of the Loan Obligations from the date of
the borrowing thereof until repaid at the rate of two and
one-half percent (2>%) per annum in excess of the Prime
Rate.
(b) Post-Default Rate. Notwithstanding
Section 2.3(a), Borrower shall pay to Lender interest on
the outstanding principal amount of the Loan Obligations,
at Lender's option, at a rate equal to two percent (2%)
per annum in excess of the pre-default rate set forth
above from the date of the occurrence of an Event of
Default hereunder, and for so long as such Event of
Default is continuing as determined in good faith by
Lender and Lender shall promptly give notice to Borrower
upon exercising its right hereunder. All interest
accruing hereunder on and after the date of any Event of
Default or termination or non-renewal hereof shall be
payable on demand.
(c) Payment of Interest. Accrued interest
shall be due and payable in arrears no later than the
first day of each month during which any of the Loan
Obligations remain outstanding and unpaid. Interest
shall
be calculated on the basis of a three hundred sixty (360)
day year and actual days elapsed. The interest rate
shall
increase or decrease by an amount equal to each increase
or decrease in the Prime Rate effective on the first day
of the month after any change in such Prime Rate is
announced based on the Prime Rate in effect on the last
day of the month in which any such change occurs. In no
event shall charges constituting interest payable by
Borrower to Lender exceed the maximum amount or the rate
permitted under any applicable law or regulation, and if
any part or provision of any of the Revolving Loan
Documents is in contravention of any such law or
regulation, such part or provision shall be deemed
amended
to conform thereto.
2.4 Payments. Payments of principal and
interest hereunder shall be made to Lender by wire
transfer of immediately available funds to the account
designated on the signature page hereto or such other
account as Lender may designate in writing. Borrower
shall make all payments to Lender on the Loan Obligations
free and clear of, and without deduction or withholding
for or on account of, any setoff, counterclaim, defense,
duties, taxes, levies, imposts, fees, deductions,
withholding, restrictions or conditions of any kind. If
after receipt of any payment of, or proceeds applied to
the payment of, any of the Loan Obligations, Lender is
required to surrender or return such payment to any
Person
for any reason, then the Loan Obligations intended to be
satisfied by such payment shall be reinstated and
continue
and this Note shall continue in full force as if such
payment had not been received by Lender. Borrower shall
be liable to pay to Lender, and does indemnify and hold
Lender harmless for the amount of any payments
surrendered
or returned. This Section 2.4 shall remain effective
notwithstanding any contrary action which may be taken by
Lender in reliance upon such payment. This Section 2.4
shall survive the termination or non-renewal of this
Note.
2.5 Instructions on Loan Disbursement and
Use
of Proceeds. (a) On the date on which Lender has
determined, in its sole discretion (after $3.5 million of
Revolving Loans has been loaned hereunder), to fund a
Revolving Loan, the amount of such Revolving Loan shall
be: (i) transferred to Borrower for immediate payment of
the Trailing Liabilities to be paid with such borrowing,
(ii) paid by Lender directly to the obligee of such
identified Trailing Liability or (iii) as otherwise
agreed
by Borrower and Lender.
(b) All the proceeds of all Revolving Loans
shall be used by Borrower to pay Trailing Liabilities as
identified by Lender or as identified by Borrower solely
in accordance with Section 2.1(b).
2.6 Revolving Loans and Revolving Loan
Documents Subject to Multi-Party Subordination Agreement.
This Note, all Revolving Loans hereunder and all of the
other Revolving Loan Documents are subject in all
respects
to the terms of the Multi-Party Subordination Agreement.
SECTION 3. CONDITIONS PRECEDENT TO ALL REVOLVING
LOANS___
The obligations of the Lender to make the
Revolving Loans to Borrower hereunder are subject, at the
time of the making of each such Loan, to the satisfaction
of the following conditions:
(A) Officer's Certificate. On the date
hereof, Lender shall have received a certificate dated
such date signed by an appropriate officer of the
Borrower
stating that all of the applicable conditions set forth
in
this Section 3 have been satisfied in all material
respects.
(B) Opinions of Counsel. On the date
hereof, Lender shall have received an opinion or opinions
addressed to it and dated the date hereof, in form and
substance satisfactory to Lender, from Jones, Day, Reavis
& Pogue, counsel to the Borrower, which opinion shall
address the matters reasonably requested by Lender.
(C) Corporate Proceedings. All corporate
and legal proceedings and all instruments and agreements
in connection with the transactions contemplated hereby
shall be reasonably satisfactory in form and substance to
Lender, and Lender shall have received all information
and
copies of all certificates, documents and papers,
including records of corporate proceedings and
governmental approvals, if any, which Lender reasonably
may have requested from the Borrower in connection
therewith, such documents and papers where appropriate to
be certified by proper corporate or governmental
authorities. Without limiting the foregoing, Lender shall
have received (i) resolutions of the Board of Directors
of
the Borrower approving and authorizing such documents and
actions as are contemplated hereby in form and substance
reasonably satisfactory to Lender including without
limitation the execution and delivery of all Revolving
Loan Documents, certified by its corporate secretary or
an
assistant secretary as being in full force and effect
without modification or amendment, and (ii) signature and
incumbency certificates of officers of the Borrower
executing instruments, documents or agreements required
to
be executed in connection with this Note.
(D) Security Documents and Guarantees. The
Security Documents and Guarantees shall have been duly
executed and delivered by the respective parties thereto
and there shall have been delivered to Lender (i)
evidence
that certificates representing all pledged securities
under any of the Revolving Loan Documents, together with
executed and undated stock powers and/or assignments in
blank, have been delivered to Congress or the Trustee or
the Collateral Agent, (ii) evidence of the filing and due
execution of appropriate financing statements under the
provisions of the UCC, applicable domestic or local laws,
rules or regulations in each of the offices where such
filing is necessary or appropriate to grant to Lender a
perfected Lien in the Collateral and the Additional
Collateral superior to and prior to the rights of all
third persons other than Congress and the Trustee and/or
the Collateral Agent and (iii) evidence that
arrangements
have been made for the prompt completion of all
recordings
and filings of each Security Document related to
mortgaged
real property and delivery to Lender of such other
security and other documents as may be necessary or, in
the reasonable opinion of Lender, desirable to perfect
the
liens created, or purported or intended to be created, by
the Security Documents.
(E) No Default; Representations and
Warranties. At the time of the making of each Revolving
Loan and also after giving effect thereto (i) there shall
exist no Event of Default and (ii) all representations
and
warranties made by Borrower or its subsidiaries contained
herein or in the other Revolving Loan Documents in effect
at such time shall be true and correct in all material
respects with the same effect as though such
representations and warranties had been made on and as of
the date of the making of such Revolving Loan, unless
such
representation and warranty expressly indicates that it
is
being made as of any other specific date in which case on
and as of such other date.
(F) Certain Fees. Borrower shall have paid
or have caused to be paid the fees and expenses
(including, without limitation, reasonable legal fees and
expenses) contemplated hereby and/or in connection with
the other Revolving Loan Documents.
(G) Identification of Trailing Liabilities.
Borrower and Lender shall have consulted each other in
identifying Trailing Liabilities and Lender, in its sole
discretion, shall have selected one or more specific
Trailing Liabilities that it will fund with Revolving
Loans hereunder, except as and to the extent otherwise
provided in Section 2.1(b).
The acceptance of the proceeds of each
Revolving Loan shall constitute a representation and
warranty by Borrower to Lender that all of the applicable
conditions specified in Section 3 have been satisfied.
SECTION 4. GRANT OF SECURITY INTEREST
To secure payment and performance of all Loan
Obligations, Borrower hereby grants to Lender a
continuing
security interest in, a lien upon, and a right of set off
against, and hereby assigns to Lender as security (all of
which shall be applicable to any Lender holding this
Note), the following property and interests in property,
whether now owned or hereafter acquired or existing, and
whereever located (collectively, the "Collateral"):
All present and future (a) accounts, contract
rights, general intangibles, chattel paper, documents,
letters of credit and instruments, as such terms are
defined in the Uniform Commercial Code, including,
without
limitation, all obligations for the payment of money
arising out of Borrower's sale, lease or other
disposition
of goods or other property or rendition of services
(collectively, the "Accounts"); (b) moneys, securities
and
other property and the proceeds thereof, now or hereafter
held or received by, or in transit to, Lender from or for
Borrower, whether for safekeeping, pledge, custody,
transmission, collection or otherwise, and all of
Borrower's deposits (general or special), balances, sums
and credits with Lender at any time existing; (c) all of
Borrower's right, title and interest, and all of
Borrower's rights, remedies, security and liens, in, to
and in respect of the Accounts and other Collateral,
including, without limitation, rights of stoppage in
transit, replevin, repossession and reclamation and other
rights and remedies of an unpaid vendor, lienor or
secured
party, guaranties or other contracts of suretyship with
respect to the Accounts, deposits or other security for
the obligation of any debtor or obligor in any way
obligated on or in connection with any Account (an
"Account Debtor"), and credit and other insurance; (d)
all
of Borrower's right, title and interest in, to and in
respect of all goods relating to, or which by sale have
resulted in, Accounts, including, without limitation, all
goods described in invoices, documents, contracts or
instruments with respect to, or otherwise representing or
evidencing, any Accounts or other Collateral, including
without limitation, all returned, reclaimed or
repossessed
goods; (e) all deposit accounts; (f) all books, records,
ledger cards, computer programs, and other property and
general intangibles evidencing or relating to the
Accounts
and any other Collateral or any Account Debtor, together
with the file cabinets or containers in which the
foregoing are stored (collectively, the "Records"); (g)
all other general intangibles of every kind and
description, including without limitation trade names and
trademarks, and the goodwill of the business symbolized
thereby, patents, copyrights, licenses and Federal, State
and local tax refund claims of all kinds; (h) all of
Borrower's equipment, including, without limitation,
machinery, equipment, office equipment and supplies,
computers and related equipment, furniture, furnishings,
tools, tooling, jigs, dies, fixtures, manufacturing
implements, fork lifts, trucks, trailers, motor vehicles
and other equipment (collectively, the "Equipment"); and
(i) all proceeds of the foregoing, in any form,
including,
without limitation, any claims against third parties for
loss or damage to or destruction of any or all of the
foregoing; and all of Borrower's inventory, including
without limitation: raw materials, work in process,
parts, components, assemblies, supplies and materials
used
or consumed in Borrower's business, finished goods, and
all other inventory of whatever kind or nature, wherever
located, whether now owned or hereafter existing or
acquired by Borrower ("Inventory"), including without
limitation, all wrapping, packaging, advertising,
shipping
materials, and all other goods consumed in Borrower's
business, all labels and other devices, names or marks
affixed or to be affixed thereto for purposes of selling
or of identifying the same or the seller or manufacturer
thereof and all of Borrower's right, title and interest
therein and thereto; all books, records, documents, other
property and general intangibles at any time relating to
the Inventory; all goods, wares and merchandise, finished
or unfinished, held for sale or lease or furnished or to
be furnished under contracts of service; all goods
returned to or repossessed by Borrower; and all products
and proceeds of the foregoing, in any form, including,
without limitation, insurance proceeds and any claims
against third parties for loss or damage to or
destruction
of any or all of the foregoing.
The Collateral also includes all
replacements,
additions, accessions, substitutions, repairs, proceeds
and products relating thereto or therefrom, and all
documents, ledger sheets and files of Borrower relating
thereto. Proceeds hereunder include (i) whatever is now
or hereafter received by Borrower upon the sale,
exchange,
collection or other disposition of any item of
Collateral,
whether such proceeds constitute inventory, accounts,
accounts receivable, general intangibles, instruments,
securities, credits, documents, letters of credit,
chattel
paper, documents of title, warehouse receipts, leases,
deposit accounts, money, contract rights, goods or
equipment; (ii) any such items which are now or hereafter
acquired by Borrower with any proceeds of Collateral
hereunder; and (iii) any insurance now or hereafter
payable by reason of loss or damage to any item of
Collateral or any proceeds thereof.
SECTION 5. COLLATERAL COVENANTS
5.1 Inventory Covenants. (a) Borrower shall
not remove any Inventory from the locations referenced in
Section 6.3 hereof, without the prior written consent of
Lender, except for sales of Inventory in the ordinary
course of Borrower's business and except to move
Inventory
directly from one location referenced in Section 6.3
hereof to another such location; (b) upon Lender's
request, Borrower shall, at its expense, no more than
once
in any twelve (12) month period, but at any time or times
as Lender may request on or after an Event of Default,
deliver or cause to be delivered to Lender written
reports
or appraisals as to the Inventory in form, scope and
methodology acceptable to Lender and by an appraiser
acceptable to Lender, addressed to Lender or upon which
Lender is expressly permitted to rely; (c) Borrower shall
produce, use, store and maintain the Inventory, with all
reasonable care and caution and in accordance with
applicable standards of any insurance and in conformity
with applicable laws (including, but not limited to, the
requirements of the Federal Fair Labor Standards Act of
1938, as amended, and all rules, regulations and orders
related thereto); (d) Borrower assumes all responsibility
and liability arising from or relating to the production,
use, sale or other disposition of the Inventory; (e)
Borrower shall not sell Inventory to any customer on
approval, or any other basis which entitles the customer
to return or may obligate Borrower to repurchase such
Inventory; (f) Borrower shall keep the Inventory in good
and marketable condition; and (g) Borrower shall not,
without prior written notice to Lender, acquire or accept
any Inventory on consignment or approval.
5.2 Account Provisions. (a) Each 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
Borrower's business; (b) all statements made and all
unpaid balances appearing in the invoices, documents and
instruments evidencing each Account are true and correct
in all material respects and are in all material respects
what they purport to be; and (c) none of the transactions
underlying or giving rise to any Account shall violate
any
state or federal laws or regulations, and all documents
relating to the Accounts shall be legally sufficient
under
such laws or regulations and shall be legally enforceable
in accordance with their terms.
5.3 Equipment Covenants. (a) Borrower
shall,
at its expense, at any time or times as Lender may
request
on or after an Event of Default, deliver or cause to be
delivered to Lender written reports or appraisals as to
the Equipment in form, scope and methodology acceptable
to
Lender and by an appraiser acceptable to Lender; (b)
Borrower shall keep the Equipment in good order, repair,
running and marketable condition (ordinary wear and tear
excepted); (c) Borrower shall use the Equipment, with all
reasonable care and caution and in accordance with
applicable standards of any insurance and in conformity
with all applicable laws; (d) the Equipment is and shall
be used in Borrower's business and not for personal,
family, household or farming use; (e) Borrower shall not
remove any Equipment from the locations referenced in
Section 6.3 hereof, except to the extent necessary to
have
any Equipment repaired or maintained in the ordinary
course of the business of Borrower or to move Equipment
directly from one location referenced in Section 6.3
hereof to another such location and except for the
movement of motor vehicles used by or for the benefit of
Borrower in the ordinary course of business; (f) the
Equipment is now and shall remain personal property and
Borrower shall not permit any of the Equipment to be or
become a part of or affixed to real property; and (g)
Borrower assumes all responsibility and liability arising
from the use of the Equipment.
5.4 Power of Attorney. Borrower hereby
irrevocably designates and appoints Lender (and all
persons designated by Lender) as Borrower's true and
lawful attorney-in-fact, and authorizes Lender, in
Borrower's or Lender's name, to: (a) at any time an
Event
of Default or event which with notice or passage of time
or both would constitute an Event of Default exists (i)
demand payment of Accounts; (ii) enforce payment of
Accounts by legal proceedings or otherwise; (iii)
exercise
all of Borrower's rights and remedies to collect any
Account or other Collateral; (iv) sell or assign any
Account or other Collateral upon such terms, for such
amount and at such time or times as the Lender deems
advisable; (v) settle, adjust, compromise, extend or
renew
an Account; (vi) discharge and release any Account; (vii)
prepare, file and sign Borrower's name on any proof of
claim in bankruptcy or other similar document against an
account debtor; (viii) notify the post office authorities
to change the address for delivery of Borrower's mail to
an address designated by Lender, and open and dispose of
all mail addressed to Borrower; and (ix) do all acts and
things which are necessary, in Lender's determination, to
fulfill Borrower's obligations under the Revolving Loan
Documents and (b) at any time (i) take control in any
manner of any item of payment of proceeds thereof; (ii)
have access to any lockbox or postal box into which
Borrower's mail is deposited; (iii) endorse Borrower's
name upon any items of payment or proceeds thereof and
deposit the same in Lender's account for application to
the Loan Obligations; (iv) endorse Borrower's name upon
any chattel paper, document, instrument, invoice, or
similar document or agreement relating to any Account or
any goods pertaining thereto or any other Collateral; (v)
sign Borrower's name on any verification of Accounts and
notices thereof to account debtors and (vi) execute in
Borrower's name and file any UCC financing statements or
amendments thereto. Borrower hereby releases Lender and
its officers, employees and designees from any
liabilities
arising from any act or acts under this power of attorney
and in furtherance thereof, whether of omission or
commission, except as a result of Lender's own gross
negligence or wilful misconduct as determined pursuant to
a final non-appealable order of a court of competent
jurisdiction.
5.5 Right to Cure. Lender may, at its
option, (a) cure any default by Borrower under any
agreement with a third party or pay or bond on appeal any
judgment entered against Borrower, (b) discharge taxes,
liens, security interests or other encumbrances at any
time levied on or existing with respect to the Collateral
and (c) pay any amount, incur any expense or perform any
act which, in Lender's judgment, is necessary or
appropriate to preserve, protect, insure, maintain,
enforce and collect the Collateral and the rights of
Lender with respect thereto. All amounts so expended
shall constitute Loan Obligations and shall be repayable
by Borrower on demand. Lender shall be under no
obligation to effect such cure, payment or bonding and
shall not, by doing so, be deemed to have assumed any
obligation or liability of Borrower. Any payment made or
other action taken by Lender under this Section 5.5 shall
be without prejudice to any right to assert an Event of
Default hereunder and to proceed accordingly.
5.6 Access to Premises. From time to time
as
requested by Lender, at the cost and expense of Borrower,
(a) Lender or its designee shall have complete access to
all of Borrower's premises during normal business hours
and after notice to Borrower, or at any time and without
notice to Borrower if an Event of Default exists, for the
purposes of inspecting, verifying and auditing the
Collateral and the Additional Collateral and all of
Borrower's books and records, including, without
limitation, the Records, and (b) Borrower shall promptly
furnish to Lender such copies of such books and records
or
extracts therefrom as Lender may request, and (c) Lender
or its designee may use during normal business hours such
of Borrower's personnel, equipment, supplies and premises
as may be reasonably necessary for the foregoing and if
an
Event of Default exists for the collection of Accounts
and
realization of other Collateral and the Additional
Collateral.
SECTION 6. REPRESENTATIONS AND WARRANTIES
Borrower hereby represents and warrants to
Lender the following (which shall survive the execution
and delivery of this Note), the truth and accuracy of
which are a condition to the making of each Revolving
Loan:
6.1 Corporate Existence, Power and
Authority;
Nature of Obligation. Borrower is a corporation duly
organized and in good standing under the laws of its
state
of incorporation and is duly qualified as a foreign
corporation and in good standing in all states or other
jurisdictions where the nature and extent of the business
transacted by it or the ownership of assets makes such
qualification necessary, except for those jurisdictions
in
which the failure to so qualify would not have a material
adverse effect on Borrower's financial condition, results
of operation or business or the rights of Lender in or to
any of the Collateral or the Additional Collateral. The
execution, delivery and performance of this Note and the
other Revolving Loan Documents and the transactions
contemplated hereunder and thereunder are all within
Borrower's corporate powers, have been duly authorized
and
are not in contravention of law or the terms of
Borrower's
certificate of incorporation, by-laws or other
organizational documentation, or the Bondholder
Documents,
the Congress Loan Documents, any indenture, agreement or
undertaking to which Borrower is a party or by which
Borrower or its property are bound. The Revolving Loan
Documents constitute legal, valid and binding obligations
of Borrower enforceable in accordance with their
respective terms.
6.2 Financial Statements and Filings; No
Material Adverse Change. All financial statements
relating to Borrower which have been or may hereafter be
delivered by Borrower to Lender or filed with the
Securities and Exchange Commission are or will be
prepared
in accordance with GAAP and fairly present the financial
condition and the results of operation of Borrower as at
the dates and for the periods set forth therein. Except
as
disclosed in any interim financial statements furnished
by
Borrower to Lender prior to the date of this Note, there
has been no material adverse change in the assets,
liabilities, properties and condition, financial or
otherwise, of Borrower, since the date of the most recent
audited financial statements furnished by Borrower to
Lender prior to the date of this Note.
6.3 Chief Executive Office; Collateral
Locations. The chief executive office of Borrower and
Borrower's Records concerning Accounts are located only
at
the address set forth in the Congress Loan Documents and
its only other places of business and the only other
locations of Collateral, if any, are the addresses set
forth in the Congress Loan Documents, subject to the
right
of Borrower to establish new locations in accordance with
Section 7.2 hereof. The Congress Loan Documents
correctly
identify any of such locations which are not owned by
Borrower and set forth the owners and/or operators
thereof, and to the best of Borrower's knowledge, the
holders of any mortgages on such locations.
6.4 Status of Liens; Title to Properties.
The security interests and liens granted to Lender under
the Revolving Loan Documents constitute valid and, upon
the filing of appropriate financing statements, mortgages
and deeds of trusts, perfected liens and security
interests in and upon the Collateral and the Additional
Collateral subject only to the liens permitted under
Section 7.8 hereof. Borrower has good and marketable
title to all of its properties and assets subject to no
liens, mortgages, pledges, security interests,
encumbrances or changes of any kind, except those granted
to Lender and such others as are specifically permitted
under Section 7.8 hereof.
6.5 Litigation. Except as described in
Borrower's annual or quarterly reports filed pursuant to
the Securities Exchange Act of 1934, as disclosed to
Lender in connection with the execution and assignment of
the Working Capital Term Note Documents or as otherwise
previously disclosed to Lender, there are no judgments
outstanding against Borrower, there is no present
investigation by any governmental agency pending or, to
the best of Borrower's knowledge, threatened against or
affecting Borrower or its assets or business and there is
no action, suit, proceeding or claim by any Person
pending
or, to the best of Borrower's knowledge, threatened
against Borrower or its assets or goodwill, or against or
affecting any transactions contemplated by the Revolving
Loan Documents, which if adversely determined with
respect
to it would result in any material adverse change in the
assets, business or prospects of Borrower or which would
impair the ability of Borrower to perform its obligations
hereunder or under any of the other Revolving Loan
Documents to which it is a party, or of Lender to enforce
this Note or any of the other Revolving Loan Documents or
realize upon the Collateral or the Additional Collateral.
6.6 Compliance with Other Agreements and
Applicable Laws. Borrower is not in default under, or in
violation of any of the terms of, any material agreement,
contract, instrument, lease or other commitment to which
it is a party or by which it or any of its assets are
bound, other than as disclosed to Lender in writing on
the
date hereof. Borrower is in compliance in all material
respects with all applicable provisions of laws, rules,
regulations, licenses, permits, approvals and orders of
any foreign, Federal, State or local government
authority.
6.7 Accuracy and Completeness of
Information.
All information furnished by or on behalf of Borrower in
writing to Lender in connection with this Note or any of
the other Revolving Loan Documents or any transaction
contemplated hereby or thereby is and will be true and
correct in all material respects on the date as of which
such information is dated or certified and does not omit
and will not omit any material fact necessary in order to
make such information not misleading. No event or
circumstance has occurred which has had or could
reasonably be expected to have a material adverse affect
on the business, assets or prospects of Borrower which
has
not been fully and accurately disclosed to Lender in
writing.
6.8 Survival of Warranties; Cumulative. All
representations and warranties contained in this Note and
the other Revolving Loan Documents shall survive the
execution and delivery of this Note and the other
Revolving Loan Documents, and shall be conclusively
presumed to have been relied on by Lender as of the date
of this Note regardless of any investigation made or
information possessed by Lender. The representations and
warranties set forth herein shall be cumulative and in
addition to any other representations or warranties which
Borrower shall now or hereafter give, or cause to be
given, to Lender.
SECTION 7. AFFIRMATIVE AND NEGATIVE
COVENANTS
7.1 Maintenance of Existence. Borrower
shall
at all times preserve, renew and keep in full force and
effect its corporate existence and rights and franchises
with respect thereto and maintain in full force and
effect
all permits, licenses, trademarks, tradenames, approvals,
authorizations, leases and contracts necessary to carry
on
the business as presently or proposed to be conducted.
Borrower shall give Lender thirty (30) days prior written
notice of any proposed change in its corporate name,
which
notice shall set forth the new name and Borrower shall
deliver to Lender a copy of the amendment to the
Certificate of Incorporation of Borrower providing for
the
name change certified by the Secretary of State of the
jurisdiction of incorporation of Borrower as soon as it
is
available.
7.2 New Collateral Locations. Borrower may
open any new location within the continental United
States; provided Borrower (a) gives Lender thirty (30)
days prior written notice of the intended opening of any
such new location and (b) executes and delivers, or
causes
to be executed and delivered, to Lender such agreements,
documents and instruments as Lender may deem reasonably
necessary or desirable to protect its interests in the
Collateral at such location, including, without
limitation, UCC financing statements.
7.3 Compliance with Laws, Regulations, Etc.
Borrower shall, at all times, comply in all material
respects with all laws, rules, regulations, licenses,
permits, approvals and orders applicable to it and duly
observe all requirements of any Federal, State or local
governmental authority.
7.4 Payment of Taxes and Claims. Borrower
shall duly pay and discharge all taxes, assessments,
contributions and governmental charges upon or against it
or its properties or assets, except for taxes the
validity
of which are being contested in good faith by appropriate
proceedings diligently pursued and available to Borrower
and with respect to which adequate reserves have been set
aside on its books. To the extent Borrower has cash
available beyond its reasonably prudent working capital
needs, Borrower shall accept or otherwise utilize
opportunities to settle or reduce Trailing Liabilities at
a discount. Notwithstanding the foregoing sentence,
Borrower retains the sole discretion to determine to
accept or utilize such opportunities to settle or reduce
Trailing Liabilities at a discount, except to the extent
funded hereunder by Lender.
7.5 Insurance. Borrower shall, at all
times,
maintain with financially sound and reputable insurers
insurance with respect to the Collateral and the
Additional Collateral against loss or damage and all
other
insurance of the kinds and in the amounts customarily
insured against or carried by corporations of established
reputation engaged in the same or similar businesses and
similarly situated. Said policies of insurance shall be
satisfactory to Lender as to form, amount and insurer;
provided that policies of insurance maintained pursuant
to
and in accordance with the Congress Loan Documents shall
be satisfactory hereunder. Borrower shall furnish
certificates, policies or endorsements to Lender as
Lender
shall require as proof of such insurance, and, if
Borrower
fails to do so, Lender is authorized, but not required,
to
obtain such insurance at the expense of Borrower. All
policies shall provide for at least thirty (30) days
prior
written notice to Lender of any cancellation or reduction
of coverage and that Lender may act as attorney for
Borrower in obtaining, and at any time an Event of
Default
exists, adjusting, settling, amending and canceling such
insurance. Borrower shall cause Lender to be named as a
loss payee and an additional insured (but without any
liability for any premiums) under such insurance policies
and Borrower shall obtain non-contributory lender's loss
payable endorsements to all insurance policies in form
and
substance satisfactory to Lender. Such lender's loss
payable endorsements shall specify that the proceeds of
such insurance shall be payable to Lender as its
interests
may appear and further specify that Lender shall be paid
regardless of any act or omission by Borrower or any of
its affiliates. At its option, Lender may apply any
insurance proceeds received by Lender at any time to the
cost of repairs or replacement of Collateral and/or to
payment of the Loan Obligations, whether or not then due,
in any order and in such manner as Lender may determine
or
hold such proceeds as cash collateral for Borrower's
obligations pursuant to the Revolving Loan Documents.
7.6 Financial Statements and Other
Information.
(a) Borrower shall keep proper books and
records in which full and true entries shall be made of
all dealings or transactions of or in relation to the
Collateral and the Additional Collateral and the business
of Borrower in accordance with GAAP and Borrower shall
furnish or cause to be furnished to Lender: (i) within
forty-five (45) days after the end of each fiscal month,
monthly unaudited financial statements (including balance
sheets and statements of income), all in reasonable
detail, fairly presenting the financial position and the
results of Borrower's operations as of the end of such
fiscal month; (ii) within ninety (90) days after the end
of each fiscal year, audited financial statements of
Borrower (including balance sheets, statements of income
and loss, statements of cash flow and statements of
shareholders' equity), and the accompanying notes
thereto,
all in reasonable detail, fairly presenting the financial
position and the results of Borrower's operations as of
the end of such fiscal year, together with the opinion of
independent certified public accountants, which
accountants shall be an independent accounting firm
selected by Borrower and reasonably acceptable to Lender,
that such financial statements have been prepared in
accordance with GAAP, and present fairly the results of
operations and financial condition of Borrower for the
fiscal year then ended.
(b) Borrower shall promptly notify Lender in
writing of the details of (i) any loss, damage,
investigation, action, suit, proceeding or claim relating
to the Collateral or the Additional Collateral or any
other property which is security for the Loan Obligations
or which would result in any material adverse change in
Borrower's business, properties, assets, goodwill or
condition, financial or otherwise, and (ii) the
occurrence
of any Event of Default or event which, with the passage
of time or giving of notice or both, would constitute
an Event of Default;
(c) Borrower shall promptly after the
sending
or filing thereof furnish or cause to be furnished to
Lender copies of all reports which Borrower sends to its
stockholders generally and copies of all reports and
registration statements which Borrower files with the
Securities and Exchange Commission, any national
securities exchange or the National Association of
Securities Dealers, Inc.
(d) Borrower shall furnish or cause to be
furnished to Lender such budgets, forecasts, projections
and other information respecting the Collateral, the
Additional Collateral and the business of Borrower, as
Lender may, from time to time, reasonably request.
Lender
is hereby authorized to deliver a copy of any financial
statement or any other information relating to the
business of Borrower to any court or other government
agency. Borrower hereby irrevocably authorizes and
directs all accountants or auditors to deliver to Lender,
at Borrower's expense, copies of the financial statements
of Borrower and any reports or management letters
prepared
by such accountants or auditors on behalf of Borrower and
to disclose to Lender such information as they may have
regarding the business of Borrower. Any documents,
schedules, invoices or other papers delivered to Lender
may be destroyed or otherwise disposed of by Lender one
(1) year after the same are delivered to Lender, except
as
otherwise designated by Borrower in writing.
7.7 Sale of Assets, Consolidation, Merger.
Borrower shall not, directly or indirectly, merge into or
with or consolidate with any other Person or permit any
other Person to merge into or with or consolidate with
it,
or sell, assign, lease or transfer to any other Person
all
or substantially all of its assets unless the Borrower is
the continuing corporation in the case of a merger, or
the
resulting surviving or transferee person (if other than
the Borrower) shall be a corporation organized under the
laws of the United States of America, any State thereof
or
the District of Columbia and shall expressly assume the
due and punctual payment of the principal of and interest
on all the Loan Obligations according to their terms, and
the due and punctual performance and observance of all of
the covenants and conditions to be performed or observed
by the Borrower hereunder or under the Revolving Loan
Documents.
7.8 Encumbrances. Borrower shall not
create,
incur, assume or suffer to exist any security interest,
mortgage, pledge, lien or other encumbrance of any nature
whatsoever on any of its assets or properties, including,
without limitation, the Collateral and the Additional
Collateral, except as permitted by the Congress Loan
Documents, the Bondholder Documents, the Working Capital
Term Note Documents or any of the other Revolving Loan
Documents; provided that Borrower may incur liens on its
assets, including the Collateral and the Additional
Collateral, in connection with the settlement with
the Rebenstock litigation if such liens and the
indebtedness secured thereby are fully subordinated to
the
Revolving Loans and the liens of the Revolving Loan
Documents.
7.9 Dividends and Redemptions. Borrower
shall not, directly or indirectly, declare or pay any
dividends on account of any shares of any class of
capital
stock of Borrower now or hereafter outstanding, or set
aside or otherwise deposit or invest any sums for such
purpose, or redeem, retire, defease, purchase or
otherwise
acquire any shares of any class of capital stock (or set
aside or otherwise deposit or invest any sums for such
purpose) for any consideration other than common stock or
apply or set apart any sum, or make any other
distribution
(by reduction of capital or otherwise) in respect of any
such shares or agree to do any of the foregoing, except
as permitted under the Congress Loan Documents.
7.10 Transactions with Affiliates. Borrower
shall not enter into any transaction for the purchase,
sale or exchange of property or the rendering of any
service to or by any affiliate, except in the ordinary
course of and pursuant to reasonable requirements of
Borrower's business and upon reasonable terms no less
favorable to Borrower than Borrower would obtain in a
comparable arm's length transaction with an unaffiliated
person.
7.11 Costs and Expenses. Borrower shall pay
to Lender on demand all costs, expenses, filing fees and
taxes paid or payable in connection with the preparation,
negotiation, execution, delivery, recording,
administration, collection, liquidation, enforcement and
defense of Lender's rights in the Collateral, the
Additional Collateral, this Note, the other Revolving
Loan
Documents and all other documents related hereto or
thereto, including any amendments, supplements or
consents
which may hereafter be contemplated (whether or not
executed) or entered into in respect hereof or thereto,
including, but not limited to: (a) all costs and
expenses
of filing or recording (including Uniform Commercial Code
financing statement filing taxes and fees, documentary
taxes, intangibles taxes and mortgage recording taxes and
fees, if applicable); (b) all title insurance and other
insurance premiums, appraisal fees and search fees; (c)
costs and expenses of preserving and protecting the
Collateral and the Additional Collateral; (d) costs and
expenses paid or incurred in connection with obtaining
payment of Borrower's obligations pursuant to the
Revolving Loan Documents, enforcing the security
interests
and liens of Lender, selling or otherwise realizing upon
the Collateral and the Additional Collateral, and
otherwise enforcing the provisions of the Revolving Loan
Documents or defending any claims made or threatened
against Lender arising out of the transactions
contemplated hereby or thereby (including, without
limitation, preparations for and consultations concerning
any such matters); and (e) the fees and disbursements of
counsel (including legal assistants) to Lender in
connection with any of the foregoing.
7.12 Further Assurances. At the request of
Lender at any time and from time to time, Borrower shall,
at its expense, duly execute and deliver, or cause to be
duly executed and delivered, such further agreements,
documents and instruments, and do or cause to be done
such
further acts as may be necessary or proper to evidence,
perfect, maintain and enforce the security interests and
the priority thereof in the Collateral and the Additional
Collateral and to otherwise effectuate the provisions or
purposes of the Revolving Loan Documents. Lender may at
any time and from time to time request a certificate from
an officer of Borrower remaking, as of the date of such
certificate, the representations and warranties set forth
in this Note or any of the other Revolving Loan
Documents.
Where permitted by law, Borrower hereby authorizes Lender
to execute and file one or more UCC financing statements
signed only by Lender.
SECTION 8. EVENTS OF DEFAULT AND REMEDIES
8.1 Events of Default. The occurrence or
existence of any one or more of the following events are
referred to herein individually as an "Event of Default",
and collectively as "Events of Default":
(a) Borrower (i) fails to pay when due any
principal of the Revolving Loans, (ii) fails to pay when
due, and such default continues for 10 business days, any
interest on the Revolving Loans, (iii) fails to pay when
due, and such default continues for 15 days, any other
amounts due and owing pursuant to the Revolving Loan
Documents or (iv) breaches any of the terms, covenants,
conditions or provisions contained in any of the
Revolving
Loan Documents and such breach is not cured within thirty
(30) business days after notice of the occurrence of such
breach is given to Borrower by Lender;
(b) any representation, warranty or
statement
of fact made by Borrower to Lender in the Revolving Loan
Documents shall when made be false or misleading in any
material respect;
(c) any Obligor revokes, terminates or fails
to perform any of the terms, covenants, conditions or
provisions of any guarantee, endorsement or other
agreement of such party in favor of Lender;
(d) Borrower or any Obligor makes an
assignment for the benefit of creditors;
(e) a case or proceeding under the
bankruptcy
laws of the United States of America now or hereafter in
effect or under any insolvency, reorganization,
receivership, readjustment of debt, dissolution or
liquidation law or statute of any jurisdiction now or
hereafter in effect (whether at law or in equity) is
filed
against Borrower or any Obligor or all or any part of its
properties and such petition or application is not
dismissed within thirty (30) days after the date of its
filing or Borrower or any Obligor shall file any answer
admitting or not contesting such petition or application
or indicates its consent to, acquiescence in or approval
of, any such action or proceeding or the relief requested
is granted sooner;
(f) a case or proceeding under the
bankruptcy
laws of the United States of America now or hereafter in
effect or under any insolvency, reorganization,
receivership, readjustment of debt, dissolution or
liquidation law or statute of any jurisdiction now or
hereafter in effect (whether at law or equity) is filed
by
Borrower or any Obligor or for all or any part of its
property; or
(g) the obligations of Borrower are
accelerated (i) by Congress under the Congress Loan
Documents, (ii) by IBJS or the security holders under the
Indenture, or (iii) by the lender under the Working
Capital Term Note Documents.
8.2 Remedies
(a) At any time an Event of Default exists
or
has occurred and is continuing, Lender shall have all
rights and remedies provided in (i) the Revolving Loan
Documents, (ii) the Uniform Commercial Code and (iii) any
other applicable law, all of which rights and remedies
may
be exercised without notice to or consent by Borrower,
except as such notice or consent is expressly provided
for
hereunder or required by applicable law. All rights,
remedies and powers granted to Lender hereunder, under
any
of the Revolving Loan Documents, the Uniform Commercial
Code or other applicable law, are cumulative, not
exclusive and enforceable, in Lender's discretion,
alternatively, successively, or concurrently on any one
or
more occasions, and shall include, without limitation,
the
right to apply to a court of equity for an injunction to
restrain a breach or threatened breach by Borrower of any
of the Revolving Loan Documents. Lender may, at any time
or times, proceed directly against Borrower to collect
any
amount which Borrower is obligated to pay pursuant to
Revolving Loan Documents without prior recourse to the
Collateral or the Additional Collateral.
(b) Without limiting the foregoing, at any
time an Event of Default exists or has occurred and is
continuing, Lender may, in its discretion and without
limitation (i) accelerate the payment of and demand
immediate payment to Lender of all Loan Obligations
(provided that, upon the occurrence of any Event of
Default described in Sections 8.1(e) and 8.1(f), all Loan
Obligations shall automatically become immediately due
and
payable), (ii) with or without judicial process or the
aid
or assistance of others, enter upon any premises on or in
which any of the Collateral or the Additional Collateral
may be located and take possession of the Collateral or
the Additional Collateral or complete processing,
manufacturing and repair of all or any portion of the
Collateral or the Additional Collateral, (iii) require
Borrower, at Borrower's expense, to assemble and make
available to Lender any part or all of the Collateral or
the Additional Collateral at any place and time
designated
by Lender, (iv) collect, foreclose, receive, appropriate,
setoff and realize upon any and all Collateral and
Additional Collateral, (v) remove any or all of the
Collateral or the Additional Collateral from any premises
on or in which the same may be located for the purpose of
effecting the sale, foreclosure or other disposition
thereof, or for any other purpose, (vi) sell, lease,
transfer, assign, deliver or otherwise dispose of any
and all Collateral or Additional Collateral (including,
without limitation, entering into contracts with respect
thereto, public or private sales at any exchange,
broker's
board, at any office of Lender or elsewhere) at such
prices or terms as Lender may deem reasonable, for cash,
upon credit or for future delivery, with Lender having
the
right to purchase the whole or any part of the Collateral
or the Additional Collateral at any such public sale, all
of the foregoing being free from any right or equity of
redemption of Borrower or its subsidiaries, as the case
may be, which right or equity of redemption is hereby
expressly waived and released by Borrower for itself and
its subsidiaries. If any of the Collateral or the
Additional Collateral is sold or leased by Lender upon
credit terms or for future delivery, the Loan Obligations
shall not be reduced as a result thereof until payment
therefor is finally collected by Lender. If notice of
disposition of Collateral or Additional Collateral is
required by law, five (5) days prior notice by Lender to
Borrower designating the time and place of any public
sale
or the time after which any private sale or other
intended
disposition of Collateral or Additional Collateral is to
be made, shall be deemed to be reasonable notice thereof
and Borrower waives any other notice. Lender may
purchase
all or any part of the Collateral and the Additional
Collateral at public or, if permitted by law, private
sale
and, in lieu of actual payment of such purchase price,
may
setoff the amount of such price against the Loan
Obligations. In the event Lender institutes an action to
recover any Collateral or Additional Collateral or seeks
recovery of any Collateral or Additional Collateral by
way
of prejudgment remedy, Borrower waives the posting of any
bond which might otherwise be required.
(c) Lender may apply the cash proceeds of
Collateral or Additional Collateral actually received by
Lender from any sale, lease, foreclosure or other
disposition of the Collateral or the Additional
Collateral
to payment of the Loan Obligations, in whole or in part
and in such order as Lender may elect, whether or not
then
due. Borrower shall remain liable to Lender for the
payment of any deficiency with interest at the highest
rate provided for herein and all costs and expenses of
collection or enforcement, including attorneys' fees and
legal expenses.
SECTION 9. JURY TRIAL WAIVER; OTHER WAIVERS
AND CONSENTS; GOVERNING LAW
___
9.1 Governing Law; Choice of Forum; Service
of Process; Jury Trial Waiver.
(a) The validity, interpretation and
enforcement of this Note and any dispute arising out of
the relationship between the parties hereto, whether in
contract, tort, equity or otherwise, shall be governed by
the internal laws (as opposed to the conflicts of law
provisions) of the State of New York.
(b) Borrower and Lender irrevocably consent
and submit to the non-exclusive jurisdiction of the
Federal and State courts sitting in New York County, New
York and waive any objection based on venue or forum non
conveniens with respect to any action instituted therein,
and agreed that any dispute arising out of the
relationship between any such persons or the conduct of
any such persons in connection with this Note or
otherwise
shall be heard only in the courts described above (except
that Lender shall have the right to bring any action or
proceeding against Borrower or its property in the courts
of any other jurisdiction which Lender deems necessary or
appropriate in order to realize on the Collateral or the
Additional Collateral).
(c) Borrower hereby waives personal service
of any and all process upon it and consents that all such
service of process may be made by registered mail (return
receipt requested) directed to its address set forth on
the signature pages hereof and service so made shall be
deemed to be completed five (5) days after the same shall
have been so deposited in the U.S. mails, or, at Lender's
option, by service upon CT Corporation, whom Borrower
irrevocably appoints as its agent for the purpose of
accepting service of process within the State of New
York.
In addition, Lender agrees promptly to forward by
registered mail any process so served upon such agent to
Borrower at its address set forth on the signature pages
hereof. Borrower hereby consents to service of process
as aforesaid. Within thirty (30) days after such
service,
Borrower shall appear in answer to such process, failing
which Borrower shall be deemed in default and judgment
may
be entered by Lender against Borrower for the amount of
the claim and other relief requested.
(d) BORROWER AND LENDER EACH HEREBY WAIVES
ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION
OR
CAUSE OF ACTION (i) ARISING UNDER THIS NOTE OR (ii) IN
ANY
WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE
DEALINGS OF THE PARTIES HERETO OR EITHER OF THEM IN
RESPECT TO THIS NOTE OR THE TRANSACTIONS RELATED HERETO
IN
EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND
WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. BORROWER
AND LENDER EACH HEREBY AGREES AND CONSENTS THAT ANY SUCH
CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED
BY COURT TRIAL WITHOUT A JURY AND THAT ANY OF THEM MAY
FILE A COPY OF THIS NOTE WITH ANY COURT AS WRITTEN
EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE
WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
(e) Nothing in this Section 9.1 shall affect
the rights of Lender to serve legal process in any other
manner permitted by law or affect the rights of Lender to
bring any action or proceeding against Borrower or its
property in the courts of any other jurisdiction.
(f) Lender shall not have any liability to
Borrower (whether in tort, contract, equity or otherwise)
for losses suffered by Borrower in connection with,
arising out of, or in any way related to the transactions
or relationships contemplated by the Revolving Loan
Documents, or any act, omission or event occurring in
connection therewith, unless it is determined by a final
and non-appealable judgment or court order binding on
Lender, that the losses were the result of acts or
omissions constituting gross negligence or willful
misconduct. In any such litigation, Lender shall be
entitled to the benefit of the rebuttable presumption
that
it acted in good faith and with the exercise of ordinary
care in the performance by it of the terms of the
Revolving Loan Documents.
9.2 Waiver of Notices. Borrower hereby
expressly waives demand, presentment, protest and notice
of protest and notice of dishonor with respect to any and
all instruments and commercial paper, included in or
evidencing any of the obligations of Borrower pursuant to
the Revolving Loan Documents or the Collateral or the
Additional Collateral, and any and all other demands and
notices of any kind or nature whatsoever with respect to
Borrower's obligations, the Collateral, the Additional
Collateral and the Revolving Loan Documents, except such
as are expressly provided for therein. No notice to or
demand on Borrower which Lender may elect to give shall
entitle Borrower to any other or further notice or demand
in the same, similar or other circumstances.
<PAGE>
9.3 Amendments and Waivers. Neither this
Note, any of the other Revolving Loan Documents nor any
provision hereof or thereof shall be amended, modified,
waived or discharged orally or by course of conduct, but
only by a written agreement signed by an authorized
officer of Lender. Lender shall not, by any act, delay,
omission or otherwise be deemed to have expressly or
impliedly waived any of its rights, powers and/or
remedies
unless such waiver shall be in writing and signed by an
authorized officer of Lender. Any such waiver shall be
enforceable only to the extent specifically set forth
therein. A waiver by Lender of any right, power and/or
remedy on any one occasion shall not be construed as a
bar
to or waiver of any such right, power and/or remedy which
Lender would otherwise have on any future occasion,
whether similar in kind or otherwise.
9.4 Waiver of Counterclaim. Borrower waives
all rights to interpose any claims, deductions, setoffs
or
counterclaims of any nature (other than compulsory
counterclaims) in any action or proceeding with respect
to
this Note, any of the other Revolving Loan Documents, the
Collateral, the Additional Collateral or any matter
arising therefrom or relating hereto or thereto.
9.5 Indemnification. Borrower shall
indemnify, defend and hold Lender, and its directors,
agents, employees and counsel, harmless from and against
any and all losses, claims, damages, liabilities,
deficiencies, judgments, penalties or expenses imposed
on,
incurred by or asserted against any of them in connection
with any litigation, investigation, claim or proceeding
commenced or threatened related to the negotiation,
preparation, execution, delivery, enforcement,
performance
or administration of the Revolving Loan Documents or any
undertaking or proceeding related to any of the
transactions contemplated thereby or any act, omission
to act, event or transaction related or attendant
thereto,
including, without limitation, amounts paid in
settlement,
court costs, and the fees and expenses of counsel. To
the
extent that the undertaking to indemnify, pay and hold
harmless set forth in this Section may be unenforceable
because it violates any law or public policy, Borrower
shall pay the maximum portion which it is permitted to
pay
under applicable law to Lender in satisfaction of
indemnified matters under this Section 9.5. The
foregoing
indemnity shall survive the payment of the Loan
Obligations and the termination of the Revolving Loan
Documents. All of the foregoing costs and expenses shall
be part of Borrower's obligations in connection with the
Loan and secured by the Collateral and the Additional
Collateral.
SECTION 10. GENERAL PROVISIONS
10.1 Notices. All notices, requests and
demands hereunder shall be in writing and (a) made to
Lender at its address set forth below and to Borrower at
its chief executive office or to such other address as
either party may designate by written notice to the other
in accordance with this provision, and (b) deemed to have
been given or made: if delivered in person, immediately
upon delivery; if by telex, telegram or facsimile
transmission, immediately upon sending and upon
confirmation of receipt; if by nationally recognized
overnight courier service with instructions to deliver
the
next Business Day, one (1) Business Day after sending;
and
if by certified mail, return receipt requested, five (5)
days after mailing.
10.2 Partial Invalidity. If any provision
of
this Note or any of the other Revolving Loan Documents is
held to be invalid or unenforceable, such invalidity or
unenforceability shall not invalidate this Note or such
other Revolving Loan Documents as a whole, but this Note
or such other Revolving Loan Documents, as appropriate,
shall be construed as though it did not contain the
particular provision held to be invalid or unenforceable
and the rights and obligations of the parties shall be
construed and enforced only to such extent as shall be
permitted by applicable law.
10.3 Successors and Transfers. The
Revolving
Loan Documents shall be binding upon and inure to the
benefit of and be enforceable by Lender, Borrower and
their respective successors and assigns, except that
neither party hereto may assign its rights under any of
the Revolving Loan Documents without the prior written
consent of the other party.
10.4 Payment of Expenses. Borrower agrees
to
pay all reasonable out-of-pocket costs and expenses of
Lender in connection with the negotiation, preparation,
execution and delivery of the Revolving Loan Documents
and
the documents and instruments referred to therein and any
amendment, waiver or consent relating thereto and in
connection with the enforcement of the Revolving Loan
Documents and the documents and instruments referred to
thereto (including in each case, without limitation, the
reasonable fees and disbursements of counsel).
IN WITNESS WHEREOF, Borrower has caused these
presents to be duly executed and delivered as of the day
and year first above written.
BORROWER
FRUEHAUF TRAILER CORPORATION
By:/s/ Timothy J. Wiggins
----------------------
Title: Executive Vice
President and Chief
Financial Officer
CHIEF EXECUTIVE OFFICE:
111 Monument Circle
Suite 3200
Indianapolis, Indiana
46204
Accepted and Agreed:
K-H CORPORATION
By:/s/ Fred J. Chapman
---------------------
Title:Treasurer
------------------
Address:
672 Delaware Avenue
Buffalo, New York 14209
WIRE TRANSFER INSTRUCTIONS:
<PAGE>
EXHIBIT A
Additional Loan Agreements
1. Subordinated Revolving Note by Fruehauf and
accepted
by Lender
2. Multi-Party Subordination Agreement by and among
Congress, the Trustee on behalf of the bondholders, the
Collateral Agent and Lender and acknowledged by Fruehauf
and its subsidiaries
3. Pledge Agreement executed by Fruehauf in favor of
Lender, together with the following Schedules attached
thereto:
Schedule I -- Pledged Stock
Schedule II -- Pledged Notes
4. Pledge Agreement executed by Maryland Shipbuilding
&
Drydock Company in favor of Lender, together with
the following Schedules attached thereto:
Schedule I -- Pledged Stock
Schedule II -- Pledged Notes
5. Pledge Agreement executed by Jacksonville
Shipyards,
Inc. in favor of Lender, together with the following
Schedules attached thereto:
Schedule I -- Pledged Stock
Schedule II -- Pledged Notes
6. Pledge Agreement executed by Fruehauf International
Limited in favor of Lender, together with the
following Schedules attached thereto:
Schedule I -- Pledged Stock
Schedule II -- Pledged Notes
7. Guarantee in favor of Lender executed by:
a. FGR, Inc.
b. Fruehauf Corporation
c. Maryland Shipbuilding & Drydock Company
d. The Mercer Co.
e. Fruehauf International Limited
f. Deutsche-Fruehauf Holding Corporation
g. Jacksonville Shipyards, Inc.
h. M.J. Holdings, Inc.
8. Trademark Security Agreement executed by Fruehauf
in
favor of Lender
9. Patent Collateral Assignment executed by Fruehauf
in
favor of Lender
10. Copyright Security Agreement executed by Fruehauf
in
favor of Lender
11. Guarantor General Security Agreement executed by
each of the Subsidiaries named below in favor of Lender
together with the following Schedules attached thereto:
Schedule 4.1 -- Subsidiaries
Schedule 4.3 -- Collateral Locations
Schedule 4.4 -- Priority of Liens
Schedule 4.6 -- Litigation
Schedule 5.9 -- Indebtedness
Schedule 5.10 -- Loans, Investments, Guaranties
a. FGR, Inc.
b. Fruehauf Corporation
c. Maryland Shipbuilding & Drydock Company
d. The Mercer Co.
e. Fruehauf International Limited
f. Deutsche-Fruehauf Holding Corporation
g. Jacksonville Shipyards, Inc.
h. M.J. Holdings, Inc.
12. Mortgages/Deeds of Trust by and between Fruehauf
and
Lender in favor of Lender for each of the
properties
at the locations listed on Annex 1 attached hereto
13. UCC-1 Financing Statements filed against Fruehauf
in
favor of Lender with the offices of the Secretaries of
State and County Clerks (or equivalent) listed on Annex 2
attached hereto
14. UCC Fixture Filings filed against Fruehauf in favor
of Lender with the offices of the County Clerks (or
equivalent) listed on Annex 1 attached hereto
<PAGE>
Annex 1
Morgan County, Alabama
Morgan County, Alabama
Maricopa County, Arizona
Pulaski County, Arkansas
Fresno County, California
San Bernardino County, California }*
Yolo County, California
Denver County, Colorado
Dade County, Florida
DeKalb County, Georgia
Lee County, Iowa
Polk County, Iowa
Caddo Parish, Louisiana
Independent City of St. Louis
Yellowstone County, Montana
Hudson County, New Jersey }*
Bernalillo County, New Mexico
Davidson County, North Carolina
Mecklenberg County, North Carolina
Allen County, Ohio
Franklin County, Ohio
Pike County, Ohio
Multnomah County, Oregon
Allegheny County, Pennsylvania
Lackawanna County, Pennsylvania
Dauphin County, Pennsylvania }*
Philadelphia County, Pennsylvania
Spartanburg County, South Carolina
Shelby County, Tennessee
Bexar County, Texas
Dallas County, Texas
Harris County, Texas
Lubbock County, Texas }*
Tarrant County, Texas }*
Botetourt County, Virginia
Independent City of Richmond, Virginia
King County, Washington
Spokane County, Washington
Kanawha County, West Virginia
} Mortgage/deed of trust was terminated, so one will
not be prepared for this property.
* Fixture filing was terminated, so one will not be
prepared for this property.
<PAGE>
Annex 2
Alabama Secretary of State
Arizona Secretary of State
Arkansas Secretary of State
Pulaski County, Arkansas
California Secretary of State
Colorado Secretary of State
Florida Secretary of State
DeKalb County, Georgia
Fulton County, Georgia
Indiana Secretary of State
Iowa Secretary of State
Parish of Caddo, Louisiana
Parish of Bossier, Louisiana
Michigan Secretary of State
Minnesota Secretary of State
Missouri Secretary of State
Independent City of St. Louis, Missouri
St. Louis County, Missouri
Montana Secretary of State
Nebraska Secretary of State
New Jersey Secretary of State
New Mexico Secretary of State
North Carolina Secretary of State
Mecklenburg County, North Carolina
Ohio Secretary of State
Allen County, Ohio
Delaware County, Ohio
Fairfield County, Ohio
Franklin County, Ohio
Pike County, Ohio
Van Wert County, Ohio
Oklahoma County, Oklahoma
Oregon Secretary of State
Pennsylvania Secretary of State
Allegheny County, Pennsylvania
Dauphin County, Pennsylvania
Fayette County, Pennsylvania
Indiana County, Pennsylvania
Lackawanna County, Pennsylvania
Philadelphia County, Pennsylvania
South Carolina Secretary of State
Tennessee Secretary of State
Texas Secretary of State
Virginia Secretary of State
Independent City of Richmond, Virginia
Independent City of Roanoke, Virginia
Washington Department of Licensing
West Virginia Secretary of State
Wisconsin Secretary of State
GUARANTOR GENERAL SECURITY AGREEMENT
This Guarantor General Security Agreement
(hereafter, as amended modified, replaced, consolidated
and extended, this "Agreement") dated as of June 21, 1996
is made by FGR, Inc., f.k.a. Decatur Aluminum Company,
Inc., a Michigan corporation, Fruehauf Corporation, a
Delaware corporation, Maryland Shipbuilding & Drydock
Company, a Maryland corporation, The Mercer Co., a
Delaware corporation, Fruehauf International Limited, a
Delaware corporation, Deutsche-Fruehauf Holding
Corporation, a Delaware corporation, Jacksonville
Shipyards, Inc., a Florida corporation, M.J. Holdings,
Inc., an Ohio corporation, Fruehauf Holdings Corp., a
Delaware corporation, E.L. Devices, Inc., a Florida
corporation (each a "Guarantor" and collectively,
"Guarantors") in favor of K-H Corporation, a Delaware
corporation (together with its successors and assigns,
"Guaranteed Party").
W I T N E S S E T H
WHEREAS, Guaranteed Party has entered or is
about to enter into certain financing arrangements with
Fruehauf Trailer Corporation, a Delaware corporation
("Debtor"), pursuant to which Guaranteed Party may make
loans and provide other financial accommodations to
Debtor; and
WHEREAS, Debtor, which owns the outstanding
shares of stock of Guarantors, entered into that certain
Subordinated Revolving Note (as defined herein), under
which Debtor will borrow revolving loans and will be
afforded certain other financial accommodations. As used
herein, the term "Event of Default" shall have the
meaning
as set forth in the Subordinated Revolving Note; unless
otherwise defined, all other capitalized terms are used
in
this Agreement as they are defined in the Subordinated
Revolving Note; and
WHEREAS, Debtor has requested that the
Guaranteed Party agree to make loans pursuant to the
Subordinated Revolving Note dated of even date herewith,
by and between Debtor and the Guaranteed Party (the
"Subordinated Revolving Note"), the proceeds of which
will
be used to pay Trailing Liabilities; and
WHEREAS, each of the Guarantors has executed
and
delivered or is about to execute and deliver to
Guaranteed
Party that certain guarantee (the "Guarantee"), dated as
of June 21, 1996, in favor of Guaranteed Party; and
NOW, THEREFORE, in consideration of the mutual
conditions and agreements set forth herein, and for other
good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties
hereto agree as follows:
SECTION 1. DEFINITIONS
All terms used herein which are defined in
Article 1 or Article 9 of the Uniform Commercial Code
shall have the meanings given therein unless otherwise
defined in this Agreement. All references to the plural
herein shall also mean the singular and to the singular
shall also mean the plural. All references to Guarantor,
Debtor and Guaranteed Party pursuant to the definitions
set forth in the recitals hereto, or to any other person
herein, shall include their respective successors and
assigns. The words "hereof", "herein", "hereunder",
"this
Agreement" and words of similar import when used in this
Agreement shall refer to this Agreement as a whole and
not
any particular provision of this Agreement and as this
Agreement now exists or may hereafter be amended,
modified, supplemented, extended, renewed, restated or
replaced. An Event of Default shall exist or continue or
be continuing until such Event of Default is waived in
accordance with Section 7.3. Any accounting term used
herein unless otherwise defined in this Agreement shall
have the meanings customarily given to such term in
accordance with GAAP. For purposes of this Agreement,
the
following terms shall have the respective meanings given
to them below:
1.1 "Accounts" shall mean, with respect to
each
Guarantor, all present and future rights of such
Guarantor
to payment for goods sold or leased or for services
rendered, which are not evidenced by instruments or
chattel paper, and whether or not earned by performance.
1.2 "Equipment" shall mean, with respect to
each Guarantor, all of Guarantor's now owned and
hereafter
acquired equipment, machinery, computers and computer
hardware and software (whether owned or licensed),
vehicles, tools, furniture, fixtures, all attachments,
accessions and property now or hereafter affixed thereto
or used in connection therewith, and substitutions and
replacements thereof, wherever located.
1.3 "Event of Default" shall have the meaning
set forth in Section 6.1 hereof.
1.4 "GAAP" shall mean generally accepted
accounting principles in the United States of America as
in effect from time to time as set forth in the opinions
and pronouncements of the Accounting Principles Board and
the American Institute of Certified Public Accountants
and
the statements and pronouncements of the Financial
Accounting Standards Boards which are applicable to
the circumstances as of the date of determination
consistently applied.
1.5 "Inventory" shall mean, with respect to
each Guarantor, all of such Guarantor's now owned and
hereafter existing or acquired raw materials, work in
process, finished goods and all other inventory of
whatsoever kind or nature, wherever located.
1.6 "Obligations" shall mean Guaranteed
Obligations as defined in the Guarantee and all other
obligations owing by any Guarantor under other Revolving
Loan Documents.
1.7 "Obligor" shall mean any other guarantor,
endorser, acceptor, surety or other person liable on or
with respect to the Obligations or who is the owner of
any
property which is security for the Obligations, other
than
Debtor.
1.8 "Person" or "person" shall mean any
individual, sole proprietorship, partnership, corporation
(including, without limitation, any corporation which
elects subchapter S status under the Internal Revenue
Code
of 1986, as amended), business trust, unincorporated
association, joint stock corporation, trust, joint
venture
or other entity or any government or any agency or
instrumentality or political subdivision thereof.
1.9 "Records" shall mean, with respect to each
Guarantor, all of such Guarantor's present and future
books of account of every kind or nature, purchase and
sale agreements, invoices, ledger cards, bills of lading
and other shipping evidence, statements, correspondence,
memoranda, credit files and other data relating to the
Collateral or any account debtor, together with the
tapes,
disks, diskettes and other data and software storage
media
and devices, file cabinets or containers in or on which
the foregoing are stored (including any rights of such
Guarantor with respect to the foregoing maintained with
or
by any other person).
SECTION 2. GRANT OF SECURITY INTEREST
To secure payment and performance of all
Obligations, each Guarantor hereby grants to Guaranteed
Party a continuing security interest in, a lien upon, and
a right of set off against, and hereby assigns to
Guaranteed Party as security, the following property and
interests in property, whether now owned or hereafter
acquired or existing, and wherever located (collectively,
the "Collateral"):
2.1 Accounts;
2.2 all present and future contract rights,
general intangibles (including, but not limited to, tax
and duty refunds, registered and unregistered patents,
trademarks, service marks, copyrights, trade names,
applications for the foregoing, trade secrets, goodwill,
processes, drawings, blueprints, customer lists,
licenses,
whether as licensor or licensee, choses in action and
other claims and existing and future leasehold interests
in equipment, real estate and fixtures), chattel paper,
documents, instruments, letters of credit, bankers'
acceptances and guaranties;
2.3 all present and future monies, securities,
credit balances, deposits, deposit accounts and other
property of such Guarantor now or hereafter held or
received by or in transit to Guaranteed Party or its
affiliates or at any other depository or other
institution
from or for the account of such Guarantor whether for
safekeeping, pledge, custody, transmission, collection or
otherwise, and all present and future liens, security
interests, rights, remedies, title and interest in, to
and
in respect of Accounts and other Collateral, including,
without limitation, (a) rights and remedies under or
relating to guaranties, contracts of suretyship, letters
of credit and credit and other insurance related to the
Collateral, (b) rights of stoppage in transit, replevin,
repossession, reclamation and other rights and remedies
of
an unpaid vendor, lienor or secured party, (c) goods
described in invoices, documents, contracts or
instruments
with respect to, or otherwise representing or evidencing,
Accounts or other Collateral, including, without
limitation, returned, repossessed and reclaimed goods,
and
(d) deposits by and property of account debtors or other
persons securing the obligations of account debtors;
2.4 Inventory;
2.5 Equipment;
2.6 Records; and
2.7 all products and proceeds of the
foregoing,
in any form, including, without limitation, insurance
proceeds and any claims against third parties for loss or
damage to or destruction of any or all of the foregoing.
This Agreement and the security interest
created
hereby are subject to (i) the Multi-Party Subordination
Agreement dated as of the date hereof among Congress,
IBJS
and Lender and (ii) the liens created by and granted
pursuant to the Bondholder Documents, the Congress Loan
Documents and the Working Capital Term Note Documents
(the
"Existing Liens").
SECTION 3. COLLATERAL COVENANTS
3.1 Accounts Covenants.
(a) Guaranteed Party shall have the right at
any time or times, in Guaranteed Party's name or in the
name of a nominee of Guaranteed Party, to verify the
validity, amount or any other matter relating to any
Account or other Collateral, by mail, telephone,
facsimile
transmission or otherwise.
(b) Each Guarantor shall deliver or cause to
be
delivered to Guaranteed Party, with appropriate
endorsement and assignment, with full recourse to such
Guarantor, all chattel paper and instruments which such
Guarantor now owns or may at any time acquire immediately
upon such Guarantor's receipt thereof, except as
Guaranteed Party may otherwise agree.
(c) Guaranteed Party may, at any time or times
that an Event of Default exists or has occurred and is
continuing, (i) notify any or all account debtors that
the
Accounts have been assigned to Guaranteed Party and that
Guaranteed Party has a security interest therein and
Guaranteed Party may direct any or all accounts debtors
to
make payment of Accounts directly to Guaranteed Party,
(ii) extend the time of payment of, compromise, settle or
adjust for cash, credit, return of merchandise or
otherwise, and upon any terms or conditions, any and all
Accounts or other obligations included in the Collateral
and thereby discharge or release the account debtor or
any
other party or parties in any way liable for payment
thereof without affecting any of the Obligations, (iii)
demand, collect or enforce payment of any Accounts or
such
other obligations, but without any duty to do so, and
Guaranteed Party shall not be liable for its failure to
collect or enforce the payment thereof nor for the
negligence of its agents or attorneys with respect
thereto
and (iv) take whatever other action Guaranteed Party may
deem necessary or desirable for the protection of its
interests. At any time that an Event of Default exists
or
has occurred and is continuing, at Guaranteed Party's
request, all invoices and statements sent to any account
debtor shall state that the Accounts and such other
obligations have been assigned to Guaranteed Party and
are
payable directly and only to Guaranteed Party and each
Guarantor shall deliver to Guaranteed Party such
originals
of documents evidencing the sale and delivery of goods or
the performance of services giving rise to any Accounts
as
Guaranteed Party may require.
3.2 Inventory Covenants. With respect to the
Inventory: (a) each Guarantor shall at all times maintain
inventory records reasonably satisfactory to Guaranteed
Party, keeping correct and accurate records itemizing and
describing the kind, type, quality and quantity of
Inventory, such Guarantor's cost therefor and daily
withdrawals therefrom and additions thereto; (b) during
each calendar year for which a Guarantor has Inventory
with a fair market value in excess of $5,000 at any
time, each such Guarantor shall conduct a physical count
of the Inventory at least once during such year, but at
any time or times as Guaranteed Party may request on or
after an Event of Default, and promptly following such
physical inventory shall supply Guaranteed Party with a
report in the form and with such specificity as may be
reasonably satisfactory to Guaranteed Party concerning
such physical count; (c) each Guarantor shall not remove
any Inventory from the locations set forth or permitted
herein, without the prior written consent of Guaranteed
Party, except for sales of Inventory in the ordinary
course of Guarantor's business and except to move
Inventory directly from one location set forth or
permitted herein to another such location; (d) upon
Guaranteed Party's request, each Guarantor shall, at its
expense, no more than once in any twelve (12) month
period, but at any time or times as Guaranteed Party may
request on or after an Event of Default, deliver or cause
to be delivered to Guaranteed Party written reports or
appraisals as to the Inventory in form, scope and
methodology acceptable to Guaranteed Party and by an
appraiser acceptable to Guaranteed Party, addressed to
Guaranteed Party or upon which Guaranteed Party is
expressly permitted to rely; (e) each Guarantor shall
produce, use, store and maintain the Inventory, with all
reasonable care and caution and in accordance with
applicable standards of any insurance and in conformity
with applicable laws (including, but not limited to, the
requirements of the Federal Fair Labor Standards Act of
1938, as amended and all rules, regulations and orders
related thereto); (f) each Guarantor assumes all
responsibility and liability arising from or relating to
the production, use, sale or other disposition of the
Inventory; (g) each Guarantor shall keep the Inventory in
good and marketable condition; and (h) each Guarantor
shall not, without prior written notice to Guaranteed
Party, acquire or accept any Inventory on consignment or
approval.
3.3 Equipment Covenants. With respect to the
Equipment: (a) upon Guaranteed Party's request, each
Guarantor shall, at its expense, at any time or times as
Guaranteed Party may request on or after an Event of
Default, deliver or cause to be delivered to Guaranteed
Party written reports or appraisals as to the Equipment
in
form, scope and methodology acceptable to Guaranteed
Party
and by appraiser acceptable to Guaranteed Party; (b) each
Guarantor shall keep the Equipment in good order, repair,
running and marketable condition (ordinary wear and tear
excepted); (c) each Guarantor shall use the Equipment
with
all reasonable care and caution and in accordance with
applicable standards of any insurance and in conformity
with all applicable laws; (d) the Equipment is and shall
be used in each Guarantor's business and not for
personal,
family, household or farming use; (e) each Guarantor
shall
not remove any Equipment from the locations set forth or
permitted herein, except to the extent necessary to have
any Equipment repaired or maintained in the ordinary
course of the business of such Guarantor or to move
Equipment directly from one location set forth or
permitted herein to another such location and except for
the movement of motor vehicles used by or for the
benefit of Debtor in the ordinary course of business; (f)
the Equipment is now and shall remain personal property
and each Guarantor shall not permit any of the Equipment
to be or become a part of or affixed to real property;
and
(g) each Guarantor assumes all responsibility and
liability arising from the use of the Equipment.
3.4 Power of Attorney. Each Guarantor hereby
irrevocably designates and appoints Guaranteed Party (and
all persons designated by Guaranteed Party) as each such
Guarantor's true and lawful attorney-in-fact, and
authorizes Guaranteed Party, in each such Guarantor's or
Guaranteed Party's name, to: (a) at any time an Event of
Default exists or has occurred and is continuing (i)
demand payment on Accounts or other proceeds of Inventory
or other Collateral, (ii) enforce payment of Accounts by
legal proceedings or otherwise, (iii) exercise all of
each
such Guarantor's rights and remedies to collect any
Account or other Collateral, (iv) sell or assign any
Account upon such terms, for such amount and at such time
or times as the Guaranteed Party deems advisable, (v)
settle, adjust, compromise, extend or renew an Account,
(vi) discharge and release any Account, (vii) prepare,
file and sign each such Guarantor's name on any proof of
claim in bankruptcy or other similar document against an
account debtor, (viii) notify the post office authorities
to change the address for delivery of each such
Guarantor's mail to an address designated by Guaranteed
Party, and open and dispose of all mail addressed to each
such Guarantor, and (ix) do all acts and things which are
necessary, in Guaranteed Party's determination, to
fulfill
each such Guarantor's obligations under this Agreement
and
the other Revolving Loan Documents and (b) at any time to
(i) take control in any manner of any item of payment or
proceeds thereof, (ii) have access to any lockbox or
postal box into which each such Guarantor's mail is
deposited, (iii) endorse each such Guarantor's name upon
any items of payment or proceeds thereof and deposit the
same in the Guaranteed Party's account for application to
the Obligations, (iv) endorse each such Guarantor's name
upon any chattel paper, document, instrument, invoice, or
similar document or agreement relating to any Account or
any goods pertaining thereto or any other Collateral, and
(v) sign each such Guarantor's name on any verification
of
Accounts and notices thereof to account debtors and (vi)
execute in each such Guarantor's name and file any UCC
financing statements or amendments thereto. Each
Guarantor hereby releases Guaranteed Party and its
officers, employees and designees from any liabilities
arising from any act or acts under this power of attorney
and in furtherance thereof, whether of omission or
commission, except as a result of Guaranteed Party's own
gross negligence or wilful misconduct as determined
pursuant to a final non-appealable order of a court of
competent jurisdiction.
3.5 Right to Cure. Guaranteed Party may, at
its option, (a) cure any default by each Guarantor under
any agreement with a third party or pay or bond on appeal
any judgment entered against such Guarantor, (b)
discharge
taxes, liens, security interests or other encumbrances at
any time levied on or existing with respect to the
Collateral and (c) pay any amount, incur any expense or
perform any act which, in Guaranteed Party's judgment, is
necessary or appropriate to preserve, protect, insure or
maintain the Collateral and the rights of Guaranteed
Party
with respect thereto. Guaranteed Party may add any
amounts so expended to the Obligations and charge each
Guarantor's account therefor, such amounts to be
repayable
by each such Guarantor on demand. Guaranteed Party shall
be under no obligation to effect such cure, payment or
bonding and shall not, by doing so, be deemed to have
assumed any obligation or liability of each such
Guarantor. Any payment made or other action taken by
Guaranteed Party under this Section shall be without
prejudice to any right to assert an Event of Default
hereunder and to proceed accordingly.
3.6 Access to Premises. From time to time as
requested by Guaranteed Party, at the cost and expense of
each Guarantor, (a) Guaranteed Party or its designee
shall
have complete access to all of each such Guarantor's
premises during normal business hours and after notice to
each such Guarantor, or at any time and without notice to
any Guarantor if an Event of Default exists or has
occurred and is continuing, for the purposes of
inspecting, verifying and auditing the Collateral and all
of each such Guarantor's books and records, including,
without limitation, the Records, and (b) each Guarantor
shall promptly furnish to Guaranteed Party such copies of
such books and records or extracts therefrom as
Guaranteed
Party may request, and (c) use during normal business
hours such of each Guarantor's personnel, equipment,
supplies and premises as may be reasonably necessary for
the foregoing and if an Event of Default exists or has
occurred and is continuing for the collection of
Accounts and realization of other Collateral.
SECTION 4. REPRESENTATIONS AND WARRANTIES
Each Guarantor hereby represents and warrants
to
Guaranteed Party the following (which shall survive the
execution and delivery of this Agreement):
4.1 Corporate Existence, Power and Authority;
Subsidiaries. Each Guarantor is a corporation duly
organized and in good standing under the laws of its
state
of incorporation and is duly qualified as a foreign
corporation and in good standing in all states or other
jurisdictions where the nature and extent of the business
transacted by it or the ownership of assets makes such
qualification necessary, except for those jurisdictions
in
which the failure to so qualify would not have a material
adverse effect on such Guarantor's financial condition,
results of operation or business or the rights of
Guaranteed Party in or to any of the Collateral. The
execution, delivery and performance of this Agreement,
the
other Revolving Loan Documents and the transactions
contemplated hereunder and thereunder are all within each
Guarantor's corporate powers, have been duly authorized
and are not in contravention of law or the terms of such
Guarantor's certificate of incorporation, by-laws, or
other organizational documentation, or any indenture,
agreement or undertaking to which such Guarantor is a
party or by which such Guarantor or its property are
bound. This Agreement and the other Revolving Loan
Documents constitute legal, valid and binding obligations
of each Guarantor enforceable in accordance with their
respective terms. Each Guarantor does not have any
subsidiaries except as set forth on Schedule 4.1 hereto.
4.2 Financial Statements; No Material Adverse
Change. All financial statements relating to each
Guarantor which have been or may hereafter be delivered
by
such Guarantor to Guaranteed Party have been prepared in
accordance with GAAP and fairly present the financial
condition and the results of operation of such Guarantor
as at the dates and for the periods set forth therein.
Except as disclosed in any interim financial statements
furnished by each Guarantor to Guaranteed Party prior to
the date hereof, there has been no material adverse
change
in the assets, liabilities, properties and condition,
financial or otherwise, of each Guarantor, since the date
of the most recent financial statements furnished by each
Guarantor to Guaranteed Party prior to the date
hereof.
4.3 Chief Executive Office; Collateral
Locations. The chief executive office of each Guarantor
and each such Guarantor's Records concerning Accounts are
located only at the address set forth below and its only
other places of business and the only other locations of
Collateral, if any, are the addresses set forth in
Schedule 4.3 hereto, subject to the right of each such
Guarantor to establish new locations in accordance with
Section 5.2 below. Schedule 4.3 hereto correctly
identifies any of such locations which are not owned by
each such Guarantor and sets forth the owners and/or
operators thereof, and to the best of each such
Guarantor's knowledge, the holders of any mortgages on
such locations.
4.4 Priority of Liens; Title to Properties.
The security interests and liens granted to Guaranteed
Party under this Agreement and the other Revolving Loan
Documents upon the filing of financing statements,
mortgages or deeds of trust which have been executed by
Guarantors as of the date hereof constitute valid and
perfected liens and security interests in and upon the
Collateral subject only to the liens indicated on
Schedule
4.4 hereto and the other liens permitted under Section
5.8
hereof. Each Guarantor has good and marketable title to
all of its properties and assets subject to no liens,
mortgages, pledges, security interests, encumbrances or
charges of any kind, except those granted to Guaranteed
Party and such others as are specifically listed on
Schedule 4.4 hereto or permitted under Section 5.8
hereof.
4.5 Tax Returns. Each Guarantor has filed, or
caused to be filed, in a timely manner all tax returns,
reports and declarations which are required to be filed
by
it (without requests for extension except as previously
disclosed in writing to Guaranteed Party). All
information in such tax returns, reports and declarations
is complete and accurate in all material respects. Each
Guarantor has paid or caused to be paid all taxes due and
payable or claimed due and payable in any assessment
received by it, except taxes the validity of which are
being contested in good faith by appropriate proceedings
diligently pursued and available to each Guarantor and
with respect to which adequate reserves have been set
aside on its books. Adequate provision has been made for
the payment of all accrued and unpaid federal, state,
county, local, foreign and other taxes whether or not yet
due and payable and whether or not disputed.
4.6 Litigation. Except as set forth on
Schedule 4.6 hereto, there is no present investigation by
any governmental agency pending, or to the best of each
Guarantor's knowledge threatened, against or affecting
such Guarantor, its assets or business and there is no
action, suit, proceeding or claim by any Person pending,
or to the best of each Guarantor's knowledge threatened,
against such Guarantor or its assets or goodwill, or
against or affecting any transactions contemplated by
this
Agreement, which if adversely determined against such
Guarantor would result in any material adverse change in
the assets, business or prospects of such Guarantor or
which would impair the ability of such Guarantor to
perform its obligations hereunder or under any of the
other Revolving Loan Documents to which it is a party or
of Guaranteed Party to enforce the Obligations or realize
upon any Collateral.
4.7 Compliance with Other Agreements and
Applicable Laws. Each Guarantor is not in default in any
material respect under, or in violation in any material
respect of any of the terms of, any agreement, contract,
instrument, lease or other commitment to which it is a
party or by which it or any of its assets are bound and
each Guarantor is in compliance in all material respects
with all applicable provisions of laws, rules,
regulations, licenses, permits, approvals and orders of
any foreign, federal, state or local governmental
authority.
4.8 Asset Values. FGR, Inc., f.k.a. Decatur
Aluminum Company Inc., Fruehauf Corporation, Maryland
Shipbuilding & Drydock Company, The Mercer Co., CEMCO
International Limited, Fruehauf Holdings Corp., Fruehauf
Trailer (Australasia) Pty., E.L. Devices, Inc., f.k.a.
Electro Lube Devices, Inc., Bellinger Operations, Inc.
and
Key Houston Operations, Inc. do not collectively own
assets (excluding a note payable from Debtor to Maryland
Shipbuilding & Drydock Company) having a fair market
value
in excess of $50,000. The real property owned by
Jacksonville Shipyards, Inc. does not have a fair market
value in the aggregate in excess of $350,000.
4.9 Accuracy and Completeness of Information.
All information furnished by or on behalf of each
Guarantor in writing to Guaranteed Party in connection
with this Agreement or any of the other Revolving Loan
Documents or any transaction contemplated hereby or
thereby, including, without limitation, all information
on
any of the Schedules hereto is true and correct in all
material respects on the date as of which such
information
is dated or certified and does not omit any material fact
necessary in order to make such information not
misleading. No event or circumstance has occurred which
has had or could reasonably be expected to have a
material
adverse affect on the business, assets or prospects of
each Guarantor, which has not been fully and accurately
disclosed to Guaranteed Party in writing.
4.10 Survival of Warranties; Cumulative. All
representations and warranties contained in this
Agreement
or any of the other Revolving Loan Documents shall
survive
the execution and delivery of this Agreement and shall be
conclusively presumed to have been relied on by
Guaranteed
Party regardless of any investigation made or information
possessed by Guaranteed Party. The representations and
warranties set forth herein shall be cumulative and in
addition to any other representations or warranties which
any Guarantor shall now or hereafter give, or cause to be
given, to Guaranteed Party.
SECTION 5. AFFIRMATIVE AND NEGATIVE COVENANTS
5.1 Maintenance of Existence. Each Guarantor
shall at all times preserve, renew and keep in full,
force
and effect its corporate existence and rights and
franchises with respect thereto and maintain in full
force
and effect all permits, licenses, trademarks, tradenames,
approvals, authorizations, leases and contracts necessary
to carry on the business as presently or proposed to be
conducted. Each Guarantor shall give Guaranteed Party
thirty (30) days prior written notice of any proposed
change in its corporate name, which notice shall set
forth
the new name and such Guarantor shall deliver to
Guaranteed Party a copy of the amendment to the
Certificate of Incorporation of such Guarantor providing
for the name change certified by the Secretary of State
of
the jurisdiction of incorporation of such Guarantor as
soon as it is available.
5.2 New Collateral Locations. Each Guarantor
may open any new location within the continental United
States provided such Guarantor (a) gives Guaranteed Party
thirty (30) days prior written notice of the intended
opening of any such new location and (b) executes and
delivers, or causes to be executed and delivered, to
Guaranteed Party such agreements, documents, and
instruments as Guaranteed Party may deem reasonably
necessary or desirable to protect its interests in the
Collateral at such location, including, without
limitation, UCC financing statements.
5.3 Compliance with Laws, Regulations, Etc.
Each Guarantor shall, at all times, comply in all
material
respects with all laws, rules, regulations, licenses,
permits, approvals and orders of any federal, state or
local governmental authority applicable to it.
5.4 Payment of Taxes and Claims. Each
Guarantor shall duly pay and discharge all taxes,
assessments, contributions and governmental charges upon
or against it or its properties or assets, except for (i)
taxes the validity of which are being contested in good
faith by appropriate proceedings diligently pursued and
available to such Guarantor and with respect to which
adequate reserves have been set aside on its books (ii)
and obligations of Jacksonville Shipyards Inc. in an
amount not in excess of $2,000,000, pursuant to Section
8(f) of the Harborworkers and Longshoremen Act and with
respect to which Jacksonville Shipyards, Inc. has set
aside adequate reserves on its books. Each Guarantor
shall be liable for any tax or penalties imposed on
Guaranteed Party as a result of the financing
arrangements
provided for herein and each Guarantor agrees to
indemnify
and hold Guaranteed Party harmless with respect to the
foregoing, and to repay to Guaranteed Party on demand the
amount thereof, and until paid by each Guarantor such
amount shall be added and deemed part of the Obligations,
provided, that, nothing contained herein shall be
construed to require such Guarantor to pay any income or
franchise taxes attributable to the income of Guaranteed
Party from any amounts charged or paid hereunder to
Guaranteed Party. The foregoing indemnity shall survive
the payment of the Obligations, the termination of this
Agreement and the termination of the Revolving Loan
Documents.
5.5 Insurance. Each Guarantor shall, at all
times, maintain with financially sound and reputable
insurers insurance with respect to the Collateral against
loss or damage and all other insurance of the kinds and
in
the amounts customarily insured against or carried by
corporations of established reputation engaged in the
same
or similar businesses and similarly situated. Said
policies of insurance shall be satisfactory to Guaranteed
Party as to form, amount and insurer. Each Guarantor
shall furnish certificates, policies or endorsements to
Guaranteed Party as Guaranteed Party shall require as
proof of such insurance, and, if such Guarantor fails to
do so, Guaranteed Party is authorized, but not required,
to obtain such insurance at the expense of such
Guarantor.
All policies shall provide for at least thirty (30) days
prior written notice to Guaranteed Party of any
cancellation or reduction of coverage and that Guaranteed
Party may act as attorney for each Guarantor in
obtaining,
and at any time an Event of Default exists or has
occurred
and is continuing, adjusting, settling, amending and
canceling such insurance. Each Guarantor shall cause
Guaranteed Party to be named as a loss payee and an
additional insured (but without any liability for any
premiums) under such insurance policies and each
Guarantor
shall obtain non-contributory lender's loss payable
endorsements to all insurance policies in form and
substance satisfactory to Guaranteed Party. Such
lender's loss payable endorsements shall specify that the
proceeds of such insurance shall be payable to Guaranteed
Party as its interests may appear and further specify
that
Guaranteed Party shall be paid regardless of any act or
omission by each Guarantor or any of its affiliates. At
its option, Guaranteed Party may apply any insurance
proceeds received by Guaranteed Party at any time to the
cost of repairs or replacement of Collateral and/or to
payment of the Obligations, whether or not then due, in
any order and in such manner as Guaranteed Party may
determine or hold such proceeds as cash collateral for
the
Obligations.
5.6 Provision of Information.
(a) Each Guarantor shall promptly notify
Guaranteed Party in writing of the details of (i) any
loss, damage, investigation, action, suit, proceeding or
claim relating to the Collateral or any other property
which is security for the Obligations or which would
result in any material adverse change in such Guarantor's
business, properties, assets, goodwill or condition,
financial or otherwise and (ii) the occurrence of any
Event of Default or event which, with the passage of time
or giving of notice or both, would constitute an Event of
Default.
(b) Each Guarantor shall promptly after
the sending or filing thereof furnish or cause to be
furnished to Guaranteed Party copies of all reports which
each Guarantor sends to its stockholders generally and
copies of all reports and registration statements which
each Guarantor files with the Securities and Exchange
Commission, any national securities exchange or the
National Association of Securities Dealers, Inc.
(c) Each Guarantor shall furnish or cause
to be furnished to Guaranteed Party such budgets,
forecasts, projections and other information respecting
the Collateral and the business of such Guarantor, as
Guaranteed Party may, from time to time, reasonably
request. Guaranteed Party is hereby authorized to
deliver
a copy of any financial statement or any other
information
relating to the business of each Guarantor to any court
or
other government agency or to any participant or assignee
or prospective participant or assignee. Each Guarantor
hereby irrevocably authorizes and directs all accountants
or auditors to deliver to Guaranteed Party, at such
Guarantor's expense, copies of the financial statements
of
such Guarantor and any reports or management letters
prepared by such accountants or auditors on behalf of
such
Guarantor and to disclose to Guaranteed Party such
information as they may have regarding the business of
such Guarantor. Any documents, schedules, invoices or
other papers delivered to Guaranteed Party may be
destroyed or otherwise disposed of by Guaranteed Party
one
(1) year after the same are delivered to Guaranteed
Party,
except as otherwise designated by Guarantor to Guaranteed
Party in writing.
5.7 Sale of Assets, Consolidation, Merger,
Dissolution, Etc. Each Guarantor shall not, directly or
indirectly, (a) merge into or with or consolidate with
any
other Person or permit any other Person to merge into or
with or consolidate with it (other than a merger into
Debtor or another Guarantor), or (b) sell, assign, lease,
transfer, abandon or otherwise dispose of any stock or
indebtedness to any other Person or any of its assets to
any other Person (except for sales or other dispositions
of assets which Debtor is permitted to allow such
subsidiary to consummate under the terms of the Working
Capital Term Note), or (c) form or acquire any
subsidiaries, or (d) wind up, liquidate or dissolve or
(e)
agree to do any of the foregoing.
5.8 Encumbrances. Each Guarantor shall not
create, incur, assume or suffer to exist any security
interest, mortgage, pledge, lien, charge or other
encumbrance of any nature whatsoever on any of its assets
or properties, including, without limitation, the
Collateral, except: (a) liens and security interests
granted pursuant to the Congress Loan Documents, the
Bondholder Documents, the Working Capital Term Loan
Documents and the Revolving Loan Documents; (b) liens
securing the payment of taxes, either not yet overdue or
the validity of which are being contested in good faith
by
appropriate proceedings diligently pursued and available
to such Guarantor and with respect to which adequate
reserves have been set aside on its books; (c)
non-consensual statutory liens (other than liens
securing the payment of taxes) arising in the ordinary
course of such Guarantor's business to the extent: (i)
such liens secure indebtedness which is not overdue or
(ii) such liens secure indebtedness relating to claims or
liabilities which are fully insured and being defended at
the sole cost and expense and at the sole risk of the
insurer or being contested in good faith by appropriate
proceedings diligently pursued and available to such
Guarantor, in each case prior to the commencement of
foreclosure or other similar proceedings and with respect
to which adequate reserves have been set aside on its
books; (d) zoning restrictions, easements, licenses,
covenants and other restrictions affecting the use of
real
property which do not interfere in any material respect
with the use of such real property or ordinary conduct of
the business of such Guarantor as presently conducted
thereon or materially impair the value of the real
property which may be subject thereto; and (e) the
security interests and liens set forth on Schedule 4.4
hereto.
5.9 Indebtedness. Each Guarantor shall not
incur, create, assume, become or be liable in any manner
with respect to, or permit to exist, any obligations or
indebtedness, except (a) the Obligations; (b) trade
obligations and normal accruals in the ordinary course of
business not yet due and payable, or with respect to
which
each such Guarantor is contesting in good faith the
amount
or validity thereof by appropriate proceedings diligently
pursued and available to each such Guarantor, and with
respect to which adequate reserves have been set aside on
its books; and (c) obligations or indebtedness set forth
on Schedule 5.9 hereto; provided, that, (i) each
Guarantor
may only make regularly scheduled payments of principal
and interest in respect of such indebtedness in
accordance
with the terms of the agreement or instrument evidencing
or giving rise to such indebtedness as in effect on the
date hereof, (ii) each Guarantor shall not, directly or
indirectly, (A) amend, modify, alter or change the terms
of such indebtedness or any agreement, document or
instrument related thereto, or (B) redeem, retire,
defease, purchase or otherwise acquire such indebtedness,
or set aside or otherwise deposit or invest any sums for
such purpose, and (iii) each Guarantor shall furnish to
Guaranteed Party all notices or demands in connection
with
such indebtedness either received by such Guarantor or on
its behalf, promptly after the receipt thereof, or sent
by
such Guarantor or on its behalf, concurrently with the
sending thereof, as the case may be.
5.10 Loans, Investments, Guarantees, Etc.
Each
Guarantor shall not, directly or indirectly, make any
loans or advance money or property to any person, or
invest in (by capital contribution, dividend or
otherwise)
or purchase or repurchase the stock or indebtedness or
all
or a substantial part of the assets or property of any
person, or guarantee, assume, endorse, or otherwise
become
responsible for (directly or indirectly) the
indebtedness,
performance, obligations or dividends of any Person or
agree to do any of the foregoing, except: (a) the
endorsement of instruments for collection or deposit in
the ordinary course of business; (b) investments in: (i)
short-term direct obligations of the United States
Government, and (ii) negotiable certificates of deposit
issued by any bank satisfactory to Guaranteed Party,
payable to the order of such Guarantor or to bearer and
delivered to Guaranteed Party, and (c) the guarantees set
forth in Schedule 5.10.
5.11 Dividends and Redemptions. Each
Guarantor
shall not, directly or indirectly, declare or pay any
dividends on account of any of its shares of class of
capital stock now or hereafter outstanding, or set aside
or otherwise deposit or invest any sums for such purpose,
or redeem, retire, defease, purchase or otherwise acquire
any shares of any class of capital stock (or set aside or
otherwise deposit or invest any sums for such purpose)
for
any consideration other than common stock or apply or set
apart any sum, or make any other distribution (by
reduction of capital or otherwise) in respect of any such
shares or agree to do any of the foregoing other than a
cash dividend to Debtor.
5.12 Transactions with Affiliates. Each
Guarantor shall not enter into any transaction for the
purchase, sale or exchange of property or the rendering
of
any service to or by any affiliate, except in the
ordinary
course of and pursuant to the reasonable requirements of
each such Guarantor's business and upon fair and
reasonable terms no less favorable to each such Guarantor
than such Guarantor would obtain in a comparable arm's
length transaction with an unaffiliated person.
5.13 Costs and Expenses. Each Guarantor shall
pay to Guaranteed Party on demand all costs, expenses,
filing fees and taxes paid or payable in connection with
the preparation, negotiation, execution, delivery,
recording, administration, collection, liquidation,
enforcement and defense of the Obligations, Guaranteed
Party's rights in the Collateral, this Agreement, the
other Revolving Loan Documents and all other documents
related hereto or thereto, including any amendments,
supplements or consents which may hereafter be
contemplated (whether or not executed) or entered into in
respect hereof and thereof, including, but not limited
to:
(a) all costs and expenses of filing or recording
(including Uniform Commercial Code financing statement
filing taxes and fees, documentary taxes, intangibles
taxes and mortgage recording taxes and fees, if
applicable); (b) all title insurance and other insurance
premiums, appraisal fees and search fees; ( costs and
expenses of preserving and protecting the Collateral; (d)
costs and expenses paid or incurred in connection with
obtaining payment of the Obligations, enforcing the
security interests and liens of Guaranteed Party, selling
or otherwise realizing upon the Collateral, and otherwise
enforcing the provisions of this Agreement and the other
Revolving Loan Documents or defending any claims made or
threatened against Guaranteed Party arising out of the
transactions contemplated hereby and thereby (including,
without limitation, preparations for and consultations
concerning any such matters); and (e) the fees and
disbursements of counsel (including legal assistants) to
Guaranteed Party in connection with any of the foregoing.
5.14 Further Assurances. At the request of
Guaranteed Party at any time and from time to time, each
Guarantor shall, at its expense, at any time or times
duly
execute and deliver, or cause to be duly executed and
delivered, such further agreements, documents and
instruments, and do or cause to be done such further acts
as may be necessary or proper to evidence, perfect,
maintain and enforce the security interests and the
priority thereof in the Collateral and to otherwise
effectuate the provisions or purposes of this Agreement
or
any of the other Revolving Loan Documents. Where
permitted by law, each Guarantor hereby authorizes
Guaranteed Party to execute and file one or more UCC
financing statements signed only by Guaranteed Party.
SECTION 6. EVENTS OF DEFAULT AND REMEDIES
6.1 Events of Default. The occurrence or
existence of any Event of Default under the Subordinated
Revolving Note is referred to herein individually as an
"Event of Default", and collectively as "Events of
Default".
Remedies.
(a) At any time an Event of Default
exists
or has occurred and is continuing, Guaranteed Party shall
have all rights and remedies provided in this Agreement,
the other Revolving Loan Documents, the Uniform
Commercial
Code and other applicable law, all of which rights and
remedies may be exercised without notice to or consent by
any Guarantor or any other party, except as such notice
or
consent is expressly provided for hereunder or required
by
applicable law. All rights, remedies and powers granted
to Guaranteed Party hereunder, under any of the other
Revolving Loan Documents, the Uniform Commercial Code or
other applicable law, are cumulative, not exclusive and
enforceable, in Guaranteed Party's discretion,
alternatively, successively, or concurrently on any one
or
more occasions, and shall include, without limitation,
the
right to apply to a court of equity for an injunction to
restrain a breach or threatened breach by any Guarantor
of
this Agreement or any of the other Revolving Loan
Documents. Guaranteed Party may, at any time or times,
proceed directly against any Guarantor or any other party
to collect any Obligations when due without prior
recourse
to the Collateral.
(b) Without limiting the foregoing, at
any
time an Event of Default exists or has occurred and is
continuing, Guaranteed Party may, in its discretion and
without limitation, (i) accelerate the payment of all
Obligations and demand immediate payment thereof to
Guaranteed Party, (ii) with or without judicial process
or
the aid or assistance of others, enter upon any premises
on or in which any of the Collateral may be located and
take possession of the Collateral or complete processing,
manufacturing and repair of all or any portion of the
Collateral, (iii) require each Guarantor, at such
Guarantor's expense, to assemble and make available to
Guaranteed Party any part or all of the Collateral at any
place and time designated by Guaranteed Party, (iv)
collect, foreclose, receive, appropriate, setoff and
realize upon any and all Collateral, (v) remove any or
all
of the Collateral from any premises on or in which the
same may be located for the purpose of effecting the
sale, foreclosure or other disposition thereof or for any
other purpose, (vi) sell, lease, transfer, assign,
deliver
or otherwise dispose of any and all Collateral
(including,
without limitation, entering into contracts with respect
thereto, public or private sales at any exchange,
broker's
board, at any office of Guaranteed Party or elsewhere) at
such prices or terms as Guaranteed Party may deem
reasonable, for cash, upon credit or for future delivery,
with the Guaranteed Party having the right to purchase
the
whole or any part of the Collateral at any such public
sale, all of the foregoing being free from any right or
equity of redemption of Guarantors, which right or equity
of redemption is hereby expressly waived and released by
Guarantors. If any of the Collateral is sold or leased
by
Guaranteed Party upon credit terms or for future
delivery,
the Obligations shall not be reduced as a result thereof
until payment therefor is finally collected by Guaranteed
Party. If notice of disposition of Collateral is
required
by law, five (5) days prior notice by Guaranteed Party to
each Guarantor designating the time and place of any
public sale or the time after which any private sale or
other intended disposition of Collateral is to be made,
shall be deemed to be reasonable notice thereof and
Guarantors waive any other notice. In the event
Guaranteed Party institutes an action to recover any
Collateral or seeks recovery of any Collateral by way of
prejudgment remedy, Guarantors waive the posting of any
bond which might otherwise be required.
Guaranteed Party may apply the cash
proceeds of Collateral actually received by Guaranteed
Party from any sale, lease, foreclosure or other
disposition of the Collateral to payment of the
Obligations, in whole or in part and in such order as
Guaranteed Party may elect, whether or not then due.
Each
Guarantor shall remain liable to Guaranteed Party for the
payment of any deficiency with interest at the highest
rate provided for in the Subordinated Revolving Note and
all costs and expenses of collection or enforcement,
including attorneys' fees and legal expenses.
SECTION 7. JURY TRIAL WAIVER; OTHER WAIVERS
AND CONSENTS; GOVERNING LAW
7.1 Governing Law; Choice of Forum; Service of
Process; Jury Trial Waiver.
(a) The validity, interpretation and
enforcement of this Agreement and the other Revolving
Loan
Documents and any dispute arising out of the relationship
between the parties hereto, whether in contract, tort,
equity or otherwise, shall be governed by the internal
laws of the State of New York (without giving effect to
principles of conflicts of law).
(b) Each Guarantor irrevocably consents
and submits to the non-exclusive jurisdiction of the
courts of the State of New York and the United States
District Court for the Southern District of New York and
waives any objection based on venue or forum non
conveniens with respect to any action instituted therein
arising under this Agreement or any of the other
Revolving
Loan Documents or in any way connected or related or
incidental to the dealings of any Guarantor and
Guaranteed
Party in respect of this Agreement or the other Revolving
Loan Documents or the transactions related hereto or
thereto, in each case whether now existing or hereafter
arising, and whether in contract, tort, equity or
otherwise, and agrees that any dispute with respect to
any
such matters shall be heard only in the courts described
above (except that Guaranteed Party shall have the right
to bring any action or proceeding against any Guarantor
or
its property in the courts of any other jurisdiction
which
Guaranteed Party deems necessary or appropriate in order
to realize on the Collateral or to otherwise enforce its
rights against such Guarantor or its property).
(c) Each Guarantor hereby waives personal
service of any and all process upon it and consents that
all such service of process may be made by certified mail
(return receipt requested) directed to its address set
forth on the signature pages hereof and service so made
shall be deemed to be completed five (5) days after the
same shall have been so deposited in the U.S. mails, or,
at Guaranteed Party's option, by service upon such
Guarantor in any other manner provided under the rules of
any such courts. Within thirty (30) days after such
service, such Guarantor shall appear in answer to such
process, failing which such Guarantor shall be deemed in
default and judgment may be entered by Guaranteed Party
against such Guarantor for the amount of the claim and
other relief requested.
(d) EACH GUARANTOR HEREBY WAIVES ANY
RIGHT
TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF
ACTION (i) ARISING UNDER THIS AGREEMENT OR ANY OF THE
OTHER REVOLVING LOAN DOCUMENTS OR (ii) IN ANY WAY
CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS
OF
ANY GUARANTOR AND GUARANTEED PARTY IN RESPECT OF THIS
AGREEMENT OR ANY OF THE OTHER REVOLVING LOAN DOCUMENTS OR
THE TRANSACTIONS RELATED HERETO OR THERETO IN EACH CASE
WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER IN
CONTRACT, TORT, EQUITY OR OTHERWISE. EACH GUARANTOR
HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND,
ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL
WITHOUT A JURY AND THAT SUCH GUARANTOR OR GUARANTEED
PARTY
MAY FILE AN ORIGINAL COUNTERPART OF A COPY OF THIS
AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE
CONSENT OF SUCH GUARANTOR AND GUARANTEED PARTY TO THE
WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
(e) Guaranteed Party shall not have any
liability to any Guarantor (whether in tort, contract,
equity or otherwise) for losses suffered by any Guarantor
in connection with, arising out of, or in any way related
to the transactions or relationships contemplated by this
Agreement, or any act, omission or event occurring in
connection herewith, unless it is determined by a final
and non-appealable judgment or court order binding on
Guaranteed Party that the losses were the result of acts
or omissions constituting gross negligence or willful
misconduct. In any such litigation, Guaranteed Party
shall be entitled to the benefit of the rebuttable
presumption that it acted in good faith and with the
exercise of ordinary care in the performance by it of the
terms of this Agreement and the other Revolving Loan
Documents.
7.2 Waiver of Notices. Each Guarantor hereby
expressly waives demand, presentment, protest and notice
of protest and notice of dishonor with respect to any and
all instruments and commercial paper, included in or
evidencing any of the Obligations or the Collateral,
and any and all other demands and notices of any kind or
nature whatsoever with respect to the Obligations, the
Collateral and this Agreement, except such as are
expressly provided for herein. No notice to or demand on
each Guarantor which Guaranteed Party may elect to give
shall entitle such Guarantor to any other or further
notice or demand in the same, similar or other
circumstances.
7.3 Amendments and Waivers. Neither this
Agreement nor any provision hereof shall be amended,
modified, waived or discharged orally or by course of
conduct, but only by a written agreement signed by an
authorized officer of Guaranteed Party. Guaranteed Party
shall not, by any act, delay, omission or otherwise be
deemed to have expressly or impliedly waived any of its
rights, powers and/or remedies unless such waiver shall
be
in writing and signed by an authorized officer of
Guaranteed Party. Any such waiver shall be enforceable
only to the extent specifically set forth therein. A
waiver by Guaranteed Party of any right, power and/or
remedy on any one occasion shall not be construed as a
bar
to or waiver of any such right, power and/or remedy which
Guaranteed Party would otherwise have on any future
occasion, whether similar in kind or otherwise.
7.4 Waiver of Counterclaims. Each Guarantor
waives all rights to interpose any claims, deductions,
setoffs or counterclaims of any nature (other then
compulsory counterclaims) in any action or proceeding
with
respect to this Agreement, the Obligations, the
Collateral
or any matter arising therefrom or relating hereto or
thereto.
7.5 Indemnification. Each Guarantor shall
indemnify and hold Guaranteed Party, and its directors,
agents, employees and counsel, harmless from and against
any and all losses, claims, damages, liabilities, costs
or
expenses imposed on, incurred by or asserted against any
of them in connection with any litigation, investigation,
claim or proceeding commenced or threatened related to
the negotiation, preparation, execution, delivery,
enforcement, performance or administration of this
Agreement, any other Revolving Loan Documents, or any
undertaking or proceeding related to any of the
transactions contemplated hereby or any act, omission,
event or transaction related or attendant thereto,
including, without limitation, amounts paid in
settlement,
court costs, and the fees and expenses of counsel. To
the
extent that the undertaking to indemnify, pay and hold
harmless set forth in this Section may be unenforceable
because it violates any law or public policy, each
Guarantor shall pay the maximum portion which it is
permitted to pay under applicable law to Guaranteed Party
in satisfaction of indemnified matters under this
Section.
The foregoing indemnity shall survive the payment of the
Obligations, the termination of this Agreement and the
termination or non-renewal of the Subordinated Revolving
Note. All of the foregoing costs and expenses shall be
part of the Obligations and secured by the Collateral.
SECTION 8. MISCELLANEOUS
8.1 Notices. All notices, requests and
demands
hereunder shall be in writing and (a) made to Guaranteed
Party at 672 Delaware Avenue, Buffalo, New York 14209,
Attn: Frederick J. Chapman and to each applicable
Guarantor at its chief executive office set forth below,
or to such other address as either party may designate by
written notice to the other in accordance with this
provision, and (b) deemed to have been given or made: if
delivered in person, immediately upon delivery; if by
telex, telegram or facsimile transmission, immediately
upon sending and upon confirmation of receipt; if by
nationally recognized overnight courier service with
instructions to deliver the next business day, one (1)
business day after sending; and if by certified mail,
return receipt requested, five (5) days after mailing.
8.2 Partial Invalidity. If any provision of
this Agreement is held to be invalid or unenforceable,
such invalidity or unenforceability shall not invalidate
this Agreement as a whole, but this Agreement shall be
construed as though it did not contain the particular
provision held to be invalid or unenforceable and the
rights and obligations of the parties shall be construed
and enforced only to such extent as shall be permitted by
applicable law.
8.3 Successors. This Agreement, the other
Revolving Loan Documents and any other document referred
to herein or therein shall be binding upon each Guarantor
and its respective successors and assigns and inure to
the
benefit of and be enforceable by Guaranteed Party and its
successors and assigns, except that each Guarantor may
not
assign its rights under this Agreement, the other
Revolving Loan Documents and any other document referred
to herein or therein without the prior written consent of
Guaranteed Party.
IN WITNESS WHEREOF, each Guarantor has caused
these presents to be duly executed as of the day and year
first above written.
GUARANTOR
FGR, Inc., f.k.a. Decatur Aluminum
Company, Inc.
By:/s/ Timothy J. Wiggins
----------------------
Title: Executive Vice President and
Chief Financial Officer
CHIEF EXECUTIVE OFFICE:
111 Monument Circle, Suite 3200
Indianapolis, Indiana 46204
GUARANTOR
Fruehauf Corporation
By:/s/ Timothy J. Wiggins
-----------------------------
Title: Executive Vice President
--------------------------
CHIEF EXECUTIVE OFFICE:
1105 North Market Street, Suite 1300
P.O. Box 8985
Wilmington, Delaware 19899
GUARANTOR
Maryland Shipbuilding & Drydock Company
By:/s/ Gary K. Lorenz
--------------------------
Title: President
-----------------------
CHIEF EXECUTIVE OFFICE:
111 Monument Circle, Suite 3200
Indianapolis, Indiana 46204
GUARANTOR
The Mercer Co.
By:/s/ Timothy J. Wiggins
----------------------------
Title: Executive Vice President
-------------------------
CHIEF EXECUTIVE OFFICE:
111 Monument Circle, Suite 3200
Indianapolis, Indiana 46204
GUARANTOR
Fruehauf International Limited
By: /s/ Timothy J. Wiggins
----------------------------
Title: Executive Vice President
------------------------
CHIEF EXECUTIVE OFFICE:
111 Monument Circle, Suite 3200
Indianapolis, Indiana 46204
GUARANTOR
Deutsche-Fruehauf Holding Corporation
By:/s/ Timothy J. Wiggins
----------------------------
Title: Executive Vice President
------------------------
CHIEF EXECUTIVE OFFICE:
111 Monument Circle, Suite 3200
Indianapolis, Indiana 46204
GUARANTOR
Jacksonville Shipyards, Inc.
By:/s/ Gary K. Lorenz
------------------------
Title: President
--------------------
CHIEF EXECUTIVE OFFICE:
111 Monument Circle, Suite 3200
Indianapolis, Indiana 46204
GUARANTOR
M.J. Holdings, Inc.
By:/s/ Timothy J. Wiggins
----------------------------
Title: Executive Vice President
------------------------
CHIEF EXECUTIVE OFFICE:
111 Monument Circle, Suite 3200
Indianapolis, Indiana 46204
GUARANTOR
Fruehauf Holdings Corp.
By:/s/ Timothy J. Wiggins
----------------------------
Title: Executive Vice President
------------------------
CHIEF EXECUTIVE OFFICE:
111 Monument Circle, Suite 3200
Indianapolis, Indiana 46204
GUARANTOR
E.L. Devices, Inc.
By:/s/ Timothy J. Wiggins
----------------------------
Title: Executive Vice President
------------------------
CHIEF EXECUTIVE OFFICE:
111 Monument Circle, Suite 3200
Indianapolis, Indiana 46204
ACCEPTED BY:
K-H Corporation
By:/s/ Fred J. Chapman
----------------------------
Title: Treasurer
------------------------
<PAGE>
Schedule 4.1
[To be provided by Debtor]
<PAGE>
Schedule 4.4
Priority of Liens; Title to Property
[To be provided by Debtor]
<PAGE>
Schedule 4.6
Litigation
[To be provided by Debtor]
<PAGE>
Schedule 5.9
Indebtedness
[To be provided by Debtor]
<PAGE>
Schedule 5.10
Loans, Investments, Guarantees, Etc.
[To be provided by Debtor]
GUARANTEE
As of June 21, 1996
K-H Corporation
672 Delaware Avenue
Buffalo, New York 14209
Re: Fruehauf Trailer Corporation, a
Delaware corporation ("Debtor")
Gentlemen:
K-H Corporation (together with its successors and
assigns, the "Guaranteed Party") and Debtor have entered
into certain financing arrangements pursuant to which
Guaranteed Party has made a term loan to Debtor as set
forth in that certain Subordinated Revolving Note dated
as of June 21, 1996, by and between Debtor and Guaranteed
Party (the "Subordinated Revolving Note"), and other
agreements, documents and instruments referred to therein
or at any time executed and/or delivered in connection
therewith or related thereto, including, but not limited
to, this Guarantee (all of the foregoing, together with
the Subordinated Revolving Note, as the same have been
and may from time to time be amended, modified,
supplemented, extended, renewed, restated or replaced,
being collectively referred to herein as the "Revolving
Loan Documents"). Unless otherwise defined, all
capitalized terms are used in this Guarantee as they are
defined in the Subordinated Revolving Note.
Due to the close business and financial
relationships between Debtor and each and all of the
undersigned (individually and collectively,
"Guarantors"), in consideration of the benefits which
will accrue to Guarantors and as an inducement for and in
consideration of Guaranteed Party entering into the
Subordinated Revolving Note, each of Guarantors hereby
jointly and severally agrees in favor of Guaranteed Party
as follows:
1. Guarantee.
(a) Each of Guarantors absolutely and
unconditionally, jointly and severally, guarantees and
agrees to be liable for the full and indefeasible payment
and performance when due of the following (all of which
are collectively referred to herein as the "Guaranteed
Obligations"): (A) all obligations, liabilities and
indebtedness of any kind, nature and description of
Debtor to Guaranteed Party and/or its affiliates,
including principal, interest, charges, fees, costs and
expenses, however evidenced, whether as principal,
surety, endorser, guarantor or otherwise, arising under
the Revolving Loan Documents, whether arising before,
during or after the term of the Subordinated Revolving
Note or after the commencement of any case with respect
to Debtor under Title 11 of the United States Bankruptcy
Code, as amended from time to time, and any successor
statute (the "Bankruptcy Code") or any similar statute
(including, without limitation, the payment of interest
and other amounts, which would accrue and become due but
for the commencement of such case and including loans,
interest, fees, charges and expenses related thereto and
all other obligations of Debtor or its successors to
Guaranteed Party arising after the commencement of such
case in connection with the Subordinated Revolving
Note and the other Revolving Loan Documents), whether
direct or indirect, absolute or contingent, joint or
several, due or not due, primary or secondary, liquidated
or unliquidated, secured or unsecured, and however
acquired by Guaranteed Party and (B) all expenses
(including, without limitation, attorneys' fees and legal
expenses) incurred by Guaranteed Party in connection with
the preparation, execution, delivery, recording,
administration, collection, liquidation, enforcement and
defense of Debtor's obligations, liabilities and
indebtedness arising under the Revolving Loan Documents,
the rights of Guaranteed Party in any collateral or
under this Guarantee and all other Revolving Loan
Documents, whether such expenses are incurred before,
during or after the term of the Subordinated Revolving
Note or after the commencement of any case with
respect to Debtor or any of Guarantors under the
Bankruptcy Code or any similar statute.
(b) This Guarantee is a guaranty of payment and
not of collection. Each of Guarantors agrees that
Guaranteed Party need not attempt to collect any
Guaranteed Obligations from Debtor, any one of Guarantors
or
any other Obligor (as hereinafter defined) or to realize
upon any collateral, but may require any one of
Guarantors to make immediate payment of all of the
Guaranteed Obligations to Guaranteed Party when due,
whether by maturity, acceleration or otherwise, or at any
time thereafter. Guaranteed Party may apply any amounts
received in respect of the Guaranteed Obligations to any
of the Guaranteed Obligations, in whole or in part
(including attorneys' fees and legal expenses incurred by
Guaranteed Party with respect thereto or otherwise
chargeable to Debtor or Guarantors) and in such order as
Guaranteed Party may elect.
(c) Payment by Guarantors shall be made to
Guaranteed Party at the office of Guaranteed Party
from time to time on demand as Guaranteed Obligations
become due. Guarantors shall make all payments to
Guaranteed Party on the Guaranteed Obligations free and
clear of, and without deduction or withholding for or
on account of, any setoff, counterclaim, defense, duties,
taxes, levies, imposts, fees, deductions, withholding,
restrictions or conditions of any kind. One or more
successive or concurrent actions may be brought hereon
against any of Guarantors either in the same action in
which Debtor or any of the other Guarantors or any other
Obligor is sued or in separate actions. In the event any
claim or action, or action on any judgment, based on
this Guarantee is brought against any of Guarantors, each
of Guarantors agrees not to deduct, set-off, or seek
any counterclaim for or recoup any amounts which are or
may be owed by Guaranteed Party to any of
Guarantors.
2. Waivers and Consents.
(a) Notice of acceptance of this Guarantee, the
making of loans and advances and providing other
financial accommodations to Debtor and presentment,
demand, protest, notice of protest, notice of nonpayment
or default and all other notices to which Debtor or any
of Guarantors are entitled are hereby waived by each of
Guarantors. Each of Guarantors also waives notice of and
hereby consents to, (i) any amendment, modification,
supplement, extension, renewal, or restatement of the
Subordinated Revolving Note and any of the other
Revolving Loan Documents, including, without limitation,
extensions of time of payment of or increase or
decrease in the amount of any of the Guaranteed
Obligations or any collateral, and the guarantee made
herein shall apply to the Subordinated Revolving Note and
the other Revolving Loan Documents and the Guaranteed
Obligations as so amended, modified, supplemented,
renewed, restated or extended, increased or decreased,
(ii) the taking, exchange, surrender and releasing of
collateral or guarantees now or at any time held by or
available to Guaranteed Party for the obligations of
Debtor or any other party at any time liable on or in
respect of the Guaranteed Obligations or who is the owner
of any property which is security for the Guaranteed
Obligations (individually, an "Obligor" and collectively,
the "Obligors"), including, without limitation, the
surrender or release by Guaranteed Party of any one of
Guarantors hereunder, (A) the exercise of, or refraining
from the exercise of any rights against Debtor, any of
Guarantors or any other Obligor or any collateral, (B)
the settlement, compromise or release of, or the waiver
of any default with respect to, any of the Guaranteed
Obligations and (C) any financing by Guaranteed Party of
Debtor under Section 364 of the Bankruptcy Code or
consent to the use of cash collateral by Guaranteed Party
under Section 363 of the Bankruptcy Code. Each of
Guarantors agrees that the amount of the Guaranteed
Obligations shall not be diminished and the liability of
Guarantors hereunder shall not be otherwise impaired or
affected by any of the foregoing.
(b) No invalidity, irregularity or
unenforceability of all or any part of the Guaranteed
Obligations shall affect, impair or be a defense to this
Guarantee, nor shall any other circumstance which might
otherwise constitute a defense available to or legal or
equitable discharge of Debtor in respect of any of the
Guaranteed Obligations, or any one of Guarantors in
respect of this Guarantee, affect, impair or be a defense
to this Guarantee. Without limitation of the foregoing,
the liability of Guarantors hereunder shall not be
discharged or impaired in any respect by reason of any
failure by Guaranteed Party to perfect or continue
perfection of any lien or security interest in any
collateral or any delay by Guaranteed Party in perfecting
any such lien or security interest. As to interest, fees
and expenses, whether arising before or after the
commencement of any case with respect to Debtor under the
Bankruptcy Code or any similar statute, Guarantors shall
be liable therefor, even if Debtor's liability for such
amounts does not, or ceases to, exist by operation of
law.
(c) Each of Guarantors hereby irrevocably and
unconditionally waives and relinquishes all statutory,
contractual, common law, equitable and all other claims
against Debtor, any collateral for the Guaranteed
Obligations or other assets of Debtor or any other
Obligor, for subrogation, reimbursement, exoneration,
contribution, indemnification, setoff or other recourse
in respect to sums paid or payable to Guaranteed Party by
each of Guarantors hereunder and each of Guarantors
hereby further irrevocably and unconditionally waives and
relinquishes any and all other benefits which Guarantors
might otherwise directly or indirectly receive or be
entitled to receive by reason of any amounts paid by or
collected or due from Guarantors, Debtor or any other
Obligor upon the Guaranteed Obligations or realized from
their property.
3. Subordination. The rights of any Guaranteed
Party under this Guarantee are and shall at all times be
subordinated in accordance with the terms of any
subordination agreement executed in connection with
the Subordinated Revolving Note. In addition, payment of
all amounts now or hereafter owed to any or all
Guarantors by Debtor or any other Obligor is hereby
subordinated in right of payment to the indefeasible
payment in full to Guaranteed Party of the Guaranteed
Obligations and all such amounts and any security and
guarantees therefor are hereby assigned to Guaranteed
Party as security for the Guaranteed Obligations.
4. Acceleration. Notwithstanding anything to
the contrary contained herein or any of the terms of
any of the other Revolving Loan Documents, the liability
of Guarantors for the entire Guaranteed Obligations
shall mature and become immediately due and payable, even
if the liability of Debtor or any other Obligor therefor
does not, upon the occurrence of any act, condition or
event which constitutes an Event of Default as such term
is defined in the Subordinated Revolving Note.
5. Account Stated. The books and records of
Guaranteed Party showing the account between Guaranteed
Party and Debtor shall be admissible in evidence in any
action or proceeding against or involving Guarantors as
prima facie proof of the items therein set forth.
6. Termination. This Guarantee is continuing,
unlimited, absolute and unconditional. All Guaranteed
Obligations shall be conclusively presumed to have been
created in reliance on this Guarantee. Each of
Guarantors shall continue to be liable hereunder until
one of Guaranteed Party's officers actually receives a
written termination notice from a Guarantor sent to
Guaranteed Party at is address set forth above by
certified mail, return receipt requested and thereafter
as set forth below. Such notice received by Guaranteed
Party from any one of Guarantors shall not constitute a
revocation or termination of this Guarantee as to any of
the other Guarantors. Revocation or termination hereof
by any of Guarantors shall not affect, in any manner,
the rights of Guaranteed Party or any obligations or
duties of any of Guarantors (including the Guarantor
which may have sent such notice) under this Guarantee
with respect to (i) Guaranteed Obligations which have
been created, contracted, assumed or incurred prior to
the receipt by Guaranteed Party of such written notice of
revocation or termination as provided herein, including,
without limitation, (A) all amendments, extensions,
renewals and modifications of such Guaranteed Obligations
(whether or not evidenced by new or additional
agreements, documents or instruments executed on or after
such notice of revocation or termination), (B) all
interest, fees and similar charges accruing or due on and
after revocation or termination, and (iii) all attorneys'
fees and legal expenses, costs and other expenses paid or
incurred on or after such notice of revocation or
termination in attempting to collect or enforce any of
the Guaranteed Obligations against Debtor, Guarantors or
any other Obligor (whether or not suit be brought), or
(ii) Guaranteed Obligations which have been created,
contracted, assumed or incurred after the receipt by
Guaranteed Party of such written notice of revocation or
termination as provided herein pursuant to any contract
entered into by Guaranteed Party prior to receipt of such
notice. The sole effect of such revocation or
termination by any of Guarantors shall be to exclude from
this Guarantee the liability of such Guarantor for those
Guaranteed Obligations arising after the date of receipt
by Guaranteed Party of such written notice which are
unrelated to Guaranteed Obligations arising or
transactions entered into prior to such date. Without
limiting the foregoing, this Guarantee may not be
terminated and shall continue so long as the Revolving
Loan Documents shall be in effect (whether during its
original term or any renewal, substitution or extension
thereof).
7. Reinstatement. If after receipt of any
payment of, or proceeds of collateral applied to the
payment of, any of the Guaranteed Obligations, Guaranteed
Party is required to surrender or return such payment or
proceeds to any Person for any reason, then the
Guaranteed Obligations intended to be satisfied by
such payment or proceeds shall be reinstated and continue
and this Guarantee shall continue in full force and
effect as if such payment or proceeds had not been
received by Guaranteed Party. Each of Guarantors shall
be liable to pay to Guaranteed Party, and does indemnify
and hold Guaranteed Party harmless for the amount of
any payments or proceeds surrendered or returned. This
Section 7 shall remain effective notwithstanding any
contrary action which may be taken by Guaranteed Party in
reliance upon such payment or proceeds. This Section 7
shall survive the termination or revocation of this
Guarantee.
8. Amendments and Waivers. Neither this
Guarantee nor any provision hereof shall be amended,
modified, waived or discharged orally or by course of
conduct, but only by a written agreement signed by an
authorized officer of Guaranteed Party. Guaranteed Party
shall not, by any act, delay, omission or otherwise be
deemed to have expressly or impliedly waived any of its
rights, powers and/or remedies unless such waiver
shall in writing and signed by an authorized officer of
Guaranteed Party. Any such waiver shall be enforceable
only to the extent specifically set forth therein. A
waiver by Guaranteed Party of any right, power and/or
remedy on any one occasion shall not be construed as a
bar to or waiver of any such right, power and/or remedy
which Guaranteed Party would otherwise have on any future
occasion, whether similar in kind or otherwise.
9. Corporate Existence, Power and Authority.
Each Guarantor represents and warrants that it is a
corporation duly organized and in good standing under the
laws of its state or other jurisdiction of incorporation
and is duly qualified as a foreign corporation and in
good standing in all states or other jurisdictions where
the nature and extent of the business transacted by it or
the ownership of assets makes such qualification
necessary, except for those jurisdictions in which the
failure to so qualify would not have a material adverse
effect on the financial condition, results of operation
or businesses of any of Guarantors or the rights of
Guaranteed Party hereunder or under any of the other
Revolving Loan Documents. Each Guarantor represents and
warrants that the execution, delivery and performance of
this Guarantee is within the corporate powers of each of
Guarantors, have been duly authorized and is not in
contravention of law or the terms of the certificates of
incorporation, by-laws, or other organizational
documentation of each of Guarantors, or any indenture,
agreement or undertaking to which any of Guarantors is a
party or by which any of Guarantors or its property are
bound. Each Guarantor represents and warrants that this
Guarantee constitutes the legal, valid and binding
obligation of each of Guarantors enforceable in
accordance with its terms. Each Guarantor signing this
Guarantee shall be bound hereby whether or not any of the
other Guarantors or any other person signs this
Guarantee at any time.
10. Governing Law; Choice of Forum; Service of
Process; Jury Trial Waiver;
Certain Waivers; Release.
(a) The validity, interpretation and enforcement
of this Guarantee and any dispute arising out of the
relationship between any of Guarantors and Guaranteed
Party, whether in contract, tort, equity or otherwise,
shall be governed by the internal laws of the State of
New York.
(b) Each of Guarantors hereby irrevocably
consents and submits to the non-exclusive jurisdiction
of the courts of the State of New York and the United
States District Court for the Southern District of New
York and waives any objection based on venue or forum non
conveniens with respect to any action instituted therein
arising under this Guarantee or any of the other
Revolving Loan Documents or in any way connected with or
related or incidental to the dealings of any of
Guarantors and Guaranteed Party in respect of this
Guarantee or any of the other Revolving Loan Documents or
the transactions related hereto or thereto, in each
case whether now existing or hereafter arising and
whether in contract, tort, equity or otherwise, and
agrees that any dispute arising out of the relationship
between any of Guarantors or Debtor and Guaranteed Party
or the conduct of any such persons in connection with
this Guarantee, the other Revolving Loan Documents or
otherwise shall be heard only in the courts described
above (except that Guaranteed Party shall have the right
to bring any action or proceeding against any of
Guarantors or its property in the courts of any other
jurisdiction which Guaranteed Party deems necessary or
appropriate in order to realize on collateral at any time
granted by Debtor or any of Guarantors to Guaranteed
Party or to otherwise enforce its rights against any of
Guarantors or its property).
(c) Each of Guarantors hereby waives personal
service of any and all process upon it and consents that
all such service of process may be made by certified mail
(return receipt requested) directed to its address set
forth on the signature pages hereof and service so made
shall be deemed to be completed five (5) days after the
same shall have been so deposited in the U.S. mails, or,
at Guaranteed Party's option, by service upon any of
Guarantors in any other manner provided under the rules
of any such courts. Within thirty (30) days after such
service, any of Guarantors so served shall appear in
answer to such process, failing which such Guarantors
shall be deemed in default and judgment may be entered by
Guaranteed Party against Guarantors for the amount of the
claim and other relief requested.
(d) EACH OF GUARANTORS HEREBY WAIVES ANY RIGHT TO
TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF
ACTION (A) ARISING UNDER THIS GUARANTEE OR ANY OF THE
OTHER REVOLVING LOAN DOCUMENTS OR (B) IN ANY WAY
CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS
OF ANY OF GUARANTORS AND GUARANTEED PARTY IN RESPECT OF
THIS GUARANTEE OR ANY OF THE OTHER REVOLVING LOAN
DOCUMENTS OR THE TRANSACTIONS RELATED HERETO OR THERETO
IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING,
AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. EACH
OF GUARANTORS HEREBY AGREES AND CONSENTS THAT ANY SUCH
CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED
BY COURT TRIAL WITHOUT A JURY AND THAT ANY OF GUARANTORS
OR GUARANTEED PARTY MAY FILE AN ORIGINAL COUNTERPART OF A
COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE
OF THE CONSENT OF GUARANTORS AND GUARANTEED PARTY TO THE
WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
(e) Guaranteed Party shall not have any liability
to Guarantors (whether in tort, contract, equity or
otherwise) for losses suffered by Guarantors in
connection with, arising out of, or in any way related to
the transactions or relationships contemplated by this
Guarantee, or any act, omission or event occurring in
connection herewith, unless it is determined by a final
and non-appealable judgment or court order binding on
Guaranteed Party that the losses were the result of acts
or omissions constituting gross negligence or willful
misconduct. In any such litigation, Guaranteed Party
shall be entitled to the benefit of the rebuttable
presumption that it acted in good faith and with the
exercise of ordinary care in the performance by it of the
terms of the Subordinated Revolving Note and the other
Revolving Loan Documents.
(f) Each Guarantor for itself and any successor
(including any trustee or debtor in possession in a
case under the Bankruptcy Code, hereby knowingly,
voluntarily, intentionally and irrevocably waives (to the
extent permitted by applicable law) any right which it
may have upon the commencement of a case under the
Bankruptcy Code to (a) seek enforcement of the automatic
stay provided under Section 362 of the Bankruptcy
Code to prohibit Guaranteed Party from exercising such
remedies as it may deem appropriate under the Revolving
Loan Documents in respect of the Collateral (as defined
in the Subordinated Revolving Note), (b) oppose any
motion or application brought by Guaranteed Party seeking
relief from the automatic stay provided under Section 362
of the Bankruptcy Code in respect of all or any portion
of the Collateral, (c) file any motion or application
seeking to obtain credit pursuant to Section 364(d) of
the Bankruptcy Code or (d) object to or otherwise seek to
disallow or subordinate any of the Loan Obligations (as
defined in the Subordinated Revolving Note).
(g) Although the Guarantors do not believe that
they have any claims against Guaranteed Party,
they are willing to provide Guaranteed Party with a
general and total release of all such claims in
consideration of the extensions and other benefits which
Debtor and the Guarantors will receive pursuant to the
Subordinated Revolving Note and the other Revolving Loan
Documents. Accordingly, each Guarantor, for itself, each
of its subsidiaries and any successor (including any
trustee or debtor in possession in a case under the Code)
of such Guarantor or such subsidiary, hereby knowingly,
voluntarily, intentionally and irrevocably releases and
discharges Guaranteed Party and officers, directors,
agents and counsel (each a "Releasee") from any and all
actions, causes of action, suits, sums of money,
accounts, reckonings, bonds, bills, specialties,
covenants, contracts, controversies, agreements,
promises, variances, trespasses, damages, judgments,
extents, executions, losses, liabilities, costs,
expenses, debts, dues, demands, obligations or other
claims of any kind whatsoever, in law, admiralty or
equity, which such or any of its subsidiaries ever had,
now have or hereafter can, shall or may have against any
Releasee for, upon or by reason of any matter, cause or
thing whatsoever from the beginning of the world to the
date of this Guarantee.
11. Notices. All notices, requests and demands
hereunder shall be in writing and (a) made to Guaranteed
Party at its address set forth above and to each of
Guarantors at its chief executive office set forth
below, or to such other address as either party may
designate by written notice to the other in accordance
with this provision, and (b) deemed to have been given or
made: if delivered in person, immediately upon delivery;
if by telex, telegram or facsimile transmission,
immediately upon sending and upon confirmation of
receipt; if by nationally recognized overnight courier
service with instructions to deliver the next business
day, one (1) business day after sending; and if by
certified mail, return receipt requested, five (5) days
after mailing.
12. Partial Invalidity. If any provision of this
Guarantee is held to be invalid or unenforceable, such
invalidity or unenforceability shall not invalidate this
Guarantee as a whole, but this Guarantee shall be
construed as though it did not contain the particular
provision held to be invalid or unenforceable and the
rights and obligations of the parties shall be construed
and enforced only to such extent as shall be permitted by
applicable law.
13. Successors and Assigns. This Guarantee shall
be binding upon Guarantors and their respective
successors and assigns and shall inure to the benefit of
Guaranteed Party and its successors, endorsees,
transferees and assigns and the successors and assigns of
any party holding any interest in the Subordinated
Revolving Note. The liquidation, dissolution or
termination of any of Guarantors shall not terminate this
Guarantee as to such entity or as to any of the other
Guarantors.
14. Construction. All references to the term
"Guarantors" wherever used herein shall mean each
and all of Guarantors and their respective successors and
assigns, individually and collectively, jointly and
severally (including, without limitation, any receiver,
trustee or custodian for any of Guarantors or any of
their respective assets or any of Guarantors in its
capacity as debtor or debtor-in-possession under the
Bankruptcy Code). All references to the term "Guaranteed
Party" wherever used herein shall mean Guaranteed Party
and its successors and assigns and all references to the
term "Debtor" wherever used herein shall mean Debtor and
its successors and assigns (including, without
limitation, any receiver, trustee or custodian for Debtor
or any of its assets or Debtor in its capacity as debtor
or debtor-in-possession under the Bankruptcy Code). All
references to the term "Person" or "person" wherever used
herein shall mean any individual, sole proprietorship,
partnership, corporation (including, without limitation,
any corporation which elects subchapter S status under
the Internal Revenue Code of 1986, as amended), business
trust, unincorporated association, joint stock
corporation, trust, joint venture or other entity or any
government or any agency or instrumentality of political
subdivision thereof. All references to the plural shall
also mean the singular and to the singular shall also
mean the plural.
[Next page is signature page.]
<PAGE>
IN WITNESS WHEREOF, each of Guarantors has executed
and delivered this Guarantee as of the day and year first
above written.
FGR, Inc., f.k.a. Decatur
FGR, Inc., f.k.a. Decatur Aluminum
Company, Inc.
By:/s/ Timothy J. Wiggins
----------------------
Title: Executive Vice President and
Chief Financial Officer
CHIEF EXECUTIVE OFFICE:
111 Monument Circle, Suite 3200
Indianapolis, Indiana 46204
GUARANTOR
Fruehauf Corporation
By:/s/ Timothy J. Wiggins
-----------------------------
Title: Executive Vice President
--------------------------
CHIEF EXECUTIVE OFFICE:
1105 North Market Street, Suite 1300
P.O. Box 8985
Wilmington, Delaware 19899
GUARANTOR
Maryland Shipbuilding & Drydock Company
By:/s/ Gary K. Lorenz
--------------------------
Title: President
-----------------------
CHIEF EXECUTIVE OFFICE:
111 Monument Circle, Suite 3200
Indianapolis, Indiana 46204
GUARANTOR
The Mercer Co.
By:/s/ Timothy J. Wiggins
----------------------------
Title: Executive Vice President
-------------------------
CHIEF EXECUTIVE OFFICE:
111 Monument Circle, Suite 3200
Indianapolis, Indiana 46204
GUARANTOR
Fruehauf International Limited
By: /s/ Timothy J. Wiggins
----------------------------
Title: Executive Vice President
------------------------
CHIEF EXECUTIVE OFFICE:
111 Monument Circle, Suite 3200
Indianapolis, Indiana 46204
GUARANTOR
Deutsche-Fruehauf Holding Corporation
By:/s/ Timothy J. Wiggins
----------------------------
Title: Executive Vice President
------------------------
CHIEF EXECUTIVE OFFICE:
111 Monument Circle, Suite 3200
Indianapolis, Indiana 46204
GUARANTOR
Jacksonville Shipyards, Inc.
By:/s/ Gary K. Lorenz
------------------------
Title: President
--------------------
CHIEF EXECUTIVE OFFICE:
111 Monument Circle, Suite 3200
Indianapolis, Indiana 46204
GUARANTOR
M.J. Holdings, Inc.
By:/s/ Timothy J. Wiggins
----------------------------
Title: Executive Vice President
------------------------
CHIEF EXECUTIVE OFFICE:
111 Monument Circle, Suite 3200
Indianapolis, Indiana 46204
GUARANTOR
Fruehauf Holdings Corp.
By:/s/ Timothy J. Wiggins
----------------------------
Title: Executive Vice President
------------------------
CHIEF EXECUTIVE OFFICE:
111 Monument Circle, Suite 3200
Indianapolis, Indiana 46204
GUARANTOR
E.L. Devices, Inc.
By:/s/ Timothy J. Wiggins
----------------------------
Title: Executive Vice President
------------------------
CHIEF EXECUTIVE OFFICE:
111 Monument Circle, Suite 3200
Indianapolis, Indiana 46204
EXHIBIT 11
<TABLE>
<CAPTION>
FRUEHAUF TRAILER CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(in thousands, except per share amounts)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
PRIMARY:
Average shares outstanding. . . 39,212 35,924 39,212 33,343
Net effect of dilutive stock
options and warrants based on
the treasury stock method
using average market price . . -- (1) 1,131 -- (1) 907
------ ------ ------ ------
Totals . . . . . . . . . . 39,212 37,055 39,212 34,250
====== ====== ====== ======
Net income . . . . . . . . . . $ 5,738 $ 2,689 $ 1,431 $ 2,948
======= ======= ======= =======
Primary earnings per share. . . $ .15 $ .07 $ .04 $ .09
===== ===== ===== =====
FULLY DILUTED:
Average shares outstanding. . . 39,212 35,924 39,212 33,343
Net effect of dilutive stock
options and warrants based
on the treasury stock method
using average market price . . -- (1) 1,131 -- (1) 907
------ ------ ------ ------
Totals . . . . . . . . . . 39,212 37,055 39,212 34,250
====== ====== ====== ======
Net income . . . . . . . . . . $ 5,738 $ 2,689 $ 1,431 $ 2,948
======= ======= ======= =======
Fully diluted earnings per share $ .15 $ .07 $ .04 $ .09
===== ===== ===== =====
<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 JUNE 30,
1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 2,574
<SECURITIES> 0
<RECEIVABLES> 25,837
<ALLOWANCES> 0
<INVENTORY> 32,130
<CURRENT-ASSETS> 62,198
<PP&E> 31,521
<DEPRECIATION> 12,320
<TOTAL-ASSETS> 121,864
<CURRENT-LIABILITIES> 152,901
<BONDS> 58,835
0
0
<COMMON> 392
<OTHER-SE> (99,774) <F1>
<TOTAL-LIABILITY-AND-EQUITY> 121,864
<SALES> 157,764
<TOTAL-REVENUES> 157,764
<CGS> 140,766
<TOTAL-COSTS> 160,549
<OTHER-EXPENSES> (13,783) <F2>
<LOSS-PROVISION> 2,143
<INTEREST-EXPENSE> 7,211
<INCOME-PRETAX> 1,644
<INCOME-TAX> 213
<INCOME-CONTINUING> 1,431
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,431
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
<FN>
<F1>
Amount includes: Accumulated Deficit of ($238,804),
Additional paid-in capital of $130,244, Common
stock purchase warrants of $9,102 and Foreign
currency translation adjustment of ($316).
<F2>
Amount includes: Gain on sale of excess assets of
($14,051) and other expense of $268.
</FN>
</TABLE>
