WASHINGTON, D.C. 20549
Form 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 or 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended: December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission File No.: 33-62598
Fairfield Manufacturing Company, Inc.
(Exact name of Registrant as specified in its charter)
Delaware 63-0500160
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
U. S. 52 South, Lafayette, IN 47905
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (765) 474-3474
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
$85,000,000 11-3/8% Senior Subordinated Notes
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
The number of shares outstanding of each of the issuer's classes of common
stock as of December 31, 1996 is as follows:
7,805,000 shares of Common Stock
Index for exhibits is located on page 18
FAIRFIELD MANUFACTURING COMPANY, INC.
Annual Report on Form 10-K
December 31, 1996
Table of Contents
Item Page
Number Number
PART I
1 Business 1
2 Properties 5
3 Legal Proceedings 5
4 Submission of Matters to a Vote of Security 5
Holders
PART II
5 Market for the Registrant's Common Equity and 7
Related Stockholder Matters
6 Selected Financial Data 7
7 Management's Discussion and Analysis of 8
Financial Condition and Results of Operations
8 Financial Statements and Supplementary Data 10
9 Changes in and Disagreements with Accountants 10
on Accounting and Financial Disclosure
PART III
10 Directors and Executive Officers of the 11
Registrant
11 Executive Compensation 13
12 Security Ownership of Certain Beneficial Owners 16
and Management
13 Certain Relationships and Related Transactions 17
PART IV
14 Exhibits, Financial Statement Schedules, and 18
Reports on Form 8-K
Signatures 24
Index to Consolidated Financial Statements and
Schedule
FAIRFIELD MANUFACTURING COMPANY, INC.
Form 10-K
Fiscal Year Ended December 31, 1996
PART I
ITEM 1. BUSINESS
General
Fairfield Manufacturing Company, Inc. (the "Company") believes that it is
the leading independent manufacturer (based on sales) of high precision custom
gears and planetary gear systems in North America, with an estimated market
share in each of the custom gear and planetary gear system markets of more than
two times that of its nearest competitors. The majority of the Company's custom
gears and planetary gear systems are used by original equipment manufacturers
("OEMs") as components in various kinds of heavy mobile equipment. The
Company's customers include many industry leaders. For the year ended December
31, 1996, the Company had net sales of $195.2 million.
Custom gears, which accounted for $112.3 million, or 57.5%, of the
Company's 1996 net sales, are components of larger systems such as axles, drive
differentials and transmission units. The Company's custom gear customers
consist principally of OEMs of rail (such as locomotives), mining, agricultural
(such as tractors and specialty harvesting equipment), industrial, construction
and materials-handling equipment, for many of whom the Company is the sole
independent supplier of selected gear products.
Planetary gear systems, which accounted for $82.9 million, or 42.5% of the
Company's 1996 net sales, are integrated, self-contained power transmission and
torque conversion systems that provide propulsion, swing and/or rotation to
wheels, axles and other components in applications where the use of axles would
otherwise present design difficulties. The Company markets its planetary gear
systems under its Torque-Hub name ("Torque-Hub"). The Company believes that, as
a result of the performance history and reputation for quality of the Company's
Torque-Hub products, the Torque-Hub name has become closely identified with
planetary gear systems. Customers for the Company's Torque-Hub products include
OEMs of access platform (such as aerial-lift), road rehabilitation (such as
pavers and road rollers), construction (such as excavators), forestry and
agricultural (such as crop sprayers) equipment.
The Company has been certified as a "preferred supplier" (based on systems
compliance and on-site inspections) by all of its major customers that have
certification procedures. The Company has also been certified as meeting "ISO-
9001" standards, which are increasingly being used by OEMs in lieu of individual
certification procedures. In addition, the Company expects to receive "QS-9000"
certification by the end of 1997, which is the level of certification expected
to be required by automotive OEMs beginning in 1998. The Company believes that
certification provides it with a competitive advantage because a number of OEMs
require certification as a condition to doing business.
The Company believes that its strong market position in the custom gear and
planetary gear systems markets is the result of its (i) breadth and quality of
product offerings, (ii) longstanding relationships (in many cases of 20 years or
more) with its major custom gear and planetary gear system customers, (iii)
state-of-the-art engineering and manufacturing technology, including its in-
house heat treating facilities, computer-aided design and manufacturing systems
and computer numerically-controlled machine tools and gear grinders, (iv)
ability to deliver products within short lead times, (v) cost competitiveness,
(vi) experienced engineering staff, which together with the Company's sales
force, works closely with customers in designing and developing products to meet
customers' needs and (vii) stable, knowledgeable sales force, many of whose
members have engineering degrees and have worked with the same customers for
many years. In addition, the Company believes that its management team, which
has an average of over 25 years of experience in general manufacturing, will be
instrumental in further strengthening the Company's market position.
The Company was founded in 1919 as a manufacturer of custom gear products
and was family-owned until 1977. At that time, the Company was purchased by
Rexnord Corporation, which subsequently sold the Company in 1987 to Neoax Inc.
Lancer Industries Inc. ("Lancer") purchased the Company in 1989. Fairfield's
principal executive offices are located at U.S. 52 South, Lafayette, Indiana
47905. The Company's telephone number is (765) 474-3474.
Products
Custom Gears. Custom gears accounted for approximately $112.3 million or
57.5% of the Company's net sales in 1996. The Company manufactures a wide
variety of custom gears, ranging in type (e.g. helical, spiral bevel, spur and
HYPOID) and size (from one inch to five feet), and has manufacturing
capabilities which the Company believes are the broadest in the custom gear
business. The Company's custom gears are manufactured according to customers'
specifications, sometimes developed by or with the assistance of the Company,
for use as component parts in various types of heavy mobile equipment. Custom
gears are engineering-intensive and, although such products represent a
relatively small portion of the cost of the equipment in which they are used,
are critical to the operation of such equipment.
Historically, the Company has focused on high margin custom gears. Such
products, which are design- and engineering-intensive, are used in rail, mining,
agricultural, construction, and materials-handling and other equipment demanding
a high degree of product quality and reliability. Many customers in these
markets do not have the necessary engineering and/or manufacturing facilities,
and/or personnel to design and manufacture their gear requirements in-house. In
addition, there is a trend among OEMs to focus on their core competencies rather
than produce gears in-house.
Torque-Hub Products. Torque-Hub products accounted for approximately $82.9
million or 42.5% of the Company's net sales in 1996. The Company believes that
the Torque-Hub name has become closely identified with planetary gear systems,
which provide drive, swing, and/or rotation to the equipment in which they are
used and are primarily employed in cases where the use of axles present design
difficulties. The Company produces a broad line of planetary gear systems under
its Torque-Hub trade name, including wheel drives (used to propel off-highway
equipment), shaft outputs (used to power remote in-plant machinery like mixers
as well as mobile aerial lifts and cranes) and spindle outputs (which power the
drive wheels of vehicles with small diameter wheels such as small lift trucks
and mowers).
The Company has introduced a number of new Torque-Hub products in recent
years, including two-speed drives (Torque II series) and compact drives (CW and
CT series) for wheeled or tracked vehicles. The Company believes that the two-
speed drive is ideal for machinery requiring low- and high-speed settings, such
as road paving equipment. The compact drive incorporates the brakes and
hydraulic drive systems into a single compact unit, which the Company believes
allows for better flexibility and is well-suited for a variety of applications.
These products are used in a wide range of industrial and construction
equipment, including excavators, crawler dozers and loaders, rubber-tired pavers
and multi-speed winches.
Marketing and Distribution
The Company's customers are OEMs and include many industry leaders with
whom the Company has had relationships of 20 years or more. No single customer
accounted for more than 10% of the Company's 1996 net sales.
The Company has been certified as a "preferred supplier" by each of its
major customers that have certification procedures. The Company has also been
certified as meeting "ISO-9001" standards, which are increasingly being used by
OEMs in lieu of individual certification procedures. In addition, the Company
expects to receive "QS-9000" certification by the end of 1997, which is the
level of certification expected to be required by automotive OEMs beginning in
1998. The Company believes that certification provides it with a competitive
advantage because a number of OEMs require certification as a condition to doing
business.
The Company believes its stable, experienced sales force is a primary
reason for the Company's success in maintaining customer loyalty and building
new customer relationships. The Company's sales department is organized
geographically and consists of 14 sales engineers, who have an average of over
15 years of service and most of whom have worked with the same customers for
many years. In addition, each sales engineer has substantial expertise
concerning the Company's products and product applications. Application
engineers work closely with the Company's sales department and provide customers
with guidance concerning product applications and specific design problems. By
becoming a part of the customer's purchasing, and design decisions, the Company
has developed close working relationships with many of its customers. Customer
loyalty to the Company is further enhanced by the development, tooling and
production costs associated with changing gear sources, as such costs are
typically borne by the customer.
All of the Company's custom gear products and approximately 70% of its
Torque-Hub products are sold directly to OEMs. Since Torque-Hub products can be
sold to more than one customer, the Company uses distributors to increase its
penetration of the planetary gear systems market. The Company sells
approximately 30% of its Torque-Hub line through a network of approximately 40
distributors located in the United States and abroad. International sales
accounted for approximately $11 million, or approximately 6% of the Company's
1996 net sales.
Design and Manufacturing
The Company believes that its state-of-the-art technology and experienced
engineering staff provide it with a competitive advantage and are major factors
behind the Company's strong market position.
Technology. The Company has selectively invested in state-of-the-art
manufacturing technology in recent years to improve product quality and price
competitiveness, and to reduce lead time. The Company's manufacturing
technology includes the latest computer-aided design and manufacturing (CAD/CAM)
systems, and over one hundred computer numerically controlled (CNC) machine
tools and gear grinders.
The Company's CAD/CAM systems, which enable hundreds of design solutions to
be visualized quickly and easily, facilitate product design and manufacturing.
The Company's computer systems are capable of finite element analysis and
simulation which allows many aspects of a design to be evaluated prior to
production, resulting in lower tooling costs, reduced testing requirements and
quicker time to market. In addition, the Company's CNC gear cutting machines
allow for many different styles and sizes of gears to be run quickly in small
lot sizes with a high degree of accuracy. The Company is in the process of
installing an enhanced computer program designed to improve customer order
scheduling and inventory management.
The Company has its own comprehensive heat treating facilities. These in-
house facilities allow the Company to control the annealing and carburizing
processes that determine the load-carrying capacity of the final product. The
Company's heat treating operations help ensure proper development and
maintenance of gear tooth characteristics. As a result, the Company believes
that it is able to provide its customers with improved quality and reduced lead
times in filling orders. In-line dual frequency induction hardening equipment
will be added in 1997, continuing the Company's practice of selectively adding
advanced technology in its manufacturing processes.
Engineering Staff. The Company's engineering department consists of
approximately 70 engineers and technicians, including specialists in product,
tool, manufacturing and industrial engineering. In addition, the Company has a
metallurgy laboratory which determines the appropriate metallurgy for a specific
gear application. These engineering groups, with their distinct specialties,
work together as a team to develop solutions to specific customer requirements.
These capabilities enable the Company to service clients who demand high
quality, creative solutions to their product needs.
Materials and Supply Arrangements
The Company generally manufactures its custom gear and Torque-Hub products
to its customers' specifications and, as a result, does not generally contract
for or maintain substantial inventory in raw materials or components. The
Company purchases its three principal raw material needs (steel forgings, steel
bars and castings) on a spot basis based on specific customer orders. No single
supplier accounted for more than 10% of purchases of the Company's raw material
purchases in 1996. In addition, alternative sources are available to fulfill
each of the Company's major raw material requirements. The Company has never
experienced a delay in production as a result of a supply shortage of a major
raw material.
Competition
The North American custom gear business is highly competitive but very
fragmented. Competition can be broken down into four principal groups: major
domestic manufacturers, regional domestic manufacturers, foreign producers and
captive gear manufacturers. Although captive gear manufacturers supply all or a
portion of their internal gear requirements and constitute a significant portion
of the custom gear market, the Company believes there is a trend among such
manufacturers to outsource, or purchase their gears from independent
manufacturers such as the Company. The North American planetary gear market is
also highly competitive and is concentrated among several large competitors,
with the remaining market divided among a large number of relatively small
suppliers. The Company competes with other manufacturers based on a number of
factors, including delivery capability, quality and price. The Company believes
that its breadth of manufacturing, engineering and technological capabilities
provide it with a competitive advantage.
Employees
At December 31, 1996, the Company had 1,195 permanent employees, of whom
approximately 83% were employed in manufacturing, approximately 6% were
engineers employed in the engineering department, and the remainder were office
and managerial employees. The Company's production and maintenance employees
became members of the United Auto Workers (UAW) union in October 1994 and the
Company entered into a labor contract with the union in October 1995, which is
scheduled to expire in October 1998. The Company considers its relations with
its employees to be satisfactory.
Backlog
As of December 31, 1996 and December 31, 1995, the Company had total order
backlog of approximately $77.0 million and $85.0 million, respectively, for
shipments due to be delivered by the Company for the six-month period following
such dates. This reduction was attributable to the Company's ongoing business
strategy of reducing lead times for its products.
Environmental Matters
The Company's operations and properties are subject to a wide variety of
increasingly complex and stringent environmental laws. As such, the nature of
the Company's operations exposes it to the risk of claims with respect to such
matters and there can be no assurance that material costs or liabilities will
not be incurred in connection with such claims. The Company believes its
operations and properties are in substantial compliance with such environmental
laws. Based upon its experience to date, the Company believes that the future
cost of compliance with existing environmental laws, and liability for known
environmental claims pursuant to such environmental laws, will not have a
material adverse effect on the Company's business, financial condition or
operating results. However, future events, such as changes in existing
environmental laws or their interpretation and more vigorous enforcement
policies of regulatory agencies, may give rise to additional expenditures or
liabilities that could be material.
Recent Developments
The Company's loan agreement with a senior lending institution was amended
during December 1996. The amendment increased the Company's term loan to $33.0
million and is payable quarterly through December 31, 2000. The revolving
credit facility permits the Company to borrow up to $20.0 million subject to
borrowing base availability (as defined) and, at the option of the Company
(subject to satisfaction of certain conditions), may be increased by an
additional $2.0 million at any time and by an additional $3.0 million following
repayment of $3.0 million of term loans (which is scheduled to occur by December
1997). The revolving credit facility matures July 1, 2001.
On December 5, 1996, the Company distributed $20.0 million to Lancer in the
form of a $17.0 million dividend and a $3.0 million advance.
Susceptibility to General Economic Conditions
The Company's revenues and results of operations will be subject to
fluctuations based upon general economic conditions. If there were to be a
general economic downturn or a recession in the United Sates or certain other
markets, the Company believes that certain of its customer may reduce or delay
their demand for the Company's products which may have a negative effect on the
Company's revenues. Most of the factors that might influence customers and
prospective customers to reduce their capital budgets under these circumstances
are beyond the Company's control. During prior recessionary periods, the
Company's operating performance has been negatively affected, and there can be
no assurance that any future economic downturn would not materially and
adversely affect the Company's business, financial condition and operating
results. In addition, there can be no assurance that growth in the markets from
the Company's products will occur or that such growth will result in increased
demand for the Company's products.
Intellectual Property
The trade name Torque-Hub ("Torque-Hub") is a registered trademark. The
Company's planetary gear systems are sold under the Torque-Hub trade name. The
Company, directly and through its wholly-owned subsidiary, T-H Licensing, Inc.,
owns numerous patents worldwide. None of such patents is considered material to
the Company's business.
Item 2. PROPERTIES
The Company owns and operates a single facility in Lafayette, Indiana
consisting of 39 acres of land, approximately 520,000 square feet of
manufacturing space and approximately 60,000 square feet of office space. The
Lafayette facility is well maintained and is in good condition.
Item 3. LEGAL PROCEEDINGS
The Company is a party to routine litigation incidental to the conduct of
its business, much of which is covered by insurance and none of which is
expected to have a material adverse effect on the Company.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the Company's security holders during
the fiscal year ended December 31, 1996.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information:
There is currently no established public trading market for the Company's
common stock which is wholly-owned by Lancer.
Dividends:
On December 5, 1996, in connection with the Company's 1996 senior debt
amendment, a dividend of $17.0 million was paid to Lancer.
Issuance of Common Stock:
The Company issued 25,000 additional shares of its common stock on March
31, 1996, 51,000 shares on June 30, 1996, 23,000 shares on September 30, 1996
and 30,000 shares on December 31, 1996 to Lancer in consideration of certain
capital contributions made by Lancer to the Company pursuant to the Tax Sharing
Agreement (as defined in Item 13).
Item 6. SELECTED FINANCIAL DATA
The following selected financial data for the Company for the five years
ended December 31, 1996 has been derived from the audited consolidated financial
information for the Company for such periods. The following selected financial
data should be read in connection with "Management's Discussion and Analysis of
Financial Condition and Results of Operations", and is qualified in its entirety
by reference to, the Consolidated Financial Statements and Notes thereto of the
Company and contained elsewhere herein.
<TABLE>
Year Ended December 31,
<CAPTION> 1996 1995 1994 1993 1992
<CAPTION> (dollars in thousands, except share and per share data)
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Net sales $195,205 $192,111 $150,689 $124,779 $108,613
Cost of sales 158,668 151,890 123,092 103,603 90,583
Selling, general and 16,868 14,759 15,924 12,323 12,451
administrative expenses
Operating income 19,669 25,462 11,673 8,853 5,579
Interest expense 11,930 12,905 12,377 11,345 11,493
Other expense, net 90 127 199 227 136
Income (loss) before income 7,649 12,430 (903) (2,719) (6,050)
taxes, extraordinary
item and cumulative
effect of change in
accounting principle
Provision (benefit) for 3,730 5,520 (164) (935) (1,898) (1,898)
income taxes
Income (loss) before 3,919 6,910 (739) (1,784) (4,152)
extraordinary item and
cumulative effect of
change in accounting
principle
Extraordinary loss on early -- -- -- (4,455) --
extinguishment of debt,
net of tax (1)
Cumulative effect of change
in accounting principle, -- -- (1,554) (4,625) --
net of tax (2)
Net income (loss) $3,919 $6,910 $(2,293) $(10,864) $(4,152)
Net income (loss) per common $0.51 $1.15 $(0.77) $(3.65) $(2.01)
share
Dividend declared per common $2.19 -- -- $.67 --
share
Weighted average common 7,726,557 6,018,072 2,976,471 2,976,471 2,064,303
shares outstanding
Balance Sheet Data (at period
end):
Working capital $ 12,123 $ 17,280 $8,348 $ 18,125 $ 5,826
Total assets 176,370 183,155 170,581 174,470 169,396
Long-term debt (including 118,000 113,000 115,000 121,444 109,585
current maturities)
Stockholder's equity (4,570) 9,958 45 1,278 14,142
(deficit)
Other Data:
EBITDA(3) $ 32,016 $ 36,971 $ 22,621 $ 19,475 $ 17,774
Depreciation 10,830 10,027 9,540 9,242 10,724
Amortization(4) 2,277 2,245 2,310 2,604 3,037
Cash interest expense, net(5) 11,260 12,269 11,674 10,348 10,063
Capital expenditures 9,986 15,090 9,164 4,145 3,151
</TABLE>
(1) During 1993, the Company recorded an extraordinary loss of $4.5 million,
net of tax, relating to the early extinguishment, and refinancing of, the
outstanding debt at June 30, 1993.
(2) During 1993, the Company recorded a one time non-cash charge of
$4.6 million, net of tax, relating to the cumulative effect of adopting
Statement of Financial Accounting Standard No. 106 "Employers Accounting for
Postretirement Benefits Other Than Pensions."
During 1994, the Company recorded a one-time non-cash charge of $1.6 million,
net of tax, relating to the cumulative effect of adopting Statement of
Financial Accounting Standards No. 112, "Employers Accounting for
Postemployment Benefits."
(3) EBITDA represents income (loss) before income taxes, extraordinary item,
cumulative effect of a change in accounting principle, interest expense, net,
depreciation and amortization. EBITDA is not presented herein as an
alternative measure of operating results or cash flow but rather to provide
additional information related to debt service capability.
(4) Includes the amortization of deferred financing costs and the amortization
of the excess of investment over net assets acquired.
(5) Cash interest expense, net includes interest income, but excludes
amortization of deferred financing costs of $0.7 million for fiscal 1996, $0.6
million for fiscal 1995, $0.7 million for fiscal 1994, $1.0 million for fiscal
1993 and $1.4 million for fiscal 1992.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Fiscal Year 1996 Compared with Fiscal Year 1995
Net sales for 1996 increased by $3.1 million, or 1.6%, to $195.2 million
compared to $192.1 million in 1995. This increase was primarily due to an
increase in planetary gear sales of $8.8 million, partially offset by a decrease
in custom gear sales of $5.7 million.
Cost of sales for 1996 increased by $6.8 million, or 4.5%, to $158.7
million, or 81.3% of net sales, compared to $151.9 million, or 79.1% of net
sales in 1995. This increase primarily resulted from the increased sales of
planetary gear systems, which have a higher material cost component compared to
custom gear products, as well as increased costs associated with the Company's
investment in new processes that reduced manufacturing cycle times from 50 days
in 1995 to 32 days at the end of 1996, and resulted in a reduction in inventory.
Selling, general and administrative expenses, including goodwill
amortization, increased to $16.9 million in 1996, compared to $14.8 million in
1995. This increase resulted primarily from investments in marketing, sales and
design engineering and the write-off of a $0.5 million receivable due to a
customer's bankruptcy.
Earnings from operations for 1996 decreased $5.8 million to $19.7 million,
compared to $25.5 million in 1995, primarily due to the factors mentioned above.
Interest expense, including amortization of deferred financing costs, was
$11.9 million for 1996, compared to $12.9 million for 1995. The principal
reason for the decrease was lower average outstanding debt levels due to
improvements in working capital management and the reduction in inventory
described above.
Income before income taxes was $7.6 million for 1996, compared to $12.4
million for 1995.
The effective tax rates for 1996 and 1995 were 48.8% and 44.4%,
respectively. See the Notes to the Consolidated Financial Statements for a
further discussion of income taxes.
The Company's net income was $3.9 million for 1996, compared to $6.9
million for 1995.
Fiscal Year 1995 Compared with Fiscal Year 1994
Net sales for 1995 increased by $41.4 million, or 27.5%, to $192.1 million,
compared to $150.7 million in 1994. Increased sales volumes of the Company's
products were the result of a variety of factors including additional
outsourcing by captive gear manufacturers, continued growth in sales of products
and applications developed over the last few years, improvements in
manufacturing capabilities, and improvements in the markets served by the
Company's customers.
Cost of sales for 1995 increased by $28.8 million, or 23.4%, to $151.9
million, or 79.1% of net sales, compared to $123.1 million, or 81.7% of net
sales, in 1994. This increase primarily resulted from volume growth, a change
in the Company's product mix and investments in manufacturing personnel.
Selling, general and administrative expenses, including goodwill
amortization, decreased to $14.8 million, or 7.7% of net sales, in 1995,
compared to $15.9 million, or 10.6% of net sales, in 1994. This decrease
resulted primarily from one-time re-engineering and consulting fees incurred in
1994.
Earnings from operations for 1995 increased $13.8 million, or 118.1%, to
$25.5 million, or 13.3% of net sales, compared to $11.7 million, or 7.7% of net
sales, in 1994.
Interest expense, including amortization of deferred financing costs, for
1995 was $12.9 million, compared to $12.4 million for 1994. Despite declining
interest rates in 1995 and a $2.0 million decrease in outstanding debt from
December 31, 1994, the average outstanding debt during 1995 exceeded 1994,
resulting in higher interest costs for the year.
Income before income taxes, extraordinary item and cumulative effect of
change in accounting principle was $12.4 million for 1995, compared to a loss of
$0.9 million for 1994.
The effective tax rates for 1995 and 1994 were 44.4% and 18.2%,
respectively. The provision for income taxes for 1995 is primarily the result
of current year income. The benefit for income taxes for 1994 is principally
the result of the reversal of previously recorded deferred tax liabilities. See
the Notes to the Consolidated Financial Statements for a further discussion of
income taxes.
On January 1, 1994, the Company adopted Statement of Financial Accounting
Standards No. 112, "Employers Accounting for Postemployment Benefits" ("SFAS No.
112"). SFAS No. 112 requires employers to account for postemployment benefits
under the accrual, rather than the pay-as-you-go, method of accounting, such
that the expected benefits to be paid in future years are recorded during the
period in which the employee renders the service necessary to qualify for these
benefits. The Company implemented SFAS No. 112 by recognizing the total prior
service obligation immediately. As a result of the adoption of SFAS No. 112,
the Company recorded a one-time non-cash charge of $1.6 million ($1.9 million
less a deferred tax benefit of $0.3 million) for the cumulative effect of the
change in accounting principle.
The Company's net income was $6.9 million for 1995 compared to the $2.3
million net loss for 1994. The increase in the net income is primarily due to
the higher sales volume and productivity improvements in 1995, combined with the
cumulative effect of the change in accounting principle adjustment in 1994.
Liquidity and Capital Resources
On July 7, 1993, the Company completed the sale of $85.0 million of 11 3/8%
Senior Subordinated Notes (the "Notes"). The Notes mature on July 1, 2001 and
are redeemable at the option of the Company, in whole or in part, on or after
July 1, 1998, at certain specified redemption prices. Concurrent with the
issuance of the Notes, the Company entered into a loan agreement with a senior
lending institution which provides for a revolving credit facility and a term
loan. The loan agreement was amended in December 1996 to, among other things,
increase the term loan to $33.0 million (with quarterly amortization through
December 2000) and subject to certain conditions, provide for a $5.0 million
increase in the revolving credit facility commitment at the option of the
Company (from $20.0 million to $25.0 million). The revolving credit facility
matures on July 1, 2001.
Net cash provided by operating activities was $23.2 million in 1996
compared to $13.9 million in 1995 and $9.6 million in 1994. The increase in
cash flow from operating activities in 1996 was principally due to the impact of
improved manufacturing cycle times reducing inventory.
Capital expenditures totaled $10.0 million, $15.1 million and $9.1 million
in 1996, 1995 and 1994, respectively. The level of capital spending during 1994
to 1996 was primarily a result of increased manufacturing requirements due to
increased sales volume.
Net cash from financing activities was a net usage of $13.6 million in
1996, a net source of $0.7 million in 1995, and a net usage of $5.4 million in
1994. The 1996 net usage funded a portion of the $17.0 million dividend paid to
Lancer and the $3.0 million advance made to Lancer in December 1996.
Under the Tax Sharing Agreement (as defined), Lancer made capital
contributions to the Company of $1.6 million, $2.5 million, and $1.1 million in
1996, 1995 and 1994, respectively. See Notes to the Consolidated Financial
Statements for a further discussion of capital contributions made pursuant to
the Tax Sharing Agreement.
Inflation
The impact of inflation on the Company's operations has not been
significant to date. However, there can be no assurance that a high rate of
inflation in the future would not have an adverse effect on the Company's
operating results.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to the Consolidated Financial Statements beginning at
page F-1 herein.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information with respect to the
directors and executive officers of the Company as of December 31, 1996.
Name Age Position
W.B. Lechman 64 Director, Chairman of the Board
Kenneth A. Burns 44 President and Chief Operating Officer
Peter A. Joseph 44 Director, Vice President and Secretary
Paul S. Levy 49 Director, Vice President and Assistant
Secretary
Richard A. Bush 39 Vice President Finance
James R. Dammon 53 Vice President Engineering
Michael M. Manty 53 Vice President Human Resources
Frederick G. Sharp 42 Vice President Marketing and Sales
Jess C. Ball 55 Director
Mr. Lechman was appointed Chairman of the Board effective October 1994.
Prior to his appointment, Mr. Lechman had been President of the Company from
1983 to October 1994 and was Chief Executive Officer from 1989 to October 1994.
Mr. Lechman has been a Director of the Company since 1989. Mr. Lechman serves
on the Board of Directors of Bank One Lafayette, Lafayette Life Insurance Co.,
Lafayette Community Foundation, Lafayette Junior Achievement, The Salvation Army
and Lafayette Chamber of Commerce and is President Emeritus of the American Gear
Manufacturers Association.
Mr. Burns was named President and Chief Operating Officer of the Company
effective May 1996. Prior to his appointment, Mr. Burns had served as Vice
President Operations since January 1996. From 1987 through July 1995, Mr. Burns
served as an executive officer of Abex/NWL Aerospace and its predecessors,
including Executive Vice President.
Mr. Joseph has been Vice President and Secretary and a Director of the
Company since 1989. Mr. Joseph has been a General Partner of Joseph Littlejohn
& Levy since its inception in 1988. Mr. Joseph has served as President of
Lancer since April 1992 and as Secretary and Director of Lancer since July 1989.
Mr. Joseph is also on the Board of Directors of Freedom Chemical Company,
Foodbrands America, Inc., Hayes Wheels International, Inc., Peregrine, Inc., and
Tenet Healthcare Corporation.
Mr. Levy has been Vice President and Assistant Secretary and a Director of
the Company since 1989. Mr. Levy has been a General Partner of Joseph
Littlejohn & Levy since its inception in 1988. Mr. Levy has served as Chief
Executive Officer and Chairman of the Board of Directors of Lancer since July
1989. Mr. Levy is also on the Board of Directors of Freedom Chemical Company,
Foodbrands America, Inc., Hayes Wheels International, Inc., Peregrine, Inc., and
Tenet Healthcare Corporation.
Mr. Bush has been Vice President Finance of the Company since November
1994. From 1990 to 1994, Mr. Bush was Controller for two different aerospace
units of Abex Inc. From 1980 to 1990, Mr. Bush was with Arthur Andersen & Co.
in the audit and financial consulting practice.
Mr. Dammon has been Vice President Engineering since 1987. Prior to his
present position, Mr. Dammon was Director of Engineering, Manager of New Product
Development, Manager of Customer Engineering Service and Gear Design Engineer.
Mr. Dammon has been with the Company for over 30 years.
Mr. Manty has been Vice President of Human Resources of the Company since
February 1995 and Vice President Total Quality and Human Resources since January
1997. From 1990 to 1995, Mr. Manty was Director of Human Resources for Allied
Signal Aerospace. Prior to 1990, Mr. Manty performed labor relations consulting
work with Modern Management, Inc. and held senior level human resource positions
with Pneumo Corporation and Chrysler Corporation.
Mr. Sharp has been Vice President of Marketing and Sales of the Company
since August, 1996. From 1991 to July 1996, Mr. Sharp served as Director of
Program Management for United Defense L.P. and its predecessor BMY Combat
Systems Division. Prior to 1991, Mr. Sharp held senior level positions with
General Electric and NWL Control Systems.
Mr. Ball was President and Chief Executive Officer of the Company from
October 1994 to May 1996. Mr. Ball has been a Director of the Company since
1991. From February 1991 through November 1991, Mr. Ball served as President
and Chief Executive Officer of Alford Industries (a company which filed for
bankruptcy protection and has been liquidated). From December 1991 through
September 1994, Mr. Ball was President and Chief Executive Officer of Golding
Industries, Inc. From January 1988 through January 1991, Mr. Ball served as
President and Chief Executive Officer of DelCorp.
Compensation of Directors
Except for the period October 1994 to December 1996, Mr. Ball receives an
annual fee of $30,000 per year for services as a director. No other director
receives any additional compensation for services as a director or for serving
on committees of the Board of Directors of the Company or for meeting
attendance.
Item 11. EXECUTIVE COMPENSATION
The following table sets forth for each of the fiscal years ending December
31, 1996, 1995 and 1994, the compensation paid to or accrued by (i) the Chairman
of the Board (the "Chairman") of the Company and (ii) each of the four most
highly compensated executive officers other than the Chairman.
Summary Compensation Table
Name and Annual Compensation All Other
Principal Position Year Salary Bonus(1) Compensation(2
)
W. B. Lechman 1996 $256,668 $50,000 $135,720
Chairman of the 1995 253,891 -- 131,363
Board 1994 253,860 50,803 130,250
Kenneth A. Burns 1996 $185,279 $100,000 $3,325
President and Chief
Operating
Officer
James R. Dammon 1996 $114,437 $57,000 $4,988
Vice President 1995 110,431 65,467 5,524
Engineering
1994 104,268 21,992 6,364
Richard A. Bush 1996 $103,537 $52,000 $5,950
Vice President 1995 100,031 59,300 4,399
Finance
Michael M. Manty 1996 $102,257 $52,000 $24,981
Vice President 1995 93,495 94,154 5,234
Human Resources
(1) Amounts shown were earned under the Fairfield Manufacturing Company
Management Incentive Compensation Plan.
(2) Amounts shown include contributions by the Company to The Savings Plan For
Employees of Fairfield Manufacturing Company, Inc. for the benefit of the
named executives, imputed income on life insurance provided by the Company,
reimbursement of relocation expenses for Mr. Manty, imputed income on an
automobile for Mr. Lechman, and contributions to an insurance company of
$110,000 for each of the years shown above to fund a supplemental
retirement annuity policy for Mr. Lechman.
FY- End SAR Values
Name No. of Value of
Unexercised Unexercised
SARs at SARs at
FY-End FY-End
Exercisable/ Exercisable/
Unexercisable (1) Unexercisable
W.B. Lechman 0/63,000 $0/0
James R. Dammon 0/10,800 0/0
(1) Equity Participation Rights (the "Rights" issued to participants in the
Fairfield Manufacturing Company, Inc. Equity Participation Plan (the
"Equity Participation Plan"). Mr. Lechman and Mr. Dammon hold 63,000 and
10,800 Rights, respectively, under the Equity Participation Plan, all of
which are fully vested. Each Right entitles Mr. Lechman and Mr. Dammon to
receive, upon the occurrence of a Trigger Event (as defined in the Equity
Participation Plan), an amount in cash equal to the difference between the
Fair Market Value of a Right (as of the Trigger Event) and $16.67, the
initial value assigned to each Right.
Pension Plan Table
The Company maintains the Retirement Plan for Employees of Fairfield
Manufacturing Company, Inc., a qualified defined benefit pension plan intended
to be qualified under the Internal Revenue Code (the "Pension Plan").
Estimated Annual Benefits for
Years of Benefit Service Indicated(2)
Remuneratio 5 10 15 20 25 30 35
n (1)
$100,000 $6,796 $13,593 $20,389 $27,186 $33,982 $40,778 $42,028
$125,000 8,609 17,218 25,827 34,436 43,044 51,653 53,216
$150,000 10,421 20,843 31,264 41,686 52,107 62,528 64,403
and over
(1) The preceding table illustrates the aggregate pension benefits provided by
the Pension Plan calculated on a straight life annuity basis. The amounts
set forth in the table are subject to reduction for any Social Security
offset. Average annual compensation covered under the Pension Plan is the
highest average annual total compensation received from the Company for any
60 month period during the 120 months immediately preceding the
participant's separation from service. Annual total compensation for
Pension Plan purposes includes all compensation disclosed in the Summary
Compensation Table.
(2) At December 31, 1996, Messrs. Lechman, Burns, Dammon, Bush, and Manty had
13, 1, 31, 2 and 2 whole years of credited service, respectively, for
purposes of calculating their benefits under the Pension Plan.
Employment and Change in Control Agreements
The Company entered into an employment agreement with Kenneth A. Burns,
effective June 1, 1996.
Mr. Burns employment agreement provides that he will serve as President and
Chief Operating Officer of the Company. The agreement is for a term that
expires on June 1, 1998. The agreement provides for Mr. Burns to receive a base
salary of $200,000 or such greater amount as may be determined by the Board of
Directors of the Company. In addition, Mr. Burns is eligible to participate in
any benefit plan that the Company provides to its executives from time to time.
Mr. Burns' employment agreement contains restrictions on disclosure by him
of confidential information and generally restricts his right to compete with
the Company during the term of his employment and for two years thereafter. Mr.
Burns' employment pursuant to the agreement is terminable upon his death or
disability or by the Company or Mr. Burns for cause (as defined therein) or
without cause. Upon Mr. Burns' death or disability prior to June 1, 1998, he or
his estate will receive any salary accrued through the termination date.
If, prior to June 1, 1998, Mr. Burns' employment is terminated by the Company
for cause, or he terminates his employment other than for cause, he will receive
his salary accrued through the termination date. In the event Mr. Burns
terminates his employment for cause or the Company terminates his employment
without cause prior to June 1, 1998, he will be entitled to his base salary
through June 1, 1998.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth information regarding the beneficial
ownership of the common stock of the Company by (i) each director of the
Company, (ii) the executive officers of the Company listed under the caption
"Management" and (iii) each person known by the Company to beneficially own in
excess of 5% of the outstanding shares of the Company's common stock as of
December 31, 1996.
Number of Percent of Number of
Shares shares Fully Percent
Name Owned Outstanding Diluted of
Shares Fully
Diluted
Shares
Lancer Industries Inc. 7,805,000 100% 7,805,000 100%
(1)
450 Lexington Avenue,
Suite 3350
New York, New York 10017
Chase Manhattan Bank, as -- (2) -- -- --
Trustee of the Lancer
Industries Inc. Employee
Stock Ownership Plan, 1
Chase Manhattan Plaza,
New York, New York 10005
Peter A. Joseph -- (2) -- -- --
Paul S. Levy -- (2) -- -- --
W.B. Lechman -- -- -- --
Jess C. Ball -- -- -- --
Kenneth A. Burns -- -- -- --
Richard A. Bush -- -- -- --
James R. Dammon -- -- -- --
Michael M. Manty -- -- -- --
Frederick G. Sharp -- -- -- --
All directors and executive -- -- -- --
officers as a group
(9 persons)
(1) 100% of the capital stock of CAG is owned by Lancer. Lancer has pledged
such shares to the lender under the GE Credit Agreement (as defined) as
security for the Company's obligations thereunder.
(2) Lancer, which is currently the owner of 100% of the capital stock of the
Company, has one class of common stock, Class B Common Stock, with a par
value of $478.44 per share. 10.05 shares, or approximately 57.10%, of the
Class B Common Stock are held by the ESOP. Messrs. Joseph and Levy are
participants in the ESOP. Each of Messrs. Joseph and Levy have sole voting
power with respect to approximately 4.12 shares of the Class B Common Stock
held by the ESOP; and other participants in the ESOP have sole voting power
with respect to approximately 1.81 shares of such stock. Messrs. Joseph
and Levy, and in limited circumstances the ESOP trustee, have shared
investment power with respect to 10.05 shares of such stock.
Messrs. Joseph and Levy have been allocated an aggregate of approximately
8.24 shares, or approximately 46.8%, of the Class B Common Stock held by
the ESOP. Each of Messrs. Joseph and Levy disclaim beneficial ownership of
any shares of Class B Common Stock held by the ESOP that have been
allocated to other parties. In addition, Messrs. Joseph and Levy have the
right to purchase approximately 0.26 shares of Class B Common Stock, or
approximately 3.0% of Class B Common Stock in the aggregate.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Controlling Stockholders
The Company is a wholly-owned subsidiary of Lancer. A majority of Lancer's
voting stock is owned by the ESOP. Two participants in the ESOP, Messrs. Peter
A. Joseph and Paul S. Levy, collectively have the power to direct the voting of
approximately 46.8% of Lancer's common stock. In addition, each of Messrs.
Joseph and Levy have the right to purchase an aggregate of approximately 3.0% of
Lancer's common stock. As a result, these two participants in the ESOP have the
ability to exercise control over the current and future business and affairs of
the Company, including the ability to cause or prevent a change of control of
the Company, through their ability to elect the Company's Board of Directors and
their voting power with respect to actions requiring stockholder approval.
Tax Sharing Agreement
The Company is included in the affiliated group of which Lancer is the
common parent, and the Company's federal taxable income and loss will be
included in such group's consolidated tax return filed by Lancer. The Company
and Lancer have entered into a tax sharing agreement (the "Tax Sharing
Agreement") pursuant to which the Company has agreed to pay to Lancer amounts
equal to the taxes that the Company would otherwise have to pay if it were to
file separate federal, state or local tax returns (including amounts determined
to be due as a result of a redetermination of the tax liability of Lancer). In
addition, pursuant to the Tax Sharing Agreement, to the extent that the
Company's separate return liability is absorbed by net operating losses or other
credits and deductions of Lancer or its subsidiaries (other than the Company and
its subsidiaries), Lancer will make a capital contribution to the Company in an
amount equal to 50% of such separate return liability. Under certain
circumstances, however, such as the Company ceasing to be a member of the Lancer
consolidated group or the disallowance by the IRS of the use of Lancer's net
operating losses, Lancer no longer would be required to make capital
contributions under the Tax Sharing Agreement. See the Notes to the
Consolidated Financial Statements for a further discussion of income taxes.
Other Arrangements with Lancer
From time to time, Lancer incurs legal, accounting and miscellaneous other
expenses on behalf of the Company. In fiscal 1996, 1995 and 1994, the Company
made aggregate payments to Lancer in respect of such expenses incurred by Lancer
on the Company's behalf in the amounts of approximately $0.6 million, $0.6
million and $0.5 million, respectively.
On December 5, 1996, the Company declared and paid a $17.0 million dividend
to Lancer and made a $3.0 million advance to Lancer. On February 10, 1997, the
Company declared and paid a dividend to Lancer of approximately $3.1 million,
the proceeds of which dividend were used by Lancer to repay in full the
principal amount of the 1996 advance, together with all interest accrued thereon
through the repayment date.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) (1) and (2):
See Index to Consolidated Financial Statements and Financial Statement
Schedule appearing on page F-1.
(3) The following is a list of exhibits hereto required to be filed
by Item 601 of Regulation S-K of the Securities and Exchange Commission:
Exhibit No. Description
(2) (a) Articles of Merger and related Plan of Merger under
the state of Indiana of Fairfield Manufacturing
Company, Inc. ("Fairfield") with and into Central
Alabama Grain Company, Inc. ("CAG") dated March 31,
1995, incorporated by reference from Exhibit 2(a) to
Fairfield's Form 10-K as filed with the Securities
and Exchange Commission on March 22, 1995 (the "1994
Form 10-K").
(2) (b) Certificate of Ownership and Merger, merging
Fairfield into CAG, incorporated by reference from
Exhibit 2(b) to the 1994 Form 10-K.
(3) (a) Restated Certificate of Incorporation of Fairfield,
formally known as CAG, incorporated by reference
from Exhibit 3(b) to the 1994 Form 10-K.
(3) (c) By-Laws of CAG, incorporated by reference from
Exhibit 3(c) to the 1994 Form 10-K.
(4) (a) Indenture, dated as of July 7, 1993, between
Fairfield and First Fidelity Bank, National
Association, New York, as trustee, incorporated by
reference from Exhibit 4(a) to Fairfield's Form 10-Q
as filed with the Securities and Exchange Commission
on August 16, 1993 (the "Second Quarter 1993 Form 10-
Q").
(4) (b) Supplemental Indenture No. 1, dated March 31, 1995,
between CAG as successor-in-interest to Fairfield and
First Fidelity Bank, National Association, as
trustee, incorporated by reference from Exhibit 4(b)
to the 1994 Form 10-K.
(9) Voting Trust Agreement
Not Applicable.
(10) (a) Loan Agreement, dated as of July 7, 1993, among
Fairfield, the lenders named therein and General
Electric Capital Corporation ("GECC"), as agent,
incorporated by reference from Exhibit 10(a) to the
Second Quarter 1993 Form 10-Q.
(10) (b) Amended and Restated Warrant Agreement, dated as of
July 7, 1993, among Fairfield, Mitsui Nevitt Capital
Corporation and Principal Mutual Life Insurance
Company, incorporated by reference from Exhibit 10(b)
to the Second Quarter 1993 Form 10-Q.
(10) (c) Security Agreement, dated as of July 7, 1993, between
Fairfield and GECC, as agent, incorporated by
reference from Exhibit 10(c) to the Second Quarter
1993 Form 10-Q.
(10) (d) Security Agreement, dated as of July 7, 1993, between
T-H Licensing, Inc. ("T-H Licensing") and GECC, as
agent, incorporated by reference from Exhibit 10(d)
to the Second Quarter 1993 Form 10-Q.
(10) (e) Stock Pledge Agreement, dated as of July 7, 1993,
between Fairfield and GECC, as agent, incorporated by
reference from Exhibit 10(e) to the Second Quarter
1993 Form 10-Q.
(10) (f) Stock Pledge Agreement, dated as of July 7, 1993,
between Fairfield Holdings, Inc. and GECC, as agent,
incorporated by reference from Exhibit 10(f) to the
Second Quarter 1993 Form 10-Q.
(10) (g) Trademark Security Agreement, dated as of July 7,
1993, between Fairfield and GECC, as agent,
incorporated by reference from Exhibit 10(g) to the
Second Quarter 1993 Form 10-Q.
(10) (h) Trademark Security Agreement, dated as of July 7,
1993, between T-H Licensing and GECC, as agent,
incorporated by reference from Exhibit 10(h) to the
Second Quarter 1993 Form 10-Q.
(10) (i) Patent Security Agreement, dated as of July 7, 1993,
between Fairfield and GECC, as agent, incorporated
by reference from Exhibit 10(i) to the Second Quarter
1993 Form 10-Q.
(10) (j) Patent Security Agreement, dated as of July 7, 1993,
between T-H Licensing and GECC, as agent,
incorporated by reference from Exhibit 10(j) to the
Second Quarter 1993 Form 10-Q.
(10) (k) Subsidiary Guaranty, dated as of July 7, 1993,
between T-H Licensing and GECC, as agent,
incorporated by reference from Exhibit 10(k) to the
Second Quarter 1993 Form 10-Q.
(10) (l) Mortgage, Assignment of Leases, Rents and Profits,
Security Agreement and Fixture Filing, dated as of
July 7, 1993, between Fairfield and GECC, as agent,
incorporated by reference from Exhibit 10(l) to the
Second Quarter 1993 Form 10-Q.
(10) (m) Collection Account Agreement, dated as of July 7,
1993, among Fairfield and GECC, and acknowledged by
Bank One, Lafayette, N.A., incorporated by reference
from Exhibit 10(m) to the Second Quarter 1993 Form 10-
Q.
(10) (n) Used Machinery Account Agreement, dated as of July 7,
1993, among Fairfield and GECC, and acknowledged by
Bank One, Lafayette, N.A., incorporated by reference
from Exhibit 10(n) to the Second Quarter 1993 Form 10-
Q.
(10) (o) Quitclaim Grant of Security Interest, dated as of
July 7, 1993, between Fairfield and GECC, as agent,
incorporated by reference from Exhibit 10(o) to the
Second Quarter 1993 Form 10-Q.
(10) (p) Supplemental Quitclaim Grant of Security Interest
(Patents only), dated as of July 7, 1993, between
Fairfield and GECC, as agent, incorporated by
reference from Exhibit 10(p) to the Second Quarter
1993 Form 10-Q.
(10) (q) First Amendment to Loan Agreement, dated as of
September 30, 1994, among Fairfield, the lenders
named therein and GECC, as agent, incorporated by
reference from Exhibit 10 (q) as filed with the
Securities and Exchange Commission on November 14,
1994.
(10) (r) Second Amendment to Loan Agreement, dated as of March
30, 1995, among Fairfield, the lenders named therein
and GECC, as agent, incorporated by reference from
Exhibit 10(r) to the 1994 Form 10-K.
(10) (s) Third Amendment to Loan Agreement, dated as of March
31, 1995, among Fairfield, the lenders named therein
and GECC, as agent, incorporated by reference from
Exhibit 10(s) to the 1994 Form 10-K.
(10) (t) First Amendment to Mortgage Assignment of Leases,
Rents and Profits, Security Agreement and Fixture
Filing, dated as of March 31, 1995, between Fairfield
and GECC, as agent, incorporated by reference from
Exhibit 10(t) to the 1994 Form 10-K.
(10) (u) Stock Pledge Agreement, dated as of March 31, 1995,
between Lancer Industries Inc. ("Lancer") and GECC,
as agent, incorporated by reference from Exhibit
10(u) to the 1994 Form 10-K.
(10) (v) Amended and Restated Security Agreement, dated as of
March 31, 1995, between Fairfield and GECC, as agent,
incorporated by reference from Exhibit 10(v) to the
1994 Form 10-K.
(10) (w) The Employment and Non-Competition Agreement, dated
as of January 1, 1992, between Fairfield and W. B.
Lechman, as amended on February 22, 1994 and December
19, 1995, incorporated by reference from Exhibit 10
(w) to Fairfield's Form 10-K as filed with the
Securities and Exchange Commission on (the "1995 Form
10-K").
(10) (x) The Fairfield Manufacturing Company, Inc. Equity
Participation Plan, dated August 21, 1989
incorporated by reference from Exhibit 10 (x) to the
1995 Form 10-K.
(10) (y) The Collective Bargaining Agreement, ratified October
28, 1995, between Fairfield and United Auto Workers'
Local 2317 incorporated by reference from Exhibit 10
(y) to the 1995 Form 10-K.
(10) (z) The Tax Sharing Agreement, dated as of July 18, 1990,
between Fairfield and Lancer, incorporated by
reference from Exhibit 10 (z) to the 1995 Form 10-K.
(10) (aa) The Fairfield Manufacturing Company, Inc. (1992)
Supplemental Executive Retirement Plan incorporated
by reference from Exhibit 10 (aa) to the 1995 Form 10-
K.
(10) (bb) Letter Agreement, dated December 29, 1989, granting
exclusive license from T-H Licensing to Fairfield
incorporated by reference from Exhibit 10 (bb) to the
1995 Form 10-K.
(10) (cc) Fourth Amendment to Loan Agreement, dated as of
December 5, 1996, among Fairfield, the lenders named
therein and GECC, as agent.
(10) (dd) Second Amendment to Mortgage Assignment of Leases,
Rents and Profits, Security Agreement and Fixture
Filing, dated as of December 5, 1996, between
Fairfield and GECC, as agent.
(10) (ee) The Employment Agreement, dated as of June 1, 1996,
between Fairfield and K. A. Burns.
(11) Statement re computation of per share earnings.
Not Applicable.
(12) Statement re Computation of ratios.
Not Applicable.
(13) Annual Report to Security Holders, Form 10-Q or
Quarterly Report to Security Holders.
Not Applicable.
(16) Letter re Change in Certifying Accountant.
Not Applicable.
(18) Letter re change in accounting principles.
Not Applicable.
(21) Subsidiaries of Fairfield Manufacturing Company, Inc.
T-H Licensing, Inc.
(22) Published report regarding matters submitted to vote
of security holders.
Not Applicable.
(23) Consents of experts and counsel.
Not Applicable.
(24) Power of attorney.
Not Applicable.
(28) Information from Reports Furnished to State Insurance
Regulatory Authorities.
Not Applicable.
(99) Additional exhibits.
Not Applicable.
(b) No reports on Form 8-K have been filed during the
last quarter of the period covered by this report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 on the 21st day of
February, 1997.
FAIRFIELD MANUFACTURING
COMPANY, INC.
By: /s/ Richard A. Bush
Richard A. Bush
Vice President Finance
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ Kenneth A. Burns
Kenneth A. Burns President and Chief Operating Officer February 21, 1997
/s/ Peter A. Joseph
Peter A. Joseph Director February 21, 1997
/s/ Paul S. Levy
Paul S. Levy Director February 21, 1997
/s/ W. B. Lechman
W.B. Lechman Director and Chairman of the Board February 21, 1997
/s/ Jess C. Ball
Jess C. Ball Director February 21, 1997
FAIRFIELD MANUFACTURING COMPANY, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULE
Page
Report of Independent Accountants F - 2
Consolidated Balance Sheets, December 31, 1996 and 1995 F - 3
Consolidated Statements of Operations for the three years F - 4
ended December 31, 1996
Consolidated Statements of Stockholder's Equity (Deficit) F - 5
for the three years ended December 31, 1996
Consolidated Statements of Cash Flows for the three years F - 6
ended December 31, 1996
Notes to Consolidated Financial Statements F - 7
Report of Independent Accountants on Consolidated Financial F - 17
Statement Schedule
Schedule:
II. Valuation and Qualifying Accounts and Reserves, for the F - 18
three years ended December 31, 1996
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
Fairfield Manufacturing Company, Inc.
We have audited the accompanying consolidated balance sheets of Fairfield
Manufacturing Company, Inc. as of December 31, 1996 and 1995, and the related
consolidated statements of operations, stockholder's equity (deficit), and cash
flows for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Fairfield Manufacturing Company, Inc. as of December 31, 1996 and 1995, and the
consolidated results of their operations and their consolidated cash flows for
each of the three years in the period ended December 31, 1996 in conformity with
generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Indianapolis, Indiana
January 31, 1997
FAIRFIELD MANUFACTURING COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
(In thousands)
1996 1995
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 6,185 $ 4,324
Trade receivables, less allowance of $600 in 24,696 24,328
1996 and in 1995
Inventory 18,918 24,912
Prepaid expenses 897
853
Total current assets 50,652 54,461
PROPERTY, PLANT AND EQUIPMENT, NET 70,211 71,056
OTHER ASSETS:
Excess of investment over net assets 52,491 54,098
acquired, less accumulated amortization
of $11,868 in 1996 and $10,261 in 1995
Deferred financing costs, less accumulated 3,016 3,540
amortization of $2,355 in 1996 and
$1,685 in 1995
Total other assets 55,507 57,638
Total assets $176,370 $183,155
LIABILITIES AND STOCKHOLDER'S EQUITY
(DEFICIT)
CURRENT LIABILITIES:
Current maturities of long-term debt $ 3,000 $ 3,000
Accounts payable 13,260 11,150
Due to parent 287 807
Accrued liabilities 18,182 17,524
Deferred income taxes 3,800 4,700
Total current liabilities 38,529 37,181
ACCRUED RETIREMENT COSTS 15,423 14,758
DEFERRED INCOME TAXES 11,988 11,258
LONG-TERM DEBT, NET OF CURRENT MATURITIES 115,000 110,000
STOCKHOLDER'S EQUITY (DEFICIT):
Common stock, par value $.01 per share; 78 77
10,000,000 shares authorized; 7,805,000
and 7,676,000 issued and outstanding in
1996 and 1995, respectively
Additional paid-in capital 36,788 35,209
Accumulated deficit (41,436) (25,328)
Total stockholder's equity (deficit) (4,570) 9,958
Total liabilities and stockholder's $176,370 $183,155
equity (deficit)
The accompanying notes to consolidated financial statements
are an integral part of these statements.
FAIRFIELD MANUFACTURING COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Years Ended December 31, 1996
(In thousands, except per share data)
1996 1995 1994
Net sales $195,205 $192,111 $150,689
Cost of sales
158,668 151,890 123,092
Selling, general and administrative
expenses 16,868 14,759 15,924
OPERATING INCOME 19,669 25,462 11,673
Interest expense, net 11,930 12,905 12,377
Other expense, net
90 127 199
INCOME (LOSS) BEFORE INCOME TAXES AND 7,649 12,430 (903)
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE
Provision (benefit) for income taxes
3,730 5,520 (164)
INCOME (LOSS) BEFORE CUMULATIVE EFFECT 3,919 6,910 (739)
OF CHANGE IN ACCOUNTING PRINCIPLE
Cumulative effect of change in
accounting principle, net of -- -- (1,554)
benefit for income taxes of $346 in
1994
NET INCOME (LOSS)
$3,919 $6,910 $(2,293)
INCOME (LOSS) PER SHARE DATA:
Before cumulative effect of change $0.51 $1.15 $(0.25)
in accounting principle
Cumulative effect of change in
accounting principle -- -- $(0.52)
Net income (loss) per common share
$0.51 $1.15 $(0.77)
Weighted average common shares 7,726,557 6,018,072 2,976,47
outstanding 1
The accompanying notes to consolidated financial statements
are an integral part of these statements.
FAIRFIELD MANUFACTURING COMPANY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT)
For the Three Years Ended December 31, 1996
(In thousands)
Common Additiona Accumulate Stockhold
Stock l Paid- d Deficit er's
In Equity
Capital (Deficit)
BALANCE, January 1, 1994 $30 $31,193 $(29,945) $1,278
Contributed capital -- 1,060 -- 1,060
Net loss -- - (2,293) (2,293)
-
BALANCE, DECEMBER 31, 1994 30 32,253 (32,238) 45
Contributed capital 47 2,956 -- 3,003
Net income -- - 6,910 6,910
-
BALANCE, DECEMBER 31, 1995 77 35,209 (25,328) 9,958
Contributed capital 1 1,579 -- 1,580
Dividend -- -- (17,000) (17,000)
Advance to Parent -- -- (3,027) (3,027)
Net income -- - 3,919 3,919
-
BALANCE, DECEMBER 31, 1996 $78 $36,788 $(41,436) $ (4,570)
The accompanying notes to consolidated financial statements
are an integral part of these statements.
FAIRFIELD MANUFACTURING COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Years Ended December 31, 1996
(In thousands)
1996 1995 1994
OPERATING ACTIVITIES:
Net income (loss) $ 3,919 $6,910 $(2,293
)
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Cumulative effect of change in accounting -- -- 1,554
principle, net
Depreciation and amortization 13,108 12,272 11,850
Loss on disposal of equipment -- -- 768
Deferred income tax benefit (170) (1,178) (2,700)
Decrease (increase) in accrued retirement 665 2,079
costs (864)
(Increase) decrease in current assets:
Trade receivables (368) (7,886) (1,922)
Receivable from parent -- 1,097 155
Inventory 5,994 681 (2,714)
Prepaids 44 (434) (42)
Increase (decrease) in current
liabilities:
Accounts payable (156) (2,418) 3,316
Due to parent (520) 807 --
Accrued liabilities 658 1,926
2,482
Net cash provided by operating activities 23,174 13,856
9,590
INVESTING ACTIVITIES:
Additions to plant and equipment, net (7,720) (11,645)
(9,164)
Net cash used by investing activities (7,720) (11,645)
(9,164)
FINANCING ACTIVITIES:
Proceeds from additional capital contribution 1,580 3,003 1,060
Payment of dividend (17,000) -- --
Advance to Parent (3,027) -- --
Proceeds of long-term debt 20,000 11,000 3,000
Payment of long-term debt (15,000) (13,000) (9,444)
Payment of debt issuance costs (146) (340)
(50)
Net cash provided (used) by financing (13,593) 663
activities (5,434)
INCREASE (DECREASE) IN CASH AND CASH 1,861 2,874 (5,008)
EQUIVALENTS
CASH AND CASH EQUIVALENTS:
Beginning of year 4,324 1,450
6,458
End of year $ 6,185 $ 4,324 $
1,450
Supplemental Disclosures:
Cash paid for:
Interest $11,627 $12,387 $11,298
Taxes to parent $ 2,450 $ 1,650 $ 904
Non-cash activities:
Additions to plant and equipment included in accounts payable at
December 31, 1996 and 1995 are excluded from operating activities above.
The accompanying notes to consolidated financial statements
are an integral part of these statements.
1. Summary of Significant Accounting Policies
Organization
Fairfield Manufacturing Company, Inc. ("the Company") is wholly-owned by
Lancer Industries Inc. ("Lancer"). The Company, its subsidiary and Lancer
are Delaware corporations. The Company has one subsidiary, T-H Licensing,
Inc., which owns certain of the Company's intangible assets. These
consolidated financial statements include the accounts of Fairfield
Manufacturing Company, Inc. and its wholly-owned subsidiary. All
significant intercompany accounts and transactions have been eliminated.
The Company manufactures high precision custom gears and planetary gear
systems at its Lafayette, Indiana facility. Customers consist of original
equipment manufacturers serving diverse markets which include rail,
industrial, construction, road rehabilitation, mining, materials handling,
forestry, and agricultural.
Concentration of Credit Risk
During 1996, no single customer accounted for more than 10% of consolidated
net sales. Net sales to one customer were $21,109 in 1995 and $19,601 in
1994. Foreign sales are not material.
Revenue Recognition
Sales are recognized at the time of shipment to the customer.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments with original
maturities of three months or less to be cash equivalents.
Inventory
Inventory is valued at the lower of last-in, first-out (LIFO) cost or
market.
Property, Plant and Equipment, Net
Property, plant and equipment, net are carried at cost less accumulated
depreciation. Depreciation is computed on the straight-line method over
the estimated useful lives of the assets ranging from 3 to 30 years.
Income Taxes
Income taxes are provided based on the liability method of accounting
pursuant to Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS 109"). The liability method measures
the expected tax impact of future taxable income or deductions resulting
from differences in the tax and financial reporting bases of assets and
liabilities reflected in the consolidated balance sheets and the expected
tax impact of carryforwards for tax purposes.
Excess of Investment Over Net Assets Acquired
Excess of investment cost over net assets acquired is amortized using the
straight-line method over 40 years. The Company's criteria for
periodically evaluating the carrying value of the excess of investment over
net assets acquired includes evaluation of products and markets as well as
current and expected levels of undiscounted cash flow from operations. The
Company has concluded the excess of investment over net assets acquired is
not impaired and the products and markets continue to support a 40-year
life.
Deferred Financing Costs
Debt issuance costs are being amortized by the use of the effective
interest method over the expected term of the related debt agreement.
Computation of Net Income (Loss) Per Share
Income (loss) per share is based upon the weighted average number of shares
of common stock outstanding.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities and the reported amounts of
revenues and expenses. Actual results could differ from those estimates.
Fair Value of Financial Instruments
The fair value of financial assets held by the Company approximate their
carrying value. The fair value of the financial liabilities which consist
of senior and subordinated debt, also approximate their carrying value.
Reclassifications
Certain amounts in the 1995 and 1994 consolidated financial statements and
notes to consolidated financial statements have been reclassified to
conform with the 1996 presentation.
2. Inventory
Inventory at December 31, consists of:
1996 1995
Raw materials $ 4,178 $4,039
Work in process 8,070 10,978
Finished products 7,490 10,350
19,738 25,367
Less: Excess of FIFO cost over LIFO (820) (455)
cost
$18,918 $24,912
3. Property, Plant and Equipment, Net
Property, plant and equipment, net at December 31, includes the following:
1996 1995
Land and improvements $ 1,312 $ 1,211
Buildings and improvements 11,869 11,567
Machinery and equipment 129,747 121,819
142,928 134,597
Less: Accumulated depreciation (72,717) (63,541)
$70,211 $71,056
4. Advance to Parent
On December 5, 1996, the Company advanced $3,000 to Lancer and anticipates
repayment during February 1997. This advance has been classified as a
component of stockholder's equity (deficit) at December 31, 1996, at which
date the related accrued interest was $27.
5. Accrued Liabilities
Accrued liabilities at December 31, are as follows:
1996 1995
Compensation and employee $5,970 $6,602
benefits
Accrued retirement and 3,002 1,750
postemployment costs
Interest payable 5,021 5,187
Other 4,189
3,985
$18,182 $17,524
6. Employee Benefit Plans
The Company has a noncontributory defined benefit pension plan which covers
substantially all of its employees. The benefits are based on years of
service and the employee's earnings preceding retirement. The Company's
funding policy is to contribute each year an amount at least equal to the
minimum required contribution as defined by the Employee Retirement Income
Security Act of 1974. Assets of the plan are principally deposit
administration insurance contracts. The projected benefit obligation has
been determined by using the projected unit credit method.
Net pension cost for years ended December 31, consists of:
1996 1995 1994
Service cost - benefits earned $1,387 $1,180 $1,427
during the period
Interest cost 2,862 2,626 2,440
Actual return on plan assets (2,043) (3,061) (764)
Net amortization and deferral (317) 906 (1,438)
Net pension cost $1,889 $1,651 $1,665
The plan's funded status and amounts included in the December 31 balance
sheets based upon actuarial valuations at October 1, 1996 and 1995 are:
1996 1995
Actuarial present value of benefit obligation:
Vested benefits $27,420 $25,115
Nonvested benefits 1,984 1,651
Accumulated benefit obligation 29,404 26,766
Effect of projected future compensation 13,568 12,995
increases
Projected benefit obligation 42,972 39,761
Plan assets at fair value 31,349 30,493
Projected benefit obligation in excess of plan 11,623 9,268
assets
Unrecognized gain 33 1,084
Unrecognized prior service cost (1,921) (2,111)
Accrued liability included in balance sheet $9,735 $8,241
Assumed discount rate 7.25% 7.25%
Assumed long-term return on plan assets 8.5% 8.5%
The Company has a contributory defined contribution savings plan which
covers all of its eligible employees. Eligibility in the plan is obtained
the month following hire with no minimum age requirement. A participant
may make a basic contribution to the plan ranging from 2% to 6% of the
participant's salary and a supplemental contribution of 2%, 4%, or 6% of
the participant's salary. The Company matches 70% of the participant's
basic contribution. Expense recognized each of the years ended December
31, 1996, 1995 and 1994 was $1,356, $1,238 and $909, respectively.
In addition to pension and savings plan benefits, the Company provides
limited health care and life insurance benefits for certain retired
employees.
Effective January 1, 1994, the Company amended its postretirement medical
plan. The plan amendment changed the eligibility provisions to be age 60
with 15 years of service for all active employees.
Net periodic postretirement benefit cost for years ended December 31,
includes the following components:
1996 1995 1994
Service cost $ 332 $257 $251
Interest cost 656 587 534
Unrecognized net loss 214 78 48
Prior service cost (63)
(63) (63)
$1,139 $859 $770
The actuarial and recorded liabilities for these postretirement benefits,
none of which have been funded, are as follows at December 31:
1996 1995
Actuarial present value of postretirement
benefit obligation
Retirees and dependents $5,817 $5,023
Active employees eligible to retire and receive 840 654
benefits
Active employees not yet eligible to retire and 2,939 2,390
receive benefits
Total accumulated postretirement benefit 9,596 8,067
obligation
Unrecognized loss (3,118) (1,941)
Unrecognized prior service cost 314 376
Accrued postretirement benefit liability $6,792 $6,502
included in balance sheet
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7.25% for both 1996 and 1995. The
health care cost trend rate is not a factor in the calculation of the
accumulated postretirement benefit obligation as the plan limits benefits
paid to retirees to a lifetime maximum amount per retiree. Claims in
excess of this amount are the responsibility of the retiree.
The Company provides postemployment benefits to certain former and inactive
employees. The Company adopted SFAS No. 112, "Employers' Accounting for
Postemployment Benefits" as of the beginning of fiscal 1994. This
accounting standard requires the accrual of the cost of postemployment
benefits over the employees' years of service rather than accounting for
such costs on a cash basis. A one-time cumulative adjustment of $1,900
($1,554, net of tax) was recognized as of the beginning of fiscal 1994.
Net periodic postemployment benefit cost for years ended December 31,
included the following components:
1996 1995 1994
Service Cost $115 $131 $75
Interest Cost 157 349 98
$272 $480 $173
The recorded liabilities for these postemployment benefits, none of which
have been funded, are $1,894 and $1,765 at December 31, 1996 and 1995,
respectively.
7. Income Taxes
The Company files separate state income tax returns and is included in the
consolidated federal income tax return of its parent company, Lancer. The
Company and Lancer have entered into a Tax Sharing Agreement under which
the Company is required to calculate its federal income tax liability on a
separate return basis. Accordingly, the Company has also calculated its
credit/expense equivalent to benefit/provision for federal income taxes on
a separate return basis.
The (credit)/expense equivalent to (benefit)/provision for income taxes
each of the three years in the period ended December 31, consists of:
1996 1995 1994
Current, principally federal $3,900 $6,698 $2,545
Deferred, principally federal (170) (1,178) (3,055)
$3,730 $5,520 $(510)
The credit equivalent to benefit for income taxes for 1994 results
principally from the reversal of previously provided deferred taxes. The
expense equivalent to provision for income taxes for 1996 and 1995 results
principally from current year operating results.
A reconciliation of the expected (credit)/expense equivalent to
(benefit)/provision for income taxes at the statutory federal income tax
rate and the actual tax benefit/provision each of the three years ended
December 31, is as follows:
1996 1995 1994
Amount % Amount % Amount %
Expected total tax $2,677 35.0% $4,351 35.0% $(953) (34.0)%
benefit/provisio
n at statutory
rate
State taxes, net of 231 3.0 626 5.0 (277) (9.9)
federal
Non-deductible 555 7.3 555 4.4 540 19.3
amortization on
excess of
investment over
net assets
acquired
Other, net 267 3.5 (12) (0.0) 180 6.4
$3,730 48.8% $5,520 44.4% $(510) (18.2)%
Deferred income taxes applicable to temporary differences at December 31,
are as follows:
1996 1995
Current:
Inventory basis difference $(6,317) $(5,634)
Employee benefits 1,288 1,456
Other, net 1,229 (522)
Total current deferred tax liability, (3,800) (4,700)
net
Long-term:
Inventory basis difference 626 515
Property, plant and equipment basis (18,952) (18,547)
difference
Employee benefits 7,381 6,412
Other, net 362
(1,043)
Total long-term deferred tax liability, (11,988) (11,258)
net
Total deferred tax liability, net $(15,788 $(15,958)
)
Under the Tax Sharing Agreement between the Company and Lancer, the Company
is required to pay Lancer an amount equal to the Company's current federal
income tax liability calculated on a separate return basis. To the extent
such tax liability is reduced by the Company's utilization of Lancer's
available tax benefits, Lancer is required to reimburse the Company for 50%
of the amount of such reduction by making a capital contribution to the
Company. Lancer made capital contributions to the Company of $1,580,
$2,503, and $1,060 during 1996, 1995 and 1994, respectively.
8. Long-Term Debt
Long-term debt consists of the following at December 31:
1996 1995
Senior Term Credit $33,000 $21,000
Senior Revolving Credit -- 7,000
Senior Subordinated 85,000 85,000
Notes
118,000 113,000
Less current maturities
(3,000) (3,000)
$115,000 $110,000
The future maturities of long-term debt as of December 31, 1996 are as
follows:
1997 $3,000
1998 4,000
1999 7,000
2000 19,000
2001 85,000
$118,000
The Company's Senior Subordinated Notes (the "Notes") bear interest at a
rate of 11 3/8% and mature on July 1, 2001. The Notes are redeemable at
the option of the Company, in whole or in part, on or after July 1998 at
certain specified redemption prices.
Concurrent with the issuance of the Notes, the Company entered into a loan
agreement with a senior lending institution which provides for a Revolving
Credit Facility and a Term Loan (together, the "Credit Facilities"). The
loan agreement was amended during December, 1996. The amendment increased
the Term Loan to $33,000 and is payable quarterly through December, 2000.
The Revolving Credit Facility permits the Company to borrow up to $20,000
subject to borrowing base availability (as defined) and, at the option of
the Company (subject to certain conditions), may be increased by an
additional $2,000 at December 1996 increasing to $5,000 by December 1997.
The Revolving Credit Facility matures on July 1, 2001. Interest under the
Credit Facilities is payable at varying rates based on prime or Eurodollar
rates. At December 31, 1996, the Eurodollar rate loans ranged from 7.64%
to 7.91% resulting in a weighted average rate of 7.83%. The unused
Revolving Credit Facility at December 31, 1996, net of $698 of outstanding
letters of credit, was $19,302.
Borrowings under the Credit Facilities are collateralized by substantially
all the assets of the Company, including the assignment of all leases and
rents and a pledge of the outstanding common stock of the Company. The
Credit Facilities and the Notes contain various restrictive covenants that,
among other restrictions, require the Company to maintain certain financial
ratios. The December 1996 amendment provides for the payment of dividends
under the same provisions as the Notes.
9. Stockholder's Equity
Merger
On March 31, 1995 the Company and Holdings merged with and into Central
Alabama Grain Company, Inc. ("CAG"), a wholly-owned, non-operating
subsidiary of Lancer, with CAG continuing as the surviving corporation of
the mergers. Upon completion of the mergers, CAG vested in all of the
estate, property, rights, privileges, powers and franchises of the Company
including T-H Licensing, Inc., its wholly-owned subsidiary. CAG assumed
all obligations and liabilities of the Company. All of the Company's
officers and directors became officers and directors of CAG. Concurrent
with the merger, CAG changed its name to Fairfield Manufacturing Company,
Inc.
Issuance of Common Stock
The Company issued 25,000 additional shares of its common stock on March
31, 1996, 51,000 shares on June 30, 1996, 23,000 shares on September 30,
1996, and 30,000 shares on December 31, 1996, to Lancer in consideration of
certain capital contributions made by Lancer to the Company pursuant to the
Tax Sharing Agreement and other capital contributions.
Dividend
On December 5, 1996, the Company, with the approval of its senior lender,
declared and paid a dividend of $17,000 to Lancer.
10. Other Financial Data
Operating Leases
The Company is obligated to make payments under noncancellable operating
leases expiring at various dates through 2000.
Future minimum payments by year, and in the aggregate, under operating
leases consist of the following at December 31, 1996:
Year Minimum Rental
1997 $372
1998 355
1999 321
2000 241
$1,289
Rental expense for the years ended December 31, 1996, 1995 and 1994 was
$446, $698, and $974 respectively.
Equity Participation Plan
The Company maintains an Equity Participation Plan (the "Plan") which
provides for the award of up to an aggregate of 180,000 Equity
Participation Rights ("Rights") to certain current and past officers and
key employees. At December 31, 1996, all 180,000 rights were granted and
have vested.
Under the Plan, each participant is entitled to receive, upon the
occurrence of a Trigger Event, (as defined below) and exercise of a Right,
an amount in cash equal to the difference between the fair market value of
a share of the Company's common stock on the date the Trigger Event occurs
and the initial value assigned to each Right. A Trigger Event means (a)
any of the following transactions which results in a change in control:
(i) a merger or consolidation of the Company with or into another
corporation; (ii) the sale or exchange for cash, securities or other
consideration of all or substantially all of the assets of the corporation;
or (iii) the sale or exchange for cash, securities or any other
consideration of all or substantially all of the outstanding common equity
of the Company or (b) the later of the fifth anniversary of the date the
Right was granted or the date the participant retires from the Company at
or after age 60.
Payments under the Plan may not exceed $1,320 in any fiscal year and $5,280
in the aggregate.
During the period that a stock appreciation right (or Right) is
outstanding, the ultimate amount of compensation inherent in the Right is
indeterminate. APB Opinion No. 25 and FASB Interpretation No. 28 require
interim calculations of the amount of compensation inherent in the stock
appreciation right. This amount is generally equal to the increase in the
fair market value since date of grant or award multiplied by the total
number of share or rights outstanding, regardless of the exercisable status
of the rights.
At December 31, 1996, 1995 and 1994 the exercise price exceeds estimated
fair market value of the Company's common stock. Accordingly, there has
been no compensation charged to earnings for this plan.
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
Fairfield Manufacturing Company, Inc.
Our report on the consolidated financial statements of Fairfield Manufacturing
Company, Inc. is included on page F-2 of this Form 10-K. In connection with our
audits of such financial statements, we have also audited the related financial
statement schedule listed in the index on page F-1 of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statement taken as a whole,
represents fairly, in all material respects, the information required to be
included therein.
Coopers & Lybrand L.L.P.
Indianapolis, Indiana
January 31, 1997
FAIRFIELD MANUFACTURING COMPANY, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
for the three years ended December 31, 1996
(in thousands)
Balance Charged Charged Balance at
Description at to to Deduction End of
Beginning Costs other s Period
of Period and Account
Expense s
s
1996
Allowance for $600 $520 -- $(520) $600
doubtful
accounts
1995
Allowance for $500 $197 -- $(97) $600
doubtful
accounts
1994
Allowance for $352 $151 $9 $(12) $500
doubtful
accounts
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from SEC Form
10-K and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000904543
<NAME> FAIRFIELD MFG CO INC
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 6185
<SECURITIES> 0
<RECEIVABLES> 25296
<ALLOWANCES> (600)
<INVENTORY> 18918
<CURRENT-ASSETS> 853
<PP&E> 70211
<DEPRECIATION> 0
<TOTAL-ASSETS> 176370
<CURRENT-LIABILITIES> 38529
<BONDS> 0
0
0
<COMMON> 78
<OTHER-SE> (4648)
<TOTAL-LIABILITY-AND-EQUITY> 176370
<SALES> 195205
<TOTAL-REVENUES> 195205
<CGS> 158668
<TOTAL-COSTS> 175536
<OTHER-EXPENSES> 90
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11930
<INCOME-PRETAX> 7649
<INCOME-TAX> 3730
<INCOME-CONTINUING> 3919
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3919
<EPS-PRIMARY> .51
<EPS-DILUTED> .51
</TABLE>
5
FOURTH AMENDMENT TO LOAN AGREEMENT
THIS FOURTH AMENDMENT TO LOAN AGREEMENT (this "Amendment"), made
and entered into as of December 5, 1996, by and between FAIRFIELD
MANUFACTURING COMPANY, INC., a Delaware corporation ("Borrower"), and
GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation ("GE
Capital"), as sole "Lender" under the "Loan Agreement" hereinafter
referred to and as agent for itself and the other "Lenders" who may
hereafter become parties to the Loan Agreement (GE Capital, in such
capacity, the "Agent").
RECITALS:
A. Borrower and GE Capital, as a Lender and as Agent, entered
into a certain Loan Agreement, dated as of July 7, 1993, as amended
pursuant to a First Amendment to Loan Agreement, dated as of September
30, 1994, a Second Amendment to Loan Agreement, dated March 30, 1995,
but effective as of December 31, 1994 and a Third Amendment to Loan
Agreement, dated as of March 31, 1995 (the "Loan Agreement";
capitalized terms used herein and not defined herein shall have the
meanings ascribed to them in the Loan Agreement) whereby, subject to
the terms and conditions set forth therein, GE Capital, as sole Lender
thereunder, made the Commitment and the Term Loans available to
Borrower;
B. Borrower has requested that Lenders make certain additional
financial accommodations available to it under the Loan Agreement in
the form of (i) an extension of the term of the Commitment and certain
modifications in the manner in which the Subsequent Commitment
Increase may be effected (which Subsequent Commitment Increase will be
made at Borrower's election but subject to the terms and conditions
set forth herein), and (ii) a Fifteen Million Dollar ($15,000,000)
increase in the amount of the Term Loans;
C. Borrower has further requested that Lenders permit certain
dividends to be paid to Lancer by Borrower and certain loans to be
made to Lancer by Borrower, subject to the terms and conditions set
forth herein;
D. Subject to the terms and conditions set forth herein,
including, without limitation, the payment by Borrower to Lenders of
the fees specified herein, Lenders are willing to make such additional
financial accommodations available to Borrower and to permit Borrower
to pay such dividends and make such loans; and
E. Borrower and GE Capital, as Agent and sole Lender under the
Loan Agreement, desire to enter into this Amendment in order to (i)
provide for the making by Lenders to Borrower of the financial
accommodations described generally in paragraph B of these recitals
and described more particularly herein, (ii) permit the payment of
certain dividends by Borrower to Lancer and the making of certain
loans by Borrower to Lancer described generally in paragraph C of
these recitals and described more particularly herein, and (iii) amend
the Loan Agreement in certain other respects as hereinafter set forth.
In consideration of the premises and the mutual covenants and
agreements herein contained, the parties hereto covenant and agree as
follows:
1. Amendments to Loan Agreement. Effective upon fulfillment,
to the satisfaction of Lenders, of the conditions precedent set forth
in Section 2 hereof, the Loan Agreement shall be deemed to be amended
as follows:
(a) Amendments to Section 1.1 of the Loan Agreement.
(i) Section 1.1 of the Loan Agreement shall be deemed to be
amended by deleting in its entirety the first paragraph only of
the definition of "Borrowing Base" set forth therein and
substituting in lieu thereof the following first paragraph:
"Borrowing Base" means, as of any date of determination, an
amount determined by the Agent to be equal to the sum of (a)
up to 80% of Eligible Accounts, plus (b) up to 60% of
Eligible Inventory consisting of finished goods, finished
parts or raw materials, plus (c) up to 20% of Eligible
Inventory consisting of work in process, all determined by
the Agent with reference to the most recent Borrowing Base
Certificate furnished to the Agent pursuant to Section
7.2(a) and the additional Collateral reporting furnished to
the Agent pursuant to Section 7.2(b), adjusted on a daily
basis at such time as a Triggering Event has occurred and is
continuing to reflect Collections and the information
contained in the daily Collateral reporting furnished to the
Agent pursuant to Section 7.2(c).
(ii) Section 1.1 of the Loan Agreement shall be deemed to be
further amended by deleting the definitions of "Agreement,"
"Collateral Documents", "Commitment," "Consolidated Excess Cash
Flow," "Fixed Rate," "Floating Rate," "Loan Documents," "Maturity
Date," "Monthly Payment Date", "Quarterly Payment Date",
"Subsequent Commitment Increase", "Subsequent Commitment Increase
Date", "Term Loan", "Term Loans" and "Term Note" therein in their
entirety and substituting in lieu thereof the following revised
definition of "Agreement," "Commitment," "Collateral Documents",
"Consolidated Excess Cash Flow," "Fixed Rate," "Floating Rate,"
"Loan Documents," "Maturity Date," "Monthly Payment Date",
"Quarterly Payment Date", "Subsequent Commitment Increase",
"Subsequent Commitment Increase Date", "Term Loan", "Term Loans"
and "Term Note".
"Agreement" means this Loan Agreement, either as originally
executed or as it may from time to time be supplemented,
modified, amended, renewed, extended or supplanted
(including, without limitation, by the First Amendment, the
Second Amendment, the Third Amendment and the Fourth
Amendment).
"Collateral Documents" means, collectively, the Security
Agreements, the Mortgage, the First Amended Mortgage, the
Second Amended Mortgage, the Trademark Security Agreement,
the Borrower Pledge Agreement, and any other pledge
agreement, security agreement, deed of trust, mortgage, deed
to secure debt or similar instrument executed by Borrower or
any Subsidiary in favor of the Agent for the benefit of the
Lenders to secure the Obligations.
"Commitment" means Twenty Million Dollars ($20,000,000), as
such amount may be increased to Twenty Five Million Dollars
($25,000,000) pursuant to the Subsequent Commitment
Increases provided for in Section 2.8, unless and until
reduced to zero pursuant to Section 3.2(a).
"Consolidated Excess Cash Flow" means, for any period, (a)
Consolidated Cash Flow for such period, plus (b) any
decrease in Consolidated Working Capital of Borrower and its
Subsidiaries during such period, plus (c) the Cash portion
of extraordinary gains during such period, less (d) any
increase in Consolidated Working Capital of Borrower and its
Subsidiaries during such period, less (e) Consolidated Fixed
Charges (exclusive of Consolidated Net Interest Expense) for
such period, less (f) net Cash interest expense for such
periods, less (g) the Cash portion of extraordinary losses
for such period, less (h) Permitted Dividends declared and
paid during such period.
"Fixed Rate" means the LIBOR Rate plus two and one-quarter
percent (2-1/4%) per annum; provided that, commencing on
January 1, 1998, the Fixed Rate will mean the LIBOR Rate
plus the Applicable LIBOR Margin as determined in accordance
with the following grid:
If the Ratio of Consolidated The Applicable LIBOR
Margin
EBITDA to Consolidated for Fixed Rate Loans will be:
Net Interest Expense for the
Preceding Fiscal Quarter is: Revolving Credit Loans
Term Loans
Less than 3.0:1.0 2% per annum 2-1/4% per annum
3.0:1.0 to 3.5:1.0 1-3/4% per annum 2% per annum
Greater than 3.5:1.0 1-1/2% per annum 1-3/4% per
annum
For purposes of calculating the Ratio of Consolidated EBITDA
to Consolidated Net Interest Expense deferred financing
costs shall be excluded from Consolidated Net Interest
Expense.
Any change in the Applicable LIBOR Margin by virtue of the
foregoing provision with regard to any Fiscal Quarter shall
be made within five (5) days after delivery by Borrower to
Lender of financial statements for such Fiscal Quarter
pursuant to Section 7.1(b); provided, however, that any such
change shall be deemed to have become effective on that date
thirty (30) days after the end of such Fiscal Quarter.
"Floating Rate" means the Index Rate plus three-quarters of
one percent (3/4 of 1%) per annum.
"Loan Documents" means, collectively, this Agreement, the
First Amendment, the Second Amendment, the Third Amendment,
the Fourth Amendment, the Notes, the Blocked Account
Agreements, the Subsidiary Guaranty, the Collateral
Documents, the Lancer Pledge Agreement and any other
agreements of any type or nature heretofore or hereafter
executed and delivered by Borrower or any of its Affiliates
in favor of the Agent or Lenders in any way relating to or
in furtherance of this Agreement, in each case either as
originally executed or as the same may from time to time be
supplemented, modified, amended, restated, extended or
supplanted.
"Maturity Date" means July 1, 2001.
"Monthly Payment Date" means the fifteenth day of each
calendar month after the Closing Date, through and including
the Commitment Termination Date.
"Quarterly Payment Date" means the fifteenth day of each
February, May, August and November.
"Subsequent Commitment Increase" and "Subsequent Commitment
Increases" have the meanings set forth in Section 2.8.
"Subsequent Commitment Increase Date" and "Subsequent
Commitment Increase Dates" have the meanings set forth in
Section 2.8.
"Term Loan" and "Term Loans" each has the meaning set forth
in Section 2.3(a).
"Term Note" means any of the amended and restated promissory
notes substantially in the form of Exhibit P, issued by
Borrower in favor of a Lender evidencing the Term Loan made
by such Lender.
(iii) Section 1.1 of the Loan Agreement shall be deemed
further amended by adding therein, in appropriate alphabetical
order, the following additional definitions:
"Fourth Amendment" means the Fourth Amendment to the Loan
Agreement, dated as of December 5, 1996, among Borrower, the
Agent and GE Capital, as sole Lender.
"Fourth Amendment Date" means December 5, 1996, or such
later date as the Fourth Amendment shall have been executed
and delivered by the parties and all conditions precedent to
the effectiveness thereof set forth in Section 2 thereof
shall have been satisfied.
"New Term Loan" and "New Term Loans" have the respective
meanings specified in Section 2.3(a).
"Original Term Loans" means the term loans made by the
Lenders to Borrower on the Closing Date in the aggregate
principal amount of $25,000,000.
"Permitted Dividends" has the meaning set forth in clause
(k) of Section 6.3.
"Second Amended Mortgage" means the Second Amendment to the
Mortgage, dated as of the Fourth Amendment Date, executed by
Borrower on the Fourth Amendment Date.
"Special Dividend" has the meaning set forth in clause (j)
of Section 6.3.
"Special Loan" has the meaning set forth in clause (j) of
Section 6.3.
(iv) Section 1.1 of the Loan Agreement shall be deemed
further amended by deleting therefrom the definition of
"Commitment Increase".
(b) Amendment to Section 2.3 of the Loan Agreement. Section 2.3
of the Loan Agreement shall be deemed to be amended by deleting such
Section in its entirety and substituting in lieu thereof the following
revised Section 2.3:
2.3 Term Loans.
(a) On July 7, 1993, Lenders made the Original Term Loans
to Borrower. The outstanding principal balance of the Original
Term Loans on the Fourth Amendment Date is $18,000,000. On the
Fourth Amendment Date, each Lender shall make an additional term
loan to Borrower (individually, a "New Term Loan" and,
collectively, the "New Term Loans") in an amount equal to the
amount set forth opposite the name of that Lender on the
signature pages hereof. The aggregate principal amount of the
New Term Loans shall be $15,000,000. The Original Term Loans and
the New Term Loans shall be consolidated into a single term loan
in the principal amount of $33,000,000 (individually, the "Term
Loan" and, collectively, the "Term Loans"). Borrower may not
reborrow the Term Loans or any portion thereof once repaid.
(b) Not later than 11:00 a.m., Atlanta time, on the Fourth
Amendment Date each Lender shall make its New Term Loan available
to the Agent by wire transfer of immediately available funds to
the Agent's Deposit Account. Upon fulfillment of the applicable
conditions set forth in Section 2 of the Fourth Amendment, each
such New Term Loan shall be made available to Borrower by the
Agent by wire transfer of immediately available funds as
instructed by Borrower, to the extent actually received from the
Lenders. No Lender shall be responsible for the failure of any
other Lender to make the New Term Loan to be made by such other
Lender.
(c) Each Lender's Original Term Loan and New Term Loan
shall be consolidated, renewed and extended, as provided herein,
and as so consolidated renewed and extended shall be evidenced by
that Lender's Term Note, subject to the provisions of Section
2.6.
(c) Amendment to Section 2.8 to the Loan Agreement. The Loan
Agreement shall be deemed further amended by deleting Section 2.8
thereof in its entirety and substituting in lieu thereof the following
revised Section 2.8:
2.8 Subsequent Commitment Increases.
(a) Subsequent Commitment Increases. Subject to the
satisfaction of each of the conditions set forth in
Section 2.8(b), at Borrower's written request, delivered by
Borrower to the Agent at least thirty (30) days prior to the
requested increase date and specifying the requested increase
date (each individually a "Subsequent Commitment Increase Date"
and collectively the "Subsequent Commitment Increase Dates"), the
Commitment shall be increased (each individually a "Subsequent
Commitment Increase" and collectively the "Subsequent Commitment
Increases") on no more than two Subsequent Commitment Increase
Dates by an amount not in excess of Five Million Dollars
($5,000,000) in the aggregate as to all Subsequent Commitment
Increases.
(b) Conditions Precedent to Subsequent Commitment
Increases. The obligations of the Lenders to make the Subsequent
Commitment Increases available to Borrower are subject to the
following conditions precedent each of which shall be satisfied
prior to or on the applicable Subsequent Commitment Increase
Date:
(i) There shall be no more than two Subsequent
Commitment Increases.
(ii) As to any Subsequent Commitment Increase in excess
of $2,000,000 the Borrower shall have reduced the
outstanding principal balance of the Term Loans by the
amount by which the requested Subsequent Commitment Increase
exceeds $2,000,000.
(iii) Each Subsequent Commitment Increase shall be
in the maximum amount then obtainable; i.e. the first
Subsequent Commitment Increase shall be in an amount equal
to $2,000,000 plus the amount in excess of $2,000,000 by
which the Borrower has reduced the outstanding principal
balance of the Term Loans and the second Subsequent
Commitment Increase shall be in the amount by which Borrower
has reduced the outstanding principal balance of the Term
Loans after the first Subsequent Commitment Increase Date;
provided, however that the aggregate amount of the
Subsequent Commitment Increases may not exceed $5,000,000.
(iv) The Agent shall have received all of the
following, each dated as of the applicable Subsequent
Commitment Increase Date and all in form and substance
satisfactory to the Agent and legal counsel for the Agent:
(1) amendments to the then existing Revolving
Credit Note executed by Borrower in favor of each
Lender pursuant to which the principal amount of the
Revolving Credit Note held by each Lender shall be
increased by an amount equal to such Lender's Pro Rata
Share of the Subsequent Commitment Increase;
(2) an Officer's Certificate affirming that the
conditions set forth in clauses (v), (vi), (vii) and
(viii) below have been satisfied;
(3) to the extent deemed necessary by the Agent,
an amendment to the Mortgage giving effect to the
Subsequent Commitment Increase, executed by Borrower,
and in form acceptable for recordation with the
appropriate Governmental Agency;
(4) to the extent deemed necessary by the Agent,
assurance from the Title Company that it is committed
to cause such amendment to the Mortgage to be recorded,
and, upon recordation of such amendment to issue an
endorsement to the title insurance policy issued by the
Title Company with regard to the Mortgage, in a form
acceptable to the Agent, insuring the continued
validity and priority of the Mortgage as a lien upon
the Owned Real Property, subject to only those title
exceptions which are set forth in such title insurance
policy and such other title exceptions as may be
approved by the Agent in its sole discretion; and
(5) such other assurances, certificates,
documents, consents or opinions (in addition to those
described hereinbelow) as the Agent may reasonably
require.
(v) The representations and warranties contained in
Article 4 shall be true and correct in all material respects
on and as of the Subsequent Commitment Increase Date as
though made on and as of that date (except to the extent
that such representations and warranties relate solely to an
earlier date and except as affected by transactions
expressly contemplated by this Agreement).
(vi) There shall not then be pending or, to the best
knowledge of Borrower, threatened, any litigation,
arbitration, injunction, proceeding, governmental
investigation or inquiry against or affecting Borrower or
any Property of Borrower before any Governmental Agency that
could reasonably be expected to have a Material Adverse
Effect.
(vii) Each of Lancer, Borrower and each of
Borrower's Subsidiaries shall be in compliance with all the
terms and provisions of the Loan Documents to which it is
party, and no Default or Event of Default shall have
occurred and be continuing.
(viii) Since September 30, 1996, there shall not
have occurred: (A) any event or circumstance that could
reasonably be expected to have a Material Adverse Effect, or
(B) any dividends or other distributions made to the
stockholders of Borrower, except as permitted by Section 6.3
of this Agreement or Section 7(b) of the Lancer Pledge
Agreement.
(ix) Lenders shall be satisfied that Borrower and its
Subsidiaries are in compliance with all applicable Laws,
including, without limitation, all Environmental Laws and
all Laws pertaining to labor, occupational safety and health
and ERISA matters except to the extent that noncompliance
could not reasonably be expected to have a Material Adverse
Effect. Lenders shall be satisfied that the consummation
of the Subsequent Commitment Increase will not cause
Borrower or any Subsidiary to violate any Contractual
Obligation to which it is party or by which it is bound or
any Laws applicable to it.
(x) Lenders shall be satisfied that Borrower's
incurrence of Indebtedness pursuant to the Subsequent
Commitment Increase is permissible pursuant to Section 1010
of the Senior Subordinated Note Indenture and that after
giving effect thereto each of the representations and
warranties set forth in Section 4.21 shall continue to be
true and correct in all respects and shall have received
such assurances in regard thereto as Lenders shall request,
including without limitation, certifications of Senior
Officers of Borrower and an opinion of Borrower's counsel
with regard to such matters, each to be in form and
substance satisfactory to Lenders.
(d) Amendment to Section 3.1 of the Loan Agreement. The Loan
Agreement shall be deemed to be further amended by deleting in its
entirety clause (b) only of Section 3.1 thereof and substituting in
lieu thereof the following revised clause (b):
(b) The aggregate principal amount of the Term Loans shall,
if not sooner paid, be payable in installments on each Quarterly
Payment Date, in accordance with the Schedule of Payments set
forth hereinbelow, commencing on February 15, 1997 and continuing
through December 31, 2000:
Schedule of Payments
Quarterly Payment Date Installment
February 15, 1997 $ 750,000
May 15, 1997 $ 750,000
August 15, 1997 $ 750,000
November 15,1997 $ 750,000
February 15,1998 $ 1,000,000
May 15, 1998 $ 1,000,000
August 15, 1998 $ 1,000,000
November 15, 1998 $ 1,000,000
February 15, 1999 $ 1,750,000
May 15, 1999 $ 1,750,000
August 15, 1999 $ 1,750,000
November 15, 1999 $ 1,750,000
February 15, 2000 $ 2,250,000
May 15, 2000 $ 2,250,000
August 15, 2000 $ 2,250,000
November 15, 2000 $ 2,250,000
December 31, 2000 $ 10,000,000
(e) Amendment to Section 3.3(b) of the Loan Agreement. Section
3.3(b) of the Loan Agreement shall be deemed to be amended by deleting
the date therein "December 31, 1993" and substituting in lieu thereof
the date "December 31, 1997."
(f) Amendment to Section 3.10 of the Loan Agreement. The Loan
Agreement shall be deemed to be further amended by deleting Section
3.10 thereof in its entirety and substituting in lieu thereof the
following revised Section 3.10:
3.10 Agent's Fees. Borrower shall pay to the Agent, for its
account, an agency fee in the amount of $50,000 per annum,
payable on July 1, 1997 and on each anniversary thereof prior to
the Maturity Date.
(g) Amendment to Section 4.20 of the Loan Agreement.
Section 4.20 of the Loan Agreement shall be deemed to be amended by
deleting such Section in its entirety and substituting in lieu thereof
the following revised Section 4.20:
4.20 Solvency. After giving effect to the entering into by
Borrower of this Agreement, the Fourth Amendment and the other
Loan Documents, the making of any Advance, the incurrence of any
Letter of Credit Obligation, the funding of the New Term Loans,
the declaration and payment of the Special Dividend, the making
of the Special Loan and the declaration and payment of any
Permitted Dividend, Borrower and each Subsidiary is Solvent.
(h) Amendment to Section 4.21 of the Loan Agreement. Section
4.21 of the Loan Agreement shall be deemed to be amended by deleting
such Section in its entirety and substituting in lieu thereof the
following revised Section 4.21:
4.21 Subordination of Subordinated Indebtedness. This
Agreement, as amended by the First Amendment, the Second Amendment,
the Third Amendment and the Fourth Amendment, and the other Loan
Documents to which Borrower or any Subsidiary is party, and, to the
extent permissible under Section 1010 of the Senior Subordinated Note
Indenture, all further amendments, amendments and restatements,
renewals, extensions, restructurings, supplements, modifications,
refinancings, refundings, or replacements hereof and thereof consti
tute the "Credit Agreement" within the meaning of the Senior Sub
ordinated Note Indenture, and the Term Loans, the Revolving Credit
Loan, the Letter of Credit Obligations and all other Obligations of
Borrower to the Agent and the Lenders under this Agreement, the Notes
and any of the other Loan Documents, and, to the extent permissible
pursuant to Section 1010 of the Senior Subordinated Note Indenture,
all further amendments, amendments and restatements, renewals,
extensions, restructurings, supplements, modifications, refinancings,
refundings and replacements of any of the foregoing, constitute
"Senior Indebtedness" of Borrower within the meaning of the Senior
Subordinated Note Indenture, and the holders thereof from time to time
shall be entitled to all of the rights of a holder of "Senior
Indebtedness" pursuant to Article 13 of the Senior Subordinated Note
Indenture.
(i) New Section 4.26 of the Loan Agreement. Article 4 of the
Loan Agreement shall be deemed to be further amended by adding the
following Section 4.26 thereto:
4.26. The declaration and payment of the Special
Dividend by Borrower to Lancer and the making of the Special Loan
by Borrower to Lancer on the Fourth Amendment Date and the use of
the proceeds thereof by Lancer for the purpose set forth in
Section 6.3(j) are, and the declaration and payment of each
Permitted Dividend subsequent to the Fourth Amendment Date and
the use of the proceeds thereof by Lancer for the purpose set
forth in Section 6.3(k) will be, within the corporate powers of
Borrower and Lancer, respectively, have been and will be duly
authorized by all requisite corporate action on the part of
Borrower and Lancer, respectively, and do not and will not (a)
require any consent or approval of any stockholder, security
holder or creditor of Borrower or Lancer (including, without
limitation, the holders of the Senior Subordinated Notes) not
heretofore or theretofore obtained, (b) violate or conflict with
any provision of the certificate of incorporation or by-laws of
Borrower or Lancer, (c) result in or require the creation of any
Lien or Right of Others upon or with respect to any Property of
Borrower or Lancer, other than in favor of Lenders, (d) violate
any provision of Law applicable to Borrower or Lancer, (e)
contravene or conflict with any judgment, award, decree, writ or
determination of any Governmental Agency applicable to or binding
upon Borrower or Lancer or any of their respective Property or to
which Borrower or Lancer or any of their respective Property is
subject or (f) conflict with, result in a breach of or default
under, or with the giving of notice or the lapse of time or both,
constitute a breach of or default under, or cause or permit the
acceleration of any obligation owed under or require the
termination of (i) the Senior Subordinated Note Indenture, or the
Senior Subordinated Notes or (ii) any other Contractual
Obligation of any Borrower or Lancer other than, in the case of
clause (ii), conflicts, breaches or defaults which, either singly
or in the aggregate, could not reasonably be expected to have a
Material Adverse Effect.
(j) New Text at End of Article 4 of the Loan Agreement. Article
4 of the Loan Agreement is hereby further amended by adding the
following paragraph at the end thereof:
In connection with its execution and delivery of the Fourth
Amendment, Borrower hereby affirms that each of the
representations and warranties of Borrower contained in this
Agreement or in any of the other Loan Documents is correct in all
material respects as of the Fourth Amendment Date and after
giving effect to the Fourth Amendment (except to the extent that
such representations and warranties relate solely to an earlier
date and except as affected by transactions expressly
contemplated by this Agreement). In addition to induce GE
Capital to enter into the Fourth Amendment, Borrower represents
and warrants to the Agent and Lenders as follows:
(a) Financial Statements. Borrower has furnished to the
Lenders (i) Borrower's audited consolidated balance sheets for
its Fiscal Year ending December 31, 1995 and Borrower's related
audited consolidated statements of operations, stockholders'
equity and cash flows for its Fiscal Year ending December 31,
1995, (ii) Borrower's unaudited consolidated balance sheet for
its Fiscal Quarter ending September 30, 1996 and Borrower's
related consolidated statements of operations, stockholders'
equity and cash flows for such Fiscal Quarter, and
(iii) Borrower's operating and financial plan for the five Fiscal
Years ending after the date hereof, including projected balance
sheets, statements of operations, and statements of cash flow.
The financial statements described in clauses (i) and (ii) above
fairly present the financial position and results of operations
of Borrower, on a consolidated basis, as at the dates and for the
periods indicated in accordance with GAAP consistently applied.
The projections referred to in clause (iii) above were prepared
on the basis of the estimates and assumptions stated therein and
represented, at the date thereof, Borrower's good faith pro
jections of its future financial performance prepared after rea
sonable investigations; such estimates, assumptions and projec
tions reflected Borrower's estimates of the most likely future
financial results and condition of Borrower, in the light of busi
ness conditions existing at the date thereof; and any such esti
mates, assumptions and projections, if prepared as of the Fourth
Amendment Date, would contain estimates of the future financial
performance of Borrower which would not materially and adversely
differ from the respective estimates contained in such financial
projections. As of the Fourth Amendment Date, no material
developments have occurred since the date of such projections
which would lead Borrower to believe that such projections, taken
as a whole, are not reasonably attainable, subject to the
uncertainties and approximations inherent in any projection.
(b) No Other Liabilities; No Material Adverse Effect.
Neither Borrower nor any Subsidiary has any liability or
contingent liability that is material to Borrower or such
Subsidiary that is not reflected in, reserved for or against or
otherwise disclosed in the financial statements described in
clause (a) above, and, since September 30, 1996, no event or
circumstance has occurred that could reasonably be expected to
have a Material Adverse Effect.
(k) Amendment to Section 6.3 of the Loan Agreement. Section 6.3
of the Loan Agreement shall be deemed to be amended by deleting the
word "and" before clause (i) thereof and replacing it with a comma,
and by adding thereto the following clauses (j) and (k):
(j) a special cash dividend in the amount of $17,000,000, to be
declared and paid by Borrower to Lancer on the Fourth Amendment
Date (the "Special Dividend"), and a loan in the amount of
$3,000,000, having the terms set forth in the promissory note
evidencing such loan, a copy of which is attached to the Fourth
Amendment as Exhibit 1, to be made by Borrower to Lancer on the
Fourth Amendment Date (the "Special Loan"), the proceeds of which
are to be used by Lancer solely for the purpose of redeeming a
portion of Lancer's Series C Preferred Stock; and (k) other cash
dividends declared and paid by Borrower to Lancer subsequent to
the Fourth Amendment Date; provided that (A) no Default or Event
of Default has occurred and is continuing hereunder or would
result from the declaration and payment of such dividend; (B) the
proceeds of such dividends are used solely for the purpose of
redeeming a portion of Lancer's Series C Preferred Stock; (C)
such dividends are permitted to be paid under Section 1011 of the
Senior Subordinated Note Indenture as in effect on the Closing
Date; and (D) the Agent shall have received all of the following
prior to the declaration and payment of each such dividend, all
in form and substance satisfactory to the Agent and legal counsel
for the Agent: (1) an Officer's Certificate affirming that the
conditions set forth in clauses (A), (B) and (C) above have been
satisfied with respect to such dividend (and attaching all
calculations necessary to demonstrate satisfaction of the
condition set forth at clause (c) above); (2) such documentation
as the Agent may request to confirm that such dividend has been
duly authorized, including certificates of corporate resolutions,
certificates of Responsible Officials and the like; (3) upon the
written request of the Agent, the legal opinion of Debevoise &
Plimpton, special counsel to Borrower, with respect to such
dividend substantially in the form of paragraph 9 of Exhibit 2 to
the Fourth Amendment, together with copies of all factual
certificates and legal opinions upon which such counsel has
relied; and (4) upon the written request of the Agent, the
favorable written opinion of Chartered Capital Advisors, Inc.,
valuation consultants to Borrower or other valuation consultants
selected by Borrower and acceptable to Lender, as to the solvency
of Borrower after giving effect to the declaration and payment of
such dividend (any such dividend meeting the requirements of
clauses (A)-(D) above, a "Permitted Dividend").
(l) Amendment to Section 6.9 of the Loan Agreement. Section 6.9
of the Loan Agreement is hereby amended by deleting subclause (ii) of
clause (c) thereof in its entirety and substituting in lieu thereof
the following revised subclause (ii):
(ii) no principal, interest or other payment is payable
or paid on any such loans until the Obligations have been
paid in full and the Loan Agreement has been terminated,
except that Borrower may pay interest to T-H Licensing on
such loans at a rate not in excess of the rate then in
effect with respect to the New Term Loans so long as any
such interest payment is returned by T-H Licensing to
Borrower as a loan within sixty (60) days after receipt by T-
H Licensing.
(m) Amendment to Section 6.12 of the Loan Agreement. Section
6.12 of the Loan Agreement shall be deemed to be amended by deleting
the word "and" before clause (e) thereof and replacing it with a
comma, and by adding at the end of such section the following clause
(f):
"and (f) Investments consisting of the Special Loan".
(n) Amendments to Sections 6.18 and 6.20 through 6.22 of the
Loan Agreement. Sections 6.18 and 6.20 through 6.22 of the Loan
Agreement shall be deemed to be amended by deleting such Sections in
their entireties and substituting in lieu thereof the following
revised Sections 6.18 through 6.22:
6.18 Capital Expenditures. Borrower shall not, and shall
not permit any Subsidiary to, make or commit to make Capital
Expenditures in any Fiscal Year set forth below which exceed in
the aggregate for Borrower and its Subsidiaries the amount set
forth below with respect to each such Fiscal Year:
FISCAL YEAR ENDING CAPITAL EXPENDITURES
December 31, 1996 $10,000,000
December 31, 1997 $10,000,000
December 31, 1998 $10,000,000
December 31, 1999 $12,000,000
Each Fiscal Year Thereafter $12,500,000;
provided that, in the event that the maximum aggregate amount for
any Fiscal Year set forth above exceeds the amount of Capital
Expenditures actually made in such Fiscal Year, the unused portion
of such permitted amount for such Fiscal Year may be carried
forward and used solely in the next succeeding Fiscal Year for
Capital Expenditures, but only after the entire amount actually
scheduled for use in such succeeding Fiscal Year shall have been
used.
6.20 Current Ratio. Borrower will not permit (as of the end
of any Fiscal Quarter) the ratio of Consolidated Current Assets to
Consolidated Current Liabilities to be less than the ratio set
forth below next to the Fiscal Year in which such Fiscal Quarter
occurs:
FISCAL YEAR ENDING RATIO
December 31, 1996 1.25:1.00
December 31, 1997 1.50:1.00
December 31, 1998 1.50:1.00
December 31, 1999 1.50:1.00
Each Fiscal Year Thereafter 1.75:1.00
6.21 Consolidated Fixed Charge Coverage Ratio. Borrower will
not permit the ratio of (a) Consolidated Cash Flow for any Fiscal
Quarter to (b) Consolidated Fixed Charges for such Fiscal Quarter
to be less than the ratio set forth below next to the Fiscal Year
in which such Fiscal Quarter occurs:
FISCAL YEAR ENDING RATIO
December 31, 1996 1.00:1.00
December 31, 1997 0.95:1.00
December 31, 1998 1.00:1.00
December 31, 1999 1.00:1.00
Each Fiscal Year Thereafter 1.00:1.00
For purposes of this Section 6.21, (a) Consolidated Cash
Flow and Consolidated Fixed Charges shall be calculated based upon the
period of four Fiscal Quarters ending on the date of calculation and
(b) the final $10,000,000 due and payable on the Term Loans on
December 31, 2000 shall not be included in the calculation of
Consolidated Fixed Charges.
6.22 Interest Coverage Ratio. Borrower shall not permit the
ratio of (a) Consolidated EBITDA for any Fiscal Quarter to (b)
Consolidated Net Interest Expense for such Fiscal Quarter to be
less than the ratio set forth below next to the Fiscal Year in
which such Fiscal Quarter occurs:
FISCAL YEAR ENDING RATIO
December 31, 1996 2.25:1.00
December 31, 1997 1.65:1.00
December 31, 1998 1.75:1.00
December 31, 1999 2.25:1.00
Each Fiscal Year Thereafter 2.25:1.00
For purposes of this Section 6.22, Consolidated EBITDA and
Consolidated Net Interest Expense shall be calculated based upon
the period of four Fiscal Quarters ending on the date of
calculation.
(o) Amendment to Exhibit P to the Loan Agreement. Exhibit P to
the Loan Agreement shall be deemed to be amended by deleting such
Exhibit in its entirety and substituting in lieu thereof the revised
Exhibit P attached to this Fourth Amendment.
2. Conditions Precedent. This Amendment shall not become
effective and Lenders shall have no obligation to make the New Term
Loans available to Borrower unless and until each of the following
conditions precedent shall have been fulfilled, to Lenders' and its
counsel's satisfaction:
(a) Documents. The Agent shall have received all of the
following, each dated as of the date hereof and all in form and
substance satisfactory to the Agent and legal counsel for the Agent:
(i) a Term Note executed by Borrower in favor of each
Lender in the amount of such Lender's Pro Rata Share of the Term
Loans after giving effect to the making of the New Term Loans,
which Term Notes (to the extent of the principal balances of the
then outstanding Promissory Notes evidencing the Original Term
Loans) shall be issued in consolidation, extension and renewal of
the Original Term Loans and the New Term Loans;
(ii) an amendment to the Mortgage giving effect to the
making of the New Term Loans and the extension of the Maturity
Date contemplated by this Amendment, executed by Borrower, and in
form acceptable for recordation with the appropriate Governmental
Agency;
(iii) assurance from the Title Company that it is
committed to cause such amendment to the Mortgage to be recorded,
and, upon recordation of such amendment to issue an endorsement
to the title insurance policy issued by the Title Company with
regard to the Mortgage, in a form acceptable to the Agent,
insuring the continued validity and priority of the Mortgage as a
lien upon the Owned Real Property, subject to only those title
exceptions which are set forth in such title insurance policy and
such other title exceptions as may be approved by the Agent in
its sole discretion;
(iv) a reaffirmation of the Subsidiary Guaranty and
Subsidiary Security Agreement signed by T-H Licensing and a
reaffirmation of the Lancer Pledge Agreement signed by Lancer;
(v) an Officer's Certificate affirming that the conditions
set forth in clauses (b), (c), (d) and (e) below have been
satisfied;
(vi) such documentation as the Agent may reasonably require
to confirm the good standing of Borrower in the respective states
of their incorporation, the qualification of Borrower to engage
in business in each jurisdiction in which it is engaged in
business or required to be so qualified, its authority to
execute, deliver and perform this Amendment and any other Loan
Documents to be executed and delivered in connection herewith to
which it is party, certificates of good standing and of
qualification to engage in business, certificates of corporate
resolutions, incumbency certificates, certificates of Responsible
Officials and the like;
(vii) the legal opinion of Debevoise & Plimpton,
special counsel to Borrower, substantially in the form of Exhibit
2 to this Amendment, together with copies of all factual
certificates and legal opinions upon which such counsel has
relied;
(viii) the favorable written opinion of Chartered Capital
Advisors, Inc., valuation consultants to Borrower, as to the
solvency of Borrower, after giving effect to the execution and
delivery of this Amendment, the incurrence of the Indebtedness
contemplated hereby and the declaration and payment of the
Special Dividend and the making of the Special Loan (treating
both the Special Dividend and the Special Loan as a "dividend"
for purposes of the solvency opinion);
(ix) Lancer's promissory note to Borrower evidencing the
Special Loan, duly endorsed and delivered to Agent for the
benefit of the Lenders; and
(x) such other assurances, certificates, documents,
consents or opinions (in addition to those described hereinbelow)
as the Agent may reasonably require.
(b) Representations and Warranties. The representations and
warranties contained in Article 4 of the Loan Agreement (as amended
hereby) shall be true and correct in all material respects on and as
of the date hereof as though made on and as of that date (except to
the extent that such representations and warranties relate solely to
an earlier date and except as affected by transactions expressly
contemplated by the Loan Agreement).
(c) Absence of Litigation. There shall not be pending or, to
the best knowledge of Borrower, threatened, any litigation,
arbitration, injunction, proceeding, governmental investigation or
inquiry against or affecting Borrower or any Property of Borrower
before any Governmental Agency that could reasonably be expected to
have a Material Adverse Effect.
(d) No Default. After giving effect to this Fourth Amendment,
Lancer, Borrower and T-H Licensing shall be in compliance with all the
terms and provisions of the Loan Documents to which they are party,
and no Default or Event of Default shall have occurred and be
continuing.
(e) No Material Adverse Effect. Since September 30, 1996, there
shall not have occurred: (1) any event or circumstance that could
reasonably be expected to have a Material Adverse Effect, or (2) any
dividends or other distributions made to the stockholders of Borrower,
except as permitted by Section 6.3 of the Loan Agreement and
Section 7(b) of the Lancer Pledge Agreement.
(f) Compliance with Laws. Lenders shall be satisfied that
Borrower and its Subsidiaries are in compliance with all applicable
Laws, including, without limitation, all Environmental Laws and all
Laws pertaining to labor, occupational safety and health and ERISA
matters except to the extent that noncompliance could not reasonably
be expected to have a Material Adverse Effect. Lenders shall be
satisfied that the execution and delivery of this Fourth Amendment and
the consummation of the transactions contemplated hereby will not
cause Borrower or any Subsidiary to violate any Contractual Obligation
to which it is party or by which it is bound or any Laws applicable to
it.
(g) Senior Indebtedness. Lenders shall be satisfied that (i)
Borrower's incurrence of Indebtedness pursuant to the Term Loans is
permissible pursuant to Section 1010 of the Senior Subordinated Note
Indenture and that after giving effect thereto, each of the
representations and warranties set forth in Section 4.21 of the Loan
Agreement shall continue to be true and correct in all respects, and
(ii) the Special Dividend is permissible pursuant to Section 1011 of
the Senior Subordinated Note Indenture and the Special Loan is
permissible pursuant to Sections 1011 and 1016 of the Senior
Subordinated Note Indenture; and Lenders shall have received such
assurances in regard to each of clauses (i) and (ii) above as Lenders
shall request, including without limitation, certifications of
Borrower and an opinion of Borrower's counsel with regard to such
matters, each to be in form and substance satisfactory to Lenders.
(h) Fees. The Agent shall have received, for the account of
Lenders, a closing fee in the amount of $75,000, which shall be fully-
earned and non-refundable on the date hereof and in addition to and
not in lieu of all other fees, interest and reimbursement for expenses
provided herein and in the Loan Agreement.
3. Other Agreements
(a) Except as set forth expressly herein and above, all terms of
the Loan Agreement and the other Loan Documents shall be and remain in
full force and effect and shall constitute the legal, valid, binding
and enforceable obligations of Borrower to the Agent and Lenders. In
furtherance of the foregoing, Borrower acknowledges that from and
after the date hereof, it shall continue to be bound by all provisions
of the Loan Agreement as amended hereby. To the extent any terms and
conditions in any of the other Loan Documents shall contradict or be
in conflict with any terms or conditions of the Loan Agreement, after
giving effect to this Amendment, such terms and conditions are hereby
deemed modified and amended accordingly to reflect the terms and
conditions of the Loan Agreement as modified and amended hereby.
(b) Borrower agrees to pay on demand the reasonable fees and out-
of-pocket expenses of counsel to GE Capital incurred in connection
with the preparation, execution, delivery and enforcement of this
Amendment, the closing hereof, and any other transactions contemplated
hereby.
(c) To induce the Agent and Lenders to enter into this
Amendment, Borrower hereby acknowledges and agrees that, as of the
date hereof, there exists no right of offset, defense or counterclaim
in favor of Borrower as against the Agent or Lenders with respect to
the Obligations.
(d) This Amendment shall be governed by, and construed in
accordance with the laws of the State of New York applicable to
contracts made and performed in such State and all applicable laws of
the United States of America.
(e) This Amendment may be executed in two or more counterparts,
all of which shall constitute one and the same agreement.
4. Refinancings. Borrower agrees that Agent and Lender shall
have the right of first refusal to serve as agent and to participate
as a lender, respectively, in any debt refinancing of the Obligations
under the Loan Agreement consummated at any time prior to December 5,
1998, on substantially the same terms and conditions as offered by any
other prospective agent and lender; provided, however, that (i) such
right of first refusal shall not be applicable to any proposed
refinancing of the Obligations (or portion thereof) using the proceeds
of subordinated Indebtedness which is junior in rank to the
Obligations and (ii) in the event that any other Indebtedness of
Borrower is refinanced contemporaneously with, or as part of, any
refinancing of the Obligations, such right of first refusal shall only
apply to the refinancing of the Obligations and not such other
Indebtedness.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
to be executed under seal by their respective officers thereunto duly
authorized, as of the date first above written.
FAIRFIELD MANUFACTURING
COMPANY, INC.
By:________________________________
_
Richard A. Bush
Vice President-Finance
[CORPORATE SEAL]
GENERAL ELECTRIC CAPITAL
CORPORATION, as Agent
By:________________________________
Elaine L. Moore
Senior Vice President,
as duly authorized
GENERAL ELECTRIC CAPITAL
CORPORATION, as Lender
By:________________________________
_
Elaine L. Moore
Senior Vice President,
as duly authorized
Pro Rata Share of Commitment: 100%
Amount of New Term Loan:
$15,000,000
ACKNOWLEDGMENT OF GUARANTOR
The undersigned, T-H Licensing, Inc., hereby (a) acknowledges its
receipt of a copy of and consents to the within and foregoing
Amendment, (b) agrees to be bound by the provisions thereof and (c)
acknowledges and agrees that the Subsidiary Guaranty, the Subsidiary
Security Agreement and all other Loan Documents to which the
undersigned is a party shall continue in full force and effect from
and after the execution and delivery of the within and foregoing
Amendment without diminution or impairment.
IN WITNESS WHEREOF, the undersigned has set its hand and seal as
of the ____ day of _____________, 1996.
T-H LICENSING, INC.
By:______________________________
Name:
Title:
ACKNOWLEDGMENT OF LANCER
The undersigned, Lancer Industries Inc., hereby (a) acknowledges
its receipt of a copy of and consents to the within and foregoing
amendment, (b) agrees to be bound by the provisions thereof and (c)
acknowledges and agrees that the Lancer Pledge Agreement shall
continue in full force and effect from and after the execution and
delivery of the within and foregoing Amendment without diminution or
impairment.
IN WITNESS WHEREOF, the undersigned has set its hand and seal as
of the ____ day of December, 1996.
LANCER INDUSTRIES INC.
By:_____________________________________
Name:
Title:
2
Prepared by, recorded
at the request of, and
when recorded return to:
Diane S. White
King & Spalding
191 Peachtree Street
Atlanta, Georgia 30303-1763
NOTICE TO RECORDING CLERK: CROSS INDEX TO MORTGAGE, ASSIGNMENT OF
LEASES, RENTS AND PROFITS, SECURITY AGREEMENT AND FIXTURE FILING
RECORDED IN RECORD 93-15132 IN THE OFFICE OF THE RECORDER OF
TIPPECANOE COUNTY, INDIANA, AS AMENDED BY FIRST AMENDMENT TO MORTGAGE,
ASSIGNMENT OF LEASES, RENTS AND PROFITS, SECURITY AGREEMENT AND
FIXTURE FILING RECORDED IN RECORD 95-04554, AFORESAID RECORDS.
SECOND AMENDMENT TO MORTGAGE , ASSIGNMENT OF LEASES,
RENTS AND PROFITS, SECURITY AGREEMENT AND FIXTURE FILING
THIS SECOND AMENDMENT ("Amendment"), dated as of December
__, 1996 between FAIRFIELD MANUFACTURING COMPANY, INC. (formerly known
as Central Alabama Grain Company, Inc.), a Delaware corporation,
having its principal place of business and chief executive office at
U.S. 52 South, Lafayette, Indiana 47903 ("Mortgagor"), as successor by
merger to Fairfield Manufacturing Company, Inc., an Indiana
corporation ("Old Fairfield"), and GENERAL ELECTRIC CAPITAL
CORPORATION, a New York corporation, having an office at
3379 Peachtree Road, N.E., Suite 600, Atlanta, Georgia 30326 ("GE
Capital"), as agent for itself and the other lenders ("Lenders") from
time to time party to the "Loan Agreement" (as defined herein) (GE
Capital, in such capacity, is herein referred to as "Mortgagee").
WITNESSETH:
WHEREAS, as security for its obligations to Lenders and
Mortgagee under that certain Loan Agreement, dated as of July 7, 1993
as amended or modified from time to time, including, without
limitation, pursuant to a First Amendment to Loan Agreement, dated as
of September 30, 1994, a Second Amendment to Loan Agreement, dated
March 30, 1995, but effective as of December 31, 1994 ("Second
Amendment"), a Third Amendment to Loan Agreement, dated as of
March 31, 1995 ("Third Amendment"), and a Fourth Amendment to Loan
Agreement, dated as of even date herewith ("Fourth Amendment") (as so
amended or modified, the "Loan Agreement"), among Mortgagor, as
successor by merger to Old Fairfield, Lenders and Mortgagee, Old
Fairfield executed and delivered in favor of Mortgagee that certain
Mortgage, Assignment of Leases, Rents and Profits, Security Agreement
and Fixture Filing, dated as of July 7, 1993 and recorded at record 93-
15132 in the office of the Recorder of Tippecanoe County, Indiana (as
previously amended as described below, the "Mortgage"; capitalized
terms used herein and not defined herein have the meanings assigned to
them in the Mortgage), pursuant to which Old Fairfield mortgaged and
collaterally assigned to Mortgagee and granted a security interest to
Mortgagee in the Secured Property; and
WHEREAS, pursuant to the Second Amendment and the Third
Amendment, subject to the terms and conditions set forth therein,
(a) Lenders increased the amount of the "Commitment" (as defined in
the Loan Agreement) by Five Million Dollars ($5,000,000) to Twenty
Million Dollars ($20,000,000), (b) at Mortgagor's election subsequent
to the date thereof, Lenders agreed to increase further the amount of
the Commitment by Five Million Dollars ($5,000,000) to Twenty-Five
Million Dollars ($25,000,000) (the "Subsequent Commitment Increase")
and (c) Lenders extended the final maturity date of the "Term Loans"
and the "Revolving Loans" (as defined in the Loan Agreement) to
December 31, 1999; and
WHEREAS, in connection with the Third Amendment, Mortgagor
and Mortgagee entered into a First Amendment to Mortgage, Assignment
of Leases, Rents and Profits, Security Agreement and Fixture Filing,
dated as of March 31, 1995 and recorded at record 95-04554 in the
office of the Recorder of Tippecanoe County, Indiana, pursuant to
which Mortgagor and Mortgagee amended the Mortgage to give effect to
the terms of the Third Amendment; and
WHEREAS, on the date hereof, Mortgagor, Lenders and
Mortgagee have entered into the Fourth Amendment, pursuant to which,
subject to the terms and conditions set forth therein, (a) Mortgagor,
Lenders and Mortgagee have agreed to modify in certain respects the
manner in which the Subsequent Commitment Increase may be effected;
(b) Lenders have agreed to extend the final maturity date of the
Revolving Loans to July 1, 2001; (c) Lenders have agreed to make
additional term loans to Borrower (the "New Term Loans") in the
aggregate principal amount of Fifteen Million Dollars ($15,000,000);
(d) Lenders and Mortgagor have agreed to consolidate the existing
"Term Loans", as defined in the Loan Agreement (herein, the "Original
Term Loans"), the aggregate outstanding principal balance of which is
Eighteen Million Dollars ($18,000,000), into a single term loan in the
principal amount of Thirty-Three Million Dollars ($33,000,000) (the
"Term Loan"), having a final maturity date of December 31, 2000; and
(e) Mortgagor, Lenders and Mortgagee have agreed to amend the Loan
Agreement in certain other respects; and
WHEREAS, in connection with the Fourth Amendment, Mortgagor
desires to join with Mortgagee in the execution of this amendment in
order to (a) confirm that the Original Term Loans and the New Term
Loans, as consolidated into the Term Loans, are secured by the
Mortgage and that any Revolving Loans made under the Subsequent
Commitment Increases (as defined in the Fourth Amendment) (if
effected) will be secured by the Mortgage and (b) to amend the
Mortgage in certain respects related thereto;
NOW, THEREFORE, for and in consideration of the sum of Ten
and No/100 Dollars ($10.00), the mutual agreements contained herein
and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto hereby agree as
follows:
1. Amendment to Cover Page of Mortgage. The Mortgage is hereby
amended by deleting the last paragraph on the cover page thereto in
its entirety and substituting in lieu thereof the following paragraph:
THIS MORTGAGE SECURES CREDIT IN THE AMOUNT OF UP
TO $55,000,000. LOANS AND ADVANCES UP TO THIS
AMOUNT, TOGETHER WITH INTEREST, ARE SENIOR TO
INDEBTEDNESS TO OTHER CREDITORS UNDER SUBSEQUENTLY
RECORDED OR FILED MORTGAGES AND LIENS.
2. Amendment to Description of Indebtedness. The description
of the Indebtedness set forth in clause (a) of the Mortgage beginning
on page 1 of the Mortgage and ending on page 2 of the Mortgage is
hereby amended by deleting subclauses (i) and (ii) thereof in their
entireties and substituting in lieu thereof the following revised
subclauses (i) and (ii):
(i) that certain Revolving Credit Note made by
Mortgagor in favor of GE Capital, as sole Lender
under the Loan Agreement, dated March 31, 1995, in
the original principal amount of TWENTY MILLION
DOLLARS ($20,000,000), with final payment being
due no later than July 1, 2001 (the "Revolving
Credit Note"), which note has been issued by
Mortgagor in extension and renewal, to the extent
of the sum of Fifteen Million Dollars
($15,000,000), of that certain Revolving Credit
Note, dated as of July 7, 1993, in the original
principal amount of Fifteen Million Dollars
($15,000,000) issued by Old Fairfield to
GE Capital, as such note may be amended, modified,
supplemented or replaced in order to increase the
amount thereof to a maximum amount of Twenty-Five
Million Dollars ($25,000,000) in connection with
the "Subsequent Commitment Increases" (as that
term is defined in the Loan Agreement), (ii) that
certain Term Note made by Mortgagor in favor of
GE Capital, as sole Lender under the Loan
Agreement, dated December 5, 1996, in the
principal amount of THIRTY-THREE MILLION DOLLARS
($33,000,000) with final payment being due
December 31, 2000, which note has been issued by
Mortgagor in extension and renewal, to the extent
of the sum of Eighteen Million Dollars
($18,000,000), of that certain Term Note, dated as
of July 7, 1993, in the original principal amount
of Twenty-Five Million Dollars ($25,000,000),
issued by Old Fairfield to GE Capital (the "Term
Note"; the Revolving Credit Note and the
Term Note, collectively, the "Notes").
3. Amendment to Section 29 of the Mortgage.
(a) Section 29 of the Mortgage is hereby
amended by deleting the first address
for notices set forth in clause (a)
thereof and substituting in lieu thereof
the following:
General Electric Capital Corporation
201 High Ridge Road
Stamford, Connecticut 06927-5100
Attention: Susan L. Poland, Esq.
Telecopier No.: (203) 316-7554
Telephone No.: (203) 316-7889
(b) Section 29 of the Mortgage is further
amended by deleting the address for
Mortgagor set forth in clause (b)
thereof and substituting in lieu thereof
the following:
Fairfield Manufacturing Company, Inc.
U.S. 52 South
Lafayette, Indiana 47903
Attention: Mr. Richard A. Bush
Vice President - Finance
Telecopier No.: (317) 477-7342
Telephone No.: (317) 474-3474
4. Effect of Amendment. As amended hereby, the Mortgage shall
continue in full force and effect, and Mortgagor hereby ratifies and
reaffirms all provisions thereof.
IN WITNESS WHEREOF, Mortgagor and Mortgagee have caused this
Amendment to be duly executed and acknowledged under seal as of the
day and year first above written.
MORTGAGOR:
FAIRFIELD MANUFACTURING
COMPANY, INC.
By:_______________________________
Richard A. Bush
Vice President-Finance
Attest:_____________________________
Name:
Title:
[CORPORATE SEAL]
GENERAL ELECTRIC CAPITAL
CORPORATION, as Agent
By:_______________________________
Elaine L. Moore
Senior Vice President,
as duly authorized
[CORPORATE SEAL]
STATE OF INDIANA
COUNTY OF TIPPECANOE
Before me, a notary public in and for said county and state,
personally appeared Richard A. Bush, the Vice President-Finance of
FAIRFIELD MANUFACTURING COMPANY, INC., a Delaware corporation, who
acknowledged as such that the seal affixed to the foregoing instrument
is the corporate seal of said corporation; and that the foregoing
instrument was signed and sealed on behalf of said corporation by
authority of its board of directors; and said Richard A. Bush personally
acknowledged the execution of said instrument to be the true act and
deed of said corporation; and that any representations contained herein
are true.
WITNESS my hand and Notarial Seal this ____ day of December, 1996.
Name: _____________________________
Notary Public for: ________________
My Commission Expires:
____________________________________
My county of residence:
____________________________________
[NOTARY SEAL]
STATE OF NEW YORK
COUNTY OF NEW YORK
Before me, a notary public in and for said county and state,
personally appeared ________________, the _________________ of FAIRFIELD
MANUFACTURING COMPANY, INC., a Delaware corporation, who acknowledged as
such that the seal affixed to the foregoing instrument is the corporate
seal of said corporation; and that the foregoing instrument was signed
and sealed on behalf of said corporation by authority of its board of
directors; and said _________________ personally acknowledged the
execution of said instrument to be the true act and deed of said
corporation; and that any representations contained herein are true.
WITNESS my hand and Notarial Seal this ____ day of December, 1996.
Name: _____________________________
Notary Public for: ________________
My Commission Expires:
____________________________________
My county of residence:
____________________________________
[NOTARY SEAL]
STATE OF GEORGIA
COUNTY OF FULTON
Before me, a notary public in and for said county and state
personally appeared Elaine L. Moore, a Senior Vice President, being duly
authorized to sign for GENERAL ELECTRIC CAPITAL CORPORATION, a New York
corporation, who acknowledged as such that the seal affixed to the
foregoing instrument is the corporate seal of said corporation; and that
the foregoing instrument was signed in behalf of said corporation by
authority of its board of directors and said Elaine L. Moore
acknowledged the execution of said instrument to be the true act and
deed of said corporation, and that any representations contained herein
are true.
WITNESS my hand and Notarial Seal this ____ day of December, 1996.
Name: _____________________________
Notary Public for: ________________
My Commission Expires:
____________________________________
My county of residence:
____________________________________
[NOTARY SEAL]
This instrument was prepared by Diane S. White, King & Spalding, 191
Peachtree Street, Atlanta, Georgia 30303-1763
1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made as of the
1st day of June, 1996 by and between K.A. Burns, an individual
("Employee"), and FAIRFIELD MANUFACTURING COMPANY, INC., an Indiana
corporation (the "Company").
In consideration of the premises and mutual agreements
hereinafter set forth, and upon the terms and subject to the
conditions contained herein, Employee and the Company hereby agree as
follows:
Section 1. Employment.
1.1 Term. The Company shall employ Employee, and Employee shall
serve the Company, for a two year term beginning on the date of this
Agreement and ending on June 1, 1998, unless sooner terminated
pursuant to the provisions of this Agreement (the "Term of
Employment").
1.2 Duties.
(a) Capacity. During the Term of Employment, Employee shall be
employed in an executive capacity and shall assume and perform such
reasonable executive and managerial responsibilities and duties as may
be assigned to him hereafter from time to time by the Chairman of the
Executive Committee or the Board of Directors of the Company or their
respective successors. Employee will serve as President and Chief
Operating Officer of the Company and will report to the Chairman of
the Executive Committee or the Board of Directors of the Company and
it is the intention of the Company that he remain so employed during
the Term of Employment. Such employment shall be changed only to a
position of equal or greater executive status and only with the
consent of Employee.
(b) Schedule and Location. During the Term of Employment,
Employee shall be employed on a full-time basis. Employee's services
during the Term of Employment shall be rendered in accordance with
such policies as the Company may establish for the conduct of its
respective officers and employees. Employee shall not be required to
relocate himself or his office from Lafayette, Indiana in connection
with the performance of his duties hereunder without his consent.
(c) Exclusivity. Without limiting the generality of the
foregoing, during the Term of Employment, Employee shall not, without
prior written approval of the Chairman of the Executive Committee or
the Board of Directors of the Company, render services of a business,
professional or commercial nature for compensation to any other entity
or person.
1.3 Compensation. During the Term of Employment, as
compensation for the services to be rendered during such period and
the other obligations undertaken by Employee hereunder, Employee shall
be entitled to the following compensation:
(a) Salary. The Company shall pay to Employee an annual base
salary (the "Base Salary") of $200,000 or such greater amount as may
be determined upon a review of Employee's performance to be undertaken
by the Chairman of the Executive Committee or the Board of Directors
of the Company on an annual basis. During the Term of Employment,
Employee's Base Salary shall be payable in accordance with the
Company's policy.
(b) Expenses; Vacation. The Company shall reimburse Employee
for his travel and entertainment expenses in connection with his
employment hereunder in accordance with the policies of the Company in
effect from time to time. During the Term of Employment, Employee
shall be entitled to three (3) weeks of vacation and such other fringe
benefits, including paid holidays, provided to Company executives as
of the effective date of this Agreement.
(c) Incentive Compensation. During the Term of Employment,
Employee shall be entitled to participate in any annual bonus program
such as the "1996 Management Incentive Compensation Plan" that may be
implemented during the Employee's Term of Employment. Under such
annual bonus program that may be implemented, the Employee's target
bonus percentage, based on operating performance at the 100% level,
will not be less than 40 percent (40%) of his annual salary for such
year. In the event the Annual Bonus shall be payable with respect to
a period in the year in which the Term of Employment expires that is
less than an entire year, the Annual Bonus for such period shall be a
pro rata bonus determined by multiplying the Annual Bonus which
Employee would have received for the entire year in which the Term of
Employment expires, by a fraction, the numerator of which shall be the
number of days in that calendar year preceding the expiration of the
Term of Employment and the denominator of which shall be 365.
(d) Additional Benefits. Employee also shall be entitled to
receive all benefits for which he is eligible under the terms of any
stock option plan, stock purchase plan, bonus or extra compensation
plan, pension plan, profit sharing plan, life and medical insurance
and reimbursement programs, disability plans and any other plans or
arrangements, which plans, programs, or arrangements the Company or
its subsidiaries may provide for its executives ("Additional
Benefits") from time to time. Additional Benefits shall in all
respects be paid in accordance with the then-existing plans, or
policies, programs, and/or arrangements establishing or governing such
Additional Benefits. The Company and its subsidiaries reserve the
right to add, terminate, and/or amend any existing plans, policies,
programs, and/or arrangements during the Term of Employment and at any
other time.
(e) Club Membership. Employee shall be provided with a
membership to the Lafayette Country Club. Annual dues, monthly
assessment fees, special assessments and any business related expenses
shall be paid by the Company during the Term of Employment.
Section 2. Termination of Employment.
2.1 Right to Terminate.
(a) Death. This Agreement shall terminate upon Employee's
death.
(b) Disability. In the event that Employee, because of
accident, disability or physical or mental illness, is incapable of
performing his duties hereunder, the Company shall have the right to
terminate Employee's employment hereunder upon 30 days prior written
notice to Employee. For purposes of this Section 2.1 (b), Employee
shall be deemed to have become incapable of performing his duties
hereunder if he shall have been incapable of so doing for (a) a
continuous period of 120 days and remain so incapable at the end of
such 120-day period, or (b) periods amounting in the aggregate to 120
days within any one period of 365 days and remain so incapable at the
end of such aggregate period of 120 days.
(c) Cause. The Company shall have the right to terminate
Employee's employment hereunder for cause. The term "cause" shall
mean (i) the willful and negligent failure or refusal by Employee to
perform his duties hereunder, (ii) the willful engaging by Employee in
misconduct which is materially injurious to the Company, monetarily or
otherwise, or (iii) the
conviction of the Employee of, or the entering of a plea of nolo
contendere by Employee with respect to, a felony.
(d) Other. The Company shall have the right to terminate
Employee's employment hereunder for any other reason not specified in
this Section 2.1 upon 30 days' prior written notice to Employee.
(e) By Employee For Cause. Employee shall have the right to
terminate this Agreement upon 30 days' prior written notice to the
Company if at any time during the Term of Employment (i) another
person shall be appointed as President without Employee's consent or
Employee shall be assigned duties materially inconsistent with and
inferior to the duties of his position as described in Section 1.2
(a), (ii) the principal executive offices of the Company shall be
transferred or attempted to be transferred from the geographical
vicinity of Lafayette, Indiana without Employee's consent, or (iii)
the Company shall materially breach or fail to comply with a material
provision of the Agreement which, if curable, remains uncured for 30
days after notice thereof from Employee.
(f) Otherwise By Employee. Employee shall have the right to
terminate his employment hereunder for any other reason not specified
in this Section 2.1 upon 30 days' prior written notice to the Company.
2.2 Rights of Employee Upon Termination.
(a) Upon the death of Employee, the Company and its subsidiaries
shall have no further obligation to Employee under this Agreement
except to reimburse Employee's estate for expenses incurred by
Employee prior to his death and to distribute to Employee's estate or
designated beneficiary Employee's Base Salary due pursuant to Section
1.3 (a) hereof up to the date of the next payment period subsequent to
his death and the pro rata portion of the Annual
Bonus that would have been paid to Employee with respect to such year
in accordance with Section 1.3 (c).
(b) Upon the termination of Employee's employment pursuant to
Sections 2.1 (b),
2.1 (c) or 2.1 (f), the Company and its subsidiaries shall have no
further obligation to Employee under this Agreement except to
reimburse him for expenses incurred prior to the date of termination
and distribute to Employee Employee's Base Salary due pursuant to
Section 1.3 (a) hereof up to the date of termination and, in the case
of termination pursuant to Section 2.1 (b), the pro rata portion of
the Annual Bonus payable with respect to such year in accordance with
Section 1.3 (c).
(c) Upon the termination of Employee's employment pursuant to
Section 2.1 (d) or (e) hereof, the Company shall be obligated to
reimburse Employee for expenses incurred prior to the date of
termination and to distribute to Employee Employee's Base Salary due
pursuant to Section 1.3 (a) hereof up to June 1, 1998 and the pro rata
portion of the Annual Bonus payable with respect to the year in which
termination of Employee's employment occurred in accordance with
Section 1.3 (c).
(d) Nothing in this Agreement shall limit the right of Employee
and his family to continue to receive Additional Benefits for which he
or his family are eligible at the time of his death or other
termination of employment under the terms of the then existing plans,
policies, programs or arrangements. For purposes of eligibility for
retiree benefits pursuant to such plans, policies, programs, and
arrangements, Employee shall be considered to have remained employed
until June 1, 1998 and to have retired on that day unless termination
of Employee's employment is pursuant to Sections 2.1 (c) or 2.1 (f)
hereof, in which case the actual date of termination of employment
shall govern. Amounts which are vested benefits or which Employee is
otherwise entitled to receive under any plan, policy, program or
arrangement at or subsequent to the date of termination of employment
shall be payable in accordance with such plan, policy, program or
arrangement.
Section 3. Miscellaneous.
3.1 Amendment. This Agreement may be amended only by a writing
executed by the parties hereto.
3.2 Entire Agreement. This Agreement and the other agreements
expressly referred to herein set forth the entire understanding of the
parties hereto regarding the subject matter hereof and supersede all
prior contracts, agreements, arrangements, communications,
discussions, representations and warranties, whether oral or written,
between the parties regarding the subject matter hereof.
3.3 Notices. Any notice, request, consent and other
communication required or permitted hereunder shall be in writing and
shall be deemed to have been duly given (a) when received if
personally delivered, or (b) within 5 days after being sent by
registered or certified mail, return receipt requested, postage
prepaid, to the parties (and to the persons to whom copies shall be
sent) at their respective addresses set forth below.
If to the Company:
c/o Lancer Industries Inc.
450 Lexington, Suite 3350
New York, NY 10017
Attn: Peter A. Joseph
If to the Employee:
Ken Burns
204 Trace Two
West Lafayette, IN 47906
Any party by written notice to the other party may change the address
or the persons to whom notices or copies thereof shall be directed.
3.4 Assignment. This Agreement shall be binding upon and inure
to the benefit of the heirs, successors, representatives and assigns
of each party hereto, but no rights, obligations or liabilities of
Employee hereunder shall be assignable without the prior written
consent of the Company.
3.5 GOVERNING LAW. THIS AGREEMENT SHALL IN ALL RESPECTS BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE
OF INDIANA. EACH PARTY AGREES TO SUBMIT TO THE PERSONAL JURISDICTION
OF THE STATE AND FEDERAL COURTS LOCATED IN THE STATE OF INDIANA.
3.6 Severability. Each section and subsection of this Agreement
constitutes a separate and distinct provision hereof. It is the
intent of the parties hereto that the provisions of this Agreement be
enforced to the fullest extent permissible under the laws and public
policies applicable in each jurisdiction in which enforcement is
sought. Accordingly, if any provision of this Agreement shall be
adjudicated to be invalid, ineffective or unenforceable, the remaining
provisions shall not be affected thereby. The invalid, ineffective or
unenforceable provision shall, without further action by the parties,
be automatically amended to effect the original purpose and intent of
the invalid, ineffective or unenforceable provision; provided,
however, that such amendment shall apply only with respect to the
operation of such provision in the particular jurisdiction with
respect to which such adjudication is made.
3.7 Waivers. Any waiver by any party of any violation of,
breach of or default under any provision of this Agreement, by the
other party shall not be construed as, or constitute, a continuing
waiver of such provision, or waiver of any other violation of, breach
of or default under any other provision of this Agreement.
3.8 Headings. The headings in this Agreement are solely for
convenience of reference and shall not be given any effect in the
construction or interpretation of this Agreement.
3.9 Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original, and
all of which together with constitute one and the same instrument.
3.10 Subsidiaries, Divisions and Affiliates. For the purposes of
this Agreement, including, without limitation, Section 2 hereof, the
"Company" shall include its subsidiaries, divisions, parents and
affiliates as they may exist from time to time. For the purposes of
this Agreement, the term "affiliate" shall mean any firm or
corporation that directly, or indirectly through one or more
intermediaries, controls, is controlled by, or is under common control
with, the person specified.
3.11 Third Parties. Nothing expressed or implied in this
Agreement is intended, or shall be construed, to confer upon or give
any person or entity other than the Company and Employee and his
estate and the members of his family as specifically provided herein
any rights or remedies under, or by reason of, this Agreement.
3.12 Income Tax Reporting. Employee shall report the Base Salary
to be paid hereunder as earned income for Federal, State and local tax
income tax purposes.
3.13 Survival of Certain Obligations. The obligations of the
Company and Employee set forth in this Agreement which by their terms
extend beyond or survive the termination of the Term of Employment
shall not be affected or diminished in any way by the termination of
the Term of Employment.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
duly executed and delivered by its duly authorized officer, and
Employee has duly executed and delivered this Agreement, as of the
date first written above.
K.A. Burns
FAIRFIELD MANUFACTURING COMPANY, INC.
By:
Wolodymyr Lechman
Chairman of the Board
