SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
[ X ] QUARTERLY REPORT UNDER SECTION 13 or 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended: September 30, 1998
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
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 September 30, 1998 is as follows:
8,407,000 shares of Common Stock
<PAGE>
FAIRFIELD MANUFACTURING COMPANY, INC.
Form 10-Q
September 30, 1998
Part I - FINANCIAL INFORMATION
Page
Item 1 - Financial Statements:
Consolidated Balance Sheets, September 30, 1998 3
(Unaudited) and December 31, 1997
Consolidated Statements of Operations for the three 4
and nine months ended September 30, 1998 and 1997
(Unaudited)
Consolidated Statements of Cash Flows for the nine 5
months ended September 30, 1998 and 1997 (Unaudited)
Consolidated Statement of Stockholder's Equity 6
(Deficit) for the nine months ended September 30, 1998
(Unaudited)
Notes to Consolidated Financial Statements 7-9
Item 2 - Management's Discussion and Analysis of 10-12
Financial Condition and
Results of Operations
Part II - OTHER INFORMATION
Item 5 - Other Information 12
Item 6 - Exhibits and Reports on Form 8-K. 13
SIGNATURE 13
<PAGE>
FAIRFIELD MANUFACTURING COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
($ in thousand except per share amounts)
September 30, December 31,
1998 1997
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 426 $3,059
Trade receivables, less allowance of $600
in 1998 and 1997 27,587 22,733
Inventory 28,198 23,875
Prepaid expenses 674 1,048
Total current assets 56,885 50,715
PROPERTY, PLANT AND EQUIPMENT, NET 68,563 69,227
OTHER ASSETS:
Excess of investment over net assets
acquired, less accumulated
amortization of $14,680 and $13,475
in 1998 and 1997, respectively 49,679 50,884
Deferred financing costs, less
accumulated amortization of $3,698
and $3,026 in 1998 and 1997,
respectively 1,718 2,386
Total other assets 51,397 53,270
Total assets $176,845 $173,212
LIABILITIES AND STOCKHOLDER'S EQUITY
(DEFICIT)
CURRENT LIABILITIES:
Current maturities of long-term debt $ - $ 4,000
Accounts payable 15,742 10,896
Due to parent 15 2,208
Accrued liabilities 20,439 22,987
Deferred income taxes 2,800 2,800
Total current liabilities 38,996 42,891
ACCRUED RETIREMENT COSTS 15,975 15,778
DEFERRED INCOME TAXES 8,321 8,881
LONG-TERM DEBT, NET OF CURRENT 115,500 110,000
MATURITIES
11-1/4% CUMULATIVE EXCHANGEABLE PREFERRED
STOCK 47,994 47,850
STOCKHOLDER'S EQUITY (DEFICIT):
Common stock: par value $.01 per
share, 10,000,000 shares
authorized, 8,407,000 and 8,190,000
issued and outstanding in 1998 and
1997, respectively 84 82
Additional paid-in capital 41,372 39,414
Accumulated deficit (91,397) (91,684)
Total stockholder's deficit (49,941) (52,188)
Total liabilities and stockholder's $176,845 $173,212
deficit
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
FAIRFIELD MANUFACTURING COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
($ in thousands except per share amounts)
(Unaudited)
Three months ended Nine months ended
September 30, September 30,
1998 1997 1998 1997
Net sales $54,282 $44,880 $166,133 $144,869
Cost of sales 43,668 38,353 134,574 119,079
Selling, general and
administrative expenses 4,540 4,573 12,834 13,228
OPERATING INCOME 6,074 1,954 18,725 12,562
Interest expense, net 3,197 3,161 9,814 9,503
Other expense, net 15 38 52 84
INCOME (LOSS) BEFORE
INCOME TAXES 2,862 (1,245) 8,859 2,975
Provision (benefit) for 1,300 (400) 4,000 1,670
income taxes
NET INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM 1,562 (845) 4,859 1,305
Loss on early extinguishment 209 - 209 -
of debt
NET INCOME (LOSS) $ 1,353 $(845) $4,650 $1,305
Preferred stock dividends
and discount accretion (1,452) (1,471) (4,359) (3,234)
NET INCOME (LOSS)
AVAILABLE TO COMMON $ (99) $(2,316) $ 291 $(1,929)
STOCKHOLDER
Earnings per common $(0.01) $(0.29) $ 0.04 $(0.25)
share
Weighted average common
shares outstanding 8,357,543 7,910,000 8,271,407 7,857,920
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
FAIRFIELD MANUFACTURING COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
(Unaudited)
For the nine months ended
September 30,
1998 1997
OPERATING ACTIVITIES:
Net income $ 4,650 $ 1,305
Adjustments to net income:
Depreciation and amortization 10,125 10,127
Deferred income taxes (560) 128
Loss on early extinguishment of debt 209 -
Accrued retirement costs 197 50
Changes in working capital:
Trade receivables (4,854) 1,519
Inventory (4,323) (1,577)
Prepaids 374 208
Accounts payable 4,173 (3,380)
Accrued liabilities (3,204) (1,116)
Net cash provided by operating activities 6,787 7,264
INVESTING ACTIVITIES:
Additions to plant and equipment, net (7,074) (6,934)
Net cash used in investing activities (7,074) (6,934)
FINANCING ACTIVITIES:
Proceeds from additional capital contribution 1,960 679
Payment of dividends - (50,770)
Advance to parent - 3,027
Proceeds from issuance of long-term debt 10,000 -
Repayment of long-term debt (10,681) (5,250)
Net change in revolving credit facility 2,000 3,000
Proceeds of preferred stock offering - 50,000
Payment of preferred stock issuance costs - (2,300)
Payment of preferred stock dividend (5,625) (2,859)
Net cash used in financing activities (2,346) (4,473)
CASH AND CASH EQUIVALENTS:
Net decrease (2,633) (4,143)
Beginning of period 3,059 6,185
End of period $ 426 $ 2,042
Supplemental Disclosures:
Interest paid $11,805 $11,424
Taxes paid to parent 4,200 1,400
Non-cash investing and financing
activities:
Additions to plant and equipment included $ 673 $ 645
in accounts payable
Preferred stock dividends accrued 270 188
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
FAIRFIELD MANUFACTURING COMPANY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT)
(In thousands)
(Unaudited)
Additional Stock-
Common Paid-in Accumulated holder's
Stock Capital Deficit Equity
Deficit (Deficit)
Balance, January 1, 1998 $ 82 $39,414 $(91,684) $ (52,188)
Capital contribution 2 1,958 - 1,960
Preferred stock - - (4,219) (4,219)
dividends accrued
Preferred stock discount - - (144) (144)
accretion
Net income - - 4,650 4,650
Balance, September 30, $ 84 $41,372 $(91,397) $ (49,941)
1998
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
FAIRFIELD MANUFACTURING COMPANY, INC.
NOTES to CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Interim Financial Information
The accompanying consolidated financial statements have been prepared by
Fairfield Manufacturing Company, Inc. and subsidiaries (the "Company"),
without audit, pursuant to the rules and regulations of the Securities
Exchange Commission. Certain information and footnote disclosures normally
included in annual financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although the Company believes that
the disclosures are adequate to enable a reasonable understanding of the
information presented. These consolidated financial statements should be
read in conjunction with the audited financial statements and the notes
thereto for the year ended December 31, 1997.
In the opinion of management the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation of the
Company's financial position at September 30, 1998 and the results of
operations and cash flows for the three and nine months then ended.
However, interim financial results are not necessarily indicative of the
results for a full year. Certain prior year information has been
reclassified to conform to current year presentation.
2. Parent Company of Registrant
The Company is wholly-owned by Lancer Industries Inc. ("Lancer").
On March 27, 1997, First Colony Farms, Inc., a Delaware corporation and
wholly-owned subsidiary of Lancer ("First Colony"), merged with and into
the Company, with the Company being the surviving corporation of the
merger. Immediately prior to the merger, First Colony had (i) no known
liabilities (including contingent liabilities) and (ii) assets consisting
of approximately $10 thousand in cash and certain net operating loss carry
forwards.
3. Sale of Preferred Stock
On March 12, 1997, the Company completed an offering of 50,000 shares of
11-1/4% Cumulative Exchangeable Preferred Stock ("Old Preferred Stock"). In
July 1997, the Company completed an exchange offer pursuant to which each
share of the Old Preferred Stock was exchanged for a new share of 11-1/4%
Cumulative Exchangeable Preferred Stock (the "New Preferred Stock"). The
terms of the New Preferred Stock are substantially identical to the terms
of the Old Preferred Stock, except that the New Preferred Stock is
registered under the Securities Act of 1933, as amended. Each share of New
Preferred Stock has a liquidation preference of $1,000, plus accumulated
and unpaid dividends. The Company is required, subject to certain
conditions, to redeem all of the Preferred Stock outstanding on March 15,
2009 at a redemption price equal to 100% of the liquidation preference.
Dividends are payable semi-annually at an annual rate of 11-1/4%, and may
(prior to March 15, 2002) be paid, at the Company's option, either in cash
or in additional shares of New Preferred Stock. Since issuance, the
Company has paid all semi-annual dividends in cash.
The net proceeds from this offering ($47.7 million) were used to fund a
dividend to Lancer, and used by Lancer to redeem approximately $47.7
million of its Series C Preferred Stock.
<PAGE>
4. Inventory
Inventory consists of the following (In thousands):
December 30,1998 December 31, 1997
Raw materials $3,449 $3,495
Work in process 14,228 11,892
Finished goods 10,471 8,488
28,198 23,875
Less: excess of FIFO cost over - -
LIFO cost
$28,198 $23,875
5. Earnings per Common Share
Earnings per common share is computed by dividing net income available to
common stockholder by the weighted average number of common shares
outstanding during the period. Increases in weighted average common shares
outstanding are due to the issuance of additional shares to Lancer in
consideration of certain capital contributions made to the Company
primarily pursuant to the Tax Sharing Agreement.
6. Debt
The Company repurchased $8.5 million of its 11 3/8% Senior Subordinated
Notes ("Subordinated Notes") during the third quarter on the open market.
The loss on early extinguishment of debt represents the write off of
related deferred financing charges and premium paid on repurchase, both net
of tax. The balance of Subordinated Notes outstanding at September 30,
1998 was $76.5 million.
On October 12, 1998 the Company completed an amendment to its loan
agreement with a senior lending institution. Prior to amendment, the loan
agreement provided for a Revolving Credit Facility, due July 1, 2001 and a
Term Loan, due in quarterly installments through December 2000. The
amendment extended the maturity of the Revolving Credit Facility and the
Term Loan to July 1, 2005. As a result of this amendment, current
maturities under the Term Loan have been reclassified as long term in the
September 30, 1998 balance sheet.
Additional terms of the amendment include a $10 million increase in the
Term Loan and the establishment of a $10 million Debt Repurchase Line to be
used for repurchases of the Company's Subordinated Notes. The amendment
also makes available to the Company, subject to certain conditions, the
option of two $5 million increases to the Revolving Credit Facility. Prior
to the amendment only one $5 million option was available.
<PAGE>
7. Related Parties
Effective August 1, 1997, Mr. Wolodymyr B Lechman, a Director and former
President and Chief Executive Officer of the Company, entered into a
consulting agreement (the "Agreement") with the Company. In consideration
for services to be rendered under the Agreement, Mr. Lechman will receive
quarterly payments through July 31, 2001 ("the consulting period") totaling
$1.0 million. In the event that Mr. Lechman dies prior to the end of the
consulting period or is unable to perform the services requested due to
mental or physical disabilities, the Company shall pay to his legal
representatives or beneficiaries the remaining unpaid balance under the
Agreement which would have been due under the agreement had Mr. Lechman
continued to provide such services for the term of the Agreement. Due to
the provisions of the agreement, the Company has recognized the entire $1.0
million as expense in the third quarter of 1997.
8. Subsequent Events
During October, the Company repurchased an additional $9.4 million of
Subordinated Notes primarily using proceeds from the newly established Debt
Repurchase Line. In conjunction with these repurchases the Company recorded
a loss on early extinguishment of approximately $0.2 million in October.
Total repurchases to date have reduced the current outstanding balance of
Subordinated Notes to $67.1 million.
On October 27, 1998 a three year agreement was ratified by the Company's
union employees. The Company believes its relations with the union to be
satisfactory.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
The Company's net sales for the three months ended September 30, 1998 were
$54.3 million, an increase of $9.4 million, or 20.9%, compared to the three
months ended September 30, 1997. For the nine months ended September 30,
1998, the Company's net sales were $166.1 million, an increase of $21.3
million, or 14.7%, compared to the same period in 1997. The increase in
sales for the three and nine months ended September 30, 1998 resulted from
increased market demand for the Company's products.
Cost of sales for the three months ended September 30, 1998 increased by
$5.3 million, to $43.7 million, compared to $38.4 million, for the same
period in 1997, but decreased as a percentage to sales to 80.4% compared to
85.5% in 1997. For the first nine months of 1998, cost of sales were
$134.6 million, or 81.0% of net sales, compared to $119.1 million, or 82.2%
of net sales, for the first nine months of 1997. The increase in cost of
sales compared to 1997 periods was primarily a result of increased sales
volume for the 1998 periods.
Selling, general and administrative ("SG&A") expenses were $4.5 million, or
8.4% of net sales, for the three months ended September 30, 1998, compared
to $4.6 million, or 10.2% of net sales, in the comparable 1997 period.
SG&A expense for the three months ended September 30, 1997 included a one-
time charge of $1.0 million in connection with a consulting agreement (see
note 7 to the financial statements). For the nine months ended September
30, 1998, the SG&A expenses were $12.8 million, or 7.7% of net sales,
versus $13.2 million, or 9.1% of net sales for the first nine months of
1997. Excluding the one-time charge in 1997, SG&A for the nine months
ended September 30, 1998 increased approximately $0.6 million.
Earnings from operations for the three months ended September 30, 1998 were
$6.1 million, or 11.2% of net sales, compared to $2.0 million, or 4.4% of
net sales, for the comparable 1997 period. For the nine months ended
September 30, 1998, the Company's earnings from operations were $18.7
million, or 11.3% of net sales, compared to $12.6 million, or 8.7% of net
sales for the first nine months of 1997.
Interest expense in the third quarter of 1998 and 1997 was $3.2 million.
For the first nine months of 1998 and 1997, interest expense was $9.8
million and $9.5 million, respectively.
The Company had net income before income taxes of $2.9 million in the third
quarter of 1998 compared to a loss of $1.2 million in the third quarter of
1997. For the nine months ended September 30, 1998, the Company's income
before income taxes was $8.9 million compared to $3.0 million for the
comparable 1997 period.
The Company's net income was $1.4 million for the third quarter of 1998
compared to a loss of $0.8 million for the third quarter of 1997. The
Company recorded a loss on early extinguishment of debt in the third
quarter of 1998 of $0.2 million (see Note 6 to the financial statements).
For the first nine months of 1998, net income was $4.7 million compared to
$1.3 million for the first nine months of 1997.
Net income available to common stockholder was $0.3 million for the nine
months ended September 30, 1998 compared to a net loss available to common
stockholder of $1.9 million for the same period in 1997. For the third
quarter the net loss available to common stockholder was $0.1 and $2.3 in
1998 and 1997, respectively.
<PAGE>
Liquidity and Capital Resources
The Company uses funds provided by operations and short-term borrowings
under its Revolving Credit Facility to meet liquidity requirements. Net
cash provided by operations for the nine months ended September 30, 1998
was $6.8 million, a slight decrease of $0.5 million compared with net cash
provided by operations of $7.3 million in the comparable 1997 period.
Working capital increased to $17.9 million from $7.8 million at December
31, 1997. The increase was primarily due to increases in accounts
receivable and inventory in conjunction with higher sales levels and a
decrease in current maturities of long term debt due to the amendment of
the Company's loan agreement (see Note 6 to the consolidated financial
statements and discussion below).
Capital expenditures for various machine tools, equipment and building
improvement items totaled $7.7 million and $7.6 million during the first
nine months of 1998 and 1997, respectively, of which $0.7 million and $0.6
million in 1998 and 1997, respectively, was funded by an increase in
accounts payable. Capital expenditures for both 1998 and 1997 have been
primarily for increased capacity and productivity to support increased
sales demand.
As discussed in Note 6 to the consolidated financial statements the Company
completed an amendment to its loan agreement with a senior lending
institution in October 1998. Prior to amendment, the loan agreement
provided for a Revolving Credit Facility, due July 1, 2001 and a Term Loan,
due in quarterly installments through December 2000. The amendment
extended the maturity of the Revolving Credit Facility and the Term Loan to
July 1, 2005.
The loan agreement as amended provides for a $20 million Revolving Credit
Facility, a $35 million Term Loan, and a $10 million Debt Repurchase Line
to be used for repurchases of the Company's 11 3/8% Senior Subordinated
Notes. At October 31, 1998 the Company has approximately $16 million
available under the Revolving Credit Facility and $1 million available
under the Debt Repurchase Line. The Company additionally has the option to
exercise two $5 million increases (subject to certain conditions) to the
Revolving Credit Facility.
Management expects that the Company's planned capital requirements for the
remainder of 1998, which consist of capital expenditures and interest on
long term debt, will be funded by cash flows from operations. As discussed
above, the Company has available credit facilities that can be utilized to
meet additional liquidity needs.
Year 2000
During 1997 the Company began the process of assessing the magnitude of the
year 2000 ("Y2K") on the Company's primary computer systems ("Business
System"). Upon completing the assessment of the Business System, a plan was
established to modify, upgrade, or replace non compliant hardware and
software applications with a target completion date of March 1999 for all
"critical" applications and continuing through 1999 for "non-critical"
applications. The Company is currently on schedule with regard to critical
applications. Testing is being performed on an ongoing basis upon
completion of an application and is expected to continue throughout 1999.
The Company has not developed a comprehensive contingency plan with regard
to the Business System as all critical applications are expected to be Y2K
ready. If progress toward Y2K readiness deviates from the anticipated time
line or the Company identifies significant additional risks, appropriate
contingency plans will be developed at that time.
Several types of systems and equipment (phones, facilities, manufacturing
equipment, etc. - collectively "non-IT systems") that are not typically
thought of as computer systems contain imbedded hardware or software that
may have a time element. The Company is in the process of gathering data
with regard to non-IT systems for use in assessing the potential impact of
Y2K on these systems. As information is still being gathered the Company
does not have a contingency plan in place with regard to non-IT systems.
<PAGE>
The Company is primarily utilizing internal IT resources with the
additional assistance of contract programmers who are familiar with the
software. It is currently estimated that the total cost associated with
required modifications for both the Business System and non IT systems to
become Y2K ready will be approximately $350 thousand to $450 thousand, of
which approximately $100 thousand has been spent. These costs are being
expensed as incurred and are being funded from existing operating budgets.
The Company relies on third party suppliers for raw materials, water,
utilities, transportation, and other key services. Interruption of
supplier operations due to Y2K issues could affect the Company's
operations. Efforts have recently been initiated to evaluate the status of
supplier's progress toward Y2K compliance. These efforts include a survey
of the Company's top 25 suppliers, determination of potential alternative
suppliers, and development of contingency requirements. These activities,
while a means of risk management, cannot eliminate the potential for
disruption of the Company's operations due to third party failure.
The failure to correct a material Y2K problem in the Company's critical
Business System applications and non-IT systems, could result in an
interruption in, or failure of certain normal business activities or
operations. Such interruptions or failures could have a material adverse
impact on the Company's results of operations, cash flows, and financial
condition.
The above discussion of Y2K and its potential impact on the Company
contains forward looking statements that are based on management's best
estimates of future events. Specific factors that could effect the actual
outcome of these estimates and conclusions include a possible loss of
technical resources to perform the work, failure to identify all
susceptible systems, non-compliance by third parties whose operations
impact the Company, and other similar uncertainties.
PART II - OTHER INFORMATION
Item 5. Other Information
Effective August 12, 1998, Mr. Kenneth A. Burns resigned as Chairman of the
Board, President and Chief Executive Officer of the Company. Mr. Stephen
K. Clough was appointed President and Chief Executive Officer by the
Company's Board of Directors ("Board"). Additionally, Mr. Clough was
elected to the Board and Mr. Paul S. Levy was elected as Chairman of the
Board, both on August 12, 1998.
On August 12, 1998 the Board increased the number of Board seats from seven
directors to eight and Mr. Andrew Heyer was elected as a director of the
Company effective August 12, 1998. Mr. Horst O. Sieben and Mr. Ranko Cucuz
resigned as directors of the Company effective September 4, 1998, and
October 20, 1998, respectively.
<PAGE>
Item 6. Exhibits and Reports on Form 8K
(a) Exhibit No. Description
(10)(gg) Sixth Amendment to the Loan Agreement, dated as of
October 12, 1998, among Fairfield Manufacturing
Company, Inc. ("Fairfield"), the lenders named therein,
and General Electric Capital Corporation ("GECC"), as
agent.
(10)(hh) Third Amendment to Mortgage Assignment of Leases, Rents
and Profits, Security Agreement and Fixture Filing,
dated as of October 12, 1998 between Fairfield and
GECC, as agent.
(10)(ii) Employment Agreement dated as of August 4, 1998,
between Fairfield and S. K. Clough.
(27) Financial Data Schedule
(a) On August 18, 1998, the Company filed a Form 8-K reporting the
resignation of the Company's President and Chief Executive Officer.
Mr. Stephen K. Clough was appointed President and Chief Executive
Officer by the Company's Board of Directors at the Board meeting on
August 12, 1998.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FAIRFIELD MANUFACTURING
COMPANY, INC.
Dated: November 13, 1998 By: /s/ RICHARD A. BUSH
Richard A. Bush
Vice President Finance
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FAIRFIELD
MANUFACTURING CO., INC'S 1998 THIRD QUARTER FORM 10-Q AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FORM 10-Q FILING AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000904543
<NAME> FAIRFIELD MANUFACTURING CO., INC
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 426
<SECURITIES> 0
<RECEIVABLES> 28,187
<ALLOWANCES> (600)
<INVENTORY> 28,198
<CURRENT-ASSETS> 674
<PP&E> 161,276
<DEPRECIATION> (92,713)
<TOTAL-ASSETS> 176,845
<CURRENT-LIABILITIES> 38,996
<BONDS> 115,500
47,994
0
<COMMON> 84
<OTHER-SE> (50,025)
<TOTAL-LIABILITY-AND-EQUITY> 176,845
<SALES> 166,133
<TOTAL-REVENUES> 166,133
<CGS> 134,574
<TOTAL-COSTS> 147,408
<OTHER-EXPENSES> 52
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,814
<INCOME-PRETAX> 8,859
<INCOME-TAX> 4,000
<INCOME-CONTINUING> 4,859
<DISCONTINUED> 0
<EXTRAORDINARY> (209)
<CHANGES> 0
<NET-INCOME> 4,650
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
SIXTH AMENDMENT TO LOAN AGREEMENT
THIS SIXTH AMENDMENT TO LOAN AGREEMENT (this "Amendment"), made and entered
into as of October 12, 1998, but effective upon satisfaction of each of the
conditions precedent specified in Section 3 hereof, 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,
a Third Amendment to Loan Agreement, dated as of March 31, 1995, a Fourth
Amendment to Loan Agreement, dated as of December 5, 1996, and a Fifth Amendment
to Loan Agreement, dated as of February 26, 1997 (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 certain amendments to the Loan Agreement,
including, among other things, (a) a reduction in the rate of interest payable
on the Obligations and in the commitment fee payable in regard to the
Commitment, as set forth herein, (b) extensions of the Commitment Termination
Date for the Commitment and of the Maturity Date of the Term Loan to July 1,
2005, (c) an increase in the maximum amount of the Commitment to $30,000,000,
(d) an increase in the amount of the Term Loans to $35,000,000 pursuant to
which Lenders will loan to Borrower the excess of such increased amount of the
Term Loans over the outstanding principal balance of the Term Loans, for use by
Borrower for application in payment of Advances, (e) the modification of the
principal amortization schedule of the Term Loans to provide for a single
principal payment in the amount of the entire outstanding principal balance of
the Term Loans, due and payable on the Maturity Date; and (f) the establishment
by Lenders for Borrower of a non-revolving line of credit in the maximum amount
of Ten Million Dollars ($10,000,000), pursuant to which Borrower may obtain
loans for use by it in repurchasing or redeeming Senior Subordinated Notes.
C. 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 amend the Loan Agreement as described in the
preceding paragraph B.
D. Borrower and GE Capital, as Agent and sole Lender under the Loan
Agreement, desire to enter into this Amendment in order to amend the Loan
Agreement in the manner described generally in paragraph B of these recitals and
described more particularly herein and to 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 1
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 the definitions of "Agreement", "Commitment", "Consolidated EBITDA",
"Consolidated Fixed Charges", "Consolidated Net Income", "Consolidated Net
Interest Expense", "Fixed Rate", "Fixed Rate Loan", "Floating Rate Loan", "Loan
Documents" and "Maturity Date" therein in their entireties and substituting in
lieu thereof the following revised definitions of "Agreement", "Commitment",
"Consolidated EBITDA", "Consolidated Fixed Charges", "Consolidated Net Income",
"Consolidated Net Interest Expense", "Fixed Rate", "Fixed Rate Loan", "Floating
Rate Loan", "Loan Documents" and "Maturity Date":
"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, the Fourth
Amendment, the Fifth Amendment and the Sixth Amendment).
"Commitment" means Twenty Million Dollars ($20,000,000), as such
amount may be increased to Thirty Million Dollars ($30,000,000)
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 EBITDA" means, for any period, the sum of
(a) Consolidated Net Income for such period, plus (b) Consolidated Net
Interest Expense (excluding Permitted Preferred Stock Dividends) for
such period, plus (c) all taxes computed on a stand-alone basis for
Borrower and its Subsidiaries accrued for such period on or measured
by income, to the extent treated as expense in the determination of
Consolidated Net Income for such period, plus (d) all depreciation and
amortization of fees or intangibles of any kind for such period, to
the extent treated as expense in the determination of Consolidated Net
Income for such period, plus (e) all non-cash accruals or cash
expenses relating to the Equity Participation Plan and Equity
Incentive Plan, to the extent that such accruals or expenses reduce
net income, in each case, determined on a consolidated basis in
accordance with GAAP.
"Consolidated Fixed Charges" means, for any period, without
duplication, the sum of (a) Consolidated Net Interest Expense for such
period (including, without limitation, under Capital Leases, but
excluding Permitted Preferred Stock Dividends), plus (b) scheduled
amortization during such period of the principal balances of the Debt
Repurchase Loans, plus (c) all payments made by Borrower and its
Subsidiaries pursuant to Operating Leases during such period, plus
(d) all taxes payable by Borrower and its Subsidiaries during such
period, including all amounts paid or payable to Lancer under the Tax
Sharing Agreement during such period (without giving effect to any
corresponding capital contribution or other reduction therein provided
for in Section 7 of the Tax Sharing Agreement), plus (e) all cash
payments made by Borrower to purchase Exchange Preferred Stock during
such period, other than payments made from the proceeds of cash
capital contributions to Borrower not made under or with respect to
the Tax Sharing Agreement, plus (f) all other payments made by
Borrower in cash during such period as permitted under Section 6.3 (to
the extent not added or subtracted in calculating Consolidated Cash
Flow), other than Permitted Preferred Stock Dividends and payments
permitted pursuant to clause (p) of Section 6.3 (inclusive of any made
prior to the Sixth Amendment Date with Lenders' prior written
consent), in each case determined on a consolidated basis in
accordance with GAAP.
"Consolidated Net Income" means, for any period, the net income (or
loss) of Borrower and its Subsidiaries for such period, determined on
a consolidated basis in accordance with GAAP (after taxes but before
dividends on the New Preferred Stock and accretions thereon), but
without giving effect to extraordinary losses or gains for such period
or to non-operating or non-cash items of income or expense (or
expenses relating to the LIFO reserve) during such period and
excluding net income (or loss) of any Person other than Borrower and
its Subsidiaries that is included in the determination of such net
income (or loss) except to the extent of dividends or distributions
paid to Borrower or its Subsidiaries.
"Consolidated Net Interest Expense" means, for any period, the gross
interest expense of Borrower and its Subsidiaries for such period,
plus (a) the portion of the up-front costs and expenses for Interest
Rate Contracts (to the extent not included in gross interest expense)
fairly allocated to such Interest Rate Contracts as expenses for such
period, less (b) interest income (to the extent not deducted from
gross interest expense), Interest Rate Contracts payments received and
amortized debt discount and deferred financing fees (to the extent not
deducted from gross interest expense) of Borrower and its Subsidiaries
for such period plus (c) Permitted Preferred Stock Dividends paid in
cash during such period, other than Permitted Preferred Stock
Dividends paid from the proceeds of cash capital contributions to
Borrower not made under or with respect to the Tax Sharing Agreement
less (d) amortization of deferred financing costs included in gross
interest expense, in each case determined on a consolidated basis in
accordance with GAAP.
"Fixed Rate" means, (i) commencing on the Sixth Amendment Date and
continuing until July 1, 1999, the LIBOR Rate plus, as to the
Revolving Credit Loan, one and one-quarter percent (1-1/4%) per annum,
as to the Debt Repurchase Loans, one and three-quarters percent (1-
3/4%) per annum and, as to the Term Loan and all other Obligations
(other than Obligations under the Revolving Credit Loan and the Debt
Repurchase Loans), one and one-half percent (1-1/2%) per annum; and
(ii) commencing on July 1, 1999, 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 EBITDA
to Consolidated Net
Interest Expense
for the Four The
Consecutive Fiscal Applicable
Quarters ending on LIBOR
the last day of the Margin for
Preceding Fiscal Fixed Rate
Quarter is: Loans will
be:
Revolving Term Loan Debt
Credit Repurchase
Loan Loans
Greater than or 0.75% per 1.00% per 1.25% per
equal to 2.75 annum annum annum
Greater than or 1.00% per 1.25% per 1.50% per
equal to 2.50:1.00 annum annum annum
Less than 2.50:1 1.25%per 1.50% per 1.75% per
annum annum annum
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.
"Fixed Rate Loan" means a Fixed Rate Advance, a
Fixed Rate Debt Repurchase Loan or a Fixed Rate Term Loan, or two
or more of them, as the context may require.
"Floating Rate Loan" means a Floating Rate
Advance, a Floating Rate Debt Repurchase Loan or a Floating Rate
Term Loan, or two or more of them, as the context may require.
"Loan Documents" means, collectively, this Agreement, the First
Amendment, the Second Amendment, the Third Amendment, the Fourth
Amendment, the Fifth Amendment, the Sixth 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, 2005.
(ii) Section 1.1 of the Loan Agreement shall be deemed further
amended by adding therein, in appropriate alphabetical order, the following
additional definitions:
"Debt Repurchase Line" shall mean a line of credit in the
maximum principal amount of Ten Million Dollars ($10,000,000)
established by Lenders pursuant to Section 2.3A hereof.
"Debt Repurchase Loans" shall mean loans made by Lenders to
Borrower under the Debt Repurchase Line as provided in Section 2.3A
hereof.
"Equity Incentive Plan" means Borrower's long-term incentive
compensation plan, as such plan may be amended, supplemented or
restated by the Board of Directors of Borrower; provided, however,
that any amendment, supplement or restatement which could
reasonably be expected to have a Material Adverse Effect shall
require the consent of the Majority Lenders.
"Equity Plan Cap" means the sum of $5,000,000 in the aggregate in
each Fiscal Year and $35,000,000 in the aggregate during the term
of this Agreement.
"Fixed Rate Debt Repurchase Loan" shall mean the Debt
Repurchase Loans or portions thereof bearing interest at the Fixed
Rate pursuant to Section 3.5(a).
"Floating Rate Debt Repurchase Loan" shall mean the Debt
Repurchase Loans or portions thereof bearing interest at the
Floating Rate pursuant to Section 3.4.
"Sixth Amendment" means the Sixth Amendment to the Loan Agreement,
dated as of October 12, 1998, among Borrower, the Agent and GE
Capital, as sole Lender.
"Sixth Amendment Date" means October 12, 1998, or such later date
as the Sixth Amendment shall have been executed and delivered by
the parties and all conditions precedent to the effectiveness
thereof set forth in Section 3 thereof shall have been satisfied.
(iii) Section 1.1 of the Loan Agreement shall be deemed further
amended by deleting the definition of "Consolidated Excess Cash Flow" therefrom.
(b) Certain References to "Term Loans". The terms "Term Loan" or "Term
Loans" when used in the following provisions of the Loan Agreement shall mean
not only the Term Loans but also the Debt Repurchase Loans and such provisions
shall apply to the Debt Repurchase Loans to the same extent as to the Term
Loans: the defined terms "Interest Period", "Loans" and "Request for Fixed Rate
Election" included in Section 1.1 of the Loan Agreement; Section 2.7; Section
3.2(b); Section 3.12; Section 3.13; Section 3.14; Section 3.15; Section 3.17;
Section 3.22; Section 3.23; Section 4.15; Section 4.16; Section 4.20;
introduction to Article 5; introduction to Article 6; Section 6.1(b); Section
6.11; introduction to Article 7; Section 10.7; Section 11.4; Section 11.5;
Section 11.8, Section 11.11(d); Section 11.13 and Section 11.17.
(c) 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 the Sixth Amendment Date, the outstanding
principal balance of the term loans previously made by
Lenders to Borrower (individually, the "Term Loan" and,
collectively, the "Term Loans") is $25,000,000. Pursuant to
Borrower's request, Lenders have agreed to increase the
principal amount of the Term Loans to $35,000,000 and to lend
the Borrowers the difference between such increased amount of
the Term Loans and the outstanding principal balance thereof
prior to such increase. 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
Sixth Amendment Date, each Lender shall make its portion of
the increased amount of the Term Loan available to the Agent
by wire transfer of immediately available funds to Agent's
Deposit Account. Upon fulfillment of the applicable
conditions set forth in Section 2 of the Sixth Amendment,
such increased amount of the 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
available the portion of such increase to be made by such
other Lender.
(c) Each Lender's Term Loan, as so increased, shall
be evidenced by that Lender's Term Note, subject to the
provisions of Section 2.6.
(d) Addition of New Section 2.3A of the Loan Agreement.
The following Section 2.3A of the Loan Agreements is hereby
added immediately after Section 2.3:
2.3A Debt Repurchase Line.
(a) Subject to the terms and conditions set forth in this
Agreement, Lenders hereby establish the Debt Repurchase Line
pursuant to which, each Lender agrees, severally, and for itself
alone, that during the period commencing on the Sixth Amendment
Date and ending on the second anniversary of the Sixth Amendment
Date, it shall make pro rata, according to that Lender's Pro Rata
Share of the Debt Repurchase Line, Debt Repurchase Loans in such
amounts as Borrower may request in accordance with Section 2.3A(c),
the proceeds of which will be used by Borrower to effect
repurchases or redemptions of Senior Subordinated Notes; provided,
that, each of the following conditions precedent have been
satisfied:
(i) The repurchase or redemption of Senior
Subordinated Notes to be effected with the proceeds of such
Debt Repurchase Loan shall be permitted pursuant to the terms
of the Senior Subordinated Note Indenture, and no default or
event of default shall exist thereunder as a result thereof.
(ii) The representations and warranties contained in
Article 4 shall be true and correct in all material respects
on and as of the date of the Debt Repurchase Loan 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 transaction expressly
contemplated by this Agreement).
(iii) 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 Material Adverse Effect.
(iv) No Default or Event of Default shall have
occurred and be continuing or will result from the redemption
or repurchase to be effected with such Debt Repurchase Loan.
(v) Since June 30, 1998, 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.
(vi) Lenders shall be satisfied that Borrower's
incurrence of Indebtedness pursuant to the requested Debt
Repurchase Loan 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.
(b) The aggregate amount of Debt Repurchase Loans made
hereunder may not exceed the amount of the Debt Repurchase Line. No
Debt Repurchase Loan may be reborrowed once repaid.
(c) Borrower shall request each Debt Repurchase Loan in
writing at least three (3) Business Days prior to the requested
funding date, which request shall specify the date of the requested
Debt Repurchase Loan, the amount thereof and the amount of Senior
Subordinated Notes to be purchased with the proceeds thereof and shall
include a certification that each of the conditions precedent thereto
specified in paragraph (a) above has been satisfied. In the event that
the requested Debt Repurchase Loan is to be a Fixed Rate Loan,
Borrower shall concurrently with such request make a Fixed Rate
Election with respect thereto in accordance with Section 3.5(b).
(d) On the effective date of the Sixth Amendment the sum
of $5,000,000 constituting an Advance previously made to permit a
repurchase of Senior Subordinated Notes shall be converted from an
Advance to a Debt Repurchase Loan.
(e) Promptly following receipt of a request for Debt
Repurchase Loan, the Agent shall notify each Lender by telephone or
telecopier of the date of the Debt Repurchase Loan and such Lender's
Pro Rata Share of the Loan. Not later than 11:00 a.m., Atlanta time,
on the date specified for any Debt Repurchase Loan, each Lender shall
make its Pro Rata Share of the 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 8.2, each Debt Repurchase Loan shall be made by the Agent by
wire transfer of immediately available funds to Borrower's Deposit
Account, to the extent actually received from Lenders. No Lender
shall be responsible for the failure of any other Lender to make the
Pro Rata Share of any Loan to be made by such other Lender.
(f) On the second anniversary of the Sixth Amendment Date,
Borrower's ability to obtain Debt Repurchase Loans shall terminate.
(g) Interest shall be payable on each Debt Repurchase Loan
on the dates provided in Section 3.17 (as amended pursuant to Section
1(b) above), commencing on the first such date occurring after the
disbursement thereof. With respect to the Advance converted to a Debt
Repurchase Loan as provided in clause (d) above, such commencement
date shall be November 15, 1998. The outstanding principal balances
of the Debt Repurchase Loans shall be payable in twenty equal
quarterly installments (based on a five-year amortization) commencing
on August 15, 2000 and continuing on each Quarterly Payment Date
thereafter provided, however, that on the twentieth Quarterly Payment
Date, the outstanding principal balance of the Debt Repurchase Loans,
together with all accrued and unpaid interest thereon, shall be due
and payable in full.
(h) The Debt Repurchase Loans shall be evidenced by
promissory notes in form and substance satisfactory to Lenders which
shall be "Notes" for all purposes of this Agreement.
(e) 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 fifteen (15) 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 Ten
Million Dollars ($10,000,000) in the aggregate as to both 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) Each Subsequent Commitment Increase shall be in a
minimum amount of Five Million Dollars ($5,000,000).
(iii) 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.
(iv) 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).
(v) 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.
(vi) 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.
(vii) Since June 30, 1998, 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.
(viii) 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.
(ix) 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.
(x) Borrower shall pay to Lenders a fee for each Subsequent
Commitment Increase in an amount of one-fourth percent (.25%) of the
amount of such increase which fee shall be fully-earned and non-
refundable on the date of such increase.
(f) 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 full on the Maturity Date. The aggregate
principal amount of the Debt Repurchase Loans shall be paid as provided in
Section 2.3A.
(g) Amendments to Section 3.3 of the Loan Agreement. (i) Section 3.3 of
the Loan Agreement is hereby amended by deleting clauses (b) and (d) thereof in
their entireties.
(ii) Section 3.3 of the Loan Agreement is hereby further amended by
changing the references to "Term Loan" and "Term Loans" in clauses (c), (e) and
(f) thereof to references to "Debt Repurchase Loan" and "Debt Repurchase Loans".
(iii) Section 3.3 of the Loan Agreement is hereby further amended by
inserting the phrase "and the Debt Repurchase Line" immediately after the word
"Commitment" in clause (g) thereof and by inserting the words "and the Debt
Repurchase Loans" immediately after the words "Term Loans" in such clause (g).
(iv) Section 3.3 of the Loan Agreement is hereby further amended by adding
the following new clause (h) at the end thereof:
(h) To the extent that Borrower prepays the Debt Repurchase Loans in
full prior to the payment in full of the Term Loans, Borrower shall be
required to make the prepayments specified in clauses (c) and (e)
above with regard to the Term Loans.
(h) Amendments to Section 3.4 of the Loan Agreement.
(i) Section 3.4 of the Loan Agreement is hereby amended by deleting the
first sentence thereof in its entirety and substituting in lieu thereof the
following sentence:
Interest shall be payable on (i) the outstanding daily
unpaid principal amount of each Advance from the date hereof
until payment in full of such Advance, (ii) each Term Loan
from the Closing Date until payment in full of the Term Loan
and (iii) each Debt Repurchase Loan from the date thereof
until payment in full thereof, and, in each case shall
accrue and be payable at the applicable rates set forth
herein with respect to Advances, the Term Loans and the Debt
Repurchase Loans, before and after default, before and after
maturity before and after judgment, and before and after the
commencement of any proceeding under any Debtor Relief Law,
with interest on overdue interest to bear interest at the
Default Rate to the extent permitted by applicable laws.
(ii) Section 3.4 of the Loan Agreement is hereby further amended by
inserting in paragraph (b) thereof immediately after the words "Term
Loans" the phrase "and the Debt Repurchase Loans".
(i) Fixed Rate. Borrower shall have the same right to elect
that the Debt Repurchase Loans bear interest at the Fixed Rate as it
does with respect to the Term Loans, in accordance with the provisions
of Section 3.5 of the Loan Agreement; provided, that, Borrower may not
have more than two (2) Interest Periods in effect at any time with
respect to the Debt Repurchase Loans.
(j) Amendment to Section 3.7 of the Loan Agreement. The Loan
Agreement shall be deemed to be further amended by deleting Section
3.7 thereof in its entirety and substituting in lieu thereof the
following revised Section 3.7:
3.7 Commitment Fees. (1)Borrower shall pay to the Agent, for the
account of each Lender, a commitment fee with respect to the Commitment in
an amount equal to the quotient of (a) an amount equal to (i) the average
daily amount by which the Commitment exceeds the Facility Usage during the
preceding month multiplied by (ii) one-quarter of one percent (1/4 of 1%)
divided by (b) 360. The commitment fee payable hereunder shall accrue
daily commencing on the Sixth Amendment Date and be payable monthly in
arrears on each Monthly Payment Date and on the Commitment Termination
Date.
(2) Borrower shall pay to the Agent, for the account of each Lender, a
commitment fee with respect to the Debt Repurchase Line, in an amount equal
to the quotient of (a) an amount equal to (i) the average daily amount by
which the Debt Repurchase Line exceeds the outstanding Debt Repurchase
Loans during the preceding month multiplied by (ii) one quarter of one
percent (1/4 of 1%) divided by (b) 360. The commitment fee payable
hereunder shall accrue daily commencing on the Sixth Amendment Date and be
payable monthly in arrears on each Monthly Payment Date and on the
Commitment Termination Date.
(k) Amendment to Section 4.21 of the Loan Agreement. Section 4.21 of the
Loan Agreement is hereby 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, the Fourth Amendment, the Fifth Amendment and the Sixth
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 constitute the "Credit Agreement" within the
meaning of the Senior Subordinated Note Indenture, and the Term Loans,
the Revolving Credit Loan, the Letter of Credit Obligations, the Debt
Repurchase Loans 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.
(l) 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 Sixth 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 Sixth Amendment Date and
after giving effect to the Sixth 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 Sixth 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, 1997 and Borrower's related audited consolidated statements of
operations, stockholders' equity and cash flows for its Fiscal Year ending
December 31, 1997, (ii) Borrower's unaudited consolidated balance sheet for
its Fiscal Quarter ending June 30, 1998 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 projections of its future financial performance prepared after
reasonable investigations. As of the Sixth 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 June 30, 1998, no event or
circumstance has occurred that could reasonably be expected to have a
Material Adverse Effect.
(m) Amendments to Section 6.3 of the Loan Agreement. (i) Section 6.3 of
the Loan Agreement shall be amended by deleting clauses (c), (d) and (h) thereof
in their entireties and substituting in lieu thereof the following revised
clauses (c), (d) and (h):
(c) payments to Lancer or any Affiliate of Lancer of Borrower's
allocated portion of the Lancer consolidated group's corporate expenses
(including expenses for fees actually paid or payable at market rates to
attorneys, accountants, consultants and other professionals) actually
incurred in connection with Lancer's or any Affiliates of Lancer's
performance of management, consulting, monitoring and financial advisory
services with respect to Borrower or any Subsidiary; provided, however,
that such payments (excluding reimbursement of the expenses referred to in
the preceding parenthetical) shall be in an amount not in excess of
$1,600,000 in the aggregate in any Fiscal Year (inclusive of an amount not
in excess of $100,000 in any Fiscal Year permitted to be retained and paid
by T-H Licensing as provided in clause (A)(2) of the second paragraph of
Section 6.9(c) hereof);
(d) payments in respect of the Equity Participation Plan and the
Equity Incentive Plan to the extent permitted under Section 6.9;
(h) reasonable directors' fees to directors of Borrower who are not
employees of Borrower in an aggregate amount not to exceed $200,000 in any
Fiscal Year;
(ii) Section 6.3 of the Loan Agreement shall be further amended by adding
the following new clauses (m), (n), (o) and (p) at the end of such section:
(m) payments to Lancer or any Affiliate of Lancer for consulting,
investment banking, advisory or other services performed by Lancer or any
Affiliates of Lancer in connection with material and extraordinary
transactions, including material acquisitions and dispositions, of Borrower
or any of its Subsidiaries (including reimbursement of expenses of Lancer
or Affiliates of Lancer for fees actually paid or payable at market rates
to attorneys, accountants, consultants and other professionals in
connection with such services); provided, however, that (i) such payments
(excluding reimbursement of the expenses referred to in the preceding
parenthetical) do not exceed in any Fiscal Year the greater of (x)
$1,500,000 or (y) fifty percent (50%) of Borrowers' Consolidated Net Income
before payment of Permitted Preferred Stock Dividends for the preceding
Fiscal Year, but not to exceed $5,000,000, (ii) no Default or Event of
Default has occurred and is continuing or will result from the payment of
any such amount and (iii) this provision shall not be deemed to be a
consent by Lenders to the consummation of any transaction prohibited by the
Loan Agreement;
(n) payments to Lancer or the Lancer Employee Stock Ownership Plan,
the proceeds of which are used to redeem shares of common stock of Lancer
held by participants in the Lancer Employee Stock Ownership Plan so long as
(i) such payments do not exceed $500,000 in the aggregate in any Fiscal
Year or $2,000,000 in the aggregate in the Fiscal Year (if any) in which
Borrower's employees' participation in the Lancer Employee Stock Ownership
Plan is terminated; (ii) such payments do not exceed $5,500,000 in the
aggregate during the term of this Agreement and (iii) at the time of the
making of any such payment no Default or Event of Default shall have
occurred and be continuing or will result from the making of such payment;
(o) purchases by Borrower or any Subsidiary of Borrower of the
Exchange Preferred Stock so long as (i) the face amount of such purchases
does not exceed $15,000,000 in the aggregate in any Fiscal Year and (ii) at
the time of the making of any such purchase, no Default or Event of Default
shall have occurred and be continuing or will result from the making of
such purchase; and
(p) repurchases or redemptions of Senior Subordinated Notes with the
proceeds of Debt Repurchase Loans so long as all conditions precedent to
the making of each Debt Repurchase Loan set forth in Section 2.3A have
been satisfied.
(n) Amendments to Section 6.9 of the Loan Agreement. (i) Section 6.9
of the Loan Agreement shall be deemed to be amended by deleting subclause
(i) of clause (a) thereof and substituting in lieu thereof the following
revised subclause (i):
(i) to the Persons provided under the Equity Incentive Plan or the
Equity Participation Plan in amounts not in excess of the Equity Plan Cap;
(ii) Section 6.9 of the Loan Agreement shall be further amended by deleting
the figure "$850,000" in clause (A)(2) of the second paragraph of clause (c)
thereof and replacing it with the figure "$1,600,000".
(o) Amendments to Section 6.17 of the Loan Agreement. Section 6.17 of the
Loan Agreement shall be amended by deleting clause (b) thereof and substituting
the following in lieu thereof the following revised clause (b):
(b) amend, supplement, waive or otherwise relinquish any material
right under, or otherwise modify any provision of, any Related Agreement
which could reasonably be expected to have a Material Adverse Effect.
The remainder of Section 6.17, including, without limitation, the last sentence
thereof, shall remain as written.
(p) Amendments to Section 6.18 and Sections 6.20 through 6.22 of the Loan
Agreement. The Loan Agreement shall be deemed to be further amended by deleting
Section 6.18 and Sections 6.20 through 6.22 thereof in their entireties and
substituting in lieu thereof the following revised Section 6.18 and
Sections 6.20 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 which exceed in the aggregate for Borrower and its Subsidiaries
the sum of $15,000,000; provided that, in the event that, for any Fiscal
Year, the maximum aggregate amount 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 1.25:1.00.
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, 1998 .90:1.00
December 31, 1999 .90:1.00
December 31, 2000 1.00:1.00
and each Fiscal Year thereafter
For purposes of this Section 6.21, Consolidated Cash Flow and
Consolidated Fixed Charges shall be calculated based upon the period of four
Fiscal Quarters ending on the date of calculation.
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 applicable Fiscal Quarter set forth below:
FISCAL QUARTER RATIO
All Fiscal Quarters through 1.50:1.00
the Fiscal Quarter ending
December 31, 2001
Fiscal Quarters Ending
March 31, 2002 and June 30, 2002 1.60:1.00
All Fiscal Quarters thereafter 1.75:1.00
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.
Section 6.19 of the Loan Agreement shall remain as set forth in the Third
Amendment to Loan Agreement, dated as of March 31, 1995.
(q) Amendment to Section 9.2 of the Loan Agreement. Section 9.2 of the
Loan Agreement is hereby amended by inserting in clause (a)(i) thereof
immediately after the words "Letter of Credit Obligations" the phrase "and the
Debt Repurchase Line and Lenders' Obligations to make Debt Repurchase Loans
thereunder".
(r)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
Amendment.
2. Conditions Precedent. This Amendment shall not become effective
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,
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, which Term
Notes shall be issued in consolidation, extension and renewal of the Term
Notes dated December 5, 1996 issued by Borrower to Lenders;
(ii) an amendment to the Mortgage giving effect to the amendments
effected hereby, 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 state of its 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 1 to this
Amendment, together with copies of all factual certificates and legal
opinions upon which such counsel has relied;
(viii) Lenders shall be satisfied that Borrower's incurrence
of Indebtedness pursuant to the increase in the Term Loans contemplated
hereby and the initial Debt Repurchase Loan 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 with regard to such matters, each to be in form and substance
satisfactory to Lenders.
(ix) 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 effective 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). In addition, Borrower represents and warrants that a Change of
Control of Lancer did not result from the $30,000,000 capital contribution
made by CIBC Wood Gundy Ventures, Inc. to Lancer.
(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 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 June 30, 1998, 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 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) Fees. The Agent shall have received, for the account of Lenders, a
closing fee in the amount of $125,000 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. Lenders acknowledge that Borrower has advised Lenders
that Borrower may prepay or repay some or all of the Senior Subordinated
Notes (the "Refinancing") using proceeds from the issuance of new senior
subordinated notes or other sources. Such Refinancings will require
Lenders' consent pursuant to the terms of the Loan Agreement. Without
limitation of Lenders' discretion to consent or not to consent to each such
Refinancing, Lenders agree that they will not charge any additional fee in
connection with such consent so long as (i) at the times when such consent
is requested and such Refinancing occurs, no Default or Event of Default
has occurred and is continuing, (ii) Borrower does not request that Lenders
grant concurrent consents, waivers, or amendments as to any other matters
except, with respect to the issuance of new senior subordinated notes, any
necessary consents, waivers or amendments incidental to such Refinancing,
(iii) Borrower does not request that Lenders make any financing available
in regard thereto except pursuant to the Debt Repurchase Line, and (iv)
such consent requests and Refinancings occur on or prior to September 15,
1999.
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 September 15, 2000, 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 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
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
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 as of the 12th day of
October, 1998.
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 as of the 12th day of
October, 1998.
LANCER INDUSTRIES INC.
By:____________________
Name:
Title:
THIRD AMENDMENT TO MORTGAGE , ASSIGNMENT OF LEASES,
RENTS AND PROFITS, SECURITY AGREEMENT AND FIXTURE FILING
THIS THIRD AMENDMENT ("Amendment"), dated as of October 12, 1998
between FAIRFIELD MANUFACTURING 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"), a Fourth Amendment to Loan Agreement, dated as of
December 5, 1996 ("Fourth Amendment"), and a Fifth Amendment to Loan Agreement,
dated as of February 26, 1997, and a Sixth Amendment to Loan Agreement, dated as
of even date herewith ("Sixth 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, pursuant to the Fourth Amendment, subject to the terms and
conditions set forth therein, (a) Mortgagor, Lenders and Mortgagee agreed to
modify in certain respects the manner in which the Subsequent Commitment
Increase may be effected; (b) Lenders agreed to extend the final maturity date
of the Revolving Loans to July 1, 2001; (c) Lenders agreed to make additional
term loans to Borrower (the "New Term Loans") in the aggregate original
principal amount of Fifteen Million Dollars ($15,000,000); (d) Lenders and
Mortgagor 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 was 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 agreed to amend the Loan
Agreement in certain other respects; and
WHEREAS, in connection with the Fourth Amendment, Mortgagor and
Mortgagee entered into a Second Amendment to Mortgage, Assignment of Leases,
Rents and Profits, Security Agreement and Fixture Filing, dated as of December
5, 1996 and recorded at record 9626077 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 Fourth Amendment; and
WHEREAS, on the date hereof, Mortgagor, Lender and Mortgagee have
entered into the Sixth Amendment, pursuant to which, subject to the terms and
conditions set forth therein, among other things, Mortgagor and Lenders have
agreed to (a) modify the provisions regarding the Subsequent Commitment Increase
in order to allow Mortgagor the option to increase the amount of the Commitment
twice in increments of $5,000,000 each (the "Subsequent Commitment Increases"),
such that the Commitment may be increased to an aggregate amount of $30,000,000,
(b) extend the Commitment Termination Date for the Commitment and the Maturity
Date of the Term Loan to July 1, 2005, (c) increase the amount of the Term Loans
to Thirty-Five Million Dollars ($35,000,000), pursuant to which Lenders will
loan to Mortgagor the excess of such increased amount of the Term Loans over the
outstanding principal balance of the Term Loans (presently $25,000,000) and
(d) establish for Mortgagor a non-revolving line of credit in the maximum amount
of Ten Million Dollars ($10,000,000), pursuant to which Mortgagor may obtain
loans for use by it in repurchasing or redeeming "Senior Subordinated Notes" (as
defined in the Loan Agreement) (herein, the "Debt Repurchase Line");
WHEREAS, in connection with the Sixth Amendment, Mortgagor desires to
join with Mortgagee in the execution of this amendment in order to (a) confirm
that the Term Loans, as increased thereby, are secured by the Mortgage and that
any Revolving Loans made under the Subsequent Commitment Increases (if effected)
and any "Debt Repurchase Loans" (as defined in the Sixth Amendment) made under
the Debt Repurchase Line 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 $75,000,000.
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. Amendments to Description of Indebtedness. (a) 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, 2005 (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 Thirty Million Dollars ($30,000,000) 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
October 12, 1998, in the principal amount of THIRTY-FIVE MILLION
DOLLARS ($35,000,000) with final payment being due July 1, 2005, which
note has been issued by Mortgagor in extension and renewal, to the
extent of the sum of Twenty-Five Million Dollars ($25,000,000), of
that certain Term Note, dated as of December 5, 1996, in the original
principal amount of Thirty-Three Million Dollars ($33,000,000), issued
by Mortgagor to GE Capital (the "Term Note"; the Revolving Credit Note
and the Term Note, collectively, the "Notes").
(b) Such description of the Indebtedness is hereby further amended by
deleting clause (vi) thereof in its entirety and substituting in lieu thereof
the following revised clause (vi):
(vi) any and all other sums due or to become due under the Loan
Agreements, the Notes, this Mortgage or any other "Loan Document"
(hereinafter defined), including, without limitation, all obligations
of Mortgagor to Lenders in respect of "Debt Repurchase Loans" (as
defined in the Loan Agreement) made by Lenders to the Mortgagee under
the "Debt Repurchase Line" (as defined in the Loan Agreement) in the
maximum aggregate principal amount of Ten Million Dollars
($10,000,000), having a final maturity date of May 15, 2005.
3. Amendment to Maximum Amount of Advances. The mortgage is hereby
further amended by deleting the figure "$25,000,000" in the first sentence of
the final paragraph on page 6 of the Mortgage and substituting in lieu thereof
the figure "$30,000,000".
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:_____________________________
Paul S. Levy
Secretary
[CORPORATE SEAL]
GENERAL ELECTRIC CAPITAL
CORPORATION, as Agent
By:_______________________________
Elaine L. Moore
Senior Vice President,
as duly authorized
[CORPORATE SEAL]
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (the "Agreement"), dated as of August 4, 1998,
between Fairfield Manufacturing Company, Inc., a Delaware corporation (the
"Company"), and Mr. Stephen K. Clough (the "Executive").
The parties agree as follows:
1. Employment. The Company hereby employs the Executive, and the
Executive hereby accepts employment with the Company, upon the terms and subject
to the conditions set forth herein.
2. Term. Subject to earlier termination pursuant to Section 13
hereof, the term of the employment by the Company of the Executive pursuant to
this Agreement (the "Term") shall commence on August 12, 1998 (the "Effective
Date") and terminate on the third anniversary thereof, unless extended by mutual
agreement of the parties no later than one year prior to its expiration.
3. Position. During the Term, the Executive shall serve as the
President and Chief Executive Officer ("CEO") of the Company, supervising the
conduct of the business and affairs of the Company and performing such other
duties as the Board of Directors of the Company (the "Board") shall determine.
4. Duties. During the Term, the Executive shall devote his full time
and attention to the business and affairs of the Company, except for absences
due to authorized vacations, illness, family emergency, incapacity, jury duty or
other government or court-mandated activity, or (to the extent required by the
Separation Agreement referred to in Section 14) the provision of assistance to
former employer in the defense of any legal or administrative proceeding.
5. Place of Performance. The Executive shall perform his duties and
conduct his business at the principal executive offices of the Company, which
are in the Lafayette, Indiana area, except for required travel on the Company's
business.
6. Salary and Bonus. (a) During the Term, the Company shall pay to
the Executive a base salary (the "Base Salary") at the rate of $400,000 per
year. The Compensation Committee of the Board shall review the Base Salary
periodically, but not less frequently than annually, and may, in its discretion,
adjust the Executive's Base Salary in accordance with the Company's salary
administration practices. The Base Salary shall be payable to the Executive in
substantially equal installments in accordance with the Company's normal payroll
practices.
(b) For each fiscal year of the Company ending during the Term,
Executive shall be eligible to receive a target bonus equal to 100% of the Base
Salary for such fiscal year provided the Company and the Executive each achieves
the target performance objectives established for such fiscal year by the Board,
in consultation with the Executive. If the performance of the Company and the
Executive exceeds such target performance objectives for an applicable fiscal
year, the amount of the Executive's annual bonus for such fiscal year shall be
increased proportionately, subject to a maximum annual bonus equal to 200% of
the Base Salary for such fiscal year for performance at or above 150% of the
target performance objectives for such fiscal year. If the Company or
the Executive does not achieve the target performance objectives for an
applicable fiscal year, the amount of the Executive's annual bonus for such
fiscal year shall be decreased proportionately, subject to a minimum annual
bonus equal to 50% of the Base Salary for such fiscal year for performance by
the Company and the Executive at least equal to 80% of the target performance
objectives for such fiscal year. Notwithstanding the forgoing, the Executive's
annual bonus for the fiscal year ending December 31, 1998 shall be a pro-rated
amount determined by multiplying the annual bonus amount by a fraction, the
numerator of which is the number of days remaining in calendar year 1998 as of
the Effective Date and the denominator of which is 365. The Board shall review
with the Executive the budget and performance targets established for each
fiscal year no later than January 31 of such fiscal year. The annual bonus, if
any, shall be paid to the Executive within ten business days after receipt by
the Board of the completed audited financial statements of the Company for the
fiscal year to which such annual bonus relates. Subject to Section 13, the
Executive will not be entitled to an annual bonus for a fiscal year if he is not
an active employee by the Company on the last day of such fiscal year.
7. Long-Term Incentive Programs. (a) During the Term, following the
adoption thereof by the Board (which the Board has committed to adopt by
December 31, 1998), the Executive shall participate in the Amended and Restated
Fairfield Manufacturing Company, Inc. Incentive Plan for Senior Management (the
"Incentive Plan") in accordance with the terms and provisions thereof as in
effect from time to time. Upon the adoption of the Incentive Plan by the Board,
the Executive shall receive a grant of 40% of the Performance Units available
for grant, covering, in the aggregate, 40% of the Performance Pool established
pursuant to the terms of the Incentive Plan (the "Incentive Plan Award").
(b) As an additional long term incentive, subject to the last
sentence of this Section 7(b) regarding vesting, if, as of the relevant
Measurement Date, (i) Equity Value Created exceeds by more than 150% the
threshold amount set forth in clause (b) of the definition of the term Equity
Value Created in Section 1.3 of the Incentive Plan, the Executive shall be
entitled to a long term incentive bonus equal to 1% of such amount exceeding
150% of the threshold amount and (ii) Equity Value Created exceeds by more than
200% the threshold amount set forth in such clause (b) of the definition of the
term Equity Value Created, the Executive shall be entitled to an additional long
term incentive bonus equal to 1% of such amount exceeding 200% of the threshold
amount. Any long term incentive bonus payable pursuant to this Section 7(b)
shall be paid in the same form of consideration as the Incentive Plan Award.
The Executive's right to receive any long term incentive bonus pursuant to this
Section 7(b) shall become vested and non-forfeitable in six increments as and to
the extent the Executive's rights to the Incentive Plan Award become vested in
accordance with the terms of the Incentive Plan.
(c) Capitalized terms used in this Section 7 without definition shall
have the meanings ascribed thereto in the Incentive Plan.
8. Relocation. (a) The Company shall pay or reimburse the Executive
for the reasonable costs and expenses set forth on Annex A actually incurred by
the Executive in connection with his relocation from the Clearwater, Florida
area to the Lafayette, Indiana area. The Executive shall receive the $10,000
allowance referred to in item 5 of Annex A promptly upon his relocation to
Lafayette, Indiana.
(b) During the first year of the Term, the Company shall reimburse
the Executive for the reasonable costs of a reasonable number of round-trip
flights for the Executive and his spouse between Lafayette, Indiana and
Clearwater, Florida.
9. Vacation, Holidays and Sick Leave. Beginning January 1, 1999, the
Executive will be entitled to four weeks paid vacation for each full calendar
year ending during the Term. Such vacation must be taken during the calendar
year in which it accrues and may not be carried forward, unless otherwise
expressly permitted by the Board. During the Term, the Executive shall also be
entitled to paid holidays and sick leave in accordance with the Company's
policies and practices for its senior officers, as in effect from time to time.
10. Business Expenses. The Company shall reimburse the Executive for
all reasonable and necessary business expenses incurred by him in connection
with the performance of the duties of his employment (including, without
limitation, reasonable expenses for travel and entertainment incurred in
conducting or promoting business for the Company) upon timely submission by the
Executive of receipts and other documentation as required by the Internal
Revenue Code of 1986, as amended (the "Code"), and in accordance with the
Company's normal expense reimbursement policies as in effect from time to time.
11. Other Benefits. (a) During the Term, the Executive shall be
eligible to participate fully in all health and other employee benefit
arrangements generally available to senior executive officers of the Company in
accordance with the terms of such arrangements as in effect from time to time.
(b) During the Term, the Company will provide the Executive with a
car, equipped with a cellular telephone, for his exclusive use and will bear the
costs and expenses incident to maintaining such car, including, without
limitation, insurance premiums and reasonable costs of repair and upkeep.
(c) The Company shall reimburse the Executive for the initiation and
annual membership fees and assessments of a country club in Lafayette, Indiana
of the Executive's choosing, upon presentation to the Company of appropriate
evidence of the incurrence and amount thereof.
12. Ownership of Intellectual Property. All intellectual property
conceived or developed by the Executive during the Term which relate to the
business or operations of the Company shall belong to and constitute property
solely of the Company.
13. Termination of Agreement. The Executive's employment by the
Company pursuant to this Agreement shall not be terminated prior to the end of
the Term except as set forth in this Section 13. Upon the effective date of any
termination of the Executive's employment pursuant to this Section 13, the Term
shall expire.
(a) By Mutual Consent. The Executive's employment pursuant to this
Agreement may be terminated at any time by the mutual written agreement of
the Company and the Executive.
(b) Death. The Executive's employment pursuant to this Agreement
shall be terminated upon the death of the Executive, in which event the
Executive's spouse or heirs shall receive, when the same would have been
paid to the Executive but for such termination, (i) all Base Salary and
benefits to be paid or provided to the Executive under this Agreement
through the Date of Termination (as defined in Section 13(f) hereof), (ii)
the Base Salary that would have been paid to the Executive under this
Agreement but for such termination during the one year period commencing on
the Date of Termination and (iii) the pro rata portion of any annual bonus
that would have been payable to the Executive for the then current fiscal
year of the Company pursuant to Section 6(b) of this Agreement but for such
termination, as determined by the Company Board.
(c) Disability. The Executive's employment pursuant to this
Agreement may be terminated by written notice to the Executive by the
Company or to the Company by the Executive in the event that (i) the
Executive becomes unable to perform the normal duties of his employment by
reason of physical or mental illness or accident for any six (6)
consecutive month period, or (ii) the Company receives written opinions
from both a physician for the Company and a physician for the Executive
that the Executive will become so unable within the immediate future. In
the event that the Executive's employment terminates pursuant to this
Section 13(c), the Executive shall be entitled to receive, when the same
would have been paid to the Executive but for such termination, (i) all
Base Salary and benefits to be paid or provided to the Executive under this
Agreement through the Date of Termination, (ii) the Base Salary and health
benefits that would have been paid or provided to the Executive under this
Agreement but for such termination during the one year period commencing on
the Date of Termination and (iii) the pro rata portion of any annual bonus
that would have been payable to the Executive for the then current fiscal
year of the Company pursuant to Section 6(b) of this Agreement but for such
termination, as determined by the Board; provided, however, that amounts
payable to the Executive under this Section 13(c) shall be reduced by the
proceeds of any short- or long-term disability payments to which the
Executive may be entitled during such period.
(d) By the Company for Cause. The Executive's employment pursuant to
this Agreement may be terminated by the Company by written notice to the
Executive ("Notice of Termination") upon the occurrence of any of the
following events (each of which shall constitute "Cause" for termination):
(i) the Executive commits any act of gross negligence, incompetence, fraud
or wilful misconduct causing or reasonably expected to cause material harm
to the Company, (ii) the conviction of the Executive of a felony, (iii) the
Executive intentionally obtains personal gain, profit or enrichment at the
expense of the Company or from any transaction in which the Executive has
an interest which is adverse to the interest of the Company unless the
Executive shall have obtained the prior written consent of the Board, (iv)
the Executive acts in a manner which the Executive intends to be materially
detrimental or damaging to the Company's reputation, business operations or
relations with its employees, suppliers or customers, or (v) any material
breach by the Executive of this Agreement, including, without limitation, a
material breach of Section 17 or Section 18 hereof. In the event the
Executive's employment by the Company is terminated pursuant to this
Section 13(d), the Executive shall only be entitled to receive the Base
Salary and benefits to be paid or provided to the Executive under this
Agreement through the Date of Termination.
(e) By the Company Without Cause. The Executive's employment
pursuant to this Agreement may be terminated by the Company at any time
without Cause by delivery of a Notice of Termination to the Executive. In
the event that the employment by the Company of the Executive pursuant to
this Agreement is terminated by the Company without Cause pursuant to this
Section 13(e), the Executive shall be entitled to receive, when the same
would have been paid to the Executive but for such termination, (i) all
Base Salary and benefits to be paid or provided to the Executive under this
Agreement through the Date of Termination, (ii) the Base Salary and health
benefits that would have been paid or provided to the Executive under this
Agreement but for such termination during the one year period commencing on
the Date of Termination, and (iii) the pro rata portion of any annual bonus
that would have payable to the Executive for the then current fiscal year
of the Company pursuant to Section 6(b) of this Agreement but for such
termination, as determined by the Board.
(f) Date of Termination. The Date of Termination shall be (i) if the
Executive's employment by the Company is terminated pursuant to Section
13(b), the date of his death, (ii) if the Executive's employment by the
Company is terminated pursuant to Section 13(c) above, the last day of the
six-month period, or the date of the delivery of the physicians' opinions,
referred to in Section 13(c) above, (iii) if the Executive's employment by
the Company is terminated pursuant to Section 13(d) the date on which a
Notice of Termination is given and (iv) if the Executive's employment is
terminated pursuant to Section 13(e), 60 days after the date the Notice of
Termination is given; provided, that the Executive may waive such notice in
the event of a termination pursuant to Section 13(e) in which event, the
Date of Termination shall be five days after the Notice of Termination.
14. Representations. (a) The Company represents and warrants that
this Agreement has been authorized by all necessary corporate action of the
Company and is a valid and binding agreement of the Company enforceable against
it in accordance with its terms.
(b) The Executive represents and warrants that he is not a party to
any agreement or instrument which would prevent him from entering into or
performing his duties in any way under this Agreement. The Executive is subject
to the terms of a Separation Agreement dated June 26, 1998 with his former
employer which imposes restrictions on the Executive for a period of 30 months
from engaging in business activities deemed competitive with his former
employer.
15. Assignment; Binding Agreement. This Agreement is a personal
contract and the rights and interests of the Executive hereunder may not be
sold, transferred, assigned, pledged, encumbered, or hypothecated by him, except
as otherwise expressly permitted by the provisions of this Agreement. This
Agreement shall inure to the benefit of and be enforceable by the Executive and
his personal or legal representatives, executors, administrators, successors,
heirs, distributees, devisees and legatees. In the event of the Executive's
death, any amounts remaining to be paid to the Executive pursuant to the terms
of this Agreement shall be paid to his devisee, legatee or other designee or, if
there is no such designee, to his estate.
16. Offset Upon Subsequent Employment. In the event that the
Executive's employment with the Company is terminated pursuant to Section 13(e)
and the Executive obtains any other employment (including self-employment)
during the one year period commencing on the Date of Termination, Executive
agrees that any income earned in connection with such other employment shall
reduce the Company's obligation to the Executive under Section 13(e) on a
dollar-for-dollar basis.
17. Non-Competition Covenants. The Executive agrees that he will not
at any time during the Term and, for a period of 12 months following the Date of
Termination, directly or indirectly, own any interest in, operate, join, control
or participate as a partner, director, principal, officer, or agent of, enter
into the employment of, act as a consultant to, or perform any services for, any
entity in the United States of America (and any other geographic areas in which
the Company or its subsidiaries, as of Date of Termination, have material
operations) which directly competes with the Company in the sale of any products
or services sold by the Company or any of its subsidiaries at the Date of
Termination. Notwithstanding anything herein to the contrary, this Section 17
shall not prevent the Executive from acquiring securities representing not more
than 1% of the outstanding voting securities of any publicly held corporation.
It is the intent of the parties hereto that, if in the opinion of any court of
competent jurisdiction any provision of this Section 17 is not reasonable in any
respect, such court shall have the right, power and authority to modify any and
all such provisions as to such court shall appear not unreasonable and to
enforce the remainder of this Section 17 as so modified.
18. Confidentiality Covenant. The Executive agrees that he will not
at any time during the Term or at any time thereafter, directly or indirectly,
use for his own account, or disclose to any person, firm or corporation, other
than authorized officers, directors and employees of the Company or its
respective subsidiaries, Confidential Information (as hereinafter defined) of
the Company. As used herein, "Confidential Information" of the Company means
information of any kind, nature or description which is disclosed to or
otherwise known to the Executive as a direct or indirect consequence of his
association with the Company, which information is not generally known to the
public or in the businesses in which the Company is engaged or which information
relates to specific investment opportunities within the scope of the business of
the Company which were considered by the Company during the Term.
19. Entire Agreement. This Agreement contains all the understandings
between the parties hereto pertaining to the matters referred to herein, and
supersedes any other undertakings and agreements, whether oral or in writing,
previously entered into by them. The Executive represents that, in executing
this Agreement, he does not rely and has not relied upon any representation or
statement not set forth herein made by the Company regarding the subject matter
or effect of this Agreement or otherwise.
20. Amendment or Modification; Waivers. No provision of this
Agreement may be amended or waived, unless such amendment or waiver is agreed to
in writing, signed by the Executive and by a duly authorized officer of the
Company. No waiver by any party hereto of any breach by another party hereto of
any condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of a similar or dissimilar condition or provision at
the same time, any prior time or any subsequent time.
21. Notices. Any notice to be given hereunder shall be in writing
and shall be deemed given when delivered personally, sent by courier or
facsimile or registered or certified mail, postage prepaid, return receipt
requested, addressed to the party concerned at the address indicated below or to
such other address as such party may subsequently give notice hereunder in
writing:
To the Executive at:
1721 Allens Creek Drive
Clearwater, Florida 33764
To the Company at:
Fairfield Manufacturing Company, Inc.
U.S. 52 South
P.O. Box 7940
Lafayette, Indiana 47903-7940
Attention: Corporate Secretary
Any notice delivered personally or by courier under this Section 21
shall be deemed given on the date delivered and any notice sent by facsimile or
registered or certified mail, postage prepaid, return receipt requested, shall
be deemed given on the date transmitted by facsimile or mailed.
22. Severability. If any provision of this Agreement or the
application of any such provision to any party or circumstances shall be
determined by any court of competent jurisdiction to be invalid and
unenforceable to any extent, the remainder of this Agreement or the application
of such provision to such person or circumstances other than those to which it
is so determined to be invalid and unenforceable, shall not be affected thereby,
and each provision hereof shall be validated and shall be enforced to the
fullest extent permitted by law.
23. Survivorship. The respective rights and obligations of the
parties hereunder shall survive any termination of this Agreement to the extent
necessary to the intended preservation of such rights and obligations.
24. Governing Law. This Agreement will be governed by and construed
in accordance with the laws of the State of Indiana, without regard to the
principles of conflicts of law thereof.
25. Headings. All descriptive headings of sections and paragraphs in
this Agreement are intended solely for convenience, and no provision of this
Agreement is to be construed by reference to the heading of any section or
paragraph.
26. Withholding. All payments to the Executive under this Agreement
shall be reduced by all applicable withholding required by federal, state or
local law.
27. Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Employment
Agreement on August 4, 1998, to be effective as of the Effective Date.
FAIRFIELD MANUFACTURING COMPANY, INC.
By:_____________________________
Name:
Title:
_________________________________
Stephen K. Clough
Summary of Relocation Provisions
The Company will arrange and/or reimburse the cost of the following items
arising from the relocation of the Executive to Lafayette, Indiana.
1. The Company will arrange transportation of personal and household effects
to include packing, transportation, insurance, storage (not to exceed one
year), etc.
2. If the Executive sells his current residence in connection with the
relocation, the Company will reimburse the Executive for normal closing
cost expenses, real estate commission, and legal fees, but excluding
points.
3. If the Executive purchases a home in Lafayette in connection with the
relocation, the Company will reimburse the Executive for most closing cost
related expenses, excluding, in most instances, loan origination or
interest reduction fees.
4. The Company will pay the Executive $10,000 for incidental expenses incurred
in connection with the relocation. The Executive will not be required to
submit receipts. This allowance will be paid in a lump sum at the time of
the relocation to Lafayette. This incidental expense allowance will be
treated as ordinary income and not grossed up.
5. Home warranties and repairs to either residence required for loan approvals
are not included.
6. The Company will "gross up" the taxable portion of the Executive's
relocation costs (excluding item 5 above) according to the Company's
formula.
7. Reasonable temporary living expenses in Lafayette for a period not to
exceed 90 days.
