- - ------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM 10-Q
---------------------
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
Commission File No. 0-21830
---------------------
Johnstown America Industries, Inc.
(Exact name of registrant as specified in its charter)
Incorporated pursuant to the Laws of Delaware State
---------------------
Internal Revenue Service - Employer Identification No. 25-1672791
980 N. Michigan Avenue
Suite 1000
Chicago, IL 60611
(Address of principal executive offices)
(312) 280-8844
Registrant's telephone number, including area code
---------------------
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 total number of shares of the registrant's Common Stock, $.01 par value,
outstanding on August 6, 1996 was 9,736,062.
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<PAGE>
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
Page
PART I FINANCIAL INFORMATION....................................... 2
Item 1 Condensed Consolidated Balance Sheets as
of June 30, 1996, and December 31, 1995..................... 3-4
Condensed Consolidated Statements of Income for
the Three and Six Months Ended June 30, 1996 and 1995....... 5
Condensed Consolidated Statements of Cash Flows
for the Six Months Ended June 30, 1996 and 1995............. 6-7
Notes to Condensed Consolidated Financial Statements........ 8-17
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations............... 18-23
PART II OTHER INFORMATION ........................................ 24-25
1
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
In the opinion of the registrant's management, the unaudited consolidated
financial statements included in this filing on Form 10-Q reflect all
adjustments (which consist of normal recurring adjustments) which are considered
necessary for a fair presentation of financial information for the periods
presented.
2
<PAGE>
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1996 AND DECEMBER 31, 1995
June 30, December 31,
(In thousands) 1996 1995
------------- ------------
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents ........................... $ 17,105 $ 11,639
Accounts receivable, net............................ 62,886 59,959
Inventories......................................... 44,610 43,900
Prepaid expenses and other.......................... 19,188 22,935
-------- --------
Total current assets.............................. 143,789 138,433
Property, plant and equipment, net.................. 126,509 128,770
Leasing business assets, net........................ 35,190 35,655
Restricted cash..................................... 701 1,364
Deferred financing costs, net....................... 14,784 15,110
Intangible assets, net.............................. 57,015 60,023
Excess cost over net assets acquired, net........... 197,526 199,470
-------- --------
Total assets...................................... $ 575,514 $ 578,825
======== ========
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1996 AND DECEMBER 31, 1995
June 30, December 31,
(In thousands) 1996 1995
------------- ------------
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable................................... $ 40,035 $ 39,647
Accrued expenses and other payables................ 56,198 57,276
Current maturities of long-term debt and capital lease 16,821 16,813
--------- --------
Total current liabilities........................ 113,054 113,736
Long-term debt and capital lease, less current maturities 209,888 212,973
Other long-term liabilities......................... 56,729 55,106
Senior subordinated notes........................... 100,000 100,000
Deferred income taxes............................... 28,922 28,136
Shareholders' Equity:
Preferred stock, par $.01, 20,000 shares
authorized, none outstanding...................... -- --
Common stock, par $.01, 201,000 shares
authorized, 9,736 and 9,731 issued and outstanding
as of June 30, 1996 and December 31, 1995,
respectively...................................... 98 98
Paid-in capital.................................... 55,015 55,015
Retained earnings.................................. 11,838 13,791
Employee receivables for stock purchases........... (30) ( 30)
--------- --------
Total shareholders' equity ...................... 66,921 68,874
Total liabilities and shareholders' equity ...... $ 575,514 $ 578,825
======== ========
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(Unaudited)
(In thousands, except per share data)
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- --------------------
1996 1995 1996 1995
---- ---- ---- ----
Net manufacturing sales.......$ 132,308 $ 166,201 $ 283,626 $ 344,128
Leasing revenue............... 982 530 2,003 1,040
-------- -------- -------- --------
Total revenue................ 133,290 166,731 285,629 345,168
Cost of sales - manufacturing. 111,460 152,651 240,180 319,639
Cost of leasing............... 348 134 679 255
-------- -------- -------- --------
Gross profit................. 21,482 13,946 44,770 25,274
Selling, general and
administrative expenses..... 11,529 6,276 23,808 10,719
Amortization expense.......... 2,562 1,049 5,133 2,274
-------- -------- -------- --------
Operating income............. 7,391 6,621 15,829 12,281
Interest and other financing
costs, net.................. 8,147 875 16,323 1,661
Interest expense - leasing .. 743 153 1,263 153
-------- -------- -------- --------
Income (loss) before income
taxes...................... (1,499) 5,593 (1,757) 10,467
Provision (benefit)for income
taxes...................... (275) 2,237 195 4,089
-------- -------- -------- --------
Net income (loss)............$ (1,224) $ 3,356 $ (1,952) $ 6,378
======== ======== ======== ========
Net income (loss) per common
and common equivalent
shares outstanding...........$ (0.13) $ 0.34 $ (0.20) $ 0.65
======== ======== ======== ========
Weighted average common and
common equivalent shares .... 9,760 9,840 9,757 9,810
========= ========= ========= =========
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(Unaudited)
(In thousands) Six Months Ended
June 30,
----------------
1996 1995
---------- ----------
OPERATING ACTIVITIES:
Net income (loss).................................. $ (1,952) $ 6,378
Adjustments for items not affecting cash
from operating activities:
Depreciation...................................... 7,655 2,049
Amortization...................................... 7,165 2,274
Deferred tax expense.............................. 786 240
Changes in postretirement benefits................. 1,273 900
-------- --------
14,927 11,841
Changes in operating assets and liabilities,
net of effect of acquired businesses:
Accounts receivable, net........................... (2,927) (6,836)
Inventories........................................ (710) 9,469
Accounts payable................................... 386 8,392
Other assets and liabilities....................... 1,988 (311)
-------- -------
Net cash provided by operating activities.......... 13,664 22,555
-------- -------
INVESTING ACTIVITIES:
Capital expenditures, including Danville facility (4,914) (6,088)
Leased assets additions........................... (15) (17,308)
Decrease in restricted cash....................... 663 --
Acquisition of Bostrom, less cash acquired -- (32,444)
-------- -------
Net cash used for investing activities............. (4,266) (55,840)
-------- -------
See accompanying notes to condensed consolidated financial statements.
6
<PAGE>
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(Unaudited)
(In thousands) Six Months Ended
June 30,
----------------
1996 1995
---------- ----------
FINANCING ACTIVITIES:
Net (payments) borrowings under revolving loans.... -- 24,700
Net (payments) borrowings under term loans......... (8,406) --
Net borrowings under JAIX Leasing loans............ 5,329 --
Payment of deferred financing costs................ (855) (364)
Other.............................................. -- 37
-------- --------
Net cash provided by (used for) financing activities (3,932) 40,784
-------- --------
Net increase in cash and cash equivalents.......... 5,466 7,499
CASH AND CASH EQUIVALENTS,
beginning of period............................... 11,639 1,754
-------- --------
CASH AND CASH EQUIVALENTS,
end of period..................................... $ 17,105 $ 9,253
======== ========
SUPPLEMENTAL CASH FLOWS DISCLOSURE
(In thousands)
Cash paid for interest.............................. $ 14,771 $ 692
Cash paid for income taxes.......................... 587 1,790
Business acquisition
Cash paid.......................................... $ -- 32,577
Assets acquired.................................... -- 43,830
-------- --------
Liabilities assumed................................ $ -- $ 11,253
======== ========
See accompanying notes to condensed consolidated financial statements.
7
<PAGE>
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Quarter Ended June 30, 1996
(Unaudited)
1. BASIS OF PRESENTATION
The financial statements presented herein and these notes are unaudited.
Certain information and footnote disclosures normally included in the financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to the rules and regulations of the
Securities and Exchange Commission. Although the registrant believes that all
adjustments (which include only normal recurring adjustments) necessary for a
fair presentation have been made, interim periods are not necessarily indicative
of the results of operations for a full year. As such, these financial
statements should be read in conjunction with the financial statements and notes
thereto incorporated by reference in the registrant's Form 10-K for the year
ended December 31, 1995.
The consolidated financial statements include the accounts of Johnstown
America Industries, Inc. and its wholly owned subsidiaries (the "Company"). All
significant intercompany transactions and accounts have been eliminated in the
accompanying consolidated financial statements.
2. ACQUISITIONS
Bostrom Seating, Inc.
On January 13, 1995, the Company acquired Bostrom Seating, Inc.
("Bostrom"). Bostrom is primarily engaged in the manufacture and sale of air
suspension and static seating for the Class 8 heavy duty truck market. The total
purchase price was approximately $32.6 million and was funded by the Company's
previous borrowing facility.
Freight Car Services, Inc. - Danville Facility
On January 27, 1995, the Company purchased a freight car rebuilding and
repair facility in Danville, Illinois for $2.5 million and spent additional
capital in 1995 of $1.9 million for refurbishment. The Company started
operations at this facility in October 1995.
Truck Components, Inc.
On August 23, 1995, the Company completed the acquisition of Truck
Components Inc. ("TCI"), whereby the Company acquired all outstanding shares of
common stock of TCI (including shares subject to options) for a cash purchase
price of approximately $166 million.
8
<PAGE>
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the Quarter Ended June 30, 1996
(Unaudited)
ACQUISITIONS (cont.)
The Company also made a tender offer for the $82 million of TCI's
outstanding senior notes and purchased such notes for $94 million. The
acquisition and tender offer, as well as the repayment of the Company's and
TCI's existing bank debt (excluding the JAIX Leasing facility) and the payment
of various transaction fees and expenses were financed by borrowings under the
Senior Bank Facilities and the proceeds of the issuance of the Notes (see notes
4 and 5 for a description of the Company's debt).
The operating results of the acquired companies have been included in the
Company's reported results of operations from their respective acquisition
dates.
The Bostrom and TCI acquisitions were accounted for as purchases for
financial reporting purposes. Accordingly, certain assets and liabilities of the
acquired companies were recorded at estimated fair values as of the acquisition
date, adjusted as of June 30, 1996, based on management's best judgement and
available information at the time.
Future changes in the estimates related to the TCI acquisition, if any,
will be made within one year of the acquisition date and are not expected to be
material. Amortization of excess cost over net assets acquired is being
amortized over forty years.
The Company's unaudited pro forma results of operations for the six months
ended June 30, 1995 as though the acquisitions of Bostrom and TCI and the
related financing transactions occurred on January 1, 1995 are as follows (in
thousands, except per share data):
1995
-----------
Total revenue $ 532,483
Gross profit 66,152
Net income 11,510
Net income per share $ 1.17
This pro forma information does not purport to be indicative of what would
have occurred had the acquisitions and related transactions occurred at an
earlier date or of results which may occur in the future.
9
<PAGE>
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the Quarter Ended June 30, 1996
(Unaudited)
3. INVENTORIES
Inventories of the Company consist of the following (in thousands):
June 30, December 31,
1996 1995
----------- -----------
Raw materials and purchased
components $ 6,325 $ 14,287
Work-in-progress and finished goods 38,285 29,613
-------- --------
$ 44,610 $ 43,900
======== ========
4. DEBT
Long-term debt of the Company consisted of the following (in thousands):
June 30, December 31,
1996 1995
----------- -----------
Revolving Loans $ -- $ --
Tranche A Term Loans 3,335 100,000
Tranche B Term Loans 98,335 100,000
-------- --------
Total Senior Bank Facilities 191,670 200,000
Industrial Revenue Bonds 5,300 5,300
Capital leases 2,029 2,105
JAIX Leasing loans 27,710 22,381
-------- --------
Total debt 226,709 229,786
Current maturities (16,821) (16,813)
-------- --------
Long-term debt $ 209,888 $ 212,973
======== ========
10
<PAGE>
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the Quarter Ended June 30, 1996
(Unaudited)
Senior Bank Facilities
The Company entered into a credit facility ("Senior Bank Facilities") on
August 23, 1995, in conjunction with the acquisition of TCI and the related
transactions described in Note 2. The Revolving Loans portion of the Senior Bank
Facilities provides for up to $100 million of outstanding borrowings and letters
of credit, limited by the level of eligible accounts receivable and inventories.
As of June 30, 1996, availability under the Revolving Loans, after consideration
of outstanding letters of credit of $18.7 million, was $42.6 million. Borrowings
under the Senior Bank Facilities are guaranteed by each of the Company's
subsidiaries other than JAIX Leasing Company (the "Guarantor Subsidiaries") and
are secured by the assets of the Company and the Guarantor Subsidiaries,
including the stock of the Guarantor Subsidiaries.
At the Company's election, interest rates per annum applicable to the
Revolving Loans and Tranche A Term Loans will be a fluctuating rate of interest
measured by reference to either (a) an adjusted London inter-bank offered rate
("LIBOR") plus a borrowing margin or (b) an alternate base rate ("ABR") plus a
borrowing margin. Such borrowing margins range between 1.50% and 2.50% for LIBOR
loans and between .50% and 1.50% for ABR loans, fluctuating within each range in
0.25% increments based on the Company achieving certain financial results.
Interest rates per annum applicable to Tranche B Term Loans are either (a) LIBOR
plus a margin of 3.00% or (b) ABR plus 2.00%. Additionally, various fees related
to unused commitments, letters of credit and administration of the facility are
incurred by the Company.
The term loans under the Senior Bank Facilities amortize quarterly, which
commenced on March 31, 1996. The Tranche A Term Loans and the Revolving Loans
mature on March 31, 2002 and the Tranche B Term Loans mature on March 31, 2003.
The Senior Bank Facilities contain various financial covenants including
capital expenditure limitations, leverage and interest coverage ratios and
minimum net worth, and also restrict the Company from paying dividends,
repurchasing common stock and making other distributions in certain
circumstances. At June 30, 1996, the Company was in compliance with these and
all other debt covenants.
11
<PAGE>
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the Quarter Ended June 30, 1996
(Unaudited)
JAIX Term Loan
On June 14, 1996, JAIX Leasing Company ("JAIX Leasing") refinanced its
existing three year term loan facility with a 10 year term loan ("JAIX Term
Loan"). Borrowings under the JAIX Term Loan bear interest at the fixed rate of
9.35% and amortize monthly commencing July 1996. This Facility is secured by the
JAIX Leasing's leases and underlying freight car assets.
Industrial Revenue Bonds
The Company, through its wholly owned subsidiary, Freight Car Services,
Inc., issued the Industrial Revenue Bonds for $5.3 million which bear interest
at a variable rate (3.55% as of June 30, 1996) and can be redeemed by the
Company at any time. The bonds are secured by a letter of credit issued by
Johnstown America Industries, Inc. The bonds have no amortization and mature on
December 1, 2010. The bonds are also subject to a weekly "put" provision by the
holders of the bonds. In the event that any or all of the bonds are put to the
Company under this provision, the Company would effectively refinance such bonds
with additional borrowings under the Revolving Loans portion of the Senior Bank
Facilities.
In connection with the Industrial Revenue Bonds, the Company has restricted
cash at June 30, 1996 of $0.7 million from the initial proceeds of $5.3 million.
The restricted cash is held in trust and will be used for additional
improvements and expansion of the Freight Car Services' Danville facility.
Interest Rate Contracts
The Company has entered into various interest rate contracts to fix the
cost of its variable rate Senior Bank Facilities. These contracts limit the
effect of market fluctuations on the interest cost of floating rate debt. The
notional principal amounts outstanding on the interest rate contracts covering
the current period is $165 million and the fixed rates of interest on these
contracts range from 5.98% to 6.32% plus the applicable borrowing margin. The
maturities on all contracts range from August 1996, through August 1998.
12
<PAGE>
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the Quarter Ended June 30, 1996
(Unaudited)
5. SENIOR SUBORDINATED DEBT
In conjunction with the acquisition of TCI, the Company issued $100 million
of Senior Subordinated Notes (the "Notes") which are due August 15, 2005 and
have an interest rate of 11.75% per annum and are guaranteed on a unsecured,
senior subordinated joint and several basis by the Guarantor Subsidiaries. The
Notes have customary restrictive covenants including restrictions on incurrence
of additional indebtedness, and payment of dividends and redemption of capital
stock. The Notes are subordinated to all indebtedness under the Senior Bank
Facilities and cross-default provisions do exist. Except in certain limited
circumstances, the Notes are not subject to optional redemption by the Company
prior to August 15, 2000, and thereafter are subject to optional redemption by
the Company at declining redemption premiums. Upon the occurrence of a change in
control (as defined), the Company is required to offer to repurchase the Notes
at a price equal to 101% of the principal amount thereof plus accrued interest.
6. ENVIRONMENTAL MATTERS
The Company's subsidiaries are currently involved in several matters
relating to the investigation and/or remediation of locations where the
subsidiaries have arranged for the disposal of foundry and other wastes. As of
June 30, 1996, based on all of the information currently available to the
Company, the Company has an environmental reserve which management believes is
adequate to cover future expenditures. This reserve is based on current cost
estimates and does not reduce estimated expenditures to net present value,
although the Company's subsidiaries are not likely to incur costs for most of
the reserved matters until several years in the future. Any cash expenditures
required by the Company or its subsidiaries to comply with applicable
environmental laws and/or to pay for any remediation efforts will not be reduced
or otherwise affected by the existence of the environmental reserve. Due to the
early stage of investigation of many of the sites and potential remediations
referred to above, there are significant uncertainties as to waste quantities
involved, the extent and timing of the remediation which will be required, the
range of acceptable solutions, costs of remediation and the number of
potentially responsible parties contributing to such costs. Based on all of the
information presently available to it, the Company believes that the
environmental reserve will be adequate to cover its future costs related to the
sites associated with the environmental reserve, and that any additional costs
will not have a material adverse effect on the financial condition or results of
operations of the Company. However, the discovery of additional sites, the
modification of existing laws or regulations, the imposition of joint and
several liability or the uncertainties referred to above could result in such a
material adverse effect.
13
<PAGE>
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the Quarter Ended June 30, 1996
(Unaudited)
7. GUARANTOR SUBSIDIARIES
The Notes are fully and unconditionally guaranteed on an unsecured, senior
subordinated, joint and several basis by each of the Guarantor Subsidiaries. The
following condensed consolidating financial data illustrates the composition of
the Parent Company, the Guarantor Subsidiaries, and JAIX Leasing as of June 30,
1996. Separate complete financial statements of the respective Guarantor
Subsidiaries would not provide additional information which would be useful in
assessing the financial composition of the Guarantor Subsidiaries and thus, are
not presented.
Investments in subsidiaries are accounted for by the Parent Company on the
equity method for purposes of the supplemental consolidating presentation.
Earnings of subsidiaries are therefore reflected in the Parent Company's
investment accounts and earnings. The principle elimination entries eliminate
the Parent Company's investment in subsidiaries and intercompany balances and
transactions.
14
<PAGE>
Condensed Consolidating Balance Sheet
as of June 30, 1996
(In thousands)
(Unaudited)
<TABLE>
<S> <C> <C> <C> <C> <C>
Parent Guarantor
Company Subsidiaries JAIX Leasing Eliminations Consolidated
Cash and cash equivalents ......................... $ 15,577 $ (1,251) $ 2,779 $ -- $ 17,105
Accounts receivable, net .......................... -- 62,813 73 -- 62,886
Inventories ....................................... -- 44,610 -- -- 44,610
Prepaid expenses and other ........................ 8,534 9,174 1,480 -- 19,188
-------- -------- -------- -------- --------
Total current assets ......................... 24,111 115,346 4,332 -- 143,789
Property, plant and equipment, net ................ 670 125,839 33,531 (341) 159,699
Other assets ...................................... 116,245 252,374 413 (97,006) 272,026
-------- -------- -------- -------- --------
Total assets ................................. $ 141,026 $ 493,559 $ 38,276 $ (97,347) $ 575,514
======== ======== ======== ======== ========
Accounts payable .................................. $ 177 $ 39,855 $ 3 $ -- $ 40,035
Other current liabilities ......................... 23,291 50,032 (178) (126) 73,019
-------- -------- -------- --------- --------
Total current liabilities .................... 23,468 89,887 (175) (126) 113,054
Noncurrent liabilities ............................ -- 83,325 2,326 -- 85,651
Long-term debt and intercompany
advances, less current maturities ............... 50,637 231,541 27,710 -- 309,888
Total shareholders' equity ........................ 66,921 88,806 8,415 (97,221) 66,921
-------- -------- -------- -------- --------
Total liabilities and shareholders'
equity ................................... $ 141,026 $ 493,559 $ 38,276 $ (97,347) $ 575,514
======== ======== ======== ======== ========
</TABLE>
15
<PAGE>
Condensed Consolidating Statement of Income
For the Six Months Ended June 30, 1996
(In thousands)
(Unaudited)
<TABLE>
<S> <C> <C> <C> <C> <C>
Parent Guarantor
Company Subsidiaries JAIX Leasing Eliminations Consolidated
Total revenue ................................ $ 20 $ 283,626 $ 1,983 $ -- $ 285,629
Cost of sales ................................ (5) 240,180 684 -- 240,859
-------- -------- -------- -------- --------
Gross profit ............................... 25 43,446 1,299 -- 44,770
Selling, general, administrative
and amortization expenses ................... (3) 28,944 -- -- 28,941
-------- -------- -------- -------- -------
Operating income .......................... 28 14,502 1,299 -- 15,829
Interest expense, net ........................ 5,550 10,816 1,220 17,586
Equity (earnings) of subsidiaries ............ (2,343) -- -- 2,343 --
Provision (benefit) for income taxes ......... (1,227) 1,389 33 -- 195
-------- -------- -------- -------- -------
Net income (loss) ......................... $ (1,952) $ 2,297 $ 46 $ (2,343) $ (1,952)
======== ======== ======== ======== ========
</TABLE>
16
<PAGE>
Condensed Consolidating Statement of Cash Flows
For the Six Months Ended June 30, 1996
(In thousands)
(Unaudited)
<TABLE>
<S> <C> <C> <C> <C> <C>
Parent Guarantor
Company Subsidiaries JAIX Leasing Eliminations Consolidated
CASH FLOWS FROM
OPERATING ACTIVITIES ......................... $ (6,902) $ 19,643 $ 923 $ -- $ 13,664
CASH FLOWS FROM
INVESTING ACTIVITIES:
Capital expenditures ........................ (204) (4,710) -- -- (4,914)
Leased assets and investments ............... -- -- (15) -- (15)
Changes in restricted cash .................. -- 663 -- -- 663
-------- -------- ------- -------- --------
Cash provided by (used for)
investing activities ....................... (204) (4,047) (15) -- (4,266)
CASH FLOWS FROM
FINANCING ACTIVITIES:
Net payments under term loans ............... (8,330) (76) -- -- (8,406)
Loan facility of leasing business ........... -- -- 5,329 -- 5,329
Change in intercompany advances ............. 14,038 (10,601) (3,437) -- --
Dividends received/ (paid) ................. 500 -- (500) -- --
Deferred financing costs paid ............... (421) (14) (420) -- (855)
-------- -------- ------- -------- --------
Cash provided by (used for)
financing activities ...................... 5,787 (10,691) 972 -- (3,932)
Net increase (decrease) in cash
and cash equivalents ......................... (1,319) 4,905 1,880 -- 5,466
CASH AND CASH
EQUIVALENTS,
beginning of period ......................... 16,896 (6,156) 899 -- 11,639
-------- -------- ------- -------- --------
CASH AND CASH
EQUIVALENTS,
end of period ............................... $ 15,577 $ (1,251) $ 2,779 $ -- $ 17,105
======== ======== ======= ======== ========
</TABLE>
17
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
For the Three and Six Months Ended June 30, 1996
Item 2.
General
The Company completed the acquisitions of Truck Components Inc. ("TCI") on
August 23, 1995, and Bostrom Seating, Inc. ("Bostrom") on January 13, 1995. Both
the acquisitions were accounted for under the purchase method of accounting, and
accordingly, the operating results were included in the Company's reported
results from their respective acquisition dates. The results of TCI have a
significant impact on the comparative discussions below. Additionally, the
Company, through its wholly owned subsidiary Freight Car Services, Inc.,
completed the purchase of the Danville, Illinois facility which began operations
in October 1995.
The Company's sales are affected to a significant degree by the freight car
and Class 8 truck markets. Both the freight car and the Class 8 truck markets
are subject to significant fluctuations due to economic conditions in these
particular markets, changes in the alternative methods of transportation and
other factors. There can be no assurance that fluctuations in such markets will
not have a material adverse effect on the results of operations or financial
condition of the Company.
Johnstown America Corporation ("JAC"), the Company's freight car
manufacturing subsidiary sales are driven principally by the number and type of
freight cars delivered in any given period. Due to the large size of customer
orders, the specific time frame for delivery of freight cars ordered and
variations in the mix of cars ordered, the number and type of cars produced in
any given quarter may fluctuate greatly. As a result, the Company's revenues and
results of operations and cash flows from operations may fluctuate as well.
Results of Operations
Three Months Ended June 30, 1996 and 1995
Total Revenue
Total revenue for the three months ended June 30, 1996 decreased 20.0% to
$133.3 million from $166.7 million in 1995. The total revenue decrease of $33.4
million was due to the decrease in revenues from freight car operations. Second
quarter 1996 shipments of new and rebuilt cars decreased to 760 from 3,004 new
and rebuilt cars in the same period of 1995 and a reduction in
18
<PAGE>
shipments of freight car kits and parts. This decrease in production resulted in
a 65.0% reduction in revenue, which has been partially offset by revenues
generated by the acquisition of TCI in August 1995 (47.0% increase).
Cost of Sales - Manufacturing and Gross Profits
Cost of Sales - Manufacturing for the three months ended June 30, 1996 as a
percent of manufacturing sales was 84.2%, compared to 91.8% in 1995. Related
gross profits were 15.8% and 8.2%, respectively. The improvement in gross
profits resulted primarily from the acquisition of TCI in August 1995, which has
historically generated higher gross profit margins than the freight car
business.
Selling, General, Administrative and Amortization
Selling, general, and administrative expenses as a percentage of total
revenue were 8.6% and 3.8% for the three months ended June 30, 1996 and 1995,
respectively. The increase in selling, general, and administrative expense is
related to the acquisition and the integration of TCI which has higher selling,
general and administrative levels as a percent of revenue compared to the
freight car business, and to increased product development costs at JAC.
Amortization expense as a percentage of total revenue was 1.9% and .6% for the
three months ended June 30, 1996 and 1995, respectively. The increase in
amortization expense is related to certain intangible assets of TCI and the
excess cost over net assets acquired in the TCI acquisition.
Operating Income
Operating income was $7.4 million in the second quarter of 1996, compared
to $6.6 million in the second quarter of 1995. The increase was primarily due to
including operating income of TCI which more than offsets the drop in operating
income at JAC.
Other
Interest expense, net, was $8.9 million in the second quarter of 1996
compared to $1.0 in the second quarter of 1995. Interest expense in 1996
resulted from increased borrowings under the Senior Bank Facilities and the
issuance of the Notes to finance the acquisition of TCI and the refinancing of
its debt in August 1995, as well as from the JAIX Leasing loans which were used
to finance the addition of freight cars for the lease fleet.
Net loss and loss per share for the second quarter of 1996 were $1.2
million and $0.13, respectively, compared to net income and earnings per share
of $3.4 million and $0.34, respectively, for the second quarter of 1995.
19
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Results of Operations
Six Months Ended June 30, 1996 and 1995
Total Revenue
Total revenue for the six months ended June 30, 1996 decreased 17.3% to
$285.6 million from $345.2 million in 1995. The total revenue decrease of $59.6
million was due to the decrease in freight car production at JAC (1,632 new and
rebuilt cars in 1996 vs 5,877 new and rebuilt cars in 1995) and a reduction in
shipments of freight car kits and parts. This decrease in production resulted in
a 63.0% reduction in revenue, which has been partially offset by revenues
generated by the acquisition of TCI in August 1995 (47.0% increase). As of June
30, 1996, the Company's backlog of new freight cars was 1,357 and 19 rebuilds as
compared to 2,985 new freight cars and 145 rebuilds on June 30, 1995.
Cost of Sales - Manufacturing and Gross Profits
Cost of Sales - Manufacturing for the six months ended June 30, 1996 as a
percent of manufacturing sales was 84.7%, compared to 92.9% in 1995. Related
gross profits were 15.3% and 7.1%, respectively. The improvement in gross
profits resulted primarily from the acquisition of TCI in August 1995, which has
historically generated higher gross profit margins than the freight car
business.
Selling, General, Administrative and Amortization
Selling, general, and administrative expenses as a percentage of total
revenue was 8.3% and 3.1% for the six months ended 1996 and 1995, respectively.
The increase in selling, general, and administrative expense is related to the
acquisition and the integration of TCI which has higher selling, general and
administrative levels as a percent of revenue compared to the freight car
business, and to increased product development costs at JAC. Amortization
expense as a percentage of total revenue was 1.8% and .7% for the six months
ended 1996 and 1995, respectively. The increase in amortization expense is
related to certain intangible assets of TCI and the excess cost over net assets
acquired in the acquisition.
Operating Income
Operating income was $15.8 million for the first six months of 1996,
compared to $12.3 million in the same period of 1995. The increase was primarily
due to the operating income from the TCI acquisition, more than offsetting the
drop in operating income at JAC.
20
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Other
Interest expense, net was $17.6 million for the first six months of 1996
compared to $1.8 in the same period of 1995. Interest expense in 1996 resulted
from increased borrowings under the Senior Bank Facilities and the issuance of
the Notes to finance the acquisition of TCI and the refinancing of its debt in
August 1995, as well as from the JAIX Leasing loans which were used to finance
the addition of freight cars for the lease fleet.
Net loss and loss per share for the first six months of 1996 were $2.0
million and $0.20, respectively, compared to net income and earnings per share
of $6.4 million and $0.65, respectively for the same period of 1995.
Liquidity and Capital Resources
For the six months ended June 30, 1996, the Company provided cash from
operations of $13.7 million compared with $22.6 million for the first six months
of 1995. The Company used $4.3 million of cash in investing activities during
the first six months of 1996, primarily for capital expenditures. Cash used for
financing activities was $3.9 million for the first six months of 1996 due to
payments on term debt partially offset by an increase in the JAIX Leasing loans.
The Company's freight car sales are characterized by large order sizes,
specific customer delivery schedules and related vendor receipts and payment
schedules, all of which can combine to create significant fluctuations in
working capital accounts when comparing end of period balances. Such
fluctuations tend to be of short duration, and the Company considers this to be
a normal part of its operating cycle which does not significantly impact its
financial flexibility and liquidity.
On August 23, 1995, in conjunction with the acquisition of TCI and the
refinancing of the existing debt of the Company, the Company and the Guarantor
Subsidiaries entered into the $300 million Senior Bank Facilities and issued
$100 million of Notes. See footnotes 4 and 5 of the Condensed Consolidated
Financial Statements for the six months ended June 30, 1996, for a description
of the Senior Bank Facilities and the Notes.
As of June 30, 1996, there was $191.7 million of term loans outstanding
under the Senior Bank Facilities, $100 million of Notes outstanding, and no
borrowings under the $100 million revolving credit line under the Senior Bank
Facilities. Availability under the Revolving Loans, after consideration of
outstanding letters of credit of $18.7 million, was $42.6 million.
21
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Interest payments on the Notes and interest and principal payments under
the Senior Bank Facilities represent significant liquidity requirements for the
Company. The Notes require semiannual interest payments of approximately $5.9
million. Borrowings under the Senior Bank Facilities bear interest at floating
rates and require interest payments on varying dates depending upon the interest
rate option selected by the Company. The term loans under the Senior Bank
Facilities require periodic principal payments through their maturities.
The Company formed a leasing business in 1994 to lease freight cars. This
leasing division was formed into a wholly owned subsidiary, JAIX Leasing, in
January 1995 and currently has 600 freight cars on lease. In June 1996, JAIX
Leasing Company entered into a term loan facility to finance its freight car
leasing activities and repay its existing credit facility. See footnote 4 of the
Condensed Consolidated Financial Statements for the six months ended June 30,
1996, for a description of this loan. As of June 30, 1996, there was $27.7
million outstanding under this loan.
The Company believes that the cash flow generated from its operations,
together with amounts available under the Revolving Loans, should be sufficient
to fund its debt service requirements, working capital needs, anticipated
capital expenditures and other operating expenses (including expenditures
required by applicable environmental laws and regulations). The Company's future
operating performance and ability to service or refinance the Notes and to
extend or refinance the Senior Bank Facilities will be subject to future
economic conditions and to financial, business and other factors, many of which
are beyond the Company's control.
As of June 30, 1996, the Company's balance sheet included cash of $17.1
million.
Environmental Matters
The Company's subsidiaries are currently involved in several matters
relating to the investigation and/or remediation of locations where the
subsidiaries have arranged for the disposal of foundry and other wastes. As of
June 30, 1996, based on all of the information currently available to the
Company, the Company has an environmental reserve which management believes is
adequate to cover future expenditures. This reserve is based on current cost
estimates and does not reduce estimated expenditures to net present value,
although the Company's subsidiaries are not likely to incur costs for most of
the reserved matters until several years in the future. Any cash expenditures
required by the Company or its subsidiaries to comply with applicable
environmental laws and/or to pay for any remediation efforts will not be reduced
or otherwise affected by the existence of the environmental reserve. Due to the
early stage of investigation of many of the sites and potential remediations
referred to above, there are significant uncertainties as to waste quantities
involved, the extent and timing of the remediation which will be required, the
range of acceptable solutions, costs of remediation and the number of
potentially responsible parties contributing to such costs. Based on all of the
information presently available to it, the Company believes that the
environmental reserve will be adequate to cover its future costs related to the
sites
22
<PAGE>
associated with the environmental reserve, and that any additional costs will
not have a material adverse effect on the financial condition or results of
operations of the Company. However, the discovery of additional sites, the
modification of existing laws or regulations, the imposition of joint and
several liability or the uncertainties referred to above could result in such a
material adverse effect.
Effects of Inflation
General price inflation has not had a material impact on the Company's
results of operations.
23
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The patent infringement lawsuit commenced by Johnstown America Corporation
in December 1992 against Trinity Industries, Inc. alleging infringement of
Johnstown America Corporation's patent for its BethGon Coalporter(R) freight car
is presently being tried before a jury in the United States District Court for
the Western District of Pennsylvania sitting in Pittsburgh. The trial commenced
July 23, 1996 and it is expected that the trial will be concluded and a jury
verdict reached during the week of August 12, 1996. As part of such lawsuit,
Trinity Industries, Inc. has made various counterclaims against Johnstown
America Corporation, including seeking to invalidate Johnstown America
Corporation's patent. The Company continues to believe that such counterclaims
are without merit and intends to contest them vigorously. Although neither the
outcome of the action nor the effect of such outcome can be predicted with
certainty, in the opinion of management of the Company, the outcome of the
litigation will not have a material adverse effect on the financial condition or
results of operations of the Company.
The Company is involved in various warranty claims and repairs with its
customers in the normal course of business. In the opinion of management,
accrued repair costs relating to these obligations are adequate.
Item 4. Submission of Matters to a Vote of Securities Holders.
The Company's Annual Meeting of Shareholders was held on May 2, 1996. At
the meeting, shareholders voted on the election of one director and an amendment
to the Company's 1993 Stock Option Plan. The results were as follows:
1. Election of Director
Withheld/ Broker
Votes For Votes Against Abstentions Non-Votes
--------- ------------- ----------- ---------
Thomas M. Begel 8,337,837 147,800 -- --
2. Amendment to 1993
Stock Option Plan 7,947,108 495,543 43,022 --
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 JAIX Term Loan Agreement
24
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(b) Reports
The Company filed the following reports on Form 8-K during the three months
ended June 30, 1996:
None
25
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
JOHNSTOWN AMERICA INDUSTRIES, INC.
BY \s\ Andrew M. Weller
-------------------------------
Andrew M. Weller
Executive Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
Dated: August 9, 1996
<PAGE>
- - ------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------
$27,710,000
TERM LOAN AGREEMENT
Between
JAIX LEASING COMPANY,
Borrower
and
NATIONSBANC LEASING CORPORATION OF NORTH CAROLINA;
Lender
Dated as of
June 14, 1996
- - ------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
ARTICLE 1. DEFINITIONS.................................................... 1
SECTION 1.01 Definitions........................................ 1
ARTICLE 2. AMOUNT AND TERMS OF THE LOAN................................... 5
SECTION 2.01 The Loan........................................... 5
SECTION 2.02 Making the Loan.................................... 5
SECTION 2.03 Principal; Interest................................ 5
SECTION 2.04 The Note........................................... 6
SECTION 2.05 Payment on Non-Business Days....................... 6
SECTION 2.06 Prepayments........................................ 6
SECTION 2.07 Use of Proceeds.................................... 6
ARTICLE 3. CONDITIONS OF LENDING.......................................... 7
SECTION 3.01 Conditions Precedent to Loan....................... 7
SECTION 3.02 Certain Borrower Covenants......................... 8
ARTICLE 4. REPRESENTATIONS AND WARRANTIES................................. 9
SECTION 4.01 Representations and Warranties of the Borrower..... 9
SECTION 4.02 Representations of the Lender...................... 13
ARTICLE 5. COVENANTS OF THE BORROWER...................................... 14
SECTION 5.01 Covenants.......................................... 14
ARTICLE 6. EVENTS OF DEFAULT.............................................. 16
SECTION 6.01 Events of Default.................................. 16
ARTICLE 7. REGISTRATION OF THE NOTE,
RESTRICTIONS ON THE TRANSFERABILITY OF THE NOTE.............. 18
SECTION 7.01 Lender Representations and Indemnity............... 18
SECTION 7.02 Transfer of Note................................... 19
SECTION 7.03 Loss or Mutilation of Note......................... 19
SECTION 7.04 Issuance of New Note............................... 19
SECTION 7.05 Registered Owner................................... 20
ARTICLE 8. MISCELLANEOUS.................................................. 20
SECTION 8.01 Amendments. Etc.................................... 20
SECTION 8.02 Notices Etc........................................ 20
SECTION 8.03 No Waiver; Remedies................................ 21
SECTION 8.04 Accounting Terms................................... 21
SECTION 8.05 Binding Effect; Assignments; Participation......... 21
SECTION 8.06 GOVERNING LAW...................................... 22
SECTION 8.07 Submission to Jurisdiction......................... 22
SECTION 8.08 Indemnity.......................................... 22
SECTION 8.09 Counterparts....................................... 23
<PAGE>
SECTION 8.10 Headings and Table of Contents..................... 23
SECTION 8.11 Severability....................................... 23
SECTION 8.12 Entire Agreement................................... 23
SECTION 8.13 Confidentiality.................................... 24
SECTION 8.14 Costs, Expenses, Taxes and Indemnities............. 24
SECTION 8.15 No Third Party Beneficiary......................... 24
SECTION 8.16 Inconsistencies with Other Documents............... 25
SECTION 8.17 Construction....................................... 25
SECTION 8.18 Survival of Representations........................ 25
SECTION 8.19 Survival of Indemnities the Security Agreement..... 25
SECTION 8.20 WAIVER OF JURY TRIAL............................... 25
SCHEDULE A -- Equipment Lessees
SCHEDULE B -- Termination Values
EXHIBIT A -- Form of Secured Promissory Note
EXHIBIT B -- Form of Security Agreement - Chattel Mortgage
EXHIBIT C -- Form of Lockbox Agreement
EXHIBIT D -- Form of Opinions
EXHIBIT E -- Form of Equipment Leases
EXHIBIT F -- Form of Notice of Assignment
<PAGE>
TERM LOAN AGREEMENT dated as of June 14, 1996 between JAIX LEASING COMPANY, a
Delaware corporation (the "Borrower"), and NATIONSBANC LEASING CORPORATION OF
NORTH CAROLINA, a North Carolina corporation (together with its successors and
assigns, referred to herein as the "Lender").
W I T N E S S E T H:
WHEREAS, the Borrower is the owner of railcars which are more fully
described in Schedule A to the Security Agreement (as defined herein) (such cars
hereinafter called individually, an "Item of Equipment" and collectively, the
"Equipment");
WHEREAS, the Borrower has entered into operating leases related to the
Equipment, which leases and the lessees thereunder are more fully described in
Schedule A to this Agreement; and
WHEREAS, the Borrower wishes to borrow from the Lender in order to repay
existing indebtedness and to obtain additional working capital.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants contained herein, the parties hereto agree as follows:
ARTICLE 1.
DEFINITIONS
SECTION 1.011 Definitions. As used herein, the following terms shall have
the meanings herein specified unless the context otherwise requires. Defined
terms in this Agreement shall include in the singular number the plural and in
the plural number the singular.
"AAR" shall have the meaning specified in Section 1.01 of the Security
Agreement.
"Adjusted Equipment Cost" shall mean $27,710,000 reduced as set forth in
Section 2.06 of this Agreement.
"Affiliate" of any Person shall mean any other Person which directly or
indirectly controls, or is controlled by, or is under common control with, such
Person. The term "control" means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities, by contract or
otherwise, and the term "controlled" shall have a meaning correlative to the
foregoing.
"Agreement" shall mean this $27,710,000 Term Loan Agreement as the same may
be amended, supplemented or modified, from time to time.
"Borrower" shall have the meaning specified in the first paragraph of this
Agreement.
<PAGE>
"Business Day" means any day of the year other than a Saturday, Sunday or a
holiday on which banks are required or authorized by law to close in Charlotte,
North Carolina.
"Closing Date" means the date of borrowing under this Agreement.
"Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time, and rulings and regulations issued thereunder.
"Collateral" shall have the meaning assigned to it in Section 2 of the
Security Agreement.
"Commitment" has the meaning specified in Section 2.01.
"Commitment Fee" shall mean a fee of 1% of the Commitment to be paid by
Borrower to the Lender on the Closing Date.
"Default" shall mean an event or condition that, with the giving of notice,
the passage of time or both may become an Event of Default.
"Defaulted Lease" shall mean an Equipment Lease as to which a default in
the payment of rent has occurred and continued for ninety (90) days.
"Default Rate" shall have the meaning assigned to it in Section 2.03(b)
hereof.
"Dollars" and "$" mean the lawful and freely transferable currency of the
United States of America.
"Equipment" shall have the meaning assigned to it in the first WHEREAS
Clause hereof.
"Equipment Cost" shall be the Equipment Cost of each Item of Equipment
specified in Schedule B hereto.
"Equipment Leases" shall mean the operating leases entered into by the
Borrower related to the Equipment, which leases are more fully described in
Schedule A to this Agreement.
"Equipment Lessees" shall mean the Equipment Lessees, identified in
Schedule A to this Agreement as lessees under the Equipment Leases.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"ERISA Affiliate" shall mean each trade, business or other organization
(whether or not incorporated) which, together with the Borrower, is treated as a
"single employer" within the meaning of Section 414(b), (c) or (m) of the Code.
<PAGE>
"Event of Default" shall have the meaning provided in Article 6 of this
Agreement.
"FNB Lien" shall mean the Lien in favor of The First National Bank of
Chicago, as Agent under the Credit Agreement dated May 12, 1995 among the
Lenders (as defined therein), JAIX Leasing Company and the First National Bank
of Chicago, as Agent.
"GAAP" means at any time the generally accepted United States accounting
principles at such time.
"ICC Termination Act" shall mean the ICC Termination Act of 1995.
"Interest Rate" shall mean the interest rate on the Loan, as specified in
Section 2.03.
"Item of Equipment" shall have the meaning assigned to it in the first
WHEREAS Clause of this Agreement.
"Lender" shall have the meaning assigned to it in the first paragraph of
this Agreement.
"Liens" shall have the meaning assigned to it in Section 3.03 of the
Security Agreement.
"Loan" means the loan made by the Lender to the Borrower pursuant to
Article 2 hereof and evidenced by the Note.
"Loan Documents" shall mean this Agreement, the Security Agreement, the
Lockbox Agreement and the Note, and any certificates or documents executed in
connection herewith or therewith.
"Lockbox Agreement" shall mean the Lockbox Agreement substantially in the
form of Exhibit F.
"Maturity Date" shall mean the final maturity date of the Loan, as
specified in the Note.
"New Note(s)" shall have the meaning assigned to it in Section 7.04(a)
hereof.
"Note" shall have meaning assigned to it in Section 2.04 hereof.
"Notice of Assignment" shall have the meaning assigned to it in Section
3.02 hereof.
"Notice of Borrowing" shall have the meaning assigned to it in Section 2.02
hereof.
"Old Note" shall have the meaning assigned to it in Section 7.04(a) hereof.
"Pay Proceeds Letter" shall have the meaning assigned to it in Section 2.02
hereof.
<PAGE>
"Payment Date" shall mean the 14th day of each calendar month, commencing
July 14, 1996.
"Permitted Liens" shall have the meaning assigned to it in Section 3.03 of
the Security Agreement.
"Person" shall mean and include any individual, business trust,
partnership, limited liability company, limited liability partnership, joint
venture, firm, corporation, association, joint stock company, trust or other
enterprise or any government or political sub-division or agency, department or
instrumentality thereof.
"Register" shall have the meaning assigned to it in Section 7.05 hereof.
"Replacement Unit" shall have the meaning assigned to it in Section 1.01 of
the Security Agreement.
"Replacement Lease" shall have the meaning assigned to it in Section 1.01
of the Security Agreement.
"Responsible Officer" shall mean the President, the Chief Financial
Officer, the Senior Vice President Finance, the Treasurer, the Assistant
Treasurer or any Person instructed by the Borrower to have responsibility of and
to administer this transaction.
"Rolling Stock" shall mean standard gauge railroad rolling stock, other
than passenger equipment or work equipment, used or intended for use in
connection with interstate commerce; excluding, however, railroad rolling stock
scrapped or intended to be scrapped.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Security Agreement" shall mean the Security Agreement - Chattel Mortgage
substantially in the form of Exhibit B hereto, between the Borrower and the
Lender as the same may be amended, supplemented or modified from time to time.
"Subsidiary" shall mean with respect to any Person, any corporation,
association, partnership or other business entity which is required to be
consolidated with the Borrower under GAAP.
"Surface Transportation Board" shall mean the Surface Transportation Board
established by the ICC Termination Act.
"Termination Value" shall mean the applicable amount determined pursuant to
Schedule B to this Agreement.
"Transferee" shall mean a transferee permitted under Article 7 and Section
8.05 hereof.
<PAGE>
"UCC" shall mean the Uniform Commercial Code in effect in the State of
North Carolina, unless otherwise specified, as amended from time to time.
ARTICLE 2.
AMOUNT AND TERMS OF THE LOAN
SECTION 1.021 The Loan. Upon the terms and subject to the conditions
hereinafter set forth, the Lender agrees to make a term loan (the "Loan") to the
Borrower in a single advance on the date of this Agreement in an amount equal to
Twenty Seven Million Seven Hundred Ten Thousand Dollars ($27,710,000.00) (the
"Commitment").
SECTION 1.022 Making the Loan. The Loan shall be made on at least five (5)
Business Day's written or telegraphic, telex or telecopy notice from the
Borrower to the Lender at the offices of the Lender, specifying the date (which
shall be a Business Day) of the Loan (the "Notice of Borrowing"). The Notice of
Borrowing shall be irrevocable and binding on the Borrower (provided that on the
Closing Date the representations of the Lender set forth in Article 4 hereof are
true). Not later than 1:00 P.M. (Charlotte, North Carolina time) on the date of
such Loan and upon fulfillment of the applicable conditions set forth in Article
3, Lender will make such Loan available to the Borrower by wire transfer of
immediately available funds in the principal amount of the Commitment in
accordance with the payment instructions of the Borrower to the Lender set forth
in the letter (the "Pay Proceeds Letter") delivered to the Lender along with the
Notice of Borrowing.
SECTION 1.023 Principal; Interest. (a) The Borrower shall pay to the
Lender, in arrears, interest on the unpaid principal amount of the Loan
outstanding at a per annum rate of 9.350% (the "Interest Rate"). All
calculations of applicable interest under this Section 2.03 shall be made on the
basis of the actual number of days elapsed in a 360-day year. The Borrower shall
pay principal of the Loan and accrued unpaid interest thereon in one hundred
twenty (120) installments, all of such installments, except for the last, each
being in the amount of 1.073007% of the Adjusted Equipment Cost, and the last
and final installment being in the amount of the then remaining unpaid principal
balance of the Loan, together with all accrued unpaid interest thereon. The
first such installment shall be due and payable on July 14, 1996 and a like
installment shall be due and payable on the same day of each succeeding month
thereafter until the Maturity Date when the then remaining unpaid principal
balance of the Loan, together with all accrued unpaid interest on the Loan,
shall become due and payable. Each such installment will be applied first to
accrued unpaid interest and the balance to principal.
(b) The Borrower shall pay to the Lender interest on overdue
principal and (to the extent permitted by applicable law) overdue interest and
on any other amounts payable hereunder, under the Note or under the Security
Agreement which are overdue, at the rate (the "Default Rate") of two percent
(2%) per annum in excess of the Interest Rate in each case (calculated on the
basis of the actual number of days elapsed in a 360-day year), and such interest
shall be payable upon demand of the Lender.
<PAGE>
(c) In no event shall the interest rate for the Note or any other
amount payable under the Loan Documents exceed the maximum rate permitted by
law; provided, further that the interest rate payable pursuant to this Agreement
and the Note shall be at all times the lower of (i) the relevant interest rate
stated in the Note, or (ii) the maximum interest rate permitted under applicable
law. In the event the Lender ever receives, collects, or applies as interest any
such excess, such amount which would be excessive interest shall be applied to
the reduction of such other amounts due hereunder or under the Note or under the
Security Agreement then outstanding, and, if such other amounts then outstanding
are paid in full, any remaining excess shall forthwith be paid to the Borrower.
In determining whether or not the interest paid or payable, under any specific
contingency, exceeds the highest lawful rate, the Borrower and the Lender shall,
to the maximum extent permitted under applicable law, (A) characterize any
non-principal payment as an expense, fee, or premium rather than as interest,
(B) exclude any voluntary prepayments and the effects thereof, and (C) spread
the total amount of interest throughout the period during which any principal of
the Loan remains outstanding so that the interest rate is uniform throughout the
period during which any principal of the Loan remains outstanding.
SECTION 1.024 The Note. The Loan shall be evidenced by a senior secured
promissory note (the "Note") duly executed by the Borrower in favor of the
Lender, dated the Closing Date, which shall be issued as a fully registered note
in substantially the form attached hereto as Exhibit A delivered to the Lender
pursuant to Article 3. The Note shall be payable in arrears on the dates and in
the amounts set forth in Schedule I of such Note.
SECTION 1.025 Payment on Non-Business Days. Whenever any payment to be made
hereunder or under the Note shall be stated to be due on a day which is not a
Business Day, such payment may be made on the next succeeding Business Day,
together with interest thereon to the date of payment.
SECTION 1.026 Prepayments. The Borrower may not prepay all or a portion of
the Loan except as expressly permitted in this Agreement or in the Security
Agreement. The Loan shall not be prepayable in whole or part except as follows:
(a) in part as required by clause (ii) of Section 4.03 (Expired Leases;
Defaulted Leases) of the Security Agreement by paying the applicable Termination
Value; (b) in part as required by Section 5.02 (Casualty Loss) of the Security
Agreement by paying the applicable Termination Value; (c) in part in the event
an Equipment Lessee elects pursuant to its Equipment Lease to purchase for its
own account the Equipment subject to its Equipment Lease, by paying the
applicable Termination Value and (d) in any other event, on any Payment Date,
upon ten (10) days prior written notice specifying the Items of Equipment as to
which the Loan is being prepaid, in whole, by paying the unpaid principal
balance, or in part, by paying the applicable Termination Value with respect to
the Items of Equipment with respect to which the Loan is being prepaid. All
prepayments of the Loan shall be accompanied by accrued interest on the amount
prepaid. Amounts paid or prepaid hereunder may not be reborrowed. The Adjusted
Equipment Cost shall be reduced upon each prepayment by the Equipment Cost of
each Item of Equipment with respect to which the Loan has been prepaid.
SECTION 1.027 Use of Proceeds. The proceeds of the Loan shall be used by
the Borrower to prepay existing indebtedness and for other general corporate
purposes.
<PAGE>
ARTICLE 3.
CONDITIONS OF LENDING
SECTION 1.031 Conditions Precedent to Loan. The obligation of the Lender to
advance the Commitment shall be subject to fulfillment of the following
conditions precedent on or prior to the Closing Date in form and substance
satisfactory to the Lender and its counsel:
(a) The Borrower shall have delivered to the Lender the Notice of
Borrowing along with the Pay Proceeds Letter;
(b) The Lender shall have received on or before the Closing Date the
following, each dated the Closing Date, in form and substance satisfactory to
the Lender:
(i) the Note duly executed by the Borrower issued to the
Lender;
(ii) the Security Agreement duly executed by the Borrower and
filed with the Surface Transportation Board and with the Registrar General
of Canada, together with evidence of such filings;
(iii) the Lockbox Agreement duly executed by the Borrower,
the Lender and NationsBank, N.A.;
(iv) a certified copy of the Borrower's certificate of
incorporation, by-laws and resolutions of the Board of Directors of the
Borrower authorizing Borrower's execution, delivery and performance under
this Agreement, the Security Agreement, the Note and all other documents
evidencing other necessary corporate action and governmental approvals, if
any, with respect to the Loan Documents;
(v) a certificate of the Secretary or an Assistant Secretary
of the Borrower certifying the names and true signatures of the officers
of the Borrower authorized to execute and deliver the Loan Documents and
the other documents to be delivered hereunder;
(vi) a favorable opinion of each of Ross & Hardies, special
counsel to the Borrower, covering the matters set forth in Exhibit D-1
hereto;
(vii) evidence that the Borrower has the title specified in
Section 4.01(j), free and clear of the FNB Lien, and confirmation that the
UCC-1 financing statements naming the Lender as secured party in the
States of Illinois and Pennsylvania have been filed in all proper
recording offices in connection with the Collateral;
(viii) a certificate as to insurance from Borrower's insurance
carriers, naming the Lender as a loss payee and additional insured, which
satisfies the requirement of Section 3.02 of the Security Agreement; and
<PAGE>
(ix) such other approvals, opinions, documents or filings the
Lender may reasonably request.
(c) The Borrower shall have made a notation on each original
executed Equipment Lease constituting Collateral, other than the executed copy
that was delivered to the Equipment Lessee, clearly describing the Lender's
security interest therein and shall have delivered the "chattel paper
counterpart" of each Equipment Lease to Secured Party;
(d) On the Closing Date and after giving effect to the making of the
Loan, the following statements shall be true on and as of such date and the
Lender shall have received a certificate signed by a duly authorized officer of
the Borrower, dated the Closing Date, stating that:
(i) The representations and warranties of the Borrower contained in
ARTICLE 4 hereof and in Section 3 of the Security Agreement are true and
accurate with the same effect as if made on and as of such date; and
(ii) No Event of Default and no event which would become such an
Event of Default after the lapse of time or the giving of notice or both
has occurred and is continuing or will exist upon the disbursement of the
Loan; and
(e) The Borrower shall have paid all fees and any and all other
expenses of the Lender required to be paid by Borrower incurred in connection
with this Agreement, the Note, the Security Agreement, and the transactions
contemplated hereunder and thereunder, including the Commitment Fee.
SECTION 3.02 Certain Borrower Covenants. The Borrower covenants and agrees
that it will deliver the following in form and substance satisfactory to the
Lender and its counsel:
(a) within forty-five (45) days of the Closing date, a certificate
as to insurance from each Equipment Lessee's insurance carrier, naming Lender as
a loss payee and additional insured, which satisfies the requirement of Section
3.02 of the Security Agreement;
(b) within thirty (30 ) days of the Closing Date, a signed Notice of
Assignment in substantially the form of Exhibit F hereto (the "Notice of
Assignment") with respect to each Equipment Lease duly executed by Borrower and
each Equipment Lessee;
(c) within nine (9) months of the Closing Date, eight (8)
Replacement Units replacing the eight (8) Items of Equipment that have become
casualties under the Canadian National Railway Company Equipment Lease; and
(d) within twenty one (21) days of the Closing Date, a favorable
opinion of Scott & Aylen, special Canadian counsel to the Borrower, covering the
matters set forth in Exhibit D-2 hereto.
<PAGE>
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES
SECTION 1.041 Representations and Warranties of the Borrower. The Borrower
represents, warrants and covenants as follows:
(a) Incorporation. The Borrower is duly incorporated, validly
existing and in good standing under the laws of the State of Delaware, has full
power and authority to own its property and carry on its business as currently
conducted and is duly qualified to do business in the State of Illinois and in
such other jurisdictions in which the failure to so qualify would have a
material adverse effect upon the operations, properties, prospects or financial
condition of the Borrower and its Subsidiaries taken as a whole.
(b) Reports. The Borrower has caused to be furnished to the Lender
the following: the Borrower's annual report for 1995 (the "1995 Annual Report"),
and unaudited financial statements of the Borrower for the same periods which
are regularly prepared for its railcar operations, including balance sheets,
statements of income, and statements of cash flow. The audited financial
statements in the 1995 Annual Report have been certified by an independent
public accountant. All of such documents, as of the respective dates thereof,
fairly present the consolidated financial condition of the Borrower and its
Subsidiaries as of the respective dates thereof and the consolidated results of
its and their operations for the respective periods covered thereby, all in
accordance with GAAP (but in the case of unaudited statements, subject to the
absence of footnotes and year-end adjustments). Neither the Borrower nor any of
its Subsidiaries had any material direct or contingent liabilities as of such
dates which are not provided for or reflected in such balance sheets or referred
to in the notes thereto. There has been no material adverse change in the
business, operations, assets, properties, earnings, condition (financial or
otherwise) or reasonable foreseeable prospects of the Borrower and its
Subsidiaries from that reflected on the 1995 Annual Report.
(c) Litigation. Except as specifically disclosed in the 1995 Annual
Report of the Borrower, there are no actions, suits or proceedings, whether or
not purportedly on behalf of the Borrower, pending or, to the knowledge of the
Borrower, pending against, threatened against or affecting the Borrower or any
of its Subsidiaries or any property rights of the Borrower or any of its
Subsidiaries at law, or in equity, or before any commission, governmental
department, board, agency or instrumentality, domestic or foreign, or before any
arbitrator which could materially and adversely affect the business, or the
operations, properties, assets or financial condition of the Borrower or the
Borrower and its Subsidiaries, taken as a whole; and neither the Borrower nor
any of its Subsidiaries, to its or their knowledge, is in default in any
material respect under any order, writ, injunction, decree, rule or regulation
of any court or governmental department, commission, or agency or
instrumentality, which default could materially and adversely affect the
business, the operations, properties, assets or financial condition of the
Borrower or the Borrower and its Subsidiaries, taken as a whole.
(d) Authority of Borrower; No Conflicts. The execution,
delivery and performance by the Borrower of the Loan Documents and the Equipment
Leases are within the Borrower's corporate powers and have been duly authorized
by all necessary corporate action
<PAGE>
of the Borrower. Neither the execution and delivery of any of the Loan Documents
or any of the Equipment Leases, nor the consummation of the transactions herein
or therein contemplated nor the fulfillment of, or compliance with, the terms
and provisions thereof will (i) conflict with, or result in a breach of, any of
the terms, conditions or provisions of (A) any law, or any regulation, order,
writ, injunction or decree of any court or governmental instrumentality,
domestic or foreign, or (B) the corporate charter, as amended, or the bylaws, as
amended, of the Borrower, or (C) any bond, debenture, note, mortgage, indenture,
agreement, lease or other instrument to which the Borrower or any of its
Subsidiaries is a party or (ii) constitute, with the giving of notice or the
passage of time or both, a default under any such agreement or instrument, or
(iii) result in the creation or imposition of any lien, charge, security
interest or other encumbrance of any nature whatsoever upon any property of the
Borrower or any of its Subsidiaries (except for the Liens contemplated or
permitted by the Loan Documents) pursuant to the terms of any such agreement or
instrument.
(e) Patents. The Borrower has all patents, patent rights, licenses,
trademarks, trademark rights, trade names, trade name rights and copyrights that
the Borrower considers necessary to the conduct of its business as currently
operated or proposed to be operated.
(f) Governmental Authority. No authorization or approval or other
action by, and no notice to or filing with, any governmental authority or
regulatory body is required for the due execution, delivery and performance by
the Borrower of any of the Loan Documents or any of the Equipment Leases or for
the creation and perfection of the first priority security interest on the
Collateral intended to be created in favor of the Lender under the Security
Agreement except for the filing of the Security Agreement with the Surface
Transportation Board pursuant to 49 U.S.C. 11301 and any required filings with
the Registrar General of Canada.
(g) Tax Returns. (i) The Borrower and each of its Subsidiaries have
filed or caused to be filed, or have timely requested and, if necessary, have
obtained, an extension to file all federal and state and local tax returns
which, to the Borrower's knowledge, are required to be filed, and have paid, or
made provisions for the payment of, all taxes which have or may have become due
pursuant to such returns or pursuant to any assessment received by them, against
them or any of their properties, and all other taxes, fees or other charges
imposed on them or any of their properties, other than taxes which are being
contested in good faith by appropriate proceedings and with respect to which
appropriate reserves in accordance with GAAP consistently applied have been
provided on their books; and (ii) no tax liens have been filed and no claims are
being asserted with respect to any such taxes, fees or other charges, other than
those the amount or validity of which is currently being contested in good faith
by appropriate proceedings and with respect to which appropriate reserves in
accordance with GAAP consistently applied have been provided on their books.
(h) Enforceability of Agreements. Assuming due authorization,
execution and delivery thereof by the Lender, this Agreement and the Security
Agreement are, and the Note when executed and delivered by the Borrower
hereunder will be, legal, valid and binding obligations of the Borrower,
enforceable against the Borrower in accordance with their respective terms
(subject, as to enforceability, to applicable bankruptcy, insolvency,
<PAGE>
moratorium and similar laws affecting the enforcement of creditors' rights
generally and to generally applicable principles of equity).
(i) Investment Company. The Borrower is not an "investment company"
as such term is defined under the Investment Company Act of 1940, as amended,
and the rules and regulations promulgated thereunder, nor will the making of the
Loan hereunder by the Lender on the terms and conditions hereunder provided and
the use of the proceeds therefrom by the Borrower result in any violation by the
Borrower or any of its affiliates of any of the provisions of the Investment
Company Act of 1940, as amended, and the rules and regulations promulgated
thereunder.
(j) Ownership of Collateral. The Borrower has good and marketable
title to the Collateral, free and clear of all Liens, other than (i) Permitted
Liens and Liens created by the Security Agreement in favor of the Lender, (ii)
the FNB Lien and (iii) the rights of the Equipment Lessees to use the Equipment
pursuant to the Equipment Leases, and the Borrower will warrant and defend the
title to the Collateral against all claims and demands of all persons whatsoever
except persons claiming by or through the Lender.
(k) Margin Regulations G, T, U, X. The proceeds of the borrowings
made pursuant to this Agreement will be used by the Borrower only for the
purposes set forth in Section 2.07 hereof. None of the proceeds will be used,
directly or indirectly, for the purpose of purchasing any margin stock as such
term is defined in Regulation G or U issued by the Board of Governors of the
Federal Reserve System of the United States (the "Board"), as applicable
("Margin Stock"), or to extend credit to any other person for the purpose of
purchasing or carrying any Margin Stock. The Borrower is not engaged
principally, or as one of its important business activities, in the business of
extending credit for the purpose of purchasing or carrying any Margin Stock.
Neither the Borrower nor any Subsidiary nor any agent acting in its or on their
behalf has taken or will take any action which might cause this Agreement or any
of the documents or instruments delivered pursuant hereto to violate any
regulation of the Board or to violate the Securities Exchange Act of 1934, as
amended.
(l) Securities Act of 1933. Neither the Borrower nor, to its
knowledge, anyone acting on its behalf has directly or indirectly offered or
sold any interest in the Collateral, other securities or beneficial interests in
the Equipment to, solicited offers to buy any interest in the Collateral, other
securities or beneficial interests in the Equipment from, or otherwise
approached or negotiated in respect of the purchase or sale or other disposition
of any interest in the Collateral, other securities or beneficial interests in
the Equipment with, any Person so as to bring the transactions contemplated by
this Agreement within the provisions of Section 5 of the Securities Act. The
Borrower will not offer any interest in the Collateral, or other securities or
beneficial interests in the Equipment to, or solicit any offer to buy any
thereof from, any other Person or approach or negotiate with any other Person in
respect thereof, so as to bring the transactions contemplated by this Agreement
within the provisions of Section 5 of the Securities Act.
<PAGE>
(m) Full Disclosure. Neither this Agreement, the schedules or other
attachments hereto, nor the financial statements referred to in Section 4.01(b),
nor any certificate, statement, report or other documents furnished to the
Lender by the Borrower in connection herewith or in connection with any
transaction contemplated hereby, contains any untrue statement of a material
fact or omits to state any material fact necessary in order to make the
statements contained therein not misleading.
(n) ERISA. None of the employee benefit plans maintained at any time
by the Borrower or any Subsidiary or the trusts created thereunder have engaged
in a prohibited transaction which is not exempt under the Code or ERISA which
could subject any such employee benefit plan or trust to a material tax or
penalty on prohibited transactions imposed under Code Section 4975 or ERISA
which could have a material adverse effect on the business, operations, assets,
properties, earnings, condition (financial or otherwise) or reasonably
foreseeable prospects of the Borrower or of the Borrower and its Subsidiaries,
taken as a whole. None of the employee benefit plans maintained at any time by
the Borrower or any ERISA Affiliate which are employee pension benefit plans
subject to Title IV of ERISA, or the trusts created thereunder, have been
terminated which termination has a material adverse impact on the financial
condition of the Borrower or of the Borrower and its Subsidiaries, taken as a
whole; nor has any such employee benefit plan incurred any liability to the
Pension Benefit Guaranty Corporation established pursuant to ERISA, other than
for required insurance premiums which have been paid when due, or incurred any
accumulated funding deficiency, whether or not waived which has a material
adverse effect on the business, operations, assets, properties, earnings,
condition (financial or otherwise) or reasonably foreseeable prospects of the
Borrower or of the Borrower and its Subsidiaries, taken as a whole; nor has
there been any reportable event (other than a reportable event as to which the
30-day notice period is waived under applicable regulations), or other event or
condition, which presents a risk of termination of any such employee benefit
plan by such Pension Benefit Guaranty Corporation which has a material adverse
impact on the financial condition of the Borrower and its Subsidiaries, taken as
a whole. The present value of all accrued benefits under the employee benefit
plans maintained at any time by the Borrower or any ERISA Affiliate which are
employee pension benefit plans subject to Title IV of ERISA did not, as of the
most recent valuation date, exceed the then current value of the assets of such
employee benefit plans allocable to such accrued benefits by an amount,
determined in accordance with generally accepted accounting principles, which
has a material adverse impact on the business, operations, assets, properties,
earnings condition (financial or otherwise) or reasonably foreseeable prospects
of the Borrower or of Borrower and its Subsidiaries, taken as a whole. Assuming
the representation of the Lender in Section 4.02(a) is true and correct, the
consummation of the Loan will not involve any prohibited transactions. As used
herein, the terms "employee benefit plan," "employee pension benefit plan,"
"accumulated funding deficiency," "reportable event," and "accrued benefits"
shall have the respective meanings assigned to them in ERISA, and the term
"prohibited transaction" shall have the meaning assigned to it in Code Section
4975 and ERISA.
(o) Equipment and Equipment Leases.
(i) The list of Equipment Leases and all information with
respect thereto set forth in Schedule A to this Agreement is accurate, true
and correct. Each of such
<PAGE>
Equipment Leases is in full force and effect and enforceable in accordance
with its terms (assuming due authorization, execution and delivery by the
Equipment Lessee party thereto), each Equipment Lessee is, to the best of
Borrower's knowledge, in compliance with all material provisions of the
related Equipment Lease and the Borrower is not aware of any default under
any of the Equipment Leases. Each such Equipment Lease is in the form of
the applicable equipment lease attached hereto in Exhibit E and has not
been modified, altered or amended in any material respect from such form
of lease.
(ii) Each Equipment Lease is valid and enforceable in
accordance with its terms (subject, as to enforceability, to applicable
bankruptcy, insolvency, moratorium and similar laws affecting the
enforcement of creditors' rights generally and to generally applicable
principles of equity), is non-cancelable, all sums payable thereunder are
payable in the amounts and at the times stated therein and no part thereof
has been prepaid, released or modified, or encumbered or disposed of by
the Borrower; any and all sums of money previously paid by any Equipment
Lessee thereunder as advance payments or deposit of security have been
fully disclosed to the Lender; each Equipment Lease has been entered into
by the Borrower in the ordinary course of business, has been duly
authorized and executed by bona fide, legally competent Equipment Lessees,
which Equipment Lessees were approved by the Borrower with respect to the
Equipment Lease to which it is a party based upon the Borrower's normal
credit practices, is the entire agreement with each such Equipment Lessee
relating to the Equipment covered thereby, has not been modified,
cancelled or waived in any respect, and none of the Borrower's rights
thereunder have been released, modified, encumbered or disposed of; any
consent, approval, authorization of, or registration, declaration or
filing with, any governmental authority (federal, state or local, domestic
or foreign) required in connection with the execution, delivery or
performance of any Equipment Lease by the Borrower has been obtained; the
Items of Equipment covered by each Equipment Lease have been delivered,
were in good working order at the time of delivery, are required by the
Equipment Leases to be maintained by the Equipment Lessees, other than
Cargill, Incorporated, and, in the case of the Items of Equipment subject
to the Equipment Lease with Cargill, Incorporated, have been maintained,
or caused to be maintained, by the Borrower, in compliance with all the
AAR's mechanical regulations and industry commercial standards for revenue
interchange loading, have been used for the purpose for which they were
built and have been accepted by the Equipment Lessee of such Items of
Equipment as being in a condition which complies with the terms and
conditions of such Equipment Lease; and all financial and credit
information that the Borrower may at any time furnish to the Lender
relating to the Equipment Lessee under each Equipment Lease is, to the
best of the Borrower's knowledge, true, complete and not misleading.
(p) Security Interest. Upon the completion of the recordation and
filing of the Security Agreement with the Surface Transportation Board pursuant
to and in compliance with the provisions of 49 U.S.C. Section 11301 and the
deposit, registration and filing of the Security Agreement at the office of the
Registrar General of Canada pursuant to Section 90 of the Railway Act of Canada,
the Lender will have a first priority perfected security interest in
<PAGE>
the Collateral.
SECTION 1.042 Representations of the Lender.
(a) Source of Funds. The Lender represents and warrants to the
Borrower that, as of the Closing Date, no part of the funds used or to be used
to make the Loan constitutes, under regulations issued by the United States
Department of Labor, assets of any employee benefit plan, within the meaning of
ERISA, that is subject to ERISA. For purposes of this Section 4.02, all employee
benefit plans maintained by an employer and commonly controlled entities (within
the meaning of Section 414(c) of the Code) shall be treated as a single plan.
(b) Offerings by Lender. The Lender represents and warrants to the
Borrower that, as of the Closing Date, it has not made any offering regarding
the Commitment to more than thirty-five (35) Persons who are not "accredited
investors", as such term is defined in Regulation D promulgated under the
Securities Act.
ARTICLE 5.
COVENANTS OF THE BORROWER
SECTION 1.051 Covenants. So long as the Note or any obligation contemplated
hereunder or under the Security Agreement or under any other Loan Document shall
remain unpaid, the Borrower agrees, unless the Lender shall otherwise consent in
writing, that:
(a) Event of Default Notice.
(i) The Borrower will deliver to the Lender, promptly after
any Responsible Officer of the Borrower has knowledge of any Default or
Event of Default, written notice of the occurrence of any such event.
(ii) The Borrower will deliver to the Lender, together with
each of the annual financial statements delivered by the Borrower pursuant
to Section 5.01(e) hereof, a certificate of its Responsible Officer
stating whether or not, to the best knowledge of such Responsible Officer,
a Default or Event of Default has occurred and is continuing, and, if so,
specifying the nature and period of existence of each such Default or
Event of Default and what action has been taken or is proposed to be taken
with respect thereto.
(b) Litigation. The Borrower will deliver to the Lender prompt
written notice of any litigation or legal proceedings affecting the Borrower
involving an amount, singly or in the aggregate, in excess of $2,000,000,
whether or not covered by insurance.
(c) Compliance with Laws, Equipment Leases. Etc. The Borrower
will (i) comply, and cause each of its Subsidiaries to comply, with all laws,
rules, regulations and orders applicable to the Collateral or the operation of
the Borrower's or its Subsidiaries' businesses, if the failure to so comply
could materially adversely affect the Borrower's business or the Collateral,
such compliance to include, without limitation, paying before the
<PAGE>
same becomes delinquent all taxes, assessments and governmental charges imposed
upon it or upon its property except to the extent contested in good faith by
appropriate proceedings and for which appropriate reserves have been established
on the Borrower's books in accordance with GAAP and (ii) comply, and cause each
of its Subsidiaries to comply, with all of the terms, provisions, restrictions,
covenants and agreements set forth in the Equipment Leases and in each and every
supplement to or amendment thereof.
(d) No Liens. The Borrower will pay or discharge, at its own cost
and expense, any and all claims, liens or charges (other than those in favor of
the Lender under the Security Agreement and other than Permitted Liens) on or
with respect to the Collateral. The Borrower further agrees to indemnify and
hold harmless the Lender from and against any direct loss, costs or expenses
(including reasonable legal fees and expenses) incurred, in each case, as a
result of the imposition or enforcement of any such claim, lien, or charge.
Without limiting the foregoing, Borrower will not, and will not allow any Person
to, file or record any financing statement or other instruments covering the
Collateral in which the Borrower is named and which the Borrower has signed, as
debtor or mortgagor, except for the financing statements or other instruments
filed or to be filed in respect of and for the security interest provided for in
the Security Agreement.
(e) Reporting Requirements. The Borrower will furnish to the Lender:
(i) as soon as available and in any event within 90 days after the end of each
of the first three quarters of each fiscal year of the Borrower, unaudited
financial statements of the Borrower in the form regularly prepared for its
railcar operations including a balance sheet of the Borrower as of the end of
such quarter and statements of income and cash flow of the Borrower as of the
end of such quarter, and statements of income and cash flow of the Borrower for
the period commencing at the end of the previous fiscal year and ending with the
end of such quarter, certified by the Treasurer or President of the Borrower,
including a certification that the financial statements were those used to
prepare the audited certified financial statements of Borrower's parent
corporation; (ii) as soon as available and in any event within 120 days after
the end of each fiscal quarter of the Borrower's parent corporation a copy of
Borrower's parent corporation's quarterly press release; and (iii) promptly
after the sending or filing thereof, copies of all reports (other than reports
on Form 13F and other reports for which the Borrower has been granted
confidential treatment) and registration statements, if any, filed by Borrower
with the Securities and Exchange Commission or any national securities exchange.
The Borrower shall promptly furnish to the Lender such other information
respecting the financial condition or operations of the Borrower or any of its
Subsidiaries as such Lender may from time to time reasonably request evidencing
compliance with the Loan Documents.
(f) No Modification to Equipment Lease Payments. Except as permitted
pursuant to Section 3.09 of the Security Agreement, the Borrower shall not
modify, amend, accept any payment from any Equipment Lessee under or make any
payments on behalf of or to any Equipment Lessee for the purpose or with the
result, whether or not intended, of concealing or preventing an event of default
under, any Equipment Lease. The Borrower agrees that if any payment is received
by it under an Equipment Lease during the continuance of an Event of Default,
such payment shall be held in trust for the sole benefit of the Lender and shall
promptly be remitted by the Borrower to the Lender.
<PAGE>
(g) Equipment Leases. Quarterly, within fifteen (15) days after the
end of each fiscal quarter of the Borrower, the Borrower shall notify the Lender
in writing regarding any material change related to the Equipment Leases,
including but not limited to a change in the identity of any Equipment Lessee,
in the car number assigned to any Item of Equipment, in the amount of rentals,
or in any terms of the Equipment Leases. Nothing in this Subsection 5.01(g)
shall be construed as a waiver of Borrower's obligations under the Security
Agreement with respect to the Equipment Leases.
(h) Fundamental Changes. The Borrower shall maintain its corporate
existence and shall not enter into any transaction of merger or consolidation,
or change the form of organization of its business, or transfer its properties
and assets substantially as an entirety to any other Person unless: (i) the
Borrower is the surviving entity, or the surviving entity or the Person to whom
substantially all of the properties and assets are transferred shall expressly
assume the obligations of the Borrower under the Loan Documents, and (ii)
immediately before and immediately after giving effect to such transaction, no
Default or Event of Default shall have occurred and be continuing.
ARTICLE 6.
EVENTS OF DEFAULT
SECTION 1.061 Events of Default. If any of the following events ("Events
of Default") shall occur and be continuing:
(a) the Borrower shall fail to pay any installment of the principal
or interest on any Note within three (3) Business Days after the same shall have
become due and payable whether at the due date thereof or at the date fixed for
prepayment or by acceleration or otherwise; or
(b) any representation or warranty made by the Borrower herein, in
any Note, in the Security Agreement or in any writing delivered by the Borrower
pursuant to any of the Loan Documents shall prove to have been incorrect in any
material respect when made; or
(c) the Borrower fails or refuses to comply with the requirements
of Section 5.01(f) of this Agreement; or
(d) the Borrower shall, for more than thirty (30) days after Lender
shall have demanded in writing performance thereof, fail or refuse to comply
with any other of the covenants herein or in the Security Agreement on its part
to be observed or performed, or to make provision satisfactory to such Lender
for such compliance provided, however, that if such default is not capable of
cure during such thirty (30) day period, no Event of Default shall occur under
this paragraph (d) so long as such Event of Default is capable of cure, and the
Lender determines in its reasonable judgment that the Borrower is diligently
undertaking to cure such default and that such longer cure period shall not
materially adversely affect the Lender's interest in the Collateral or the
Borrower's ability to perform its obligations under any Loan Document, but in
any event such longer cure period shall not exceed sixty (60) days from the date
on which the Lender shall have made the original demand in writing for
<PAGE>
performance of such obligation: or
(e) the Borrower or any Subsidiary shall fail to perform any
material term, condition or covenant of any bond, note, debenture, loan
agreement, indenture, trust agreement, mortgage or similar instrument to which
the Borrower is a party or by which it is bound, or by which any of its
Subsidiaries' respective properties or assets may be affected, or an "Event of
Default" or "event of default" shall occur under any of the foregoing
instruments, and as a result thereof, after the expiration of the applicable
grace period, if any, any indebtedness in the original principal amount, singly
or in the aggregate, in excess of Two Million Dollars ($2,000,000) included
therein or secured thereby shall have been declared due and payable in
accordance with the provisions of the instrument evidencing or creating or
securing such indebtedness prior to the date on which such indebtedness would
otherwise have become due and payable; or
(f) the entry of a decree or order by a court having jurisdiction in
the premises for relief in respect of the Borrower or any of its Subsidiaries
under any bankruptcy, insolvency or similar act, law or statute now or hereafter
in effect, or adjudging Borrower or any of its Subsidiaries a bankrupt or
insolvent, or approving a petition seeking reorganization, adjustment or
composition of or in respect of the Borrower under Title XI of the United States
Code, as now constituted or hereafter in effect or under any other applicable
Federal or State bankruptcy law or other similar law, or the appointment of a
receiver, liquidator, assignee, trustee, sequestrator (or similar official) of
the Borrower or any of its Subsidiaries or of any substantial part of its or
their property, or the entry of an order for the winding up or liquidation of
its affairs and the continuance of any such decree or order unstayed and in
effect for a period of 60 consecutive days; or
(g) the filing by the Borrower or any of its Subsidiaries of any
petition, application, answer or consent to or for liquidation, reorganization,
arrangement or any other relief under any Chapter of Title XI of the United
States Code or any applicable State or Federal law or statute, as now or
hereafter in effect, or the consent by the Borrower or any of its Subsidiaries
to the filing of any such petition or application for the relief requested
therein, or the consent by the Borrower or any of its Subsidiaries to the
appointment or taking possession by a receiver, liquidator, assignee, trustee,
custodian, sequestrator (or other similar official) of the Borrower or any of
its Subsidiaries or of any substantial part of its or their property, or the
making by the Borrower or any of its Subsidiaries of an assignment for the
benefit of creditors, or the admission by the Borrower or any of its
Subsidiaries in writing of its or their inability to pay its or their debts
generally as they become due, or the failure of the Borrower or any of its
Subsidiaries generally to pay its or their debts as such debts become due, or
the taking of lawful action by the Borrower or any of its Subsidiaries or any of
its officers, directors or stockholders in furtherance of any such action; or
(h) the Security Agreement shall cease to create in favor of the
Lender a valid, perfected first priority security interest in and lien on any of
the Collateral (except as otherwise therein provided with respect to Permitted
Liens);
<PAGE>
(i) failure on the part of a Responsible Officer of the Borrower to
give notice to the Lender, within fifteen (15) days of the knowledge of the
occurrence thereof, of any Event of Default;
(j) any final judgment against the Borrower or any of its
Subsidiaries or any attachment or execution against any of its or their property
for any amount in excess of Two Million Dollars ($2,000,000) remains unpaid,
unstayed or undismissed for a period of more than sixty (60) days;
(k) (i) the failure of any Plan (defined as any qualified plan
maintained by the Borrower or by a member of the Borrower's "controlled group"
as defined in Section 414(b), (c), or (m) of the Code, to meet the minimum
funding standard (whether or not waived) under Section 412 of the Code or
Section 302 of ERISA by an amount in excess of Two Million Dollars ($2,000,000)
which continues for ten (10) days or more; (ii) the termination of any Plan
under Section 4041(c) or 4042 of ERISA that would result in liability to, and
would require payments from, the Borrower or one or more of its Subsidiaries, or
the Borrower and one or more of its Subsidiaries of an amount in excess of Two
Million Dollars ($2,000,000); (iii) the imposition of a lien, charge or
encumbrance on the assets of the Borrower or any of its Subsidiaries in favor of
the Pension Benefit Guaranty Corporation or any other entity, and in an amount
in excess of Two Million Dollars ($2,000,000) with respect to the funding of any
Plan under ERISA or the Code; or (iv) any person shall engage in any non-exempt
"prohibited transaction" (as defined in Section 406 of ERISA or Section 4975 of
the Code) involving any Plan which could subject the Borrower or any Subsidiary
to any tax, penalty, or liability which in the aggregate is material in relation
to the business, operations, property or financial condition of the Borrower or
of the Borrower and its Subsidiaries, taken as a whole;
(l) the Borrower shall make or suffer any unauthorized assignment
or transfer of any Item of Equipment or of the right to possession of any
thereof; or
(m) any of the Collateral, or any unit thereof, shall be attached,
distrained or otherwise levied upon and the Borrower shall fail to either (i)
cause such attachment, distraint or levy to be vacated within ten (10) days; or
(ii) if such Collateral consists of any Item of Equipment, within ten (10) days,
grant to the Lender a lien on a Replacement Unit subject to a Replacement Lease
in lieu of the Item of Equipment which was attached, distrained or otherwise
levied upon and deliver the opinions, documents and instruments referred to in
Sections 3.05 and 5.02(b) and (d) of the Security Agreement;
then, and in any such event, the Lender may, by notice to the
Borrower, immediately terminate the Loan and/or declare all amounts due and
payable under the Note, all principal interest and other amounts payable under
this Agreement or the Security Agreement to be forthwith due and payable,
whereupon the Note, all such principal, interest, and all such other amounts
shall become and be forthwith due and payable, without presentment, demand,
protest, or further notice of any kind, all of which are hereby expressly waived
by the Borrower, provided that upon the occurrence of an Event of Default
described in subsections (f) and (g) above, the results that would otherwise
occur upon the giving of notice by the Lender shall occur automatically without
the giving of any such notice.
<PAGE>
ARTICLE 7.
REGISTRATION OF THE NOTE,
RESTRICTIONS ON THE TRANSFERABILITY OF THE NOTE
SECTION 1.071 Lender Representations and Indemnity.
(a) By accepting delivery of the Note, the Lender represents that it
is acquiring the Note for investment for its own account and not with a view to
public distribution and transfer of the Note shall not be allowed if it would
require registration under the Securities Act, as then amended, any other
federal securities laws or regulations or the securities laws or regulations of
any applicable jurisdiction.
(b) The Lender agrees to indemnify and hold harmless Borrower
against any loss or liability in connection with any violation of the Securities
Act, as then amended, arising in connection from the disposition of the Note or
any interest therein in violation of the provisions of this Article 7. This
Section 7.01(b) shall survive termination of this Agreement.
SECTION 1.072 Transfer of Note.
(a) In the event that the Note is transferred in accordance with
Section 8.05, the holder shall surrender the Note to be transferred to the
Borrower at its principal office, and thereupon the Borrower shall (i) execute
in favor of the transferee ("the Transferee") and the holder, as the case may
be, a New Note or New Notes (hereinafter defined) in the aggregate original
principal amount of the Note so surrendered, dated the date of the original Note
and noting all payments made thereon, (ii) deliver such New Note or New Notes to
such Transferee and the holder, as the case may be, and (iii) record the holders
of the New Note or New Notes in the Register (as defined below).
(b) Any Transferee under this Article 7 shall be subject to the same
restrictions imposed on the Lender by this Agreement including without
limitation the requirement that the Note bear the legend set forth in Exhibit A.
(c) Prior to any transfer of the Note, the Transferee shall, in
writing, for the benefit of the Borrower and the Lender, and any of their
successors and permitted assigns: (i) give representations and warranties which
are identical to the representations and warranties set forth in Section 4.02(a)
and (b), and 7.01(a) hereof; and (ii) covenant to be bound by the terms of this
Article 7 (including, without limitations, Section 7.01(b) hereof) and Sections
8.05 and 8.13.
SECTION 1.073 Loss or Mutilation of Note. In case the Note shall become
mutilated or be destroyed, lost or stolen, the Borrower, upon the written
request of the holder thereof, shall execute and deliver a new Note in exchange
and substitution for the mutilated Note, or in lieu of and in substitution for
the Note so destroyed, lost or stolen. The applicant for a substituted Note
shall furnish to the Borrower indemnity as may be reasonably required by the
Borrower to save it harmless from all loss and risks, however remote, resulting
from the execution and delivery of the substitute Note including claims for
principal and interest on the purportedly lost, stolen or destroyed Note, and
the applicant shall also
<PAGE>
furnish to the Borrower evidence to its satisfaction of the mutilation,
destruction, loss or theft of the applicant's Note and of the ownership thereof.
In case the Note has matured or is about to mature and shall become mutilated or
be destroyed, lost or stolen, the Borrower may, instead of issuing a substituted
Note, pay or authorize the payment of the same (without surrender thereof except
in the case of a mutilated Note), if the applicant for such payment shall
furnish to the Borrower indemnity as the Borrower may reasonably require to save
it harmless, and shall furnish evidence to the satisfaction of the Borrower of
the mutilation, destruction, loss or theft of such Note and the ownership
thereof. The affidavit of the president, vice president, treasurer or assistant
treasurer of the Lender or of any Transferee, which Transferee has a net worth
(as determined in the accordance with GAAP) in excess of Two Hundred Million
Dollars ($200,000,000), setting forth the fact of loss, theft or destruction
shall be accepted as satisfactory evidence thereof and no indemnity shall be
required as a condition to execution and delivery of a new Note other than the
written agreement of the Lender or such Transferee, as the case may be, to
indemnify the Borrower for any claims or action against it or risks (and for its
attorneys' fees) resulting from the issuance of such new Note or the
reappearance of the Old Note (hereinafter defined).
SECTION 1.074 Issuance of New Note.
(a) Each new note (the "New Note" and collectively the "New Notes")
to be issued pursuant to Sections 7.02 or 7.03 hereof in exchange for or in
substitution for or in lieu of an outstanding old note (the "Old Note") shall be
in aggregate principal amount equal to the original unpaid principal amount of
the Old Note. The New Note shall be dated the date of the outstanding Old Note
and all payments and prepayments made on the Old Note shall have been deemed to
have been made on the New Note. The Borrower shall mark on each New Note (i) the
date to which principal and interest have been paid on such Old Note, and (ii)
all payments and prepayments of principal previously made on such Old Note which
are allocable to such New Note. Interest shall be deemed to have been paid on
such New Note to the date on which interest shall have been paid on such Old
Note, and all payments and prepayments of principal marked on such New Note, as
provided in clause (i) above, shall be deemed to have been made thereon.
(b) Upon the issuance of a New Note pursuant to this Section 7.04,
the Borrower may require from the Lender or Transferee the payment of a sum to
reimburse it for, or to provide it with funds for, the payment of any tax or
other governmental charge or any other charges and expenses connected with the
issuance of a New Note which are paid or payable by the Borrower and the Lender
or Transferee shall, promptly upon request by the Borrower, so reimburse the
Borrower.
SECTION 1.075 Registered Owner. The Borrower shall cause to be kept at its
principal office a register of the registration of the Note or any New Notes
(such register herein called the "Register"), and shall at any reasonable time
and from time to time upon request promptly provide the Lender with copies
thereof and access thereto at the Borrower's expense. The Person in whose name
the Note shall be registered shall be deemed and treated as the owner thereof
for all purposes of this Agreement and the Borrower shall not be affected by any
notice to the contrary. For the purpose of any request, direction or consent
hereunder, the Borrower may deem and treat the registered owner of the Note as
the owner and holder
<PAGE>
thereof without production of the Note. Payment of or on account of the
principal of and interest on the Note shall be made only to or upon the order in
writing of such registered owner of the Note as the owner thereof.
ARTICLE 8.
MISCELLANEOUS
SECTION 1.081 Amendments. Etc. No amendment or waiver of any provision of
any of the Loan Documents, nor consent to any departure by the Borrower
therefrom, shall in any event be effective unless the same shall be in writing
and signed by the Lender and the Borrower and then such waiver or consent shall
be effective only in the specific instance and for the specific purpose for
which given, provided that waivers shall be signed by the Lender.
SECTION 1.082 Notices Etc. All notices, requests or demands and other
communications from any of the parties hereto to the other shall be sufficient
and shall be deemed given, made or served, (a) on personal delivery, including,
without limitation, by overnight mail and courier service, (b) five (5) days
after deposit with the U.S. Postal Service if sent by certified mail, postage
prepaid, return receipt requested, to the other party at the address set forth
below, or (c) in the case of notice by a telecommunications device, when
properly transmitted, addressed to the other party at the address set forth
below, or to any other address as any party may later designate by written
notice.
If to Borrower, to:
c/o Johnstown America Industries, Inc.
980 North Michigan Avenue
Suite 1000
Chicago, Illinois 60611
Attention: Treasurer
Fax No.: (312) 280-4820
With a copy to:
Robert W. Kleinman, Esq.
Ross & Hardies
150 North Michigan Avenue
Suite 2500
Chicago, Illinois 60601-7567
Fax No.: (312) 750-8600
<PAGE>
If to Lender, to:
NationsBanc Leasing Corporation of North Carolina
101 South Tryon Street
NC1-002-38-20
Charlotte, North Carolina 28255
Attention: Manager, Corporate Lease Administration
Fax No.: (704) 386-0892
SECTION 1.083 No Waiver; Remedies. No failure on the part of the Lender to
exercise, and no delay in exercising, any right hereunder or under the Security
Agreement or the Note shall operate as a waiver thereof nor shall any single or
partial exercise of any right hereunder or under the Security Agreement or the
Note preclude any other or further exercise thereof or the exercise of any other
right. The remedies herein provided are cumulative and not exclusive of any
remedies provided by law.
SECTION 1.084 Accounting Terms. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP consistently applied,
except as otherwise stated herein.
SECTION 1.085 Binding Effect; Assignments; Participation. This Agreement
shall be binding upon and inure to the benefit of the Borrower and the Lender
and its successors and assigns, except that the Borrower shall not have the
right to assign its rights hereunder or any interest herein without the prior
written consent of the Lender. The Lender holding a Note may assign its Note in
whole or in part to a Transferee and/or may grant participations in the Note,
except that the Lender shall not assign the Note to any Person who is, or is an
Affiliate of, a commercial competitor of Borrower without Borrower's prior
written consent.
SECTION 1.086 GOVERNING LAW. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS
SHALL BE DEEMED TO HAVE BEEN MADE UNDER, GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NORTH CAROLINA (OTHER THAN THE LAWS OF
THE STATE OF NORTH CAROLINA GOVERNING THE CHOICE OF LAW).
SECTION 1.087 Submission to Jurisdiction.
(a) Each of the Borrower and the Lender hereby irrevocably submits
to the nonexclusive jurisdiction of the North Carolina District Court sitting in
Mecklenburg County, North Carolina, and to the jurisdiction of the United States
District Court for the Western District of North Carolina, for the purposes of
any suit, action or other proceeding arising out of this Agreement or the
subject matter hereof brought by any party or its successors or assigns, and
each of the undersigned hereby irrevocably agrees that all claims in respect of
such action or proceeding may be heard and determined in such North Carolina
court or, to the fullest extent permitted by law, in such Federal court, and
each of the undersigned hereby agrees not to assert, by way of motions as a
defense, or otherwise, in any such suit, action or proceeding, any claim that it
is not personally subject to the jurisdiction of the above-named
<PAGE>
courts, that the suit, action or proceeding is brought in an inconvenient forum,
that the venue of the suit, action or proceeding is improper or that this
Agreement or the subject matter hereof may not be enforced in or by such courts.
The Borrower hereby generally appoints as its attorney-in-fact, to receive
service of process in such action, suit or proceeding CT Corporation (the "Agent
for Service of Process"). The Borrower agrees that (without prejudice to any
other lawful method of service) service of process upon such attorney-in-fact
shall constitute valid service upon the Borrower or its successors or assigns.
The Borrower also agrees to give the Lender thirty (30) days' advance written
notice regarding any change related to the Agent for Service of Process, and so
long as any amount remains outstanding and unpaid hereunder, under any Note or
the Security Agreement, to maintain an agent in the State of Delaware for the
receipt of process as aforesaid.
(b) The due payment and performance of the obligations of the
Borrower under the Loan Documents shall be without regard to any counterclaim or
right of offset or any other claim which the Borrower may have against the
Lender, and no such counterclaim (other than a compulsory counterclaim) or
offset shall be asserted by the Borrower in any action, suit or proceeding
instituted by the Lender for the payment or performance of such obligations;
provided, however, that if the Borrower refrains from asserting any counterclaim
or offset pursuant to this Section 8.07(b), in opposing such counterclaim or
offset the Lender agrees not to assert the failure of the Borrower to assert
such counterclaim or offset in any such action. Nothing herein shall prevent the
Borrower from commencing a separate action against the Lender.
SECTION 1.088 Indemnity. The Borrower agrees to indemnify, protect and hold
harmless the Lender and its assigns, directors, officers, employees, agents and
representatives (each an "Indemnified Party") from and against all losses,
damages, injuries, liabilities, claims, suits, obligations, penalties, actions,
judgments, costs, interest and demands of any kind or nature whatsoever (all the
foregoing losses, damages, etc. are the "indemnified liabilities"), and expenses
in connection therewith (including, without limitation, the reasonable fees and
disbursements of counsel for such Indemnified Party in connection with any
investigative, administrative or judicial proceeding, whether or not such
Indemnified Party shall be designated a party thereto, and the reasonable
expenses of investigation by engineers, environmental consultants and similar
technical personnel) arising out of, in connection with, or as the result of,
any claim for personal injury or property damage arising from the operation,
use, condition, possession, storage or repossession of any of the Collateral, or
any claim relating to any laws, rules or regulations, including, without
limitation, environmental control, noise and pollution laws, rules or
regulations or the entering into or performance of this Agreement, the Note, the
Security Agreement, the enforcement of any rights thereunder, the retention by
the Lender of a security interest in the Collateral, any claim for personal
injury or property damage arising from the operation, use, condition,
possession, storage or repossession of any of the Collateral, or any claim
relating to any laws, rules or regulations, including, without limitation,
environmental control, noise and pollution laws, rules or regulations or arising
during the period of any delivery, rejection, storage or repossession of any of
the Equipment while a security interest therein remains in the Lender or during
the period of the transfer of such security interest in the Collateral by the
Lender pursuant to any of the provisions of the Security Agreement; provided,
however, that the Borrower shall have
<PAGE>
no obligation to so indemnify any Indemnified Party for any indemnified
liabilities arising from its willful misconduct or gross negligence. The
foregoing indemnity shall survive the termination of this Agreement and the
Security Agreement, and payment of the Note and all obligations under the Loan
Documents.
SECTION 1.089 Counterparts. This Agreement may be executed in any number of
counterparts, each executed counterpart constituting an original but all
together only one Agreement.
SECTION 8.10 Headings and Table of Contents. The headings of the sections
of this Agreement and the Table of Contents are inserted for purposes of
convenience only and shall not be construed to affect the meaning or
construction of any of the provisions hereof.
SECTION 8.11 Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstances, is
held invalid, illegal or unenforceable in any respect for any reason, the
validity, legality and enforceability of any such provision in every other
respect and of the remaining provisions hereof shall not be in any way impaired
or affected.
SECTION 8.12 Entire Agreement. This Agreement, together with the Note and
the Security Agreement, with the Schedule and the other agreements referred to
herein, constitute the entire understanding between the parties with respect to
the subject matter hereof. All prior agreements, understandings,
representations, warranties and negotiations, if any, are merged into this
Agreement, and this Agreement is the entire agreement between the parties hereto
relating to the subject matter hereto. This Agreement cannot be changed or
terminated orally.
SECTION 8.13 Confidentiality. Except in connection with any actual or
contemplated litigation relating to any of the Loan Documents or the
transactions thereby contemplated, (a) no party hereto shall issue any press
releases or make any such other like public announcements (other than as may be
necessary or desirable in connection with the creation, maintenance or
perfection of the Liens in favor of the Lender covering any Collateral) and (b)
the information concerning the Equipment Leases, the Equipment Lessees, the
financial condition and operations of the Borrower or any of its Subsidiaries
disclosed to the Lender pursuant to or in connection with any Loan Document or
the transactions contemplated therein shall be kept confidential and may not be
reproduced, disseminated or disclosed, in whole or in part, except to the
Lender's officers, directors, employees, legal counsel, agents and funding bank
in connection with the administration of the Loan or as required by the Lender's
auditors, legal counsel or regulators or otherwise by applicable law, rule or
regulation or with the written consent of the Borrower or in connection with any
actual or contemplated litigation referred to above; provided, however, that the
Lender may, in connection with any assignment or participation or proposed
assignment or participation pursuant to Sections 7.02 or 8.05, disclose to the
Transferee or participant or proposed Transferee or participant, any information
relating to the Borrower, or its Subsidiaries furnished to it by or on behalf of
the Borrower, provided that prior to receiving such information, such Person
shall agree in writing for the benefit of the Borrower to be bound by the terms
and conditions of this Section 8.13.
<PAGE>
SECTION 8.14 Costs, Expenses, Taxes and Indemnities. The Borrower agrees to
pay on demand all reasonable costs and expenses in connection with the
preparation, execution, delivery, modification, and administration of,
supplement to, or any consent or waiver under, the Loan Documents and the other
documents to be delivered under the Loan Documents (other than legal fees in
connection with the preparation, execution and delivery of the initial Loan
Documents) including, without limitation, all recording and filing fees in
connection with the initial recordation or filing or re-recordation or re-filing
of the Security Agreement and any supplement or any financing statement relating
thereto, all recording and filing fees in connection with the recordation or
filing of any amendments, waivers and consents, the reasonable fees and
out-of-pocket expenses of counsel for the Lender with respect of the foregoing
and with respect to advising the Lender as to its rights and responsibilities
under the Loan Documents, and all costs and expenses, if any (including
reasonable counsel fees and expenses), in connection with the enforcement of the
Loan Documents and the other documents to be delivered under the Loan Documents.
The Borrower also agrees to promptly pay any stamp, value-added documentation or
other similar tax payable in connection with the execution and delivery of this
Agreement, any Note or any Loan Document.
SECTION 8.15 No Third Party Beneficiary. This Agreement is solely for the
benefit of the Lender and any Transferee (and their permitted assignees and
participants), the Indemnified Parties, and the Borrower, and nothing contained
in this Agreement shall be deemed to confer upon anyone other than the Borrower
and the Lender (and such assignees or participants) any right to insist upon or
to enforce the performance or observance of any of the obligations contained
herein. All conditions to the obligations of the Lender to make the Loan
hereunder are imposed solely and exclusively for the benefit of the Lender and
no other person shall have standing to require satisfaction of such conditions
in accordance with their terms or be entitled to assume that the Lender will
refuse to make the Loan in the absence of strict compliance with any or all
thereof and no other person shall under any circumstances be deemed to be a
beneficiary of such conditions, any or all of which may be freely waived in
whole or in part by any Lender at any time if, in any Lender's sole discretion,
such Lender deems it advisable or desirable to do so.
SECTION 8.16 Inconsistencies with Other Documents. In the event there is a
conflict or inconsistency between this Agreement and any other Loan Document,
the terms of this Agreement shall govern and prevail; provided, however, that
any other Loan Document which imposes additional burdens on the Borrower or
further restricts the rights of the Borrower or gives the Lender additional
rights shall not be deemed to be in conflict or inconsistent with this Agreement
and shall be given full force and effect.
SECTION 8.17 Construction. The parties acknowledge that each party and its
counsel have reviewed and revised this Agreement and that the normal rule of
construction to the effect that any ambiguities are to be resolved against the
drafting party shall not be employed in the interpretation of this Agreement,
any Loan Document or any amendment or exhibit hereto or thereto.
SECTION 8.18 Survival of Representations. Except as otherwise specifically
provided hereafter, all representations and warranties made in this Agreement
and the other
<PAGE>
Loan Documents and in any document, certificate or statement delivered in
connection herewith or therewith shall survive the execution and delivery of
this Agreement and the Note.
SECTION 8.19 Survival of Indemnities the Security Agreement. All the
indemnity and expense provisions set forth in this Agreement and the other Loan
Documents shall survive the execution and delivery of this Agreement and the
Note and the payment in full of the Loan and all other obligations hereunder or
under any Loan Documents.
SECTION 8.20 WAIVER OF JURY TRIAL. BY ITS SIGNATURE BELOW WRITTEN EACH
PARTY HERETO HEREBY IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY
ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT,
THE OTHER LOAN DOCUMENTS HEREIN DESCRIBED OR THE TRANSACTIONS CONTEMPLATED
HEREBY OR THEREBY.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officer thereunto duly authorized as of the date
first above written.
JAIX LEASING COMPANY
By: \s\ David W. Riesmeyer
---------------------------
Name: David W. Riesmeyer
Title: Treasurer
NATIONSBANC LEASING CORPORATION OF
NORTH CAROLINA
By: \s\ George L. Robinson
---------------------------
Name: George L. Robinson
Title: Sr. Vice President
[Signature Page to the Term Loan Agreement]
<PAGE>
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<S> <C>
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<PERIOD-START> APR-01-1996
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