-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, mEL3Giya40/oWxpKVl7aLpsXyzFFbf/6vl4/NTqyjnIzM6Rc/71Kfy8YQK3G4Qjk VGsd7W7v2Ov4CDjzqSZEFQ== 0000950134-95-002094.txt : 19950906 0000950134-95-002094.hdr.sgml : 19950906 ACCESSION NUMBER: 0000950134-95-002094 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950821 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: FREYMILLER TRUCKING INC CENTRAL INDEX KEY: 0000811213 STANDARD INDUSTRIAL CLASSIFICATION: 4213 IRS NUMBER: 621307586 STATE OF INCORPORATION: OK FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-15503 FILM NUMBER: 95565568 BUSINESS ADDRESS: STREET 1: 8621 N ROCKWELL CITY: OKLAHOMA CITY STATE: OK ZIP: 73132 BUSINESS PHONE: 4057206555 MAIL ADDRESS: STREET 1: 8621 N ROCKWELL STREET 2: 1400 SOUTH UNION AVENUE CITY: OKLAHOMA CITY STATE: OK ZIP: 73132 10-Q 1 FORM 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 F O R M 10 - Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1995. OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 TO 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________ TO __________. COMMISSION FILE NUMBER 015503. FREYMILLER TRUCKING, INC. - -------------------------------------------------------------------------------- (Exact name of Registrant as specified in its charter) INDIANA 62-1307586 - ------------------------------- ------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification incorporation or organization) Number) 8621 NORTH ROCKWELL, OKLAHOMA CITY, OKLAHOMA 73132 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (405) 720-6555. --------------- ________________________________________________________________________________ (Former name, former address and former fiscal year, if changed since last report.) Since April 20, 1995, Freymiller Trucking, Inc. has been operating under Bankruptcy Court protection pursuant to Chapter 11 of the Federal Bankruptcy Code. Indicate by check mark whether the registrant (2) 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 shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days. Yes X No --------- --------- Registrant has only one class of common stock, of which 2,425,000 shares were outstanding as of June 30, 1995. 1 2 FREYMILLER TRUCKING, INC. JUNE 30, 1995 I N D E X
PART I. FINANCIAL INFORMATION PAGE NUMBER ----------- ITEM 1. FINANCIAL STATEMENTS BALANCE SHEETS AT JUNE 30, 1995 AND DECEMBER 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED AND SIX MONTHS ENDED JUNE 30, 1995 AND 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1994 . . . . . . . . . . . . . . . . . . . . . 7 NOTES TO FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 ITEM 3. DEFAULTS UPON SENIOR SECURITIES . . . . . . . . . . . . . . . . . . . . . . . 19 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . . . . . . . . . 20
2 3 PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS FREYMILLER TRUCKING, INC. BALANCE SHEETS JUNE 30, 1995 AND DECEMBER 31, 1994
ASSETS 1995 1994 ------ ---- ---- (UNAUDITED) Current assets: Cash $ 536,000 $ - Receivables: Freight services, net 6,446,000 9,848,000 Equipment sales, net 2,168,000 2,620,000 Other 498,000 686,000 ----------- ------------ 9,112,000 13,154,000 Inventories 419,000 433,000 Tires 1,300,000 3,293,000 Prepaid expenses and deposits: Insurance 97,000 356,000 Licenses 394,000 42,000 Security deposits 508,000 283,000 Other 394,000 430,000 ----------- ------------ 1,393,000 1,111,000 ----------- ------------ Other current assets 291,000 270,000 Total current assets 13,051,000 18,261,000 Property and equipment: Land and improvements 11,000 11,000 Building and improvements 263,000 287,000 Revenue equipment 17,691,000 42,749,000 Furniture and fixtures 1,602,000 1,602,000 Other equipment 2,297,000 2,404,000 ----------- ------------ 21,864,000 47,053,000 Less accumulated depreciation and amortization (7,164,000) (16,135,000) ----------- ------------ 14,700,000 30,918,000 Other 7,525,000 5,815,000 ----------- ------------ $35,276,000 $ 54,994,000 =========== ============
See accompanying notes. 3 4 FREYMILLER TRUCKING, INC. BALANCE SHEETS JUNE 30, 1995 AND DECEMBER 31, 1994
LIABILITIES AND SHAREHOLDERS' EQUITY 1995 1994 - ------------------------------------ ---- ---- (UNAUDITED) Liabilities Not Subject to Compromise Current liabilities: Cash overdraft $ - $ 1,521,000 Accounts payable 1,890,000 5,234,000 Short-term note payable(Note 2) 2,794,000 5,555,000 Current portion of long-term debt (Note 2) 955,000 30,291,000 Current portion of capital lease obligation (Note 2) - 370,000 Accrued liabilities: Employee compensation and amounts due owner operators 964,000 1,207,000 Insurance costs 489,000 2,995,000 Other 327,000 1,083,000 ------------ ------------ 1,780,000 5,285,000 ------------ ------------ Total current liabilities 7,419,000 48,256,000 Deferred gain on sale of property and equipment 1,276,000 1,368,000 Accrued insurance costs - 2,550,000 Liabilities Subject to Compromise 32,789,000 (a) - ------------ ------------ Total liabilities 41,484,000 52,174,000 Shareholder's equity: Common stock $.01 par value; 10,000,000 shares authorized, 2,514,500 shares issued and outstanding 25,000 25,000 Additional paid-in capital 8,997,000 8,997,000 Retained deficit (14,831,000) (6,061,000) ------------ ------------ (5,809,000) 2,961,000 Less treasury stock of 89,500 and 25,000 shares of common stock, at cost, respectively (399,000) (141,000) ------------ ------------ Total shareholders'(deficit)equity (6,208,000) 2,820,000 ------------ ------------ $ 35,276,000 $ 54,994,000 ============ ============
- Continued on Next Page - 4 5 FREYMILLER TRUCKING, INC. BALANCE SHEETS JUNE 30, 1995 AND DECEMBER 31, 1994 (a) Liabilities subject to compromise consist of the following:
1995 ---- (UNAUDITED) Accounts payable $ 8,270,000 Current portion of long-term debt (Note 2) 18,056,000 Current portion of capital lease obligation (Note 2) 314,000 Accrued liabilities Employee compensation and amounts due owner/operators 113,000 Insurance costs 5,418,000 Other 618,000 ------------ $ 32,789,000 ============
See accompanying notes. Reference is made to the accompanying Notes and Management's Discussion and Analysis for information related to the Chapter 11 bankruptcy filings made by Freymiller Trucking, Inc. on April 20, 1995. 5 6 FREYMILLER TRUCKING, INC. STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands, except per share amounts) Three Months Ended Six Months Ended June 30 June 30 1995 1994 1995 1994 ---- ---- ---- ---- Operating revenue: Freight services $ 18,688 $ 25,005 $ 41,920 $ 49,202 Operating expenses: Salaries,wages & benefits 6,483 8,730 14,941 17,003 Purchase transportation 4,326 1,565 7,833 2,978 Fuel 2,289 4,261 5,638 8,610 Supplies & maintenance 2,660 3,330 6,176 6,254 Operating leases 2,142 1,316 3,896 2,703 Depreciation & amortization 927 1,880 2,244 3,691 Taxes & licenses 662 702 1,414 1,486 Insurance & claims 892 1,573 2,465 2,711 Communications & utilities 341 380 643 674 (Gain) loss disposition of assets (125) (91) (1,027) (192) Other 827 934 1,874 1,763 --------- -------- -------- -------- 21,424 24,580 46,097 47,681 --------- -------- -------- -------- Operating (loss) income (2,736) 425 (4,177) 1,521 Nonoperating income(expense): Interest expense (616) (1,018) (1,528) (1,952) Interest income 168 - 261 - --------- -------- -------- -------- (448) (1,018) (1,267) (1,952) Loss before reorganization expense and provision(benefit) for income taxes (3,184) (593) (5,444) (431) Reorganization expense (Note 1) (3,215) - (3,215) - --------- -------- Loss before provision (benefit) for income taxes (6,399) (593) (8,659) (431) Provision(benefit)for income taxes - (289) 111 (225) --------- -------- -------- -------- Net Loss $ (6,399) $ (304) $ (8,770) $ (206) ========= ======== ======== ======== Net loss per share $ (2.64) $ (.12) $ (3.60) $ (.08) ========= ======== ======== ======== Weighted average number of shares of common outstanding 2,425 2,490 2,436 2,490 ========= ======== ======== ========
See accompanying notes. Reference is made to the accompanying Notes and Management's Discussion and Analysis for information related to the Chapter 11 bankruptcy filings made by Freymiller Trucking, Inc. on April 20, 1995. 6 7 FREYMILLER TRUCKING, INC. CONDENSED STATEMENTS OF CASH FLOWS SIX MONTHS ENDED JUNE 30, 1995 AND 1994 (UNAUDITED)
1995 1994 ---- ---- Cash flows from operating activities: Net(loss)income $ (9,078,000) $ (206,000) Adjustments to reconcile net(loss) income to net cash (used) provided by operating activities: Depreciation and amortization 2,244,000 3,689,000 Benefit for deferred taxes - (129,000) (Gain) on sales of assets (1,027,000) (192,000) Loss on assets sold in connection with Chapter 11 proceeding 510,000 - Decrease (increase) in freight services and other receivables 3,590,000 (1,200,000) Decrease (increase) in inventories and tires 2,007,000 (304,000) Increase in prepaid expenses (64,000) (357,000) Increase in prepaid professional fees in connection with Chapter 11 proceeding (218,000) - (Increase) decrease in other assets (1,710,000) (179,000) Increase in accounts payable 4,926,000 481,000 Increase (decrease) in accrued liabilities 338,000 246,000 Increase in accrued liabilities for professional fees incurred in connection with Chapter 11 proceeding 64,000 - ------------ ---------- Net cash provided by operating activities 1,582,000 1,849,000 Cash flows from investing activities: Proceeds from disposition of property and equipment 5,046,000 2,028,000 Proceeds for assets sold in connection with Chapter 11 proceeding 9,830,000 - Purchase of property and equipment (46,000) (61,000) ------------ ---------- Net cash provided by investing activities 14,830,000 1,967,000
Continued on Next Page. 7 8 FREYMILLER TRUCKING, INC. CONDENSED STATEMENTS OF CASH FLOWS SIX MONTHS ENDED JUNE 30, 1995 AND 1994 (UNAUDITED)
1995 1994 ---- ---- Cash flows from financing activities: (Decrease)increase in cash overdraft (1,521,000) 78,000 Borrowings under short-term note payable 37,863,000 51,664,000 Repayments under short-term note payable (40,624,000) (50,503,000) Proceeds from long-term borrowings - 448,000 Purchase of treasury stock (258,000) - Principal payments on long-term debt and capital leasing obligations (11,336,000) (5,503,000) ----------- ----------- Net cash used by financing activities (15,876,000) (3,816,000) Net increase in cash 536,000 - Cash at beginning of period - - ----------- ----------- Cash at June 30 $ 536,000 $ - =========== ===========
See Accompanying Notes. Reference is made to the accompanying Notes and Management's Discussion and Analysis for information related to the Chapter 11 bankruptcy filings made by Freymiller Trucking, Inc. on April 20, 1995. 8 9 FREYMILLER TRUCKING, INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 1995 AND 1994 1. On April 20, 1995, the Company filed a voluntary petition in the United States Bankruptcy Court for the Western District of Oklahoma (the "Bankruptcy Court") seeking to reorganize under Chapter 11 of the Bankruptcy Code. The Company continues to operate its business as a debtor in possession under Sections 1107 and 1108 of the Bankruptcy Code. Pursuant to provisions of the Bankruptcy Code, the commencement or continuation of any judicial, administrative or other proceedings against the Company relating to events occurring prior to April 20, 1995 are generally automatically stayed. Certain claims against the Company in existence prior to the filing of the bankruptcy petition are reflected in the June 30, 1995 balance sheet as "liabilities subject to compromise". The financial statements contained herein have been prepared in accordance with generally accepted principles applicable to a going concern and do not purport to reflect or to provide for all the consequences of the ongoing Chapter 11 reorganization case. Specifically, the financial statements do not present the amount which will ultimately be paid with respect to claims and interests allowed in the Chapter 11 reorganization case or the effect of any changes which may be made in connection with the Company's capitalization or operations resulting from a plan of reorganization. As a result of reorganization proceedings under Chapter 11, the Company may take, or be required to take, actions which may cause assets to be realized, or liabilities to be liquidated, for amounts other than those reflected in the financial statements. The appropriateness of continuing to present financial statements on a going concern basis is dependent upon, among other things, the terms of the ultimate plan of reorganization and the Company's ability to generate sufficient cash from operations and financing sources to meet its obligations. The accompanying financial statements have not been audited. Certain information and footnote disclosures, including significant accounting policies, normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested that the accompanying financial statements and footnotes thereto be read in conjunction with the financial statements and footnotes included in the Company's December 31, 1994 Form 10-K. The Company believes the financial statements for the three and six month periods ended June 30, 1995 and 1994 include all adjustments (which include normal recurring adjustments and adjustments related to the 9 10 FREYMILLER TRUCKING, INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 1995 AND 1994 1. (Continued) downsizing of the Company discussed below) necessary for fair presentation. Results for the six month period may not be indicative of the results of the entire year. Because of the ongoing nature of the reorganization case, the financial statements contained herein are subject to material uncertainties, the outcome of which is not presently determinable. The financial statements contained herein may not be indicative of the results of future operations or financial position. Pursuant to provisions of the Bankruptcy Code, liabilities arising prior to the filing of the petition under Chapter 11 of the Bankruptcy Code may not be paid without prior approval of the Bankruptcy Court. Certain pre- petition liabilities have subsequently been paid by the Company with the prior approval of the Bankruptcy Court. These amounts included payments to foreign vendors and governmental agencies; pension plans; wages, salaries, insurance benefits and expense claims of returning employees; certain insurance claims of non- returning employees; and adequate protection payments to certain secured creditors. The Company is developing a plan of reorganization in connection with the bankruptcy proceedings. The Company began to reorganize during the second quarter of 1995 by downsizing its operations. Accordingly, certain assets which have no value in the ongoing operations were written off and various losses and costs were incurred as a direct result of the downsizing. These charges have been classified as reorganization expense under non-operating expense on the Company's statements of operations for the three month and six month periods ended June 30, 1995. Components of reorganization expense included assets written off of $428,000, tires and permits of $2,169,000, losses on asset sales of $510,000 and professional fees and other costs of $108,000 for the three and six months periods ended June 30, 1995. 2. Prior to the bankruptcy proceedings, the Company had an agreement with a bank expiring January 31, 1996 ("the Agreement") providing for borrowings up to the lesser of 90% of eligible accounts receivable or $10,000,000. The Agreement included a working capital line of credit with maximum borrowings of $7,000,000 and standby letters of credit up to 10 11 FREYMILLER TRUCKING, INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 1995 AND 1994 2. (Continued) $3,000,000, was secured by accounts receivable and certain other collateral and bore interest at the bank's prime rate plus five percent. The Agreement, among other things, required the Company to achieve certain operating results, maintain certain financial ratios, placed certain restrictions on the acquisition and disposition of assets, limited additional indebtedness and prohibited the payment of cash dividends. The Company was in default of its covenants under the Agreement and no additional borrowings or letters of credit are available under the Agreement. In connection with it's proceedings under Chapter 11 of the U.S. Bankruptcy Code, debtor-in-possession ("DIP") financing was arranged with the bank. The DIP financing maintains the limits of the Agreement described above while removing many of the covenants, thus removing the defaults. A $600,000 overline was added which is secured by the equity position the Company has established in certain revenue equipment. Interest is incurred at a rate equal to the bank's prime rate plus 2 percent per annum (11.0% at June 30, 1995). Under the DIP financing arrangement, the Company has agreed to submit its plan of reorganization to the Bankruptcy Court by October 31, 1995, with confirmation of the plan to be achieved no later than December 31, 1995. The bank has agreed to extend the financing commitment to the earlier of a date one year from the date the Company emerges from bankruptcy or December 31, 1996. At June 30, 1995, the outstanding loan balance under the DIP financing arrangement was approximately $4,729,000, of which $2,025,000 was unfunded stand-by letters of credit issued under the Company's self- insurance programs for auto liability and worker's compensation. An additional $917,000 was available to the Company under the financing. At June 30, 1995 and December 31, 1994, the Company also had outstanding secured term debt which totaled $19,011,000 and $30,291,000, respectively, and capital lease obligations which totaled $314,000 and $370,000, respectively. As a result of the bankruptcy, the Company suspended payment on pre-petition obligations and is in default. Accordingly, the total term debt and capital lease obligations have been classified as current liabilities on the accompanying balance sheets. The 11 12 FREYMILLER TRUCKING, INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 1995 AND 1994 2. (Continued) secured term debt has been reduced in bankruptcy through asset sales and adequate protection payments which were approved by the Bankruptcy Court. The Company also began making current payments on its capital lease obligations within sixty (60) days following commencement of the bankruptcy case. The Company has determined that there is insufficient collateral to cover the interest portion of scheduled payments on certain of its pre-petition debt obligations. Contractual interest of approximately $308,000 has not been recorded as of June 30, 1995, related to these under-secured debt obligations. Interest expense for all other debt obligations has been accrued and expensed for the three and six months ended June 30, 1995. 12 13 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. RESULTS OF OPERATIONS As explained in Note 1 to the financial statements as of June 30, 1995 and 1994, the Company filed a voluntary petition in the United States Bankruptcy Court on April 20, 1995 seeking to reorganize under Chapter 11 of the Bankruptcy Code. Subsequently, the Company has downsized the number of its tractors by 40 percent, the number of drivers by 47 percent and the number of non-driver personnel by 40 percent. The magnitude of the downsizing is the dominant factor which affected the Company's results of operations for the second quarter of 1995 and for the six month period ended June 30, 1995. The Company has written-off assets which have no value in the ongoing operations and incurred various losses and costs as a direct result of the downsizing. These charges have been classified as reorganization expense under nonoperating expense on the Company's statements of operations for the three month and six month periods ended June 30, 1995. Operating revenue for the second quarter of 1995 decreased 25% from the second quarter of 1994. Operating revenue for the six months ended June 30, 1995 decreased 15% from the six months ended June 30, 1994. The decreased revenue was primarily the result of the downsizing of the Company described above. Additionally, the overall rate per mile decreased from $1.11 in the first six months of 1994 to $1.09 in 1995, while equipment utilization increased slightly from 320 miles per day in the first six months of 1994 to 332 miles per day in 1995. These statistics reflect the continuing weak economic conditions that the industry in which the Company operates has been experiencing. The Company's operating loss was 14.6% of revenue in the second quarter of 1995 compared to operating income of 1.7% of revenue in the second quarter of 1994. The operating loss for the six months ended June 30, 1995 was 9.96% of revenue compared to operating income of 3.09% for the same period in 1994. Salaries and wages, supplies and maintenance, taxes and licenses, and other operating expenses increased as a percentage of revenue in 1995, while fuel expense decreased. Each of these items is discussed in more detail below. The Company's operating results for the second quarter of 1995 were also impacted by a lag in the reduction of costs behind the reduction of revenues experienced during and after the downsizing of the fleet. While revenues declined immediately, extended commitments to vendors and employees delayed the associated cost savings. 13 14 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. RESULTS OF OPERATION (CONTINUED) Salaries, wages and benefits remained relatively constant at 34.7% of revenue in the second quarter of 1995 compared to 34.9% of revenue in the second quarter of 1994. Salaries, wages and benefits increased to 35.6% for the first six months of 1995 compared to 34.6% for the same period of 1994. While these changes do not appear significant, salaries, wages and benefits could be expected to decrease as a percentage of revenue because of the increase in purchased transportation. Revenue from purchased transportation for the second quarter and for the first six months of 1995 represented 38.9% and 31.6% of total revenues, respectively, compared to 8.9% and 8.4% for the same periods of 1994. Salaries, wages and benefits did not decrease as a percentage of revenue primarily because of three factors: (1) Company drivers were used in approximately 50% of the leased tractors on average in 1995; (2) the Company chose to retain its most loyal and experienced drivers during the downsizing of its fleet, thus paying higher average rates and benefits for drivers; and (3) non-driver salaries, wages and benefits remained constant as a percentage of revenue between the periods. Management expects to see improvements in each of these areas in the future. The Company is working to reduce the number of its drivers in tractors leased from outside operators, expects the average pay rate of its driver force to decline through normal turnover of drivers and has made further reductions in its non-driver personnel. Supplies and maintenance costs increased from 13.3% of revenues from second quarter 1994 to 14.2% of revenues for the second quarter of 1995. On a year-to-date basis these costs increased from 12.7% in 1994 to 14.7% in 1995. The increase in supplies and maintenance costs is primarily attributable to the aging of the Company's fleet. Since 1993, the Company sought to run tractors 500,000 miles versus a former target of 350,000 miles in order to reduce its debt service requirements. Additionally, although the Company attempted to separate costs associated with its reorganization in bankruptcy to nonoperating expense, a certain amount of maintenance costs associated with trade-in preparation on tractors and trailers is reflected in the supplies and maintenance cost category on the statements of operations for 1995. The Company retired all of the 1991 and 1992 tractors and the older trailers from its fleet during the recent downsizing. This significant reduction in the fleet's average age should 14 15 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. RESULTS OF OPERATION (CONTINUED) have an immediate positive effect on maintenance costs. Taxes and licenses expense increased from 2.8% of revenues in the second quarter of 1994 to 3.5% of revenues in the second quarter of 1995. On a year-to-date basis these expenses are up from 3.0% of revenue in 1994 to 3.4% in 1995. These increases were primarily attributable to certain taxes and licensing costs which are fixed as of a certain date each year and do not decline with a decrease in operating miles or fuel costs. These costs will decline in the future with the reduction of the Company's fleet size. Insurance and claims expense decreased from 6.3% of revenues in the second quarter of 1994 to 4.8% of revenues in the second quarter of 1995. On a year-to-date basis, insurance and claims expense increased from 5.5% of revenue in 1994 to 5.8% of revenue in 1995. The second quarter decrease was primarily attributable to a favorable resolution to a number of outstanding claims and favorable negotiations related to the Company's insurance premiums. During these negotiations, management was also able to reduce the Company's self-insurance exposure from $300,000 per claim to $2,500 per claim on bodily injury and property damage insurance, and to $5,000 per occurrence on physical damage insurance for the Company's equipment. Operating leases increased as a percentage of revenues in 1995 compared to 1994 while depreciation and amortization decreased. These results are attributable to the Company's decision to lease the majority of its trailers which were previously owned. This was accomplished by a sale-leaseback transaction entered into at the end of December, 1994. Communications and utilities and other expense also increased as a percentage of revenues in 1995 compared to 1994. These increases are primarily attributable to the fixed nature of many costs in these categories and to continuing commitments entered into prior to the decision to downsize the Company. Management has now curtailed these commitments. The Company's fuel expense dropped from 17.0% of revenue in the second quarter of 1994 to 12.25% in the second quarter of 1995. On a year-to-date basis the fuel costs dropped from 17.5% in 1994 to 13.5% in 1995. These decreases were primarily due to a higher percentage of the fleet being represented by owner-operators who pay for their own fuel.In 15 16 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. RESULTS OF OPERATIONS (CONTINUED) the first six months of 1995, owner-operator miles were up 8,391,000 or 219% over the first six months of 1994. Interest expense decreased to 3.3% of revenues for the second quarter of 1995 from 4.1% of revenues in the second quarter of 1994. On a year-to-date basis, interest expense decreased from 4.0% of revenue in 1994 to 3.7% of revenue in 1995. These decreases were primarily the result of the Company's determination in bankruptcy that there is insufficient collateral to cover the interest portion of scheduled payments on certain of its pre-petition debt obligations. Contractual interest of approximately $308,000 was not recorded as of June 30, 1995, related to these under-secured debt obligations. Had this interest been recorded, interest expense would have increased to 4.9% of revenues and 4.4% of revenues, respectively, for the three and six months ended June 30, 1995, primarily as a result of increased interest rates paid on debt due to the Company being in default. LIQUIDITY AND CAPITAL RESOURCES At June 30, 1995, the Company had outstanding installment obligations secured by equipment totaling $16,886,000 bearing interest at 4.138% to 11.5% and maturing at various dates through 1999. The Company also had a mortgage loan secured by real estate with an outstanding balance of $1,546,000 bearing interest at 11.10% and maturing in 1995. The Company had $579,000 in miscellaneous installment obligations at various interest rates maturing in 1995. In addition, the Company had certain of its computer equipment under a capital lease arrangement. At June 30, 1995, the capital lease obligation totaled $314,000. The total term debt outstanding, including the capital lease obligation, was $19,325,000 at June 30, 1995, all of which was classified as current maturities due within one year. As a result of the bankruptcy petition discussed elsewhere herein, the Company suspended payments and is in default on all of these installment obligations. The secured term debt has been reduced in bankruptcy through asset sales and adequate protection payments which were approved by the Bankruptcy Court. The Company also began making current payments on its capital lease obligations within sixty (60) days following commencement of the bankruptcy case. In addition to its equipment financing, the Company had a line of credit agreement with a bank ("the Agreement"), secured by the Company's accounts receivable and certain other collateral, for maximum borrowings of $10,000,000 bearing 16 17 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES (CONTINUED) interest at the lender's prime rate plus five percent and expiring on January 31, 1996. This facility provided a $7,000,000 working capital line of credit and standby letters of credit up to $3,000,000. The Agreement, among other things, required the Company to achieve certain operating results, maintain certain financial ratios, placed certain restrictions on the acquisition and disposition of assets, limited additional indebtedness and prohibited the payment of cash dividends. The Company was in default of its covenants under the Agreement and no additional borrowings or letters of credit are available under the Agreement. In connection with the Company's efforts to reorganize under Chapter 11 of the Bankruptcy Code, debtor-in- possession ("DIP") financing was arranged with the bank. The DIP financing maintains the limits of the Agreement described above while removing many of the covenants. A $600,00 overline was added which is secured by the Company's equity position in certain revenue equipment. Interest is incurred at a rate equal to the bank's prime rate plus 2 percent per annum (11% at June 30, 1995). The DIP financing extends to the earlier of a date one year from the date the Company emerges from bankruptcy or December 31, 1996. At June 30, 1995, the outstanding loan balance under the DIP financing arrangement to the Company was approximately $4,729,000 of which $2,025,000 was unfunded stand-by letters of credit issued under the Company's self-insurance programs for auto liability and worker's compensation. An additional $917,000 was available to the Company under the financing. The Company has experienced operating and net losses in each of the last four years. In the first six months of 1995, the Company incurred an operating loss of $4,177,000 and a net loss of $8,770,000. These losses were offset by decreases in receivables and inventories and an increase in accounts payable resulting in positive cash flow from operations during the first six months of 1995 of $1,582,000. Proceeds from the disposition of property and equipment during the first six months of 1995 totaled $14,830,000 of which $11,336,000 was used to make principal payments on long-term debt and capital lease obligations. An additional $258,000 was used to purchase treasury stock during the first quarter of 1995 pursuant to a prior contractual commitment of the Company. 17 18 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES (CONTINUED) The Company reduced its short-term note payable by $2,761,000 and its cash overdraft by $1,521,000 in the six- month period ended June 30, 1995. The Company is preparing a plan of reorganization in connection with the filing of the petition under Chapter 11 of the Bankruptcy Code. Pursuant to provisions of the Bankruptcy Code, pre-petition payment obligations have been suspended while post-petition payment obligations are required to be met on an ongoing basis. To address these obligations, the plan of reorganization includes, among other things, a strategy for down-sizing and recapitalizing the Company. The Company anticipates that cash flows from operations, working within the framework of the DIP financing arrangement, will be sufficient to meet the current, ongoing obligations of the organization. However, a certain amount of new capital, yet to be determined, will likely be necessary to cover administrative claims and expenses and to allow for the purchase of licenses and permits necessary to renew the Company's revenue equipment through the end of 1996. Management is pursuing various alternatives in this regard. However, there can be no assurance that sufficient new capital will be obtained. The success of the reorganization plan being developed by the Company and the Company's ability to obtain sufficient new capital will depend, in part, on the Company's ability to maintain a sufficient market position and good relationships with customers, vendors and employees while implementing the down-sizing and recapitalizing strategy. 18 19 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS As discussed elsewhere herein, the Company filed on April 20, 1995 a voluntary petition in the United States Bankruptcy Court for the Western District of Oklahoma seeking to reorganize under Chapter 11 of the Bankruptcy Code. The Company continues to operate its business as a debtor in possession under Sections 1107 and 1108 of the Bankruptcy code. Pursuant to provisions of the Bankruptcy Code, the commencement or continuation of any judicial, administrative or other proceedings against the Company relating to events occurring prior to April 20, 1995, are generally automatically stayed. ITEM 3. DEFAULTS UPON SENIOR SECURITIES As discussed elsewhere herein, the Company had a line of credit agreement with a bank ("the Agreement"), secured by the Company's accounts receivable and certain other collateral, for a maximum borrowings of $10,000,000 consisting of a $7,000,000 working capital line of credit and standby letters of credit up to $3,000,000. The Company's pre-petition outstanding loan balance under the Agreement was approximately $7,616,000 of which $2,025,000 was unfunded stand-by letters of credit issued under the Company self-insurance program for auto liability and worker's compensation. The Company was in default under certain of its covenants in connection with the Agreement, and no additional borrowings or letters of credit are available under the Agreement. For more information concerning negotiations with the bank relating to the Company's compliance with its covenants under the Agreement, see "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources" and Note 3 of Notes to the Financial Statements of the Company. The Company also has outstanding secured term debt, including capital lease obligations, totaling approximately $19,325,000 at June 30, 1995, and significant pre-petition unsecured obligations. As a result of the bankruptcy, the Company suspended payment on the pre-petition obligations and is in default. 19 20 PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits The following exhibit is filed as part of this Quarterly Report on Form 10-Q: No. Description 10.1 Stipulation for Secured Borrowing and Use of Cash Collateral filed with the United States Bankruptcy Court for the Western District of Oklahoma on May 23, 1995. 27.1 Financial Data Schedule (b) Reports on Form 8-K. During the quarter ended June 30, 1995, the Company filed two Current Reports on Form 8-K. A Current Report on Form 8-K dated as of April 20, 1995 was filed to report the Company's filing on April 20, 1995 a voluntary petition in the United States Bankruptcy Court for the Western District of Oklahoma seeking to reorganize under Chapter 11 of the Bankruptcy Code. A Current Report on Form 8-K dated as of May 12, 1995 was filed to report the dismissal of Arthur Andersen, LLP as the Company's independent accountants. 20 21 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. FREYMILLER TRUCKING, INC. BY: DON H. FREYMILLER --------------------- DON H. FREYMILLER PRESIDENT AND CHIEF EXECUTIVE OFFICER BY: RICHARD E. KUEHN -------------------- RICHARD E. KUEHN EXECUTIVE VICE PRESIDENT - CHIEF FINANCIAL AND OPERATING OFFICER 21 22 EXHIBIT INDEX
NO. DESCRIPTION - --- ----------- 10.1 Stipulation for Secured Borrowing and Use of Cash Collateral filed with the United States Bankruptcy Court for the Western District of Oklahoma on May 23, 1995. 27.1 Financial Data Schedule
22 EX-10.1 2 STIPULATION FOR SECURED BORROWING 1 UNITED STATES BANKRUPTCY COURT WESTERN DISTRICT OF OKLAHOMA ___________________________________ In re: Freymiller Trucking, Inc., Bky. No. 95-12095-BH Debtor. ___________________________________ STIPULATION FOR SECURED BORROWING AND USE OF CASH COLLATERAL Freymiller Trucking, Inc., an Indiana corporation (the "Debtor"), and Norwest Business Credit, Inc., a Minnesota corporation (the "Secured Party"), hereby stipulate and agree, subject to approval of this Stipulation by the Court as hereinafter set forth, as follows: 1. Nature and Amount of Secured Party's Claim. The Debtor hereby stipulates and agrees that: (a) The Secured Party is the holder of a claim as of April 20, 1995 (the "Secured Party's Claim") against the Debtor in the sum of $7,696,653.44 consisting of total borrowings ($5,671,653.44) and obligations in respect of presently undrawn letters of credit ($2,025,000.00), plus all costs and expenses of administration, collection and enforcement in accordance with the loan documentation incurred by Secured Party prior to commencement of the Debtor's bankruptcy case (the "Case"), plus, to the extent permitted under Section 506(b) of the United States Bankruptcy Code (the "Code"), interest accrued after commencement of the Case and the reasonable fees, costs and charges referred to in Section 506(b). 2 (b) The Secured Party's Claim is evidenced by the Debtor's Revolving Note dated as of February 11, 1993 (as amended to date, the "Note") and the Revolving Credit Agreement dated as of February 11, 1993 (as amended to date, the "Credit Agreement"), and is secured, among other things, pursuant to the following documents each dated as of February 11, 1993 unless otherwise noted (collectively, the "Security Documents"): (1) the Security Agreement, as amended to date (the "Security Agreement"), (2) the Collateral Account Agreement by the Debtor and Norwest Bank Iowa, National Association ("Norwest Iowa"), (3) four Occupancy Agreements, one of which is dated May 5, 1994, (4) the Assignment of Life Insurance Policy as Collateral (the "Life Insurance Assignment"), (5) the Special Deposit Agreement dated as of February 9, 1993 by the Debtor and Community First Bank, (6) the Agreement as to Lockbox Service (the "Lockbox Agreement") by the Debtor and Norwest Iowa, (7) the collateral account letter agreement dated March 20, 1995 by the Debtor and Bank IV Oklahoma, N.A., and (8) the Special Deposit Agreement by Harris Trust and Savings Bank and the Debtor dated March 31, 1993. (c) Payment of the Secured Party's Claim is absolutely and unconditionally due and payable, without defense, offset or counterclaim, and the Debtor waives and releases any right to object to the allowance of the Secured Party's Claim, provided, however, the portion of the Secured Party's Claim with respect to letters of credit which expire undrawn shall not be allowed, and, provided further, the Debtor reserves its right to challenge the amount of expenses charged by the Secured Party. 2 3 (d) The Secured Party's Claim is secured by a security interest in (A) all collateral security granted to the Secured Party pursuant to the Security Documents and all other documents given by the Debtor in favor of the Secured Party (including, without limitation, all inventory, accounts, chattel paper, instruments, equipment and general intangibles, and vehicles, as those terms are defined in the Uniform Commercial Code, in existence on or before the commencement of the Debtor's Case and the life insurance policy assigned pursuant to the Life Insurance Assignment); and (B) all proceeds and products of such collateral security acquired by the estate created by the Debtor's Case (the "Estate") after the commencement of the Case, except only allowances to the Estate for improvements made by the Estate after the commencement of the Case, as determined pursuant to Section 552(b) of the Code. (e) Except as the Secured Party may otherwise agree, in writing, the Debtor will look solely to its rights under paragraph 3 below to recover any costs and expenses of preserving said collateral security and such proceeds and products (which collateral security, proceeds and products are herein called the "Prepetition Collateral") and for any allowances or reimbursement for any improvements made by the Estate after commencement of the Case. (f) Secured Party acknowledges that its security interest in and to the Debtor's tractors and trailers, except for the Show Truck and the Motor Coach as defined in paragraph 5(e) below, was not perfected at the date of commencement of the case. Otherwise, unless the Debtor files a written objection or complaint with the Court properly objecting to the perfection of any security interest in favor of Secured Party 3 4 on or before the final hearing on the approval of this Stipulation, which shall be held within 30 days of the issuance of the interim order approving this Stipulation, the due and proper perfection of such security interest shall be deemed admitted and approved, and the Debtor shall be deemed to have waived and released any right to object thereto. 2. Use of Collateral; Adequate Protection. (a) The Debtor stipulates and agrees that, other than as permitted herein, prior to the termination of this Stipulation, it: (1) will not without prior written consent of the Secured Party engage in, or seek authority for, (A) any use of cash collateral of the Secured Party except as permitted herein, or (B) any use, sale or lease of Prepetition Collateral other than in the ordinary course of business, provided, however, that the Debtor (i) may trade in GE-financed 1993 tractors and Mercedes Benz-financed 1993 tractors on reasonable business terms for new tractors without the prior written consent of the Secured Party, and (ii) may sell of or lease tractors and trailers without the prior written consent of Secured Party as long as the same are on usual business terms and any surplus proceeds from the sale or lease of such tractors and trailers after payment of prior liens are paid to Secured Party as set forth herein and, provided further, that nothing herein shall prohibit the Debtor from seeking to consummate any transaction necessary or appropriate in connection with its confirmed plan of reorganization; (2) will keep insured and properly care for all tangible Prepetition Collateral as provided in the Credit Agreement, Security Documents and the documents related thereto; (3) will segregate and account for all cash collateral of 4 5 the Secured Party; and (4) will pay to the Secured Party on the first day of each month all interest accruing on the Secured Party's Claim in the prior month, provided that from and after April 20, 1995, such interest shall accrue at an annual rate equal to two percent (2%) over the Base Rate, as such term is defined in paragraph 5(a) below. (b) Any cash collateral of the Secured Party used by the Debtor since the commencement of the Debtor's Case, but before the execution of this Stipulation, shall be treated as a New Loan under paragraph 5 hereof. (c) Effective upon the earlier of December 31, 1995 or the date on which an order is entered in the Case confirming a plan ("the Termination Date"), the Secured Party's consent to the use of cash collateral shall expire, and the Debtor and the Secured Party shall have with respect to the use and disposition of property of the Estate the rights and duties imposed by the Code and any order of the Court, provided that such expiration shall not affect any rights or liens in the property of the Estate granted to the Secured Party during the period this Stipulation is in effect nor the agreement of Debtor in paragraph 3 hereof. 3. Allowance for Improvements made by the Estate. In consideration of the Debtor's right to use collateral in accordance with paragraph 2 and in view of the effect of such use, no allowance shall be made to the Estate for any insurance, preservation, repair or improvement with respect to any of the Prepetition Collateral, except as otherwise agreed hereafter in writing by the Secured Party. 4. Segregation and Payment of the Secured Party's Cash Collateral. The Debtor shall pay over to the Secured Party for application to the Secured Party's Claim all 5 6 cash proceeds of Prepetition Collateral now held by Debtor. The Lockbox Agreement shall remain in full force and effect and the Debtor shall continue to notify all account debtors to direct payments to the lock box. On a daily basis, unless otherwise agreed by the Secured Party in writing, the Debtor shall account to the Secured Party for any sums received directly by the Debtor, and shall pay over to the Secured Party for application on the Secured Party's Claim as provided herein, all cash proceeds of the Prepetition Collateral (except to the extent such proceeds are necessary to satisfy perfected, prepetition liens on the item of prepetition collateral sold) received by the Debtor during that day. All cash proceeds of Prepetition Collateral shall be deposited in a collateral account (the "Collateral Account") under the exclusive control of the Secured Party, established at a bank selected by the Debtor and reasonably satisfactory to the Secured Party. After allowing for the collection of uncollected items, the Secured Party is authorized to and shall apply the amounts so deposited to the reduction of the Secured Party's Claim as provided herein. Subject to paragraph 1(f) above, any application of sums by the Secured Party to the reduction of the Secured Party's Claim prior to the termination of this Stipulation shall be final. Subject to paragraph 1(f) above, neither such application nor the validity of the Secured Party's pre-petition security interest in the Prepetition Collateral as security for the Secured Party's Claim shall be subject to challenge by the Debtor, and nothing shall impair the validity of such application or security interest. 5. Terms of Any New Loans to the Debtor. The Secured Party will make loans (the "New Loans") and issue guaranties of letters of credit (the "New L/C Guaranties") 6 7 to or for the benefit of the Debtor from time to time before the Termination Date on the following terms and conditions: (a) The New Loans shall bear interest at an annual rate which shall at all times be equal to two percent (2%) over the rate of interest publicly announced from time to time by Norwest Bank Minnesota, National Association as its "base rate" or, if such bank ceases to announce a rate so designated, any similar successor rate designated by the Secured Party, with interest computed on the basis of actual days elapsed in a 360-day year (the "Base Rate"). (b) All New Loans, with such interest thereon, and all New L/C Guaranties, with all fees associated therewith, and all collection costs and enforcement expenses related to each shall be: (1) allowable under Section 503(b)(1) of the Code as an administrative expense with priority pursuant to the provisions of Section 364(c)(1) of the Code over all other administrative expenses of the kind specified in Section 503(b) or Section 507(b) of the Code and all other expenses and claims, provided that nothing herein shall prohibit the Debtor from paying such other administrative expenses from the proceeds of New Loans in the ordinary course of the Debtor's Case; and (2) secured by (and the Secured Party is hereby granted) a lien on and security interest in all present and future property of the Estate, including both real and personal property, whether now held or hereafter acquired by the Estate, and including specifically and without limitation (A) all of the Estate's now owned or hereafter acquired inventory, equipment, accounts, instruments, 7 8 documents, chattel paper and general intangibles, as those terms are defined in the Uniform Commercial Code, (B) any recovery that the Estate may obtain pursuant to Sections 544, 545, 547, 548, 549 or 553 of the Code, (C) the Prepetition Collateral, (D) any real estate, and (E) all proceeds, products, rents, issues and profits of all of the foregoing (all herein referred to as the "Secured Party's Collateral"), which lien and security interest shall have priority over all other liens, claims and expenses, including administrative expenses, in the Debtor's Case, except as otherwise set forth in subparagraph 5(c) below and except all other contractual security interests in equipment or real estate of the Debtor which were duly perfected on the date of commencement of the Debtor's Case and are not subject to avoidance therein. The liens granted above to secure payment of the New Loans and the New L/C Guaranties shall be valid and enforceable regardless of whether the Court determines, in response to an objection or complaint filed in accordance with paragraph 1 above, that some or all of the liens held by the Secured Party in the Prepetition Collateral are unenforceable for any reason. (c) Notwithstanding the provisions of subparagraph 5(b) above, the liens and security interest herein granted to the Secured Party shall be subordinate to the security interest in the Prepetition Collateral held by the Secured Party in the inventory, accounts, equipment, general intangibles and other assets of the Debtor which was duly perfected on the date of commencement of the Debtor's Case. 8 9 (d) The Debtor's obligation to repay the New Loans and to reimburse the Secured Party in connection with all New L/C Guaranties shall be evidenced by this Stipulation and by the Secured Party's books and records. Such obligation shall be due and payable on the termination of this Stipulation, with prepayments as herein provided. The liens securing the New Loans and New L/C Guaranties shall be evidenced by this Stipulation. (e) The Debtor will not request, and the Secured Party shall not make, any New Loan or New L/C Guaranty unless the aggregate balance of the New Loans and New L/C Guaranties which would be outstanding hereunder if such New Loan or New L/C Guaranty were made, which when added to the amount of the Secured Party's Claim then outstanding, does not exceed the amount of a "Borrowing Base" computed as follows: The lesser of $10,000,000 or (i) 90% of Eligible Billed Freight Accounts Receivable, plus (ii) 70% of Eligible Unbilled Freight Accounts Receivable; provided, however, that in no event shall the sum of (A) New L/C Guaranties plus (B) Letter of Credit Guaranties under the Credit Agreement exceed $3,000,000, plus (iii) $600,000, minus (iv) 100% of the net proceeds received by the Debtor from the sale, refinance or other disposition of the Debtor's Prevost motor home, 9 10 vehicle identification number 2P9M33404L1001641 (the "Motor Coach"),minus (v) 100% of the net proceeds received by the Debtor from the sale, refinance or other disposition of the Debtor's 1991 Freightliner show tractor, vehicle identification number 1F7DOY92MP506405 (the "Show Truck"),minus (vi) 50% of the net cash proceeds received by the Debtor from the sale, refinancing or other disposition of each of the Debtor's tractors, whether such sale, refinancing or other disposition is in units or in bulk, and whenever consummated, minus (vii) 100% of the net cash proceeds received by the Debtor from the sale, refinance or other disposition of each item of the Debtor's other machinery and equipment. For these purposes, "Letter of Credit Guaranties," "Eligible Billed Freight Accounts Receivable" and "Eligible Unbilled Freight Accounts Receivable" shall have the meanings given to such terms in the Credit Agreement. Notwithstanding the foregoing, the Secured Party may from time to time, at its sole discretion, make temporary New Loans to the Debtor and issue New L/C Guaranties which, when added to the aggregate balance of the New Loans, the New L/C Guaranties and the Secured Party's Claim then outstanding, would exceed the Borrowing Base. (f) The Secured Party may terminate its obligation to make New Loans and issue New L/C Guaranties if an Event of Default has occurred under Section 6 below. 10 11 (g) The Secured Party will make New Loans and issue New L/C Guaranties only after the Secured Party and its legal counsel are satisfied that: (1) the liens securing the New Loans have been duly perfected by entry of an order approving this Stipulation; (2) there are no prior liens in the Secured Party's Collateral except the Secured Party's security interest in the Prepetition Collateral and other valid pre-petition security interests held by others and disclosed to the Secured Party; (3) there is appropriate and adequate insurance coverage for the Secured Party's Collateral as provided in the Credit Agreement, Security Documents, and documents related thereto; and (4) Don H. Freymiller has duly consented to this Stipulation, and the Bankruptcy Court has found that the Secured Party, by agreeing to this Stipulation, has not impaired in any way the enforceability of the Guaranty dated February 11, 1993, as amended, of Don H. Freymiller, in favor of the Secured Party (the "Guaranty") as to the Secured Party's Claim and the New Loans; and (5) the Court has approved this Stipulation and the Debtor's execution and delivery of it, and this Stipulation has been duly executed and delivered by the Debtor. (h) The Debtor will immediately deposit in the Collateral Account, in the form received, all cash proceeds of any property of the Estate. The Lockbox Agreement shall remain in full force and effect and the Debtor shall continue to notify all account debtors to direct payments to the lock box. After allowing for the collection of uncollected items, the Secured Party is authorized to apply the amounts deposited in the Collateral Account first to the Secured Party's Claim and then to the payment of the New Loans. Any application of sums by the Secured Party to the 11 12 reduction of the Secured Party's Claim or the New Loans after the date of this Stipulation shall be final. Neither such application nor the lien and the security interest herein granted to the Secured Party shall be subject to challenge by the Debtor, and nothing shall impair the validity of such application and of such lien and security interest. (i) The Secured Party is authorized to make the New Loans and to issue New L/C Guaranties upon telephonic or other oral or written request of Richard Kuehn and such other persons as set forth in the Credit Agreement and to disburse proceeds of the New Loans as instructed by such person(s). (j) Each of the Debtor and the Secured Party agrees to comply with and abide by all applicable provisions of the Credit Agreement and Security Documents except as modified herein, including without limitation (i) the obligation of the Debtor to pay the Facility Fee, the Letter of Credit Fee, and all other fees payable to the Secured Party as provided in the Credit Agreement and Security Documents, and (ii) the procedures with respect to requesting New Loans, the issuance of New L/C Guaranties, and the repayment of same. The Secured Party shall have all of the rights thereby conferred both with respect to the Prepetition Collateral and the liens securing the New Loans, including the right to conduct periodic audits of the Debtor's business during reasonable business hours, with the right to have an auditor of the Secured Party on the Debtor's premises. 12 13 (k) The proceeds of all New Loans shall be used in the ordinary course of business. (l) The Debtor shall at all times maintain an inventory of parts at a level exceeding $100,000. (m) The Debtor shall pay, when due, the administrative expenses in the Debtor's case. (n) The Debtor shall use its best efforts to prepare, propose and file a plan of reorganization in the Debtor's case as quickly as possible and in no event later than October 31, 1995 and to confirm such plan of reorganization no later than December 31, 1995. 6. Events of Default. "Event of Default", wherever used herein, means any one of the following events, unless waived in writing by the Secured Party: (a) Any of the Secured Party's Collateral is converted by the Debtor, lost or stolen in any material amount, or not accounted for by the Debtor; or (b) The Debtor fails to pay any cash proceeds of collateral to the Secured Party as herein provided or otherwise fail to make any payment required hereunder; or (c) The Order entered by the Court approving the terms of this Stipulation, or any subsection or portion thereof, shall be vacated, reversed, or modified; or (d) The Debtor fails to comply with any of its obligations under the Code or other applicable law, if such noncompliance has a material adverse impact on the Debtor's business or the Debtor's estate or to the Secured Party; or 13 14 (e) The Debtor fails to allow the Secured Party to conduct its customary audits of the Secured Party's Collateral during regular business hours; or (f) The Debtor fails to timely deliver to Secured Party the reports required under paragraph 8 hereof, provided, however, that the Debtor may have until ten days after written notice from the Secured Party to deliver the reports required by paragraphs 8(b), (c) and (e) hereof; or (g) The Debtor shall at any time discontinue or shall be ordered to discontinue the conduct of its business; or (h) The automatic stay is terminated with respect to any other party permitting that party to proceed against any assets of the Debtor, or the Debtor assumes or rejects any executory contract, which has a material adverse impact on the Debtor's business or the Debtor's estate or the Secured Party; or (i) The Debtor's Case shall be dismissed or converted to a Chapter 7 case ; or (j) The Debtor fails to attain at least 60% of the cumulative, projected cash flows as set forth in the Budget attached hereto as Exhibit A; or (k) Appointment of a trustee or examiner with expanded powers under 11 U.S.C. Section 1104; or (l) The Debtor fails to comply with any representation, warranty, covenant contained in the Credit Agreement, Security Documents (except for the covenants related to the filing of a bankruptcy petition, solvency or financial covenants) or 14 15 herein, and the continuance of such failure following ten days written notice to the Debtor from the Secured Party. As of the date of this Stipulation, the Secured Party is not aware of any failure or act which would constitute an Event of Default hereunder. The Secured Party acknowledges that a plan of reorganization may contain terms inconsistent with such representations, warranties and covenants but the Secured Party reserves all of its rights to object to such inconsistent terms. These Events of Default are exclusive and supersede those Events of Default stated in the Security Documents or Credit Agreement. 7. Secured Party's Remedies. In addition to the Secured Party's right to refuse to make New Loans and New L/C Guaranties as provided in paragraph 5(f), (a) upon the occurrence of an Event of Default, all indebtedness of the Debtor to the Secured Party shall, at the Secured Party's option, become immediately due and payable, without notice or demand, and the Secured Party may immediately, without notice, demand or any period of grace, temporarily suspend or permanently cease making New Loans and issuing New L/C Guaranties pursuant to paragraph 5 hereof, and may withdraw its consent to the Debtor's use of cash collateral; and (b) upon the occurrence of any Event of Default at the Secured Party's option and upon five business days notice to the Debtor, the Secured Party shall be entitled to an order from the Bankruptcy Court terminating the automatic stay of 11 U.S.C. Section 362 as to the Secured Party, which order the Debtor agrees may be entered. 15 16 8. Reporting. The Debtor will make available to the Secured Party all information required by the Credit Agreement and Security Documents, or as otherwise required by the Secured Party, including without limitation, the following items: (a) as soon as available, a copy of each weekly cash flow statement; (b) within 20 days after the end of each month, an operating statement for that month and asset and liability statement as at the end of that month; (c) each day, (1) collection reports of accounts receivable and cash sales; and (2) a listing of new accounts receivable, along with, at the request of the Secured Party, each receivable's invoice documentation; (d) on the first business day of each week, (1) a certificate setting forth the amount of New Loans and New L/C Guaranties outstanding hereunder, the amount of Prepetition Collateral, the Secured Party's Collateral and the Borrowing Base referred to in subparagraph 5(e), in each case as of the end of the previous week; and (2) reports on the aging of accounts receivable and accounts payable; (e) immediately upon the sale, refinancing or other disposition of the Motor Coach, the Show Truck, any tractor, or any other item of machinery or equipment with a sales price in excess of $1,500, a certificate setting forth the amount of the net proceeds received from such sale, refinancing or other disposition. 9. Reservation of Rights. Except as otherwise expressly set forth herein, the Secured Party reserves and retains all rights it may have as to the Secured Party's Claim and the Prepetition Collateral and all rights against any and all other collateral security held by the Secured Party. 16 17 10. Modification of Prior Documents. Except as expressly modified, changed or amended by this Stipulation, all provisions of the Credit Agreement, Security Documents, and documents in favor of the Secured Party, remain in full force and effect. 11. Complete Agreement. This Stipulation sets forth the complete agreement of the parties. It may not be modified, waived or changed, except by a writing signed by the party to be bound thereto. 12. Binding Effect. This Stipulation is binding upon the parties and their respective successors and assigns, including but not limited to any successor entity under any plan of reorganization of the Debtor. Any trustee in this Chapter 11 case or any converted Chapter 7 case shall be bound by this Stipulation without prejudice, however, to such trustee's rights to challenge paragraph 1 hereof. 13. Expenses. The Debtor agrees to reimburse the Secured Party for all reasonable attorney's fees and legal expenses incurred by the Secured Party in connection with the negotiation, execution and delivery of this Stipulation or the making of any New Loan, or the collection, enforcement or protection of this Stipulation, the indebtedness evidenced hereby, or the security therefor. 14. Termination. Any termination of the Secured Party's consent to the use of cash collateral or of the Secured Party's obligation to extend New Loans or New L/C Guaranties shall not affect any rights or the validity, priority or effect of liens in the property of the Estate granted to the Secured Party during the period this Stipulation is in effect or the Debtor's agreement in paragraphs 3 and 7 hereof. 17 18 15. Stipulation Subject to Entry of Court Order. This Stipulation is subject to, and shall be effective only upon, entry of an order of the Court authorizing the Debtor to enter into and perform this Stipulation, including (without limitation) the provisions of paragraphs 3, 4 and 5 hereof, for which order the Debtor hereby applies to the Court. During the pendency of this case and prior to confirmation of a plan of reorganization, the United States Bankruptcy Court for the Western District of Oklahoma shall be the sole forum for resolving disputes between the Debtor and the Secured Party under the Stipulation. 16. Exit Financing. The Debtor has requested that the Secured Party provide financing to the Debtor after the confirmation of a plan of reorganization in the Debtor's Case (the "Exit Financing"). The Secured Party is willing to provide the Exit Financing on the following terms and conditions: (a) The Debtor's plan of reorganization and the order confirming the plan shall provide for the continuing validity, enforceability and effectiveness of the Credit Agreement, Security Documents and documents related thereto on the same terms and conditions as existed before the commencement of the Debtor's Case, except as specifically set forth below. Without limitation of the foregoing, the Debtor's plan of reorganization and the order confirming the plan must provide for (i) the payment in full through the Exit Financing or otherwise of all amounts due to the Secured Party, whether incurred before, during or after the Debtor's Case, (ii) the continuation of all liens, claims and encumbrances in favor of the Secured Party on assets of the Estate and the reorganized Debtor, and (iii) the maintenance of the loan structure which existed before the commencement of the Debtor's Case. 18 19 (b) The Exit Financing shall expire and be repaid in full no later than the earlier of (i) one year after the date on which an order is entered in the case confirming a plan of Reorganization, or (ii) December 31, 1996. (c) The Exit Financing will not be made available to the Debtor if an Event of Default has occurred under this Stipulation or if the Termination Date has occurred prior to the confirmation of the Debtor's plan. (d) The Debtor must have delivered to the Secured Party, before the date of confirmation of the Debtor's plan, projections for operations of the Debtor through December 31, 1996 showing positive cash flow and positive net income, which projections shall be the basis for resetting the financial covenants in the Credit Agreement with respect to the Exit Financing. (e) Interest shall accrue at an annual rate equal to two and one-half percent (2 1/2%) over the Base Rate. After default, interest shall accrue at four and one-half percent (4 1/2%) in excess of the Base Rate. All other fees, charges and other expenses shall be payable by the Debtor to the Secured Party as set forth in the Credit Agreement, Security Documents, and documents related thereto. (f) The "Borrowing Base" shall return to the definition of such term in the Credit Agreement immediately prior to the commencement of the Debtor's Case. (g) The Exit Financing shall be secured by a perfected security interest in all assets of the Debtor, and Don H. Freymiller shall acknowledge that the terms of the Exit Financing do not impair in any way the enforceability of the Guaranty as to the Exit Financing. 19 20 (h) The Debtor shall execute such documents as the Secured Party may deem appropriate or reasonable to evidence the terms set forth above and the continuing validity, enforceability and effectiveness of the Credit Agreement, Loan Documents and documents related thereto. The Debtor is agreeable to all of the foregoing terms and conditions, and agrees that it will not propose a plan of reorganization which fails to include each of the foregoing terms. Dated: May 23, 1995 Debtor's Counsel: Debtor: FREYMILLER TRUCKING, INC. /s/ Judy Hamilton Morse Judy Hamilton Morse Roger A. Stong By /s/ Richard E. Kuehn Crowe & Dunlevy Its Chief Financial Officer 20 North Broadway, Suite 1800 Oklahoma City, Oklahoma 73102 Telephone (405) 720-6555 20 21 Secured Party's Counsel: Secured Party: /s/ G. Blaine Schwabe, III NORWEST BUSINESS CREDIT, INC. G. Blaine Schwabe, III Mock, Schwabe, Waldo, Elder, Rooves & Bryant By /s/ Perry T. Larson 211 North Robinson Its Vice President Oklahoma City, OK 73102 and Michael R. Stewart Kathleen H. Sanberg Faegre & Benson, Professional Limited Liability Partnership 2200 Norwest Center 90 South Seventh Street Minneapolis, MN 55402-3901 Telephone (612) 336-3000 The undersigned hereby agrees that the terms of the foregoing Stipulation do not impair in any way the enforceability of the undersigned's Guaranty dated February 11, 1993, as amended, in favor of the Secured Party as to the Secured Party's Claim and the New Loans. /s/ Don H. Freymiller Don H. Freymiller 21 EX-27.1 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S BALANCE SHEET AS OF JUNE 30, 1995 AND STATEMENT OF OPERATIONS FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS INCLUDED IN THE COMPANY'S FORM 10-Q FILING FOR THE SECOND QUARTER OF 1995. 1,000 6-MOS DEC-31-1995 JAN-01-1995 JUN-30-1995 536 0 9,112 0 419 13,051 21,864 7,164 35,276 37,658 0 25 0 0 (6,233) 35,276 0 41,920 0 46,097 3,215 0 1,267 (8,659) 111 (8,770) 0 0 0 (8,770) (3.60) (3.60)
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