-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, D/bKr1Av+TltDaS6p18thHwZ6MHDhzyfclND2iMn/SXZxA0t0bN9Rtdzr7cZB8b7 +hXMf9GmwfCRqsZvLT92TQ== 0000874268-96-000005.txt : 19960619 0000874268-96-000005.hdr.sgml : 19960619 ACCESSION NUMBER: 0000874268-96-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960515 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FRUEHAUF TRAILER CORP CENTRAL INDEX KEY: 0000874268 STANDARD INDUSTRIAL CLASSIFICATION: 3715 IRS NUMBER: 382863240 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10772 FILM NUMBER: 96567347 BUSINESS ADDRESS: STREET 1: 111 MONUMENT CIRCLE STREET 2: SUITE 3200 CITY: INDIANAPOLIS STATE: IN ZIP: 46244-0913 BUSINESS PHONE: 3176303000 MAIL ADDRESS: STREET 1: 111 MONUMENT CIRCLE STREET 2: SUITE 3200 CITY: INDIANAPOLIS STATE: IN ZIP: 46244-0913 10-Q 1 FRUEHAUF TRAILER FORM 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 1O-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended March 31, 1996 Commission File Number 1-10772 FRUEHAUF TRAILER CORPORATION (Exact name of registrant as specified in its charter) Delaware 38-2863240 - - ----------------------- ---------------------------------- (State of Incorporation) (I.R.S. Employer Identification No.) 111 Monument Circle, Suite 3200, Indianapolis, Indiana 46204 - - ------------------------------------------------------------ (Address of principal executive offices) (317) 630-3000 ------------------------------- (Registrant's telephone number) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ----- ------ Number of outstanding shares of common stock: 39,212,454 as of May 14, 1996. 2 INDEX FRUEHAUF TRAILER CORPORATION AND SUBSIDIARIES PART I - FINANCIAL INFORMATION Page No. --------------------- -------- Item 1 Condensed Consolidated Financial Statements Condensed Consolidated Statement of Operations - Three months ended March 31, 1996 and 1995. . . 3 Condensed Consolidated Balance Sheet - March 31, 1996 and December 31, 1995 . . . . . 4 Condensed Consolidated Statement of Cash Flows - Three months ended March 31, 1996 and 1995. . . 6 Notes to Condensed Consolidated Financial Statements . . . . . . . . . . . . . . 7 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . 14 PART II - OTHER INFORMATION ----------------- Item 1 Legal Proceedings. . . . . . . . . . . . . . . 23 Item 3 Defaults Upon Senior Securities. . . . . . . . 23 Item 6 Exhibits and Reports on Form 8-K . . . . . . . 24 SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . 24 - - ---------- 3 PART I - FINANCIAL INFORMATION FRUEHAUF TRAILER CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (in thousands, except per share amounts, unaudited)
Three Months Ended March 31, ------------------ 1996 1995 ---- ---- Net sales. . . . . . . . . . . . . . . . . $ 90,306 $111,702 Cost of goods sold . . . . . . . . . . . . 79,601 97,509 -------- -------- Gross margin . . . . . . . . . . . . . . 10,705 14,193 Engineering, selling and administrative expenses . . . . . . . . 12,315 12,843 Royalty income . . . . . . . . . . . . . . (691) (462) Nonrecurring gain . . . . . . . . . . . . (3,000) -- ------- ------- Income from operations. . . . . . . . . . 2,081 1,812 Other income (expense): Interest expense . . . . . . . . . . . . (3,851) (3,354) Equity in net income of affiliate companies. . . . . . . . . . -- 865 Impairment in value of promissory note . . (2,143) -- Other income (expense) - net . . . . . . (273) 1,041 ------- ------- Income (loss) before income taxes. . . . . (4,186) 364 Provision for income taxes . . . . . . . . 121 105 ------- ------- Net income (loss). . . . . . . . . . . . $(4,307) $ 259 ======= ======= Primary and fully diluted earnings (loss) per share. . . . . . . . . . . . . . $(.11) $ .01 ===== ===== Dividends per share. . . . . . . . . . . . $ -- $ -- ===== ===== Weighted average common and common equivalent shares outstanding (See Exhibit 11). . . . 39,212 31,408 ====== ====== The accompanying notes are an integral part of these statements. /TABLE 4 FRUEHAUF TRAILER CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET (in thousands)
March 31, December 31, 1996 1995 ----------- ------------ (unaudited) ASSETS Current assets Cash and cash equivalents . . . . . . . . . $ 5,531 $ 3,804 Net receivables . . . . . . . . . . . . . . 28,707 38,589 Net inventories (See Note B). . . . . . . . 41,149 55,162 Other current assets. . . . . . . . . . . . 4,090 841 -------- -------- Total current assets. . . . . . . . . . 79,477 98,396 Restricted cash . . . . . . . . . . . . . . 1,981 1,427 Prepaid pension cost . . . . . . . . . . . . 11,868 11,757 Investments in affiliate companies . . . . . 3,441 3,441 Assets held for sale . . . . . . . . . . . . 4,116 6,986 Unamortized deferred debt issuance costs . . 6,087 6,232 Other assets . . . . . . . . . . . . . . . . 8,000 7,255 Property, plant and equipment Property, plant and equipment . . . . . . . 32,882 32,906 Less - accumulated depreciation . . . . . . (12,282) (11,887) -------- -------- Net property, plant and equipment. . 20,600 21,019 -------- -------- Total assets. . . . . . . . . . . . . . $135,570 $156,513 ======== ======== The accompanying notes are an integral part of these statements. /TABLE 5 FRUEHAUF TRAILER CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET (Continued) (in thousands)
March 31, December 31, 1996 1995 ----------- ----------- (unaudited) LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities Trade accounts payable. . . . . . . . . . . . . $ 41,598 $ 51,703 Accrued compensation and benefits . . . . . . . 7,116 7,835 Accrued warranties and products liability . . . 6,505 6,876 Accrued interest payable. . . . . . . . . . . . 4,166 1,538 Other current liabilities . . . . . . . . . . . 17,716 18,224 Current portion of long-term debt (See Note C). 26,872 33,592 -------- -------- Total current liabilities . . . . . . . . . 103,973 119,768 Long-term debt, less current portion (See Note C). . . . . . . . . . . 67,450 67,374 Postretirement benefits. . . . . . . . . . . . . 34,112 34,353 Other long-term liabilities. . . . . . . . . . . 35,365 36,041 Contingencies and litigation (See Note E). . . . Stockholders' deficit Common Stock $0.01 par value-authorized 60,000 shares; issued and outstanding 39,212 shares . . . . . . . . . . . . . . . 392 392 Additional paid-in capital. . . . . . . . . . . 130,244 130,244 Common stock purchase warrants. . . . . . . . . 8,892 8,892 Accumulated deficit . . . . . . . . . . . . . . (244,542) (240,235) Foreign currency translation adjustment. . . (316) (316) -------- -------- Total stockholders' deficit . . . . . . . . (105,330) (101,023) -------- -------- Total liabilities and stockholders' deficit. . . $135,570 $156,513 ======== ======== The accompanying notes are an integral part of these statements. /TABLE 6 FRUEHAUF TRAILER CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (in thousands, unaudited)
Three Months Ended March 31, ------------------ 1996 1995 ---- ---- Operating Activities: Net income (loss). . . . . . . . . . . . $(4,307) $ 259 Adjustments to reconcile net income (loss) to net cash from (used in) operating activities: Depreciation. . . . . . . . . . . . . . 395 389 Amortization of deferred debt issuance costs and debt discount. . . . . . 304 184 Unremitted earnings from affiliate companies. . . . . . . . . . . . . -- (865) Gain on sale of excess assets . . . . (37) (923) Impairment in value of promissory note. . 2,143 -- Increase (decrease) in cash due to changes in operating assets and liabilities: Net receivables . . . . . . . . . 9,882 (3,163) Net inventories . . . . . . . . . 14,013 (33) Trade accounts payable. . . . . . (10,611) (480) Other assets and liabilities. . . (3,008) (7,753) ------- ------ Net cash from (used in) operating activities. . . . 8,774 (12,385) Investing Activities: Capital expenditures . . . . . . . . . -- (106) Proceeds from sale of excess assets. . 494 7,648 Decrease (increase) in restricted cash (554) 4,780 ------ ------- Net cash from (used in) investing activities. . . . . (60) 12,322 Financing Activities: Net increase (decrease) in Revolving Credit Facility borrowings. . . . . . (6,826) 4,991 Net repayments under notes payable . . -- (77) Principal repayments of long-term debt (161) (8,631) ------ ------ Net cash used in financing activities. . . . . . . . . (6,987) (3,717) ------ ------ Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . 1,727 (3,780) Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . 3,804 7,789 ------ ------ Cash and cash equivalents at end of period . . . . . . . . . . . . . $5,531 $4,009 ====== ====== The accompanying notes are an integral part of these statements.
7 FRUEHAUF TRAILER CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, unless otherwise denoted) March 31, 1996 NOTE A - BASIS OF PRESENTATION The accompanying condensed consolidated financial statements of Fruehauf Trailer Corporation and Subsidiaries ("Fruehauf" or the "Company") as of March 31, 1996 and for the three months ended March 31, 1996 have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The accompanying consolidated balance sheet as of December 31, 1995 has been derived from the audited consolidated financial statements as of that date. Certain prior year amounts have been conformed to the current year presentation. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the period. Actual results could differ from those estimates. In the opinion of management, all adjustments considered necessary for a fair presentation have been made. Such adjustments consist only of those of a normal recurring nature, other than those adjustments discussed in Note D. Operating results for the three months ended March 31, 1996, are not necessarily indicative of the results that may be expected for the year ending December 31, 1996. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1995 ("1995 10-K"). NOTE B - INVENTORIES Inventories consist of the following:
March 31, December 31, 1996 1995 -------- - - ----------- New trailers. . . . . . . . . . . . . . . $14,378 $19,324 Used trailers . . . . . . . . . . . . . . 2,284 4,288 Finished parts. . . . . . . . . . . . . . 11,805 14,923 Work-in-process and raw materials . . . . 16,281 19,926 ------- ------- Gross inventories. . . . . . . . . 44,748 58,461 FIFO inventory value over LIFO costs. . . (3,599) (3,299) ------- ------- Net inventories. . . . . . . . . . $41,149 $55,162 ======= =======
8 NOTE C - LONG-TERM DEBT Long-term debt consisted of the following at:
March 31, December 31, 1996 1995 -------- - - ----------- Senior Notes bearing interest at 14.75% due April 2002 (net of unamortized debt discount of $4,001 at March 31, 1996 and $4,094 at December 31, 1995) . . . . $58,573 $ 58,480 Revolving Credit Facility bearing interest at prime (8.25% at March 31, 1996) plus 2.5%, due May 1997 . . . 26,517 33,343 Warrant Notes bearing interest at 15% due October 1998. . 8,692 8,692 Other . . . . . . . . . . . . . . . . . . . . . . . . . . 540 451 ------- - - -------- Total long-term debt. . . . . . . . . . . . . . . . . 94,322 100,966 Less: Current portion of long-term debt . . . . . . . . (26,872) (33,592) ------- - - -------- Long-term debt, less current portion . . . . . . . . $67,450 $ 67,374 ======= ========
Balance Sheet Classification at March 31, 1996 The Company's revolving credit facility (the "Revolving Credit Facility") imposes certain limitations on the Company's ability to fund trailing liabilities with borrowings under the Revolving Credit Facility. The Company is required to measure its borrowing availability each month end. In order to borrow under the Revolving Credit Facility to fund trailing liabilities the following month, the Company is currently required to maintain a minimum borrowing availability of $10.0 million at the previous month end. As a result of the lower than anticipated operating performance, borrowing availability at March 31, 1996 was less than the required minimum of $10.0 million. The Revolving Credit Facility lender ("Congress") has continued to fund payment by the Company of trailing liabilities as of the date of this filing and, the Company believes that Congress will continue to lend to the Company subject to standard borrowing availability provisions. The payment of trailing liabilities represents a technical violation of the Revolving Credit Facility constituting an event of default thereunder. Congress has granted a limited waiver (the "Limited Waiver") whereby, among other things, Congress has waived any noncompliance through August 31, 1996 and continues to lend to the Company subject to standard borrowing availability provisions. However, the Company will be required to meet the minimum month end borrowing availability after the expiration of the Limited Waiver unless additional waivers are obtained. The provisions of the Limited Waiver provide, subject to the satisfaction of certain conditions, that the Revolving Credit Facility will be amended to reduce the minimum month end borrowing availability required in order to borrow under the Revolving Credit Facility to fund trailing liabilities to $2.5 million. However, there can be no assurance that the conditions precedent to the amendment of the Revolving Credit Facility will be met and that the Company will maintain the minimum month end borrowing availability in the future. As such, the Company has presented the borrowings outstanding as of March 31, 1996 pursuant to the Revolving Credit Facility as current in the Condensed Consolidated Balance Sheet. Interest on the Company's senior secured notes (the "Senior Notes") is payable semiannually on May 1 and November 1 on each year. The Company has not as yet made the required May 1, 1996 interest payment. The indenture (the "Indenture") governing the issuance of the Senior Notes provides for a 30 day grace period before such default constitutes an Event of Default (as defined in the Indenture). Upon the occurrence of an Event of Default, the holders of the Senior Notes have the right to declare the entire principal of the Senior Notes due and payable. The Company has implemented a number of initiatives to address its near term liquidity constraints, as well as the ability to make the required May 1, 1996 interest payment within the 30 day grace period. See Note F - "Management's Action Plan and Outlook" for further discussion. Given that the Senior Notes were not callable by the holders at March 31, 1996, the Company has presented the Senior Notes as noncurrent in the Condensed Consolidated Balance Sheet at March 31, 1996. However, there can be no assurance that the Company will be able to make the required May 1, 1996 interest payment within the grace period. 9 A default under the Revolving Credit Facility and the Indenture, absent acceleration, does not constitute an event of default under the Company's unsecured promissory notes due October 1998 (the "Warrant Notes"). Accordingly, Warrant Notes have been classified as noncurrent in the Condensed Consolidated Balance Sheet at March 31, 1996. Limitations on Use of Proceeds from the Sale of Assets Held for Sale The terms of the Indenture and Revolving Credit Facility impose certain limitations on the use of proceeds from asset sales. The Indenture divides all of the Company's properties and assets into two categories: "core" assets and "non-core" assets. The Indenture defines (i) "non-core" assets generally as (a) the Company's equity interests in SESR, Henred Fruehauf and Nippon Fruehauf Company, Ltd., (b) the Company's interest in certain real property located in Germany, and (c) all of the Company's assets currently held for sale other than the Indianola, Iowa facility, and (ii) "core" assets generally as any other fixed asset or property of the Company. The first $7.5 million of net proceeds from the sale of "non-core" assets were required to be used to reduce borrowings under the Revolving Credit Facility. The Indenture provides that, subject to the right of Congress to obtain net proceeds from the sale of "non-core" assets in certain circumstances up to a certain maximum, 85% of the net proceeds from the sale of "non-core" assets must be used by the Company to make an offer to repurchase the Senior Notes at par with the balance of any such proceeds to be retained by the Company. The Indenture also requires that all proceeds received upon the sale of a limited number of other assets be used entirely to make an offer to repurchase the Senior Notes at par. The Indenture also provides that any net proceeds from the sale of "core" assets must be either (i) reinvested by the Company in an investment in capital expenditures or acquisitions of assets not classified as current assets, in each case substantially related to the design, manufacture or sale of truck trailers or components or (ii) used to make an offer to repurchase the Senior Notes at par or, in certain circumstances to be applied to certain reserves to permanently reduce indebtedness under the Revolving Credit Facility. NOTE D - MATERIAL NONRECURRING ADJUSTMENTS On February 10, 1995, Jacksonville Shipyards, Inc., a wholly-owned subsidiary of the Company ("Jacksonville"), completed the sale of substantially all of its remaining real estate in three separate transactions. With respect to one purchaser, the proceeds from the sale of Jacksonville's properties consisted of an interest bearing promissory note in the principal amount of approximately $3.8 million, secured by a mortgage on the underlying property, and assumption of liabilities related to the property. The purchaser recently defaulted on payments of principal and interest on the promissory note. In an effort to realize value from the promissory note, Jacksonville has sought a buyer of the promissory note and related mortgage interest. After extensive discussions with a prospective buyer of the promissory note, the discussions were terminated due to certain issues unrelated to the proposed economic terms. As a result of the termination of such discussions, on May 8, 1996 Jacksonville initiated a foreclosure proceeding on the real property securing the promissory note. The prospective buyer has indicated its desire to continue discussions whereby the prospective buyer would purchase the real property after completion of the foreclosure. Such discussions, including the proposed economic terms, indicate that the entire carrying amount of the promissory note may not be recoverable. As such, Jacksonville recorded a non-cash impairment write-down of approximately $2.1 million in the first quarter of 1996 to reflect the diminution in value of the promissory note and underlying real property. The Company recognized a gain of $3.0 million in connection with the settlement of litigation. 10 NOTE E - CONTINGENCIES AND LITIGATION Litigation In December 1992, a class action complaint was filed on behalf of all persons who purchased the Company's Common Stock during the period June 28, 1991 through December 4, 1992 against the Company, Terex, certain of the Company's present and former officers and Directors, and certain of the underwriters in the Company's initial public offering (the "IPO") in the United States District Court for the Eastern District of Michigan, Southern Division, seeking unspecified compensatory and punitive damages. A related action against the Company's former auditors, Deloitte & Touche LLP ("Deloitte & Touche"), was subsequently filed on behalf of the same persons, and the cases have been consolidated for some purposes. Discussions held among the Company, on behalf of itself and certain of its present and former Directors and officers, Terex, the underwriter defendants, and the plaintiffs resulted in a settlement of the litigation as to all defendants other than Deloitte & Touche. Formal settlement documentation was approved by the District Court on August 17, 1995. The settlement terms require the Company, as its share of the settlement, to (a) pay $0.1 million in cash to a settlement fund, (b) issue a note or notes with a value of $3.3 million, and (c) issue warrants for the purchase of 325,000 shares of Common Stock. To the extent such warrants do not have an agreed upon value at issuance of $0.9 million, the Company must issue additional notes in the amount of the difference. The Company paid $0.1 million into the settlement fund in the second quarter of 1995 and the Company is currently in the process of attempting to develop the specific terms of the notes and warrants. The Company has experienced difficulties in negotiating terms acceptable to the Company. As such, there can be no assurance that the Company and the plaintiffs will reach an agreement with respect to the terms and conditions of the notes and warrants. The Company is involved in other various legal proceedings which have arisen in the normal course of business. Most of these legal proceedings involve products liability or other various claims for which the Company is principally self-insured. In addition, certain of the Company's former maritime operations are one of a number of defendants in legal proceedings wherein the plaintiffs claim to have been damaged by exposure to asbestos fibers and silica dust. The Company has reviewed the products liability and other cases that have arisen in the normal course of Company's business. The Company evaluates the possible impact of this litigation, including the uncertainties as to the timing of expenditures for settlements and/or bonding on appeal, on the Company in light of current circumstances. Although the Company has established reserves for loss contingencies based on available information, it is reasonably possible that such estimates will change in the near future and the Company is at risk of being obligated to pay substantial damages to claimants. The Company had litigation reserves totaling $12.2 million at March 31, 1996. However, the Company's present liquidity situation may make settlements in one or more of these cases difficult. Existing or potential judgments against the Company in one or more of these cases could require expenditures of funds beyond the Company's available cash resources and could, depending on their size, result in the violation of certain covenants contained in the Revolving Credit Facility. In the event that judgments require the expenditure of funds beyond the Company's available resources or result in covenant violations that are not waived or otherwise cured, those judgments could have a material adverse effect on the Company. In the event that any litigation is settled by the issuance of additional equity securities, there may be an adverse effect on earnings per share. In December 1995, the Company reached a settlement of a product liability suit whereby the Company will be required, as part of the settlement, to issue 500,000 shares of Common Stock during 1996. The Company settled its previously announced litigation against Deloitte & Touche on April 24, 1996, which settlement by its terms is confidential. Environmental Matters The Company has facilities at numerous geographic locations which are subject to a range of federal, state and local environmental laws and regulations. Compliance with these laws has, and will, require expenditures on a continuing basis. The Company and/or Jacksonville has been identified as a "Potentially Responsible Party" at 11 several multi-party Superfund sites, and has also identified environmental exposures at certain other sites not designated as Superfund sites. The Company and/or Jacksonville is currently participating in administrative or court proceedings involving a number of sites. Many of the proceedings are at a preliminary stage, and the total costs of remediation, the timing and extent of remedial actions which may be required, and the amount of the Company's liability with respect to these sites cannot presently be estimated. When it is possible to make reasonable estimates of the Company's liability with respect to such matters, a provision is recorded. When it is possible to estimate a range of liability but management is unable to determine the amount within the range that is the best estimate, a provision is recorded for the minimum amount of the range. The Company's reserve for Superfund sites and other environmental contingencies totaled $12.8 million at March 31, 1996 at the sites for which the Company has been able to make estimates. Based upon the many factors that impact the Company's ultimate costs of remediation, it is reasonably possible that such estimates will change in the near future. The amount of possible loss, if any, in excess of the amounts recorded cannot presently be estimated. If the amount of payments required with respect to these sites exceeds the Company's available cash resources, there could be a material adverse effect on the Company. Even if these liabilities do not otherwise impact the Company, incremental environmental reserve requirements, if any, in excess of current reserves could have a material adverse effect on results of a particular period. Other In March 1994, the SEC initiated a formal investigation of the Company. The SEC investigated whether the Company violated certain aspects of the federal securities laws by filing annual and quarterly reports containing financial statements that did not comply with generally accepted accounting principles. The Internal Revenue Service (the "Service") is in the early stages of examination of the Company's federal income tax return for the period July 14, 1989 through December 31, 1989. The Company believes that most of the positions taken in the return are supportable based upon the underlying facts. However, should the Service propose any adjustments, the impact should be substantially mitigated as the Company has significant net operating loss carrybacks and carryforwards available. In the event that any proposed adjustments would require expenditure of funds beyond the Company's available cash resources, those adjustments could have a material adverse effect on the Company. The United States Department of Labor ("DOL") has alleged that the Company's former Chairman, Randolph W. Lenz; Terex Corporation, the Company's former parent; and the Company violated certain provisions of the Employee Retirement Income Security Act of 1974. The Company understands that the DOL has not brought suit at this time; however, the DOL has set forth its settlement requirements in this matter. Such proposed settlement would require Lenz to enter into a Consent Judgment where Lenz would be required to pay a sum estimated to be in excess of $2.8 million to the Terex Corporation Master Retirement Plan Trust and that Lenz enable the Master Trust to reverse its acquisition of another asset by selling it to Lenz. The Company currently does not believe that the allegations made by the DOL will have a material adverse effect on the Company. NOTE F - MANAGEMENT'S ACTION PLAN AND OUTLOOK The ability of the Company to meet ongoing debt service requirements, including the scheduled May 1, 1996 interest payment on the Senior Notes, to meet cash funding requirements, including trailing liabilities, and to otherwise satisfy its obligations to its vendors and lenders from cash solely provided by operations has been adversely affected by the reduced retail market demand in the trailer industry and resultant lower than anticipated operating performance. The Company has not as yet made the required May 1, 1996 interest payment on the Senior Notes. The the Indenture provides for a 30-day grace period before such default constitutes an Event of Default. Upon the occurrence of an Event of Default, the holders of the Senior Notes have the right to declare the entire principal of the Senior Notes due and payable. In response to such liquidity constraints, the Company: (i) has implemented a working capital reduction program, (ii) is exploring potential alternatives to fund the payment of trailing liabilities with the financial assistance of a party potentially liable for certain of the Company's trailing liabilities and (iii) is exploring various alternatives designed to maximize the amount of 12 borrowing availability that can be supported by the current asset base. The Company has also been exploring other alternatives to restructure the Company's capital structure, including, but not limited to, discussions with other trailer manufacturers as to possible consolidations or other potential strategic investments and the sale of non-strategic assets. During the three months ended March 31, 1996, the Company reduced its investment in operating working capital (defined as net receivables and net inventories less trade accounts payable) by approximately $13.3 million. This reduction in operating working capital was the result of (i) focused efforts to improve days sales outstanding of trade receivables and inventory turns, (ii) the reduced production levels experienced during the first quarter of 1996 and (iii) an increase in days payables outstanding. The increase in the days payables outstanding, however, has increased the level of trade accounts payable past normal terms and has affected material flow to the Company's operating locations. The Company has proposed to its suppliers that they agree to "standstill" with respect to past due accounts payable. The initial supplier response has been favorable, however, there can be no assurance that all suppliers will comply or for how long with the Company's proposed terms. On April 19, 1996, the Company entered into a letter agreement (the "K-H Letter Agreement") with K-H Corporation, a Delaware Corporation ("K-H"), pursuant to which, among other things, K-H agreed to purchase an initial $5.5 million interest, and agreed to purchase an additional $1.0 million interest upon successful completion of the Consent Solicitation (as hereinafter defined), in the Revolving Credit Facility (the "Funding"). As part of the K-H Letter Agreement, K-H received five-year warrants to purchase 2,000,000 shares of the Company's common stock for an exercise price of $2.50 per share. The initial funding was consummated on April 25, 1996 and resulted in an expansion of the Company's liquidity under its Revolving Credit Agreement. As a result of the initial funding and other cash conservation measures, borrowing availability under the Revolving Credit Facility totaled approximately $13.8 million as of May 1, 1996. The K-H Letter Agreement contemplates, subject to successful completion of the Consent Solicitation, the incurrence of additional indebtedness subordinated to the indebtedness represented by the Senior Notes through future financing arrangements with K-H or one of its affiliates and the grant by the Company of security interests subordinate to those of the holders of the Senior Notes to secure such arrangements. As part of the Funding, Congress agreed to waive its right to a portion of the proceeds of the Foreign Sale (as hereinafter defined) subject to certain conditions, including receipt of approval of the holders of the Senior Notes for an amendment to the Intercreditor Agreement described below. In addition, the Company has entered into a non-binding letter of intent (including related amendments, the "Letter of Intent") with a third party for the sale (the "Foreign Sale") of certain of the Company's foreign assets for $20 million, subject to adjustment. The Foreign Sale would consist of (i) the Company's interest in Societe Europeene de Semi-Remorques, S.A., a French corporation, (ii) certain stock or other ownership interests owned by Fruehauf International Limited, a wholly-owned subsidiary of the Company ("FIL"), excluding Fruehauf de Mexico, S.A. de C.V., (iii) the Company and FIL's interests in the trademark and technology license agreements currently operative outside North America (including without limitation, all of the Company's and FIL's rights to any fees payable under any such existing agreements and any renewals thereof that may be made in the future), and (iv) all of the Company's interest in the trademark "Fruehauf" outside North America. In addition, the Letter of Intent also contemplates a put-call arrangement between the Company and the proposed purchaser in the Foreign Sale involving the shares of Deutsche-Fruehauf Holding Corporation and/or related entities. The arrangement for such shares should generate between $1.0 million and $5.0 million of additional cash proceeds to the Company. Under the Revolving Credit Facility and the Indenture, the net cash proceeds of the Foreign Sale would generally be applied to certain reserves under the Revolving Credit Facility and to repurchase Senior Notes with the Company receiving a limited portion of the proceeds. As part of the Consent Solicitation, the Company has proposed that the net cash proceeds from the Foreign Sale be applied as follows: (i) the May 1, 1996 interest payment (approximately $4.6 million) would be paid to the holders of the Senior Notes, (ii) one-half of the remaining net cash proceeds would be deposited with the Trustee under the Indenture to be held in trust for the holders of the Senior Notes and used to make an asset sale offer to repurchase Senior Notes and (iii) the remaining net cash proceeds would be paid to the Company for application to the Revolving Credit Facility but not applied to the asset sale reserve (the "Asset Sale Reserve") or used to increase the permanent reserve (the "Permanent Reserve") under the Revolving Credit Facility. These proceeds would thus increase the Company's borrowing availability under the Revolving Credit Facility. 13 In connection with the proposed Foreign Sale and the execution of the K-H Letter Agreement, the Company and Congress entered into the Limited Waiver, pursuant to which, among other things, Congress has waived the provisions of the Revolving Credit Facility to permit the Foreign Sale to occur. One of the conditions to the effectiveness of the Limited Waiver in relation to the Foreign Sale is that the trustee (the "Trustee") under the Indenture enter into an amendment to the intercreditor agreement by and among Congress and the Trustee (the "Intercreditor Agreement"): (i) permitting the portion of the net cash proceeds of the Foreign Sale which are paid to Congress to be applied as set forth in the paragraph above, (ii) providing that any failure by Congress to apply or otherwise increase the Asset Sale Reserve or the Permanent Reserve will not limit Congress's ability or right to apply future net cash proceeds from asset sales to the Asset Sale Reserve or Permanent Reserve, and (iii) an amendment by Congress and the Company to the Revolving Credit Facility permitting such application and such ability. The Limited Waiver also contemplates an additional amendment to the Intercreditor Agreement pursuant to which the Asset Sale Reserve would be reduced to zero and the Permanent Reserve would be immediately increased by the amount of the Asset Sale Reserve, currently, $1.8 million, and the proceeds of any future asset sale - up to a maximum of $7.5 million would be applied to the Permanent Reserve. Such an amendment also requires the consent of the holders of the Senior Notes. In accordance with the terms of the Limited Waiver, the Company also anticipates that the Revolving Credit Facility will be amended to add a new covenant pursuant to which the Company would agree to generate net cash proceeds of asset sales in an amount sufficient to cause the Permanent Reserve to be at least $6.0 million as of December 31, 1996, and $7.5 million as of March 31, 1997. Simultaneously with such an amendment, Congress will waive all such past defaults of the covenant in the Revolving Credit Facility regarding the payment of trailing liabilities and to amend such covenant to reduce the required month-end availability under the Revolving Credit Facility for payment of trailing liabilities from $10.0 million to $2.5 million. The Company mailed a consent solicitation statement (the "Consent Solicitation Statement") to the holders of the Senior Notes on May 3, 1996. The Consent Solicitation Statement, accompanied with the consent form, are referred to collectively as the Consent Solicitation. Discussions between the Company and the holders of the Senior Notes concerning the proposals set forth in the Consent Solicitation Statement are continuing. There can be no assurance that the Foreign Sale will occur on the basis of the current proposed terms or any other terms satisfactory to the Company, nor can there be assurance that the holders of the Senior Notes will consent to the nonconforming use of the net cash proceeds of the Foreign Sale. However, should the Company complete the Foreign Sale substantially in the current proposed form and the holders of the Senior Notes consent in favor of the matters discussed above, the Company's near term liquidity would be enhanced which would give the Company a period of time to pursue a strategic transaction. The Company has hired Oppenheimer & Co., Inc. to assist the Company in this process. If the foreign asset sale is not completed on a timely basis or if the holders of the Senior Notes do not consent to the proposals set forth in the Consent Solicitation Statement, the Company may not have sufficient liquidity both to make the May 1 interest payment on the Senior Notes and operate its business. In these circumstances, the Company (i) would not expect to make such interest payment and would, thus, be in default of its obligations under the Senior Notes, and (ii) may be forced to seek the protection of the bankruptcy laws. Although it would be the intention of management of the Company to seek reorganization under chapter 11 of the Bankruptcy Code, there is no certainty that a successful reorganization would be achieved and therefore liquidation might occur. 14 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Company's results of operations, liquidity, resolution of material contingencies and outlook are subject to a number of factors, some of which are outside the control of the Company, as are set forth on page 3 of the Company's Annual Report on Form 10-K for the year ended December 31, 1995. RESULTS OF OPERATIONS Three Months Ended March 31, 1996 versus March 31, 1995 Sales The Company generated sales of $90.3 million during the first three months of 1996 compared to $111.7 million for the corresponding 1995 period. The table below is a comparison of net sales by product line for the three months ended March 31, 1996 and 1995 (in millions of dollars):
March 31, March 31, 1996 1995 -------- ------- New trailers. . . . . . . . . . . . . $58.2 $ 71.8 Used trailers . . . . . . . . . . . . 6.0 8.8 Replacement parts and accessories . . 17.8 19.6 Service . . . . . . . . . . . . . . . 5.6 6.0 International . . . . . . . . . . . . 2.7 5.5 ----- ------ $90.3 $111.7 ===== ======
The Company's level of new trailer sales is largely dependent on production levels and market demand. The Company continued to experience the effects of the significantly reduced retail demand in the new trailer industry throughout the first quarter of 1996 and the related additional constraints on the Company's liquidity. The cancellation activity experienced by the Company in the first quarter of 1996 resulted in lower than anticipated near term scheduled deliveries to support near term anticipated production levels. In response to the reduced near term scheduled deliveries, the Company suspended its third shift at its Fort Madison, Iowa ("Fort Madison") assembly plant effective February 26, 1996. This action followed workforce reductions at its Scott County, Tennessee ("Scott County") assembly plant during the third and fourth quarters of 1995. More recently to conserve cash and balance its production schedule, the Company idled Fort Madison for a week. Production has resumed at Fort Madison, however, production levels into the second quarter of 1996 at Fort Madison, as well as Scott County are substantially below production levels experienced in the first half of 1995. Domestic new trailer production for the first quarter of 1996 totaled approximately 3,000 as compared to approximately 4,500 for the first quarter of 1995. Domestic new trailer unit sales totaled approximately 3,300 and 4,500 for the three months ended March 31, 1996 and 1995, respectively, reflective of the reduced retail market demand. In addition, the Company's Mexican subsidiary revenue sources continue to be adversely affected by the poor economic conditions in the Republic of Mexico. The Company has also experienced increased price sensitivity on new trailer orders during the first quarter of 1996. Replacement parts/service sales and used trailer sales for the three months ended March 31, 1996 decreased by $2.2 million and $2.8 million, respectively, over the comparable 1995 period. The decreased sales levels are primarily attributable to the Company's lower than planned liquidity levels and resultant impact on availability of replacement parts and used trailers to fill orders. The Company's Mexican trailer manufacturing subsidiary experienced a sharp decrease in Mexican domestic sales volume from $2.8 million for the first three months of 1995 to $1.4 million for the first three months of 1996. 15 Mexican domestic sales have been adversely impacted by the depressed Mexican economy throughout 1995 and continuing in 1996. Management believes that the Mexican currency devaluation and concerns as to the rate of inflation in Mexico will likely continue to affect the level of capital goods expenditures by Mexican business for local consumption and, therefore, will likely continue to affect the level of Fruehauf de Mexico's new trailer sales to Mexican customers. In part to offset the anticipated slow growth in Mexican domestic new trailer sales, Fruehauf de Mexico has increased its level of production through the assembly of certain of the United States operations' new trailer production requirements. Export sales from the Company's United States operations of wholesale parts and components for the first three months of 1996 totaled $1.3 million compared to export sales of $2.7 million for the first three months of 1995. Gross Margin The Company's consolidated gross margin decreased to $10.7 million for the first three months of 1996 from $14.2 million for the first three months of 1995. This decrease is primarily the result of the decreased sales volumes, as discussed above. The gross margin percentage for the first three months of 1996 declined to 11.9% as compared to 12.7% for the first three months of 1995. The Company's gross margin percentages have deteriorated in recent months due to reduced absorption of fixed overhead costs resulting from lower production levels, unfavorable labor variances and increasing price sensitivity on new trailer orders. The lower gross margin percentage is also attributable to lower replacement parts gross margin percentages. The Company's efforts to maintain and recapture market share in the wholesale and aftermarket parts businesses have included incentive pricing. Such incentive pricing, together with a modest change in sales mix to lower margin replacement parts, has resulted in lower replacement parts gross margin percentages. Engineering, Selling and Administrative Expenses Engineering, selling and administrative expenses decreased to $12.3 million for the first three months of 1996 from $12.8 million for the three months ended March 31, 1995. The decrease in engineering, selling and administrative expenses is primarily attributable to cost containment measures taken at all the Company's locations and lower professional fees due to the completion of the restatement during the first quarter of 1995, offset, in part, by costs associated with the reimbursement of K-H in connection with the assumption agreement entered into at the time of the Fruehauf acquisition in 1989 (approximately $0.5 million). The Company recognized a gain of $3.0 million in connection with the settlement of litigation. Income from Operations Income from operations for the three months ended March 31, 1996 was $2.1 million compared to $1.8 million for the first three months of 1995. Excluding the impact of the $3.0 million litigation settlement, the decrease in income from operations is primarily attributable to decreased sales volumes and resultant lower gross margin dollars, partially offset by the decreased engineering, selling and administrative expenses and higher royalty income. These conditions giving rise to the reduced operating results will likely continue to have an adverse effect on sales, operating results and liquidity during the second quarter of 1996. Other Income (Expense) Interest expense was $3.9 million for the three months ended March 31, 1996 compared to $3.4 million for the three months ended March 31, 1995. This increase in interest expense is primarily attributable to the increase in interest rate on the Company's term debt. The interest rate on the Company's term loans under its former bank credit facility was prime rate, as defined, plus a margin of 2.25%. The interest rate on the term loans pursuant to the former bank credit facility increased from 11% at December 30, 1994 to 11.25% at May 3, 1995, at which time they were exchanged for the Senior Notes bearing interest at 14.75% per annum. The increase in interest expense 16 resulting from the interest rate on the Senior Notes was offset, in part, by the repurchase of $11.5 million of Senior Notes during the fourth quarter of 1995. In addition to the impact of the Senior Notes interest, interest expense for the first three months of 1996 was higher due to slightly higher average borrowings under the Revolving Credit Facility. The Company's share of net income of affiliate companies, accounted for using the equity method, was $0.9 million for the three months ended March 31, 1995. The equity in net income of affiliate companies related solely to the Company's South African affiliate, Henred Fruehauf. In September 1995, the Company sold a portion of its investment in Henred Fruehauf which reduced the Company's ownership percentage from 25% to 5%. Upon consummation of the sale transaction, the Company discontinued the application of the equity method of accounting as the Company's ownership percentage was reduced to 5%. Under the cost method, the Company will only record income to the extent dividends are received that are distributed from Henred Fruehauf's accumulated earnings. On February 10, 1995, Jacksonville completed the sale of substantially all of its remaining real estate in three separate transactions. With respect to one purchaser, the proceeds from the sale of Jacksonville's properties consisted of an interest bearing promissory note in the principal amount of approximately $3.8 million, secured by a mortgage on the underlying property, and assumption of liabilities related to the property. The purchaser recently defaulted on payments of principal and interest on the promissory note. In an effort to realize value from the promissory note, Jacksonville has sought a buyer of the promissory note and related mortgage interest. After extensive discussions with a prospective buyer of the promissory note, the discussions were terminated due to certain issues unrelated to the proposed economic terms. As a result of the termination of such discussions, on May 8, 1996 Jacksonville initiated a foreclosure proceeding on the real property securing the promissory note. The prospective buyer has indicated its desire to continue discussions whereby the prospective buyer would purchase the real property after the completion of the foreclosure. Such discussions, including the proposed economic terms, indicate that the entire carrying amount of the promissory note may not be recoverable. As such, Jacksonville recorded a non-cash impairment write-down of approximately $2.1 million in the first quarter of 1996 to reflect the diminution in value of the promissory note and underlying real property. The Company recognized a gain on the sale of excess assets of approximately $0.1 million during the three months ended March 31, 1996 as compared to a gain of approximately $0.9 million during the three months ended March 31, 1995. Other income for the three months ended March 31, 1995 also includes other miscellaneous amounts including finance and interest income of approximately $0.3 million. Other expense for the three months ended March 31, 1995 also includes a waiver and amendment fee of approximately $0.4 million charged by the lenders under the former bank credit facility. In addition, other expense for the three months ended March 31, 1996 and March 31, 1995 includes approximately $0.5 million related to the accretion of interest on workers compensation and postretirement obligations of closed maritime operations. LIQUIDITY AND CAPITAL RESOURCES Discussion of Cash Flows The Company's cash and cash equivalents totaled $5.5 million and $3.8 million at March 31, 1996 and December 31, 1995, respectively. Cash and cash equivalents represent funds received through the Company's cash concentration system not yet applied to reduce borrowings under the Revolving Credit Facility. The provisions of the Indenture require the Company in certain circumstances to offer to repurchase Senior Notes out of proceeds of asset sales. Such amounts are held in escrow by the Indenture trustee during the tender period. Also, the Company is required to deposit certain amounts in restricted cash accounts as security for certain obligations. Accordingly, restricted cash of $2.0 million and $1.4 million at March 31, 1996 and December 31, 1995, respectively, is excluded from cash and cash equivalents and is presented as a separate noncurrent caption on the Condensed Consolidated Balance Sheet. 17 Operating Activities After considering changes in assets and liabilities, the Company generated cash from operating activities of $8.8 million during the three months ended March 31, 1996 and used cash for operating activities of $12.4 million during the three months ended March 31, 1995. Cash generated from operating activities during the three months ended March 31, 1996 principally related to a reduction in operating working capital (defined as net receivables and net inventories less trade accounts payable) of $13.3 million, offset by operating losses and the funding of trailing liabilities. The reduction in operating working capital was the result of (i) focused efforts to improve days sales outstanding of trade receivables and inventory turns, (ii) a reduction in the run rate of the business as a result of the reduced production levels experienced during the first quarter of 1996 and (iii) an increase in the days payables outstanding with the Company's trade suppliers. See further discussion under "Management's Action Plan and Outlook" below. Cash used for operating activities during the three months ended March 31, 1995 principally related to (i) receivables ($3.2 million), (ii) recognition of deferred revenue resulting from certain advance deposits received in the latter part of 1994 on new trailer orders ($4.8 million), (iii) settlement of liabilities principally funded by excess asset sale proceeds during the three months ended March 31, 1995 ($0.9 million), including liabilities such as property taxes and accrued interest on the Fresno mortgage, and (iv) the funding of trailing liabilities and the Company's restructuring efforts. The cash used for operating activities in the first three months of 1995 was largely funded by borrowings pursuant to the Revolving Credit Facility and the portion of the excess asset sale proceeds retained by the Company pursuant to the former bank credit facility. The Company has expended and continues to expend substantial amounts of cash flow to service certain liabilities related to the former maritime business, closed facilities and certain other liabilities, as well as restructuring activities. As of March 31, 1996, other current liabilities, noncurrent postretirement benefits and other long-term liabilities of approximately $17.7 million, $34.1 million and $35.4 million, respectively, were included in the Company's Condensed Consolidated Balance Sheet. Trailing liabilities associated with the former maritime business and other closed facilities include workers compensation, postretirement benefits, environmental, products liability and certain other litigation, the cost of maintaining closed facilities and certain other matters are included in such captions in the Condensed Consolidated Balance Sheet. Although the Company believes that the majority of such anticipated costs are nonrecurring and reserves for such loss contingencies have been established based upon available information, the Company will be required to expend substantial amounts of cash over the next several years to service such trailing liabilities. While the Company is exploring various alternatives to minimize the funding necessitated by such liabilities, the Company projects that it will be required to expend approximately $6 million for the remainder of 1996 and $4 million in 1997, with annual funding requirements continuing to decline thereafter. The Company will be required to fund a substantial amount of such liabilities with cash to be generated by future operations. As discussed previously, borrowing availability under the Revolving Credit Facility at March 31, 1996 was less than the required minimum of $10.0 million. Congress has granted the Limited Waiver whereby, among other things, Congress has waived any noncompliance through August 31, 1996 and continues to lend to the Company subject to standard borrowing availability provisions. However, the Company will be required to meet the minimum month end borrowing availability after the expiration of the limited waiver unless additional waivers are obtained. The provisions of the Limited Waiver provide, subject to the satisfaction of certain conditions, that the Revolving Credit Facility will be amended to reduce the minimum month end borrowing availability required in order to borrow under the Revolving Credit Facility to fund trailing liabilities to $2.5 million. However, there can be no assurance that the conditions precedent to the amendment of the Revolving Credit Facility will be met and that the Company will maintain the minimum month end borrowing availability in the future. Should Congress prohibit the payment of trailing liabilities after the expiration of the Limited Waiver, the Company would be forced to discontinue payment of trailing liabilities or commit a technical default. The Company currently has outstanding letters of credit in the amount of $7.4 million which generally serve as collateral for certain trailing liabilities included in the Condensed Consolidated Balance Sheet. Should the Company discontinue the payment of trailing liabilities, beneficiaries of the letters of credit would have the ability to draw on the letters of credit. Draws on 18 letters of credit constitute loans under the Revolving Credit Facility. While other trailing liabilities are not secured by letters of credit, nonpayment of such trailing liabilities would likely have a material adverse effect on the Company. Investing Activities During the first three months of 1996, the Company sold property, plant and equipment and other excess assets with proceeds totaling $0.5 million. Excess assets sale proceeds in the corresponding period of 1995 totaled $7.6 million. The Company made no capital expenditures during the first three months of 1996 compared to capital expenditures of $0.1 million during the first three months of 1995. Financing Activities The Company had net repayments under the Revolving Credit Facility of approximately $6.8 million during the three months ended March 31, 1996 and net borrowings of $5.0 million during the three months ended March 31, 1995. Outstanding borrowings pursuant to the Revolving Credit Facility totaled $26.5 million at March 31, 1996. The Company repaid term debt pursuant to the former bank credit facility of approximately $4.7 million during the three months ended March 31, 1995. The majority of the term debt payments were funded from restricted cash balances at December 31, 1994. The Company sold its former Fresno, California facility during the first quarter of 1995 and extinguished the outstanding principal balance of approximately $3.5 million of the Fresno mortgage with a portion of the proceeds. The Company's short-term notes payable related solely to the Company's Mexican subsidiary. The short-term notes payable were retired in January 1995. Non-Cash Transactions In February 1996, the Company completed the sale of its former Kearny, New Jersey branch. Consideration consisted of $0.3 million in cash and a five-year interest bearing promissory note in the amount of $2.4 million. This sale resulted in no gain on disposition. In February 1995, Jacksonville completed the sale of substantially all of its remaining real estate in three separate transactions. Proceeds from Jacksonville's sale of its properties were approximately $7.5 million consisting of cash of $1.6 million, an interest bearing promissory note from one of the purchasers in the principal amount of approximately $3.8 million and assumption of liabilities related to the properties of approximately $2.1 million. Management's Action Plan and Outlook The ability of the Company to meet ongoing debt service requirements, including the scheduled May 1, 1996 interest payment on the Senior Notes, to meet cash funding requirements, including trailing liabilities, and to otherwise satisfy its obligations to its vendors and lenders from cash solely provided by operations has been adversely affected by the reduced retail market demand in the trailer industry and resultant lower than anticipated operating performance. The Company has not as yet made the required May 1, 1996 interest payment on the Senior Notes. The Indenture provides for a 30-day grace period before such default constitutes an Event of Default. Upon the occurrence of an Event of Default, the holders of the Senior Notes have the right to declare the entire principal of the Senior Notes due and payable. In response to such liquidity constraints, the Company: (i) has implemented a working capital reduction program, (ii) is exploring potential alternatives to fund the payment of trailing liabilities with the financial assistance of a party potentially liable for certain of the Company's trailing liabilities and (iii) is exploring various alternatives designed to maximize the amount of borrowing availability that can be supported by the current asset base. The Company has also been exploring other alternatives to restructure the Company's capital structure, including, but not limited to, discussions with other trailer manufacturers as to possible consolidations or other potential strategic investments and the sale of non-strategic assets. 19 During the three months ended March 31, 1996, the Company reduced its investment in operating working capital (defined as net receivables and net inventories less trade accounts payable) by approximately $13.3 million. This reduction in operating working capital was the result of (i) focused efforts to improve days sales outstanding of trade receivables and inventory turns, (ii) the reduced production levels experienced during the first quarter of 1996 and (iii) an increase in days payables outstanding. The increase in the days payables outstanding, however, has increased the level of trade accounts payable past normal terms and has affected material flow to the Company's operating locations. The Company has proposed to its suppliers that they agree to "standstill" with respect to past due accounts payable. The initial supplier response has been favorable, however, there can be no assurance that all suppliers will comply or for how long with the Company's proposed terms. On April 19, 1996, the Company entered into the K-H Letter Agreement, pursuant to which, among other things, K-H agreed to purchase an initial $5.5 million interest, and agreed to purchase an additional $1.0 million interest upon successful completion of the Consent Solicitation, in the Revolving Credit Facility. As part of the K-H Letter Agreement, K-H received five-year warrants to purchase 2,000,000 shares of the Company's common stock for an exercise price of $2.50 per share. The initial funding was consummated on April 25, 1996 and resulted in an expansion of the Company's liquidity under its Revolving Credit Facility. As a result of the initial funding and other cash conservation measures, borrowing availability under the Revolving Credit Facility totaled approximately $13.8 million as of May 1, 1996. The K-H Letter Agreement contemplates, subject to successful completion of the Consent Solicitation, the incurrence of additional indebtedness subordinated to the indebtedness represented by the Senior Notes through future financing arrangements with K-H or one of its affiliates and the grant of by the Company of security interests subordinate to those of the holders of the Senior Notes to secure such arrangements. The purpose of any such arrangements would be to assist in resolving certain of the Company's trailing liabilities. As part of the Funding, Congress agreed to waive its right to a portion of the proceeds of the Foreign Sale subject to certain conditions, including receipt of approval of the holders of the Senior Notes for an amendment to the Intercreditor Agreement described below. In addition, the Company has entered into the Letter of Intent with a third party for the Foreign Sale for $20 million, subject to adjustment. The Foreign Sale would consist of (i) the Company's interest in Societe Europeene de Semi-Remorques, S.A., a French corporation, (ii) certain stock or other ownership interests owned by FIL, excluding Fruehauf de Mexico, S.A. de C.V., (iii) the Company and FIL's interests in the trademark and technology license agreements currently operative outside North America (including without limitation, all of the Company's and FIL's rights to any fees payable under any such existing agreements and any renewals thereof that may be made in the future), and (iv) all of the Company's interest in the trademark "Fruehauf" outside North America. In addition, the Letter of Intent also contemplates a put-call arrangement between the Company and the proposed purchaser in the Foreign Sale involving the shares of Deutsche-Fruehauf Holding Corporation and/or related entities. The arrangement for such shares should generate between $1.0 million and $5.0 million of additional cash proceeds to the Company. Under the Revolving Credit Facility and the Indenture, the net cash proceeds of the Foreign Sale would generally be applied to certain reserves under the Revolving Credit Facility and to repurchase Senior Notes with the Company receiving a limited portion of the proceeds. As part of the Consent Solicitation, the Company has proposed that the net cash proceeds from the Foreign Sale be applied as follows: (i) the May 1, 1996 interest payment (approximately $4.6 million) would be paid to the holders of the Senior Notes, (ii) one-half of the remaining net cash proceeds would be deposited with the Trustee under the Indenture to be held in trust for the holders of the Senior Notes and used to make an asset sale offer to repurchase Senior Notes and (iii) the remaining net cash proceeds would be paid to the Company for application to the Revolving Credit Facility but not applied to the Asset Sale Reserve or used to increase the Permanent Reserve under the Revolving Credit Facility. These proceeds would thus increase the Company's borrowing availability under the Revolving Credit Facility. In connection with the proposed Foreign Sale and the execution of the K-H Letter Agreement, the Company and Congress entered the Limited Waiver, pursuant to which, among other things, Congress has waived the provisions of the Revolving Credit Facility to permit the Foreign Sale to occur. One of the conditions to the effectiveness of the Limited Waiver in relation to the Foreign Sale is that the Trustee under the Indenture enter into an amendment to the Intercreditor Agreement: (i) permitting the portion of the net cash proceeds of the Foreign Sale which are paid to Congress to be applied as set forth in the paragraph above, (ii) providing that any failure by Congress to apply or otherwise increase the Asset Sale Reserve or the Permanent Reserve will not limit Congress's ability or right to apply future net cash proceeds from asset sales to the Asset Sale Reserve or Permanent Reserve, and (iii) an amendment by Congress and the 20 Company to the Revolving Credit Facility permitting such application and such ability. The Limited Waiver also contemplates an additional amendment to the Intercreditor Agreement pursuant to which the Asset Sale Reserve would be reduced to zero and the Permanent Reserve would be immediately increased by the amount of the Asset Sale Reserve, currently, $1.8 million, and the proceeds of any future asset sale - up to a maximum of $7.5 million would be applied to the Permanent Reserve. Such an amendment also requires the consent of the holders of the Senior Notes. In accordance with the terms of the Limited Waiver, the Company also anticipates that the Revolving Credit Facility will be amended to add a new covenant pursuant to which the Company would agree to generate net cash proceeds of asset sales in an amount sufficient to cause the Permanent Reserve to be at least $6.0 million as of December 31, 1996, and $7.5 million as of March 31, 1997. Simultaneously with such an amendment, Congress will waive all such past defaults of the covenant in the Revolving Credit Facility regarding the payment of trailing liabilities and to amend such covenant to reduce the required month-end availability under the Revolving Credit Facility for payment of trailing liabilities from $10.0 million to $2.5 million. The Company mailed the Consent Solicitation Statement to the holders of the Senior Notes on May 3, 1996. Discussions between the Company and the holders of the Senior Notes concerning the proposals set forth in the Consent Solicitation Statement are continuing. There can be no assurance that the Foreign Sale will occur on the basis of the current proposed terms or any other terms satisfactory to the Company, nor can there be assurance that the holders of the Senior Notes will consent to the nonconforming use of the net cash proceeds of the Foreign Sale. However, should the Company complete the Foreign Sale substantially in the current proposed form and the holders of the Senior Notes consent in favor of the matters discussed above, the Company's near term liquidity would be enhanced which would give the Company a period of time to pursue a strategic transaction. The Company has hired Oppenheimer & Co., Inc. to assist the Company in this process. If the foreign asset sale is not completed on a timely basis or if the holders of the Senior Notes do not consent to the proposals set forth in the Consent Solicitation Statement, the Company may not have sufficient liquidity both to make the May 1 interest payment on the Senior Notes and operate its business. In these circumstances, the Company (i) would not expect to make such interest payment and would, thus, be in default of its obligations under the Senior Notes, and (ii) may be forced to seek the protection of the bankruptcy laws. Although it would be the intention of management of the Company to seek reorganization under chapter 11 of the Bankruptcy Code, there is no certainty that a successful reorganization would be achieved and therefore liquidation might occur. STATUS OF MATERIAL CONTINGENCIES Litigation In December 1992, a class action complaint was filed on behalf of all persons who purchased the Company's Common Stock during the period June 28, 1991 through December 4, 1992 against the Company, Terex, certain of the Company's present and former officers and Directors, and certain of the underwriters of the IPO in the United States District Court for the Eastern District of Michigan, Southern Division, seeking unspecified compensatory and punitive damages. A related action against the Company's former auditors, Deloitte & Touche, was subsequently filed on behalf of the same persons, and the cases have been consolidated for some purposes. Discussions held among the Company, on behalf of itself and certain of its present and former Directors and officers, Terex, the underwriter defendants, and the plaintiffs resulted in a settlement of the litigation as to all defendants other than Deloitte & Touche. Formal settlement documentation was approved by the District Court on August 17, 1995. The settlement terms require the Company, as its share of the settlement, to (a) pay $0.1 million in cash to a settlement fund, (b) issue a note or notes with a value of $3.3 million, and (c) issue warrants for the purchase of 325,000 shares of 21 Common Stock. To the extent such warrants do not have an agreed upon value at issuance of $0.9 million, the Company must issue additional notes in the amount of the difference. The Company paid $0.1 million into the settlement fund in the second quarter of 1995 and the Company is currently in the process of attempting to develop the specific terms of the notes and warrants. The Company has experienced difficulties in negotiating terms acceptable to the Company. As such, there can be no assurance that the Company and the plaintiffs will reach an agreement with respect to the terms and conditions of the notes and warrants. The Company is involved in other various legal proceedings which have arisen in the normal course of business. Most of these legal proceedings involve products liability or other various claims for which the Company is principally self-insured. In addition, certain of the Company's former maritime operations are one of a number of defendants in legal proceedings wherein the plaintiffs claim to have been damaged by exposure to asbestos fibers and silica dust. The Company has reviewed the products liability and other cases that have arisen in the normal course of the Company's business. The Company evaluates the possible impact of this litigation, including the uncertainties as to the timing of expenditures for settlements and/or bonding on appeal, on the Company in light of current circumstances. Although the Company has established reserves for loss contingencies based on available information, it is reasonably possible that such estimates will change in the near future and the Company is at risk of being obligated to pay substantial damages to claimants. The Company had litigation reserves totalling $12.2 million at March 31, 1996. However, the Company's present liquidity situation may make settlements in one or more of these cases difficult. Existing or potential judgments against the Company in one or more of these cases could require expenditures of funds beyond the Company's available cash resources and could, depending on their size, result in the violation of certain covenants contained in the Revolving Credit Facility. In the event that judgments require the expenditure of funds beyond the Company's available resources or result in covenant violations that are not waived or otherwise cured, those judgments could have a material adverse effect on the Company. In the event that any litigation is settled by the issuance of additional equity securities, there may be an adverse effect on earnings per share. In December 1995, the Company reached a settlement of a product liability suit whereby the Company will be required, as part of the settlement, to issue 500,000 shares of Common Stock during 1996. Environmental Matters The Company has facilities at numerous geographic locations, which are subject to a range of federal, state and local environmental laws and regulations. Compliance with these laws has, and will, require expenditures on a continuing basis. The Company and/or Jacksonville has been identified as a "Potentially Responsible Party" at several multi-party Superfund sites, and has also identified environmental exposures at certain other sites not designated as Superfund sites. The Company and/or Jacksonville is currently participating in administrative or court proceedings involving a number of sites. Many of the proceedings are at a preliminary stage, and the total costs of remediation, the timing and extent of remedial actions which may be required, and the amount of the Company's liability with respect to these sites cannot presently be estimated. When it is possible to make reasonable estimates of the Company's liability with respect to such matters, a provision is recorded. When it is possible to estimate a range of liability but management is unable to determine the amount within the range that is the best estimate, a provision is recorded for the minimum amount of the range. The Company's reserve for Superfund sites and other environmental contingencies totaled $12.8 million at March 31, 1996 relating to sites for which the Company has been able to make estimates. Based upon the many factors that impact the Company's ultimate costs of remediation, it is reasonably possible that such estimates will change in the near future. The amount of possible loss, if any, in excess of the amounts recorded cannot presently be estimated. If the amount of payments required with respect to these sites exceeds the Company's available cash resources, there could be a material adverse effect on the Company. Even if these liabilities do not otherwise impact the Company, incremental environmental reserve requirements, if any, in excess of current reserves could have a material adverse effect on results of a particular period. 22 Other In March 1994, the SEC initiated a formal investigation of the Company. The SEC investigated whether the Company violated certain aspects of the federal securities laws by filing annual and quarterly reports containing financial statements that did not comply with generally accepted accounting principles. The Service is in the early stages of examination of the Company's federal income tax return for the period July 14, 1989 through December 31, 1989. The Company believes that most of the positions taken in the return are supportable based upon the underlying facts. However, should the Service propose any adjustments, the impact should be substantially mitigated as the Company has significant net operating loss carrybacks and carryforwards available. In the event that any proposed adjustments would require expenditure of funds beyond the Company's available cash resources, those adjustments could have a material adverse effect on the Company. 23 PART II - OTHER INFORMATION Item 1 - Legal Proceedings Not applicable. Item 3 - Defaults Upon Senior Securities The Revolving Credit Facility imposes certain limitations on the Company's ability to fund trailing liabilities with borrowings under the Revolving Credit Facility. The Company is required to measure its borrowing availability each month end. In order to borrow under the Revolving Credit Facility to fund trailing liabilities the following month, the Company is required to maintain a minimum borrowing availability of $10.0 million the previous month end. As a result of the lower than anticipated operating performance, borrowing availability at March 31, 1996 was less than the required minimum of $10.0 million. While Congress has continued to fund trailing liabilities as of this date, the payment of trailing liabilities constitutes an event of default under the Revolving Credit Facility. Congress has granted the Limited Waiver whereby, among other things, the lender has waived any noncompliance through August 31, 1996 and continues to lend to the Company subject to standard borrowing availability provisions. The provisions of the Limited Waiver provide, subject to the satisfaction of certain conditions, that the Revolving Credit Facility will be amended to reduce the minimum month end borrowing availability required in order to borrow under the Revolving Credit Facility to fund trailing liabilities to $2.5 million. However, there can be no assurance that the conditions precedent to the amendment of the Revolving Credit Facility will be met and that the Company will maintain the minimum month end borrowing availability in the future. However, the Company will be required to meet the minimum month end borrowing availability after the expiration of the limited waiver unless additional waivers are obtained. There can be no assurance that the Company will maintain the minimum month end borrowing availability in the future. Interest on the Company's Senior Notes is payable semiannually on May 1 and November 1 on each year. The Company has not as yet made the required May 1, 1996 interest payment. The Indenture provides for a 30-day grace period before such default constitutes an Event of Default (as defined in the Indenture). Upon the occurrence of an Event of Default, the holders of the Senior Notes have the right to declare the entire principal of the Senior Notes due and payable. For further discussion, see Note F - "Management's Action Plan and Outlook" in the Condensed Consolidated Financial Statements and Item 2 - "Management's Discussion and Analysis of Financial Condition and Results of Operations - - -- Liquidity and Capital Resources -- Management's Action Plan and Outlook." 24 Item 6 - Exhibits and Reports on Form 8-K (a) The following exhibits have been filed as part of this Form 10-Q: Exhibit No. Exhibit - - ----- ----------------------------------------------- 4.33 Fourth Amendment, dated as of April 19, 1996, to Accounts Financing Agreement [Security Agreement], dated August 20, 1993, between Congress Financial Corporation (Central) and Fruehauf Trailer Corporation 4.34 Limited Waiver, dated as of April 19, 1996, by and between Fruehauf Trailer Corporation and Congress Financial Corporation (Central) 4.35 Working Capital Term Note, dated as of April 19, 1996, payable to the order of Congress Financial Corporation (Central), in the principal amount of $5,500,000, due May 1, 1997 4.36 Note Purchase and Assignment Agreement, dated as of April 19, 1996, by and between Congress Financial Corporation (Central) and K-H Corporation 4.37 Subordination Agreement, dated as of April 25, 1996, by and between K-H Corporation and Congress Financial Corporation (Central) 4.38 Warrant Agreement, dated as of April 25, 1996, by and between Fruehauf Trailer Corporation and K-H Corporation 4.39 Warrant Certificate to purchase 2,000,000 shares of Common Stock issued by Fruehauf Trailer Corporation to K-H Corporation 10.18 Letter Agreement, dated as of April 19, 1996, by and between K-H Corporation and Fruehauf Trailer Corporation 10.19 Indemnification Agreement, dated as of April 25, 1996, by and between Fruehauf Trailer Corporation and K-H Corporation 10.20 Release Agreement, dated as of April 25, 1996, by and between Fruehauf Trailer Corporation, Fruehauf International Limited, Fruehauf Corporation, M.J. Holdings, Inc., The Mercer Co., Deutsche-Fruehauf Holding Corporation, Fruehauf Holdings Corp., FGR, Inc., Jacksonville Shipyards, Inc., E.L. Devices, Inc., Maryland Shipbuilding and Drydock Company and K-H Corporation 11 Computation of Earnings (Loss) per Share 27 Financial Data Schedule (b) Reports on Form 8-K ------------------- On April 18, 1996, the Company filed a Current Report on Form 8-K under Item 5 regarding the status of increased borrowing availability, the potential sale of foreign assets and an operations update. 25 SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. FRUEHAUF TRAILER CORPORATION ---------------------------- (Registrant) Date: May 15, 1996 /s/ Timothy J. Wiggins ---------------------------- Timothy J. Wiggins Executive Vice President and Chief Financial Officer (Duly Authorized Officer) Date: May 15, 1996 /s/ Gregory G. Fehr ---------------------------- Gregory G. Fehr Corporate Controller (Principal Accounting Officer) EX-4.33 2 FRUEHAUF TRAILER EXHIBIT 4.33 FOURTH AMENDMENT TO ACCOUNTS FINANCING AGREEMENT [SECURITY AGREEMENT] This FOURTH AMENDMENT TO ACCOUNTS FINANCING AGREEMENT [SECURITY AGREEMENT] (the "Fourth Amendment") is entered into as of April 19, 1996 by and between FRUEHAUF TRAILER CORPORATION, a Delaware corporation ("Debtor") and CONGRESS FINANCIAL CORPORATION (CENTRAL), an Illinois corporation ("Congress"). R E C I T A L S: WHEREAS, Debtor and Congress are parties to that certain Accounts Financing Agreement [Security Agreement] (the "Accounts Financing Agreement"), that certain Inventory and Equipment Security Agreement Supplement to Accounts Financing Agreement [Security Agreement] (the "Security Agreement"), that certain Rider No. 1 to Accounts Financing Agreement [Security Agreement] and Inventory and Equipment Security Agreement Supplement to Accounts Financing Agreement [Security Agreement] (the "Rider") and that certain letter regarding Inventory Loans (the "Inventory Letter Agreement"), each dated as of August 20, 1993 (the "Loan Date") (collectively, as amended, restated, supplemented or otherwise modified from time to time, the "Loan Agreement"); WHEREAS, Debtor has requested that Congress consent to the refinancing of part of the revolving loan facility through the use of a working capital term note (the "Working Capital Term Note"); and WHEREAS, in connection with the Working Capital Term Note, Congress has required that Debtor enter into this Fourth Amendment upon the terms and conditions contained herein. NOW, THEREFORE, in consideration of the premises contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: 2 I. Amendments to the Accounts Financing Agreement Section 1. Defined Terms. When used herein and in the Loan Documents, the following terms shall have the following meanings: 1.1 "Indenture Test Amount" at any time shall mean the amount by which (a) the sum of: (i) 85% of the Net Amount of Eligible Accounts, (ii) 65% of the Net Amount of Approved Nondomestic Accounts, (iii) 70% of the value of Eligible Inventory consisting of new and used trailer inventory of the Debtor and its Subsidiaries (as defined in the Indenture) and (iv) 50% of the remaining Eligible Inventory exceeds (b) the sum of: (i) the reserves described in Sections 2.1(b)(v), (vi), (vii), (viii), (ix) and (x) plus (ii) the outstanding principal balance of the Working Capital Term Note, plus (iii) $7,500,000 minus the Maximum Deficiency Amount (as defined in the Intercreditor Agreement) at such time. 1.2 "Transfer Event" shall mean a sale or other transfer of the Working Capital Term Note by Congress to any third party. 1.3 "Term Loan Documents" shall have the meaning ascribed to it in the Working Capital Term Note. 1.4 "Term Loan Obligations" shall have the meaning ascribed to it in the Working Capital Term Note. 1.5 "Working Capital Term Note" shall mean that certain promissory note dated April 19, 1996, in the principal amount of $5,500,000 executed by Debtor under and pursuant to the Accounts Financing Agreement, as amended, in favor of Congress in exchange for and in refinancing of and to repay an equivalent amount of indebtedness outstanding under the revolving loan facility thereunder. 1.6 "Working Capital Term Note Reserve" shall mean $5,500,000; provided, however, that at all times after a Transfer Event or the repayment of the Working Capital Term Note, the Working Capital Term Note Reserve shall immediately be reduced to $0. 2 Section 2. Other Amendments. Immediately upon the execution of this Fourth Amendment, the Loan Agreement is further amended as follows: 2.1 Amendments to the Accounts Financing Agreement (a) Definitions. The following definitions are amended as follows: (i) The definition of "Loan Documents" is hereby amended to add the language "including without limitation, the Term Loan Documents, provided, however, that at all times after a Transfer Event, the Term Loan Documents shall not constitute Loan Documents hereunder but shall continue to be "Congress Loan Documents" under the Intercreditor Agreement." (ii) The definition of "Obligations" is hereby amended to add the language "including the Term Loan Obligations until such time as a Transfer Event shall occur, provided, however, that at all times after a Transfer Event, none of the Term Loan Obligations shall constitute an Obligation hereunder but that such Term Loan Obligations shall continue to be "Congress Obligations" under the Intercreditor Agreement (it being agreed and understood that (A) at all times after a Transfer Event the Term Loan Obligations shall not be entitled to the benefit of the liens on the Collateral created by the Loan Documents and (B) at all times after a Transfer Event, the Obligations shall continue to be entitled to the benefit of the liens on the Collateral created by the Loan Documents). 3 (b) Section 2.1 of the Accounts Financing Agreement is amended and restated to read in its entirety as follows: "Congress shall, in its discretion, make loans to Debtor from time to time, at Debtor's request, of up to an amount (the "Section 2.1 Amount") equal to the lesser of the Indenture Test Amount at such time or (a) the amount by which the sum of: (i) up to eighty-five percent (85%) of the Net Amount of Eligible Accounts; (ii) up to fifty percent (50%) of the Net Amount of Approved Nondomestic Accounts (or such lesser percentage thereof as you shall in your sole discretion determine from time to time); and (iii) up to the applicable percentages of value of Eligible Inventory under the letter re: Inventory of even date herewith (such sum is referred to herein as the "Borrowing Base") exceeds (b) the following reserves: (i) $2,500,000 before the First Reduction Date (as defined in the Intercreditor Agreement); (ii) $8,750,000 on and after the First Reduction Date and before the Second Reduction Date (as defined in the Intercreditor Agreement); (iii) $11,875,000 on and after the Second Reduction Date and before the Third Reduction Date (as defined in the Intercreditor Agreement); (iv) $12,500,000 on and after the Third Reduction Date; (v) an amount equal to the aggregate amount of all outstanding Letter of Credit Accommodations at such time; (vi) the Asset Sale Reserve at such time; (vii) the Permanent Reserve at such time; (viii) 120% of the aggregate amount of Accounts subject to a security interest in favor of Associates; (ix) the Working Capital Term Note Reserve at such time; and (x) such other reserves as Congress may from time to time require. In addition, Debtor shall reimburse Congress for any and all payments made by Congress to the Trustee pursuant to Section 4(e) of the Intercreditor Agreement and all such payments made by Congress to the Trustee shall constitute additional loans to Debtor pursuant to Section 2.1 of the Accounts Financing Agreement. Congress and Debtor hereby irrevocably agree that if the Transfer Event does not occur on or before April 26, 1996, at Congress' option, Congress may issue an Advance under the Loan Agreement in order to repay the Working Capital Term Note." 4 (b) Section 2.3 is hereby amended to add the language "minus (v) the outstanding balance of the Working Capital Term Note at such time" immediately before the period in the last line of the first sentence thereof. (c) Article 2 is hereby further amended by adding a new Section 2.6 at the end thereof as follows: 2.6 Working Capital Term Note. The Debtor shall issue to Congress the Working Capital Term Note in exchange for and in refinancing of and to repay an amount outstanding under revolving loans made pursuant to Section 2.1 of this Agreement equal to the principal amount of the Working Capital Term Note. In addition, Debtor shall execute and deliver the Term Loan Documents as defined in the Working Capital Term Note. Prior to the Transfer Event, obligations pursuant to, under or in connection with the Working Capital Term Note shall be an Obligation entitled to the benefits of the liens on the Collateral created by the Loan Documents, and, at all times after the Transfer Event, none of the obligations pursuant to, under or in connection with the Working Capital Term Note shall be an Obligation hereunder (it being agreed and understood that at all times after the Transfer Event, the Obligations shall not be entitled to the benefit of the liens on the Collateral created by the Loan Documents). 2.2 Amendments to Rider (a) Section 8 of the Rider is hereby amended by deleting the period at the end of Section 8(d) and inserting "; or" in its place and immediately following Section 8(d) and new Section 8(e) which shall read as follows: "upon the occurrence of any Event of Default under the Working Capital Term Note which is not waived by the holder thereof." (b) Section 6 of the Rider is hereby amended by adding new Section 6(nn) thereto, immediately following Section 6(mm) thereof, which shall read in its entirety as follows: "(nn) On a daily basis, and so long as the Working Capital Term Note is outstanding, Debtor shall provide Congress with the current values of all Collateral and the calculation of the Indenture Test Amount. 5 Section 3. Conditions to Effectiveness of Fourth Amendment. The effectiveness of this Fourth Amendment is subject to the satisfaction of the following conditions precedent: 3.1 Documents. (a) Fourth Amendment. Debtor shall have duly executed and delivered this Fourth Amendment. (b) Working Capital Term Note and Other Loan Documents. Debtor and each of the Subsidiaries shall have executed all such documents, including without limitation, the "Term Loan Financing Agreements" (as defined in the Working Capital Term Note), in form and substance satisfactory to Congress, as have been requested by Congress. 3.2 No Default, etc. Congress shall have received an officer's certificate from Debtor dated as of the date hereof, certifying as to matters set forth in Sections 4.2 and 4.9 of this Fourth Amendment. 3.3 No Injunction. No law or regulation shall have been adopted, no order, judgment or decree of any governmental authority shall have been issued, and no litigation shall be pending or threatened, which in the reasonable judgment of Congress would enjoin, prohibit or restrain, or impose or result in the imposition of any material adverse condition upon, the execution, delivery or performance by Debtor or any of the Subsidiaries of the Loan Documents, the making or repayment of the Advances or the consummation of the transactions effected pursuant to the terms of the Loan Documents. 3.4 Evidence of Agreement to Purchase Working Capital Term Note. Congress shall have reached an agreement with a purchaser, acceptable to Congress and Debtor, for the purchase and sale of the Working Capital Term Note on terms and conditions acceptable to Congress. 3.5 Legal Opinions. Congress shall have received a favorable legal opinion, dated as of the date hereof, of Jones, Day, Reavis & Pogue, counsel to Debtor and the Subsidiaries, in form and substance satisfactory to Congress. 3.6 Additional Matters. Congress shall have received such other certificates, opinions, documents and instruments relating to the obligations or the transactions contemplated hereby and by the Loan Documents as may have been reasonably requested by Congress, and all corporate and other proceedings and all other documents (including, without limitation, all documents referred to herein and not appearing herein and exhibits hereto) and all legal matters in connection with the transactions contemplated hereby and by the Loan Documents shall be reasonably satisfactory in form and substance to Congress. Section 4. Representations and Warranties. In order to induce Congress to enter into this Fourth Amendment, Debtor represents and warrants to Congress, upon the effectiveness of this Fourth Amendment, which representations and warranties shall survive the execution and delivery of this Fourth Amendment, that: 6 4.1 Due Incorporation; etc. Debtor and each of the Subsidiaries is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation, and has all requisite authority to conduct its business in each jurisdiction in which its business is conducted. 4.2 No Default; etc. No Default or Event of Default has occurred and is continuing after giving effect to this Fourth Amendment or would result from the execution or delivery of this Fourth Amendment or the consummation of the transactions contemplated hereby. 4.3 Corporate Power and Authority; Authorization. Debtor has the corporate power and authority to execute, deliver and carry out the terms and provisions of this Fourth Amendment and the Loan Documents to which it is a party and each Subsidiary has the corporate power and authority to execute, deliver and carry out the terms and provisions of each of the Loan Documents to which it is a party and the execution and delivery by Debtor and each of the Subsidiaries, and the performance by Debtor and each of the Subsidiaries of its obligations hereunder and the Loan Documents to which it is a party, have been duly authorized by all requisite corporate action by Debtor and each of the Subsidiaries. 4.4 Execution and Delivery. Debtor has duly executed and delivered this Fourth Amendment. Debtor and each of the Subsidiaries has duly executed and delivered each Loan Document to which it is a party. 4.5 Enforceability. The Loan Agreement, as amended by this Fourth Amendment, and each other Loan Document to which Debtor is a party, each constitutes a legal, valid and binding obligation of Debtor and each Loan Document to which a Subsidiary is a party constitutes a legal valid and binding obligation of such Subsidiary, enforceable against Debtor and each Subsidiary, as applicable, in accordance with its respective terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' right generally, and by general principles of equity. 4.6 No Conflicts; etc. Neither the execution, delivery or performance by Debtor of this Fourth Amendment, nor compliance by Debtor with the terms and provisions hereof, nor the execution, delivery and performance by each Subsidiary of each Loan Document to which it is a party, nor compliance with each Subsidiary with the terms and provisions thereof (i) will contravene any applicable provision of any law, statute, rule, regulation, order, writ, injunction or decree of any court or governmental instrumentality or (ii) will conflict or be inconsistent with, or result in any breach of, any of the terms, covenants, conditions or provisions of, or constitute a default under, or result in the creation or imposition of (or the obligation to create or impose) any Lien upon any property or assets owned by it pursuant to the terms of any indenture, mortgage, deed of trust, agreement or other instrument to which the Debtor and/or a Subsidiary is a party or by which the Debtor and/or a Subsidiary or any of their respective property or assets is bound or to which the Debtor and/or a Subsidiary of Debtor may be subject, or (iii) will violate any provision of Debtor's and/or any Subsidiary's certificate of incorporation or by-laws. 7 4.7 Consents; etc. Other than the filing of mortgages and deeds of trust and the Uniform Commercial Code financing statements which have been executed and delivered to Congress on or before the date of the Fourth Amendment, no order, consent, approval, license, authorization, or validation of, or filing, recording or registration with or exemption by, any governmental or public body or authority, or any subdivision thereof, is required to authorize, or is required in connection with the execution, delivery and performance of this Fourth Amendment or the consummation of any of the transactions contemplated hereby. 4.8 Foreign Subsidiaries. No foreign subsidiary has guaranteed all or any of the obligations of Debtor. 4.9 Representations and Warranties. All of the representations and warranties contained in the Loan Agreement and in the other Loan Documents (other than those which speak expressly only as of a different date) are true and correct as of the date of this Fourth Amendment after giving effect to this Fourth Amendment. Section 5. Miscellaneous. 5.1 Effect; Ratification. The amendments set forth herein are effective solely for the purposes set forth herein and shall be limited precisely as written, and shall not be deemed to (i) be a consent to any amendment, waiver or modification of any other term or condition of the Loan Agreement or of any other Loan Document or (ii) prejudice any right or rights that Congress may now have or may have in the future under or in connection with the Loan Agreement or any other Loan Document. Each reference in the Loan Agreement to "this Agreement", "herein", "hereof" and words of like import and each reference in the other Loan Documents to the Loan Agreement shall mean the Loan Agreement as amended hereby. This Fourth Amendment shall be construed in connection with and as part of the Loan Agreement and all terms, conditions, representations, warranties, covenants and agreements set forth in the Loan Agreement and each other Loan Document, except as herein amended or waived, are hereby ratified and confirmed and shall remain in full force and effect. 5.2 Costs and Expenses. Debtor shall pay to Congress on demand all reasonable out-of-pocket costs, expenses, filing fees and taxes paid or payable in connection with the preparation, negotiation, execution, delivery, recording, administration, collection, liquidation, enforcement and defense of the Obligations, Congress's rights in the Collateral, this Fourth Amendment, the Loan Agreement, the other Loan Documents and all other documents related hereto or thereto, including any amendments, supplements or consents which may hereafter be contemplated (whether or not executed) or entered into in respect hereof and thereof, including, but not limited to: (a) all costs and expenses of filing or recording (including Uniform Commercial Code financing statement filing taxes and fees, documentary taxes, intangibles taxes and mortgage recording taxes and fees, if applicable); (b) costs and expenses and fees for title insurance and other insurance premiums, environmental audits, surveys, assessments, engineering reports and inspections, appraisal fees and search fees; (c) costs and expenses of remitting loan proceeds, collecting checks and other items of payment; (d) charges, fees or expenses charged by any bank or issuer 8 in connection with the Letter of Credit Accommodations; (e) costs and expenses of preserving and protecting the Collateral; (f) costs and expenses paid or incurred in connection with obtaining payment of the Obligations, enforcing the security interests and liens of Congress, selling or otherwise realizing upon the Collateral, and otherwise enforcing the provisions of this Fourth Amendment, the Loan Agreement and the other Loan Documents or defending any claims made or threatened against Congress arising out of the transactions contemplated hereby and thereby (including, without limitation, preparations for and consultations concerning any such matters); (g) all out-of-pocket expenses and costs heretofore and from time to time hereafter incurred by Congress during the course of periodic field examinations of the Collateral and Debtor's operations, plus a per diem charge at the rate of $600 per person per day for Congress's examiners in the field and office; and (h) the fees and disbursements of counsel (including legal assistants) to Congress in connection with any of the foregoing. 5.3 Certain Waivers; Release. (i) Debtor, for itself and any successor (including any trustee or debtor in possession in a case under the Bankruptcy Code), hereby knowingly, voluntarily, intentionally and irrevocably waives (to the extent permitted by applicable law) any right which it may have upon the commencement of a case under the Bankruptcy Code to (a) seek enforcement of the automatic stay provided under Section 362 of the Bankruptcy Code to prohibit Congress from exercising such remedies as it may deem appropriate under the Loan Documents in respect of the Collateral, (b) oppose any motion or application brought by Congress seeking relief from the automatic stay provided under Section 362 of the Bankruptcy Code in respect of all or any portion of the Collateral, (c) file any motion or application seeking to obtain credit pursuant to Section 364(d) of the Bankruptcy Code or (d) object to or otherwise seek to disallow or subordinate any of the Obligations. (ii) Although Debtor does not believe that it has any claims against Congress, it is willing to provide Congress with a general and total release of all such claims in consideration of the extensions and other benefits which Debtor will receive pursuant to this Fourth Amendment. Accordingly, Debtor, for itself, each of its Subsidiaries and any successor (including any trustee or debtor in possession in a case under the Bankruptcy Code) of Debtor or such Subsidiary, hereby knowingly, voluntarily, intentionally and irrevocably releases and discharges Congress and its respective officers, directors, agents and counsel (each a "Releasee") from any and all actions, causes of action, suits, sums of money, accounts, reckonings, bonds, bills, specialties, covenants, contracts, controversies, agreements, promises, variances, trespasses, damages, judgments, extents, executions, losses, liabilities, costs, expenses, debts, dues, demands, obligations or other claims of any kind whatsoever, in law, admiralty or equity, which Debtor or any of its Subsidiaries ever had, now have or hereafter can, shall or may have against any Releasee for, upon or by reason of any matter, cause or thing whatsoever from the beginning of the world to the date of this Fourth Amendment. 5.4 Effectiveness. This Fourth Amendment shall immediately become effective as of the date first written above upon (i) the receipt by Congress of duly executed counterparts of this Fourth Amendment from Debtor and (ii) the satisfaction or written waiver of each condition precedent contained in Section 3 hereof. 9 5.5 Counterparts. This Fourth Amendment may be executed in any number of counterparts, each such counterpart constituting an original but all together constitute one and the same instrument. 5.6 Severability Any provision contained in this Fourth Amendment that is held to be inoperative, unenforceable or invalid in any jurisdiction shall, as to that jurisdiction, be inoperative, unenforceable or invalid without affecting the remaining provisions of this Fourth Amendment in that jurisdiction or the operation, enforceability or validity of that provision in any other jurisdiction. 5.7 GOVERNING LAW. THIS FOURTH AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK. IN WITNESS WHEREOF, the parties hereto have executed this Fourth Amendment as of the date first above written. FRUEHAUF TRAILER CORPORATION By: /s/ Timothy J. Wiggins ----------------------- Title: Excutive Vice President and Chief Financial Officer CONGRESS FINANCIAL CORPORATION (CENTRAL) By: /s/ Thomas C. Lannon --------------------- Title: Vice President EX-4.34 3 FRUEHAUF TRAILER EXHIBIT 4.34 LIMITED WAIVER This LIMITED WAIVER (this "Waiver") is dated as of April 19, 1996 and is by and between Fruehauf Trailer Corporation ("Debtor") and Congress Financial Corporation (Central) ("Congress"). R E C I T A L S WHEREAS, Debtor and Congress are parties to that certain Accounts Financing Agreement [Security Agreement], that certain Inventory and Equipment Security Agreement Supplement to Accounts Financing Agreement [Security Agreement], that certain Rider No. 1 to Accounts Financing Agreement [Security Agreement] and Inventory and Equipment Security Agreement Supplement to Accounts Financing Agreement [Security Agreement] (the "Rider") and that certain letter regarding Inventory Loans, each dated as of August 20, 1993 and each as amended by that certain First Amendment to Accounts Financing Agreement [Security Agreement] entered into as of April 4, 1994 by and between Debtor and Congress and that certain Second Amendment to Accounts Financing Agreement [Security Agreement] and Waiver entered into as of April 12, 1994 by and between Debtor and Congress, that certain Third Amendment to Accounts Financing Agreement [Security Agreement] entered into as of May 1, 1995 by and between Debtor and Congress and that certain Fourth Amendment to Accounts Financing Agreement [Security Agreement] entered into as of the date hereof by and between Debtor and Congress (collectively, as amended, restated, supplemented or otherwise modified from time to time, the "Loan Agreement;" capitalized terms used and not defined herein shall have the meanings assigned to them in the Loan Agreement); and WHEREAS, the Debtor has requested that Congress waive certain provisions of the Loan Agreement relating to the payment of trailing liabilities. NOW, THEREFORE, in consideration of the foregoing and the agreements contained herein, the parties hereto hereby agree as follows: Section 1. Limited Waiver. Upon the payment by Debtor to Congress of a $25,000 waiver fee (which waiver fee shall be due and payable, and fully earned, upon execution of this Waiver), effective as of the date hereof and until and including, and only until and including, the earlier of (a) the Waiver Expiration Date or (b) the time at which the proceeds of Asset Sales (other than the Foreign Sale), which occur on or after March 1, 1996, of Non-Core Assets exceeds $350,000, Congress hereby waives any Event of Default which has occurred or may occur solely as a result of noncompliance by the Debtor with clause (i) of the 2 proviso in Section 6(bb)(b) of the Rider (and/or solely as a result of the failure of the Debtor to notify Congress of the Debtor's noncompliance with clause (i) of the proviso in Section 6(bb)(b) of the Rider). In addition, effective as of the date hereof and until and including, and only until and including, August 31, 1996, Congress hereby waives the provisions of the Loan Agreement to the extent, and only to the extent, necessary to permit the Foreign Sale to occur strictly in accordance with the definition of Foreign Sale. As used herein, (i) "Waiver Expiration Date" shall mean August 31, 1996; provided, however, that upon the payment of a waiver fee of $10,000 (which fee shall be fully earned as of the date it is paid) for each extension of the then current "Waiver Expiration Date", the then current Waiver Expiration Date shall be extended to the last day of the calendar month immediately following the calendar month during which the then current Waiver Expiration Date occurs (provided that in no event shall the Waiver Expiration Date be extended (a) beyond March 31, 1997 or (b) unless the Permanent Reserve is at least $6,000,000 as of December 31, 1996, beyond December 31, 1996), (ii) "Foreign Assets" shall mean (a) all of the capital stock of, or all or substantially all of the assets of, Fruehauf International Limited ("FIL") and all of Debtor's equity interest in Societe Europeane de Semi-Remorque S.A. ("SESR") but excluding Fruehauf de Mexico and (b) certain of Debtor's and FIL's licenses, technology fees and intellectual property rights outside North American, and (iii) "Foreign Sale" shall mean the sale of the Foreign Assets by Debtor or FIL, as the case may be, to one or more purchasers in a transaction which is completed no later than August 31, 1996 and in which (a) Debtor receives not less than $23,000,000 in cash (before deducting fees and expenses associated with such transaction) on account of the Foreign Assets, (b) at least a majority of the holders of Debtor's Noteholder Debt shall have consented to the retention by Debtor (for application to the revolving loans) of not less than 50% of the amount described in clause (i) above after deduction of the fees and expenses described in such clause even if Debtor is required to utilize a portion of the amount so retained to fund the scheduled May 1, 1996 interest payment in respect of the Noteholder Debt, (c) Debtor receives, after all payments to or for the benefit of the holders of the Noteholder Debt and all payments for fees and expenses associated with such transaction, not less than $7,500,000 of cash that is used to repay the revolving loans (and remains available to Debtor for working capital purposes and does not increase the Asset Sale Reserve or the Permanent Reserve) and (d) the Trustee and the Collateral Agent have entered into an amendment to the Intercreditor Agreement (in form and substance reasonably satisfactory to Congress) to provide that (1) the proceeds of the sale of the Foreign Assets which are paid to Congress shall not be applied to, or otherwise increase, the Asset Sale Reserve or the Permanent Reserve and such failure to apply or otherwise use such proceeds shall not limit or otherwise affect Congress' ability or right to require the proceeds of other Asset Sales to be paid to Congress to be applied to, or otherwise increase, the Asset Sale Reserve or the Permanent Reserve in accordance with the terms of the Intercreditor Agreement and/or the Loan Agreement and (2) Congress may amend Section 13 and/or 14 of the Rider to 3 the extent necessary to (A) allow the proceeds of the sale of the Foreign Assets to be paid to Congress and not be applied to, or otherwise increase, the Asset Sale Reserve or the Permanent Reserve and (B) provide that such payment and failure to apply, or otherwise use such proceeds, to increase the Asset Sale Reserve or the Permanent Reserve shall not limit or otherwise affect Congress' ability or right to require the proceeds of other Asset Sales to be paid to Congress to be applied to, or otherwise increase, the Asset Sale Reserve or the Permanent Reserve in accordance with the terms of the Intercreditor Agreement and/or the Loan Agreement (and upon receipt of such amendment, Congress and Debtor shall enter into the amendment to the Loan Agreement as permitted and described in this clause (2)). Section 2. Limitation of Waivers. (a) The waivers set forth in Section 1 hereof are effective for the purposes set forth herein and shall be limited precisely as written and shall not be deemed to (i) be a consent to any amendment, waiver or modification of any other term or condition of any Loan Document or (ii) otherwise prejudice any right or remedy which Congress may now have or may have in the future under or in connection with any Loan Document. (b) This Waiver shall be construed in connection with and as part of the Loan Documents and all terms, conditions, representations, warranties, covenants and agreements set forth in the Loan Documents, except as herein waived, are hereby ratified and confirmed and shall remain in full force and effect. Section 3. Representations and Warranties. In order to induce Congress to enter into this Waiver, the Debtor represents and warrants to Congress, upon the effectiveness of this Waiver, which representations and warranties shall survive the execution and delivery of this Waiver, that: 3.1 Due Incorporation, etc. The Debtor is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation, and has all requisite authority to conduct its business in each jurisdiction in which its business is conducted. 3.2 Corporate Power and Authority; Authorization. The Debtor has the corporate power and authority to execute, deliver and carry out the terms and provisions of this Waiver and the execution and delivery by the Debtor of this Waiver have been duly authorized by all requisite corporate action by the Debtor. 3.3 Execution and Delivery. The Borrower has duly executed and delivered this Waiver. 4 3.4 Enforceability. This Waiver and each other Loan Document to which Debtor is a party constitutes the legal, valid and binding obligation of the Borrower, enforceable against the Borrower in accordance with its respective terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' right generally, and by general principles of equity. 3.5 No Conflicts, etc. Neither the execution, delivery or performance by the Borrower of this Waiver, nor compliance by the Borrower with the terms and provisions hereof, (i) will contravene any applicable provision of any law, statute, rule, regulation, order, writ, injunction or decree of any court or governmental instrumentality, or (ii) will conflict or be inconsistent with, or result in any breach of, any of the terms, covenants, conditions or provisions of, or constitute a default under, or result in the creation or imposition of (or the obligation to create or impose) any Lien upon any property or assets owned by it pursuant to the terms of any indenture, mortgage, deed of trust, agreement or other instrument to which it is a party or by which it or any of its property or assets is bound or to which it may be subject or (iii) will violate any provision of its certificate of incorporation or by-laws. 3.6 Consents, etc. No order, consent, approval, license, authorization, or validation of, or filing, recording or registration with, or exemption by, any governmental or public body or authority, or any subdivision thereof, is required to authorize, or is required in connection with the execution, delivery and performance of this Waiver or the consummation of any of the transactions contemplated hereby. 3.7 Representations and Warranties. All of the representations and warranties contained in the Loan Agreement and in the other Loan Documents (other than those which speak expressly only as of a different date) are true and correct as of the date hereof after giving effect to this Waiver. Section 4. Miscellaneous. 4.1 Amendment. If the Intercreditor Application Amendment is executed and delivered by each of the Trustee and the Collateral Agent (i) Congress and Debtor shall enter into the Application Amendment and (ii) Congress shall execute a limited waiver pursuant to which Congress shall waive any and all Events of Default which have occurred solely as a result of the noncompliance by the Debtor with clause (i) of the proviso in Section 6(bb)(b) of the Rider (and/or solely as a result of the failure of the Debtor to notify Congress of the Debtor noncompliance with clause (i) of the proviso in Section 6 (bb)(b) of the Rider). In addition, on the first day of each month to occur (i) after Congress executes and delivers the waiver described in clause (ii) and (ii) after August 31, 1996, if the amount of the Permanent Reserve is less than $7,500,000, Debtor shall pay Congress a waiver fee of $10,000 (which waiver fee shall be fully 5 earned and payable as of each such first day of each such month). As used herein, (i) "Intercreditor Application Amendment" shall mean an amendment to the Intercreditor Agreement pursuant to which the Intercreditor Agreement is amended to provide that (a) the Asset Sale Reserve shall be immediately reduced to zero and the Permanent Reserve shall be immediately increased by the amount of the Asset Sale Reserve immediately prior to such reduction, (b) all Net Cash Proceeds of any Asset Sale of Collateral (1) shall, to the extent that the sum of (A) the amount of such proceeds plus (B) the Permanent Reserve, would not exceed the $7,500,000, be paid to Congress for application to the Obligations in such order as Congress in its sole discretion shall elect (and at such time the amount of such payment shall be credited to the Permanent Reserve and the Permanent Reserve shall be increased by such amount), (2) the remainder, if any, after making the payments described in (1) above shall be paid to the Trustee for application in accordance with the Indenture until all Noteholder Debt has been paid in full and (3) the remainder, if any, after making the payments described in (1) and (2) above shall be paid to Congress for application to the Obligations in such order as Congress in its sole discretion shall elect, and (c) Congress may enter into Application Amendment, and (ii) "Application Amendment" shall mean an amendment to the Loan Agreement which (a) amends and restates the definition of Required Month End Availability to read Required Month End Availability shall mean $2,500,000," (b) adds a new covenant to the Loan Agreement pursuant to which Debtor shall covenant and agree to generate Net Cash Proceeds of Asset Sales in an amount sufficient to cause the Permanent Reserve to be at least (a) $6,000,000 as of December 31, 1996 and (b) $7,500,000 as of March 31, 1997, (c) amends Section 13 of the Rider so that Section 13 of the Rider is substantially similar to Section 4 of the Intercreditor Agreement (as amended by the Intercreditor Application Amendment). 4.2 Effectiveness. This Waiver shall immediately become effective as of the date first written above upon receipt by Congress of duly executed coun- terparts of this Waiver from the Debtor and Congress. 4.3 Counterparts. This Waiver may be executed in any number of counterparts, each such counterpart constituting an original but all together one and the same instrument. 4.4 Severability. Any provision contained in this Waiver which that is held to be inoperative, unen- forceable or invalid in any jurisdiction shall, as to that jurisdiction, be inoperative, unenforceable or invalid without affecting the remaining provisions of this amendment in that jurisdiction or the operation, enforceability or validity of that provision in any other jurisdiction. 6 4.5 GOVERNING LAW. THIS WAIVER SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF ILLINOIS. IN WITNESS WHEREOF, the parties hereto have executed this Waiver as of the date first above written. FRUEHAUF TRAILER CORPORATION By: /s/ Timothy J. Wiggins ----------------------- Title: Executive Vice President and Chief Executive Officer CONGRESS FINANCIAL CORPORATION (CENTRAL) By: /s/ Thomas C. Lannon ---------------------- Title: Vice President EX-4.35 4 FRUEHAUF TRAILER EXHIBIT 4.35 WORKING CAPITAL TERM NOTE April 19, 1996 FOR VALUE RECEIVED, Fruehauf Trailer Corporation ("Borrower") promises to pay to the order of Congress Financial Corporation (Central) (together with its successors and assigns, "Lender") the principal sum of Five Million, Five Hundred Thousand Dollars ($5,500,000) together with interest on the outstanding balance thereof at the rate provided for herein on the dates and upon the terms set forth herein. Recitals A. Borrower and Lender are the parties to that certain Accounts Financing Agreement [Security Agreement] (the "Accounts Financing Agreement"), that certain Inventory and Equipment Security Agreement Supplement to Accounts Financing Agreement [Security Agreement], that certain Rider No. 1 to Accounts Financing Agreement [Security Agreement], that certain Inventory and Equipment Security Agreement Supplement to Accounts Financing Agreement [Security Agreement] and that certain letter regarding Inventory Loans, each dated as of August 20, 1993 and each as amended by that certain First Amendment to Accounts Financing Agreement [Security Agreement] entered into as of April 4, 1994 by and between Borrower and Lender, that certain Second Amendment to Accounts Financing Agreement [Security Agreement] and Waiver entered into as of April 12, 1994 by and between Borrower and Lender, that certain Third Amendment to Accounts Financing Agreement [Security Agreement] entered into as of May 1, 1995 by and between Borrower and Lender and that certain Fourth Amendment to Accounts Financing Agreement [Security Agreement] (the "Fourth Amendment") entered into as of even date herewith by and between Borrower and Lender (collectively, as amended, restated, supplemented or otherwise modified from time to time, the "Loan Agreement"), and the other Loan Documents, as defined in the Loan Agreement (all such Loan Documents, together with the Loan Agreement, in each case as in existence prior to the execution of this Term Note or any other amendment executed on or after the date hereof, collectively, the "Revolving Loan Documents"). Capitalized terms used herein and not otherwise defined herein shall have the meanings set forth in the Loan Agreement. B. Lender is a party to that certain First Amended and Restated Intercreditor Agreement (the "Intercreditor Agreement") entered into as of May 1, 1995 by and among Lender, IBJ Schroder Bank & Trust Company ("IBJS"), as indenture trustee and Collateral Agent (as that term is defined in the Intercreditor Agreement), and certain other parties. 2 C. Borrower is a party to that certain Indenture (the "Indenture") dated as of May 1, 1995 by and between Borrower and IBJS, as trustee. D. Borrower has requested and Lender has agreed to convert a portion of the revolving loans currently outstanding pursuant to the Revolving Loan Documents to a term loan to Borrower, with such refinancing to be upon the terms and subject to the conditions set forth in this Term Note. E. The term loan to be made under this Term Note will replace and be a refinancing of a portion of the obligations of Borrower under the Revolving Loan Documents, and, prior to the occurrence of a Transfer Event, as hereinafter defined, will be entitled to the benefits of all collateral and other security with respect thereto. THEREFORE, in consideration of the mutual conditions and agreements set forth herein, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows: SECTION 1. DEFINITIONS All terms used herein which are defined in Article 1 or Article 9 of the Uniform Commercial Code shall have the meanings given therein unless otherwise defined in this Term Note. All references to the plural herein shall also mean the singular and to the singular shall also mean the plural. All references to Borrower and Lender pursuant to the definitions set forth in the recitals hereto, or to any other person herein, shall include their respective successors and assigns. The words "hereof", "herein", "hereunder", "this Term Note" and words of similar import when used in this Term Note shall refer to this Term Note as a whole and not any particular provision of this Term Note and as this Term Note now exists or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. Any accounting term used herein unless otherwise defined in this Term Note shall have the meaning customarily given to such term in accordance with GAAP. For purposes of this Term Note, the following terms shall have the respective meanings given to them below: 1.1 "Accounts" shall have the meaning set forth in Section 4 hereof. 1.2 "Average Book Availability" shall mean, for any period, the arithmetic mean of the Book Availability for each day in such period. 3 1.3 "Book Availability" shall mean, at any time, the amount, as determined by Lender and maintained on its books and records in accordance with and pursuant to the terms of the Loan Agreement, equal to the Section 2.1 Amount (as defined in the Fourth Amendment as in effect on the date hereof), minus the amount of all then outstanding and unpaid Obligations (but not including for this purpose the then outstanding principal amount of the Term Loan). 1.4 "Cash Flow Projections" shall mean detailed cash flow projections for the Borrower, made in good faith and in conformity with Borrower's existing business practices and, to the extent applicable, GAAP, in sufficient detail to permit the calculation of Average Book Availability, for at least the next ninety (90) day period. 1.4 "Collateral" shall have the meaning set forth in Section 4 hereof. 1.5 "Equipment" shall have the meaning set forth in Section 4 hereof. 1.6 "Event of Default" shall mean the occurrence or existence of any event or condition described in Section 8.1 hereof. 1.7 "Excess Availability" shall mean, as of any Permitted Principal Reduction Assessment Date, the lesser of (i) Book Availability on such date minus the sum of (a) the aggregate amount of all Specified Payables on such date; plus (b) accruals for any tax liabilities that are or will be due and payable within the next ninety (90) days; plus (c) accruals for any Specified Liabilities, to the extent not included in (a) or (b) above, that are or will be due and payable during the next twelve (12) month period or (ii) Average Book Availability for the ninety (90) day period ending on such date. 1.8 "GAAP" shall mean generally accepted accounting principles in the United States of America as in effect from time to time as set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and the statements and pronouncements of the Financial Accounting Standards Boards which are applicable to the circumstances as of the date of determination. 1.9 "Income Projections" shall mean detailed net income projections for the Borrower for the next twelve (12) month period, made in good faith and in conformity with Borrower's existing business practices and, to the extent applicable, GAAP. 1.10 "Inventory" shall have the meaning set forth in Section 4 hereof. 4 1.11 "Obligor" shall mean any guarantor, endorser, acceptor, surety or other person liable on or with respect to the Term Loan Obligations or who is the owner of any property which is security for the Term Loan Obligations, other than Borrower. 1.12 "Permitted Principal Reduction Assessment Date" shall mean July 31, 1997, and each October 31, January 31, April 30 and July 31 thereafter until such time as the Term Loan is repaid in full. 1.13 "Permitted Principal Reduction Payment Date" shall mean August 10, 1997 and each November 10, February 10, May 10 and August 10 thereafter until such time as the Term Loan is repaid in full. 1.14 "Person" or "person" shall mean any individual, sole proprietorship, partnership, corporation (including, without limitation, any corporation which elects subchapter S status under the Internal Revenue Code of 1986, as amended), business trust, unincorporated association, joint stock corporation, trust, joint venture or other entity or any government or any agency or instrumentality or political subdivision thereof. 1.15 "Prime Rate" shall mean the rate from time to time publicly announced by CoreStates Bank, N.A., or its successors and assigns, at its office in Philadelphia, Pennsylvania, as its prime rate, whether or not such announced rate is the best rate available at such bank. 1.16 "Records" shall have the meaning set forth in Section 4 hereof. 1.17 "Specified Liabilities" shall mean all liabilities for taxes, assessments, royalty payments, insurance, contractual bonus arrangements, term debt principal amortization (other than the Term Loan) or capital expenditures, which are or will be due and payable by Borrower, which will require a payment of at least One Hundred Thousand Dollars ($100,000) over the next twelve (12) month period and which are not reasonably expected to be funded from third party sources. 1.18 "Specified Payables" shall mean, at any specified date, the then outstanding and unpaid trade payables of Borrower which are more than ten (10) days past due as of the preceding Business Day except for any such payables which (i) are identified to Congress Financial Corporation (Central) and approved for purposes of exclusion from this definition by Congress Financial Corporation (Central) as being excluded from "Specified Payables" (which approval shall not be unreasonably withheld) and (ii) are either (a) not being paid because of unresolved disputes with respect thereto, or (b) not being paid because of agreements with the obligee of the payable which permit the deferral of payment. 5 1.19 "Term Loan" shall have the meaning set forth in Section 2.1 hereof. 1.20 "Term Loan Financing Agreements" shall mean, collectively, this Term Note, any additional working capital term note issued to Congress Financial Corporation (Central), the proceeds of which are used to refinance an equivalent portion of the revolving loans made pursuant to the Revolving Loan Documents, all of the documents identified in Exhibit "A" hereto and any agreement, document, instrument or amendment to any of the foregoing documents at any time hereafter which are executed and/or delivered by Borrower or any Obligor in favor of Lender in its capacity as holder of this Term Note. 1.21 "Term Loan Obligations" shall mean the Term Loan and all other obligations, liabilities and indebtedness of every kind, nature and description owing by Borrower to Lender and/or its affiliates pursuant to any or all of the Term Loan Financing Agreements, including principal, interest, charges, fees, costs and expenses, however evidenced, whether as principal, surety, endorser, guarantor or otherwise, whether now existing or hereafter arising, whether arising before, during or after the initial or any renewal term of this Term Note or after the commencement of any case with respect to Borrower under the United States Bankruptcy Code or any similar statute (including, without limitation, the payment of interest and other amounts which would accrue and become due but for the commencement of such case), whether direct or indirect, absolute or contingent, joint or several, due or not due, primary or secondary, liquidated or unliquidated, secured or unsecured, and however acquired by Lender. 1.22 "Transfer Documents" shall mean (i) that certain Note Purchase and Assignment Agreement, dated as of April 19, 1996, by and between Congress Financial Corporation (Central) and K-H Corporation (the "Note Purchase Agreement"), (ii) that certain Subordination Agreement, dated as of April 25, 1996, by and between Congress Financial Corporation (Central) and K-H Corporation (the "Subordination Agreement") and (iii) any assignment of any or all of the Term Loan Financing Agreements executed in connection with the Note Purchase Agreement or the Subordination Agreement. 1.23 "Transfer Event" shall mean a sale or other transfer of this Term Note by Congress Financial Corporation (Central) to any third party, which shall then become a "Lender" hereunder. SECTION 2. CREDIT FACILITIES 6 2.1 Term Loan. Subject to, and upon the terms and conditions contained herein, Lender has on the date first above set forth made a loan (the "Term Loan") to Borrower in the principal amount of Five Million, Five Hundred Thousand Dollars ($5,500,000), the proceeds of which have been used to reduce and refinance an equivalent portion of the revolving loans heretofore made pursuant to the Revolving Loan Documents. Upon repayment, the Term Loan, to the extent of such repayment, may not be reborrowed. 2.2 Repayment of Term Loan. Except as provided in Sections 2.3, 2.4 and 8.2 hereof, the then outstanding principal amount of the Term Loan shall be due and payable on May 1, 1997. 2.3 Extension of Term Loan. In the event Congress Financial Corporation (Central) extends the term of the Loan Agreement, then the term of the Term Loan shall be automatically extended until the earlier of (a) May 1, 1999, and (b) the extended maturity date of the Loan Agreement. In the event the term of the Term Loan is so extended, Borrower shall be obligated to pay the outstanding principal balance at such extended maturity date and to make a principal payment to Lender in the amount of Two Hundred Fifty Thousand Dollars ($250,000), for application to the Term Loan (each such payment hereinafter referred to as a "Permitted Principal Reduction Payment"), on each Permitted Principal Reduction Payment Date on which each of the following conditions is met: (i) the Excess Availability as of the immediately preceding Permitted Principal Reduction Assessment Date was at least Two Million, Five Hundred Thousand Dollars ($2,500,000); (ii) the most recently delivered Cash Flow Projections show that, after the making of such Permitted Principal Reduction Payment, the Borrower will still be able to maintain an Average Book Availability of at least Two Million, Five Hundred Thousand Dollars ($2,500,000) for the ninety (90) day period commencing on the first day following the immediately preceding Permitted Principal Reduction Assessment Date; (iii) Borrower had a positive net income for the ninety (90) day period immediately preceding such Permitted Principal Reduction Assessment Date, as shown in the income statement delivered by Borrower pursuant to section 2.8 of this Term Note; and (iv) the most recently delivered Income Projections show that Borrower is expected to have a positive net income for the ninety (90) day period commencing on the first day following the immediately preceding Permitted Principal Reduction Assessment Date. If, on any Permitted Principal Reduction Payment Date, any of the foregoing conditions has not been satisfied, such Permitted Principal Reduction Payment shall not thereafter become payable if such condition is satisfied subsequent to such Permitted Principal Reduction Payment Date. 7 2.4 Accelerated Prepayment. The entire principal balance of the Term Loan shall be immediately due and payable (i) prior to the occurrence of a Transfer Event, on the date that the revolving loan made pursuant to the Revolving Loan Documents is terminated by Borrower in accordance with the terms of the Revolving Loan Documents, or (ii) if a Transfer Event does not occur on or prior to April 26, 1996. 2.5 Interest (a) Pre-Default Rate. Borrower shall pay to Lender interest on the outstanding principal amount of the Term Loan Obligations at the rate of two and one-half percent (2%) per annum in excess of the Prime Rate. (b) Post-Default Rate. Borrower shall pay to Lender interest on the outstanding principal amount of the Term Loan Obligations, at Lender's option, without notice, at a rate equal to two percent (2%) per annum in excess of the pre-default rate set forth above (i) whenever the default rate is imposed on Borrower's outstanding Obligations pursuant to the Revolving Loan Documents, or (ii) following the occurrence of a Transfer Event, from the date of the occurrence of an Event of Default hereunder, and for so long as such Event of Default is continuing as determined by Lender. All interest accruing hereunder on and after the date of any Event of Default or termination or non-renewal hereof shall be payable on demand. ( c ) Payment of Interest. Accrued interest shall be due and payable in arrears no later than the first day of each month during which any of the Term Loan Obligations remain outstanding and unpaid. Interest shall be calculated on the basis of a three hundred sixty (360) day year and actual days elapsed. The interest rate shall increase or decrease by an amount equal to each increase or decrease in the Prime Rate effective on the first day of the month after any change in such Prime Rate is announced based on the Prime Rate in effect on the last day of the month in which any such change occurs. In no event shall charges constituting interest payable by Borrower to Lender exceed the maximum amount or the rate permitted under any applicable law or regulation, and if any part or provision of any of the Term Loan Financing Agreements is in contravention of any such law or regulation, such part or provision shall be deemed amended to conform thereto. If any interest payment or any other amount due and payable under any of the Term Loan Financing Agreements cannot be paid pursuant to the terms of the 8 Transfer Documents, then such interest payment or other amount shall be deemed not to be due and payable under such Term Loan Financing Agreement until such time as payment thereof is permitted under the Transfer Documents, and no Event of Default shall result from the failure of Borrower or any Obligor to pay such interest payment or other amount until such time as permitted under the Transfer Documents. Interest shall accrue at the applicable rate on any Term Loan Obligation that cannot be paid pursuant to the preceding sentence of this Section 2.5(c) from the date on which such Term Loan Obligation would have first become due and payable under such Term Loan Financing Agreement but for this Section 2.5(c) until the date on which such Term Loan Obligation is actually paid. 2.6 Payments. Borrower shall make all payments to Lender on the Term Loan Obligations free and clear of, and without deduction or withholding for or on account of, any setoff, counterclaim, defense, duties, taxes, levies, imposts, fees, deductions, withholding, restrictions or conditions of any kind. If after receipt of any payment of, or proceeds applied to the payment of, any of the Term Loan Obligations, Lender is required to surrender or return such payment to any Person for any reason, then the Term Loan Obligations intended to be satisfied by such payment shall be reinstated and continue and this Term Note shall continue in full force as if such payment had not been received by Lender. Borrower shall be liable to pay to Lender, and does indemnify and hold Lender harmless for the amount of any payments surrendered or returned. This Section 2.6 shall remain effective notwithstanding any contrary action which may be taken by Lender in reliance upon such payment. This Section 2.6 shall survive the termination or non-renewal of this Term Note. 2.7 Instructions on Loan Disbursement and Use of Proceeds. Lender is authorized to make the Term Loan upon the execution hereof and Borrower shall use the proceeds of the Term Loan only to pay down an equivalent portion of Borrower's obligations in connection with the loans extended pursuant to Section 2.1 of the Loan Agreement. 2.8 Reporting Obligations. Borrower shall deliver to Lender quarterly, and no fewer than five (5) days before each Permitted Principal Reduction Assessment Date, the following (i) the Cash Flow Projections, (ii) an income statement prepared in accordance with GAAP reflecting the results of operations for the preceding ninety (90) day period, and (iii) the Income Projections. 2.9 Term Loan Subject to Intercreditor Agreement and Transfer Documents. This Term Note and the other Term Loan Financing Agreements are subject to the terms of the Intercreditor Agreement and, when executed, the Transfer Documents. 9 SECTION 3. ACKNOWLEDGMENT OF SECURITY INTEREST Borrower acknowledges that, prior to the occurrence of a Transfer Event, the Term Loan Obligations are included within the term "Obligations" as such term is defined in the Revolving Loan Documents, and that the Term Loan Obligations are therefore secured by the liens, security interests and other security granted in the Revolving Loan Documents and the other collateral documents related thereto. After the occurrence of a Transfer Event, the Term Loan Obligations shall not be included within the term "Obligations" as defined in the Revolving Loan Documents (but shall continue to be "Congress Obligations" under the Intercreditor Agreement), and shall not be secured by the liens, security interests or other security granted in the Revolving Loan Documents or the other collateral documents related thereto. SECTION 4. GRANT OF SECURITY INTEREST In addition to the security interest acknowledged in the preceding section, and to further secure payment and performance of all Term Loan Obligations, Borrower hereby grants to Lender a continuing security interest in, a lien upon, and a right of set off against, and hereby assigns to Lender as security (all of which shall be applicable to any Lender holding this Term Note), the following property and interests in property, whether now owned or hereafter acquired or existing, and wherever located (collectively, the "Collateral"): All present and future (a) accounts, contract rights, general intangibles, chattel paper, documents, letters of credit and instruments, as such terms are defined in the Uniform Commercial Code, including, without limitation, all obligations for the payment of money arising out of Borrower's sale, lease or other disposition of goods or other property or rendition of services (collectively, the "Accounts"); (b) moneys, securities and other property and the proceeds thereof, now or hereafter held or received by, or in transit to, Lender from or for Borrower, whether for safekeeping, pledge, custody, transmission, collection or otherwise, and all of Borrower's deposits (general or special), balances, sums and credits with Lender at any time existing; (c) all of Borrower's right, title and interest, and all of Borrower's rights, remedies, security and liens, in, to and in respect of the Accounts and other Collateral, including, without limitation, rights of stoppage in transit, replevin, repossession and reclamation and other rights and remedies of an unpaid vendor, lienor or secured party, guaranties or other contracts of suretyship with respect to the Accounts, deposits or other security for the obligation of any debtor or obligor in any way obligated on or in connection with any Account (an "Account Debtor"), and credit and other insurance; (d) all of Borrower's right, title and interest in, to and in respect of all goods relating to, or which by sale have resulted in, Accounts, including, without limitation, all goods described in invoices, documents, contracts or instruments with respect to, or otherwise representing 10 or evidencing, any Accounts or other Collateral, including without limitation, all returned, reclaimed or repossessed goods; (e) all deposit accounts; (f) all books, records, ledger cards, computer programs, and other property and general intangibles evidencing or relating to the Accounts and any other Collateral or any Account Debtor, together with the file cabinets or containers in which the foregoing are stored (collectively, the "Records"); (g) all other general intangibles of every kind and description, including without limitation, trade names and trademarks, and the goodwill of the business symbolized thereby, patents, copyrights, licenses and Federal, State and local tax refund claims of all kinds; (h) all of Borrower's equipment, including, without limitation, machinery, equipment, office equipment and supplies, computers and related equipment, furniture, furnishings, tools, tooling, jigs, dies, fixtures, manufacturing implements, fork lifts, trucks, trailers, motor vehicles and other equipment (collectively, the "Equipment"); and (i) all proceeds of the foregoing, in any form, including, without limitation, any claims against third parties for loss or damage to or destruction of any or all of the foregoing; and all of Borrower's inventory, including without limitation: raw materials, work in process, parts, components, assemblies, supplies and materials used or consumed in Borrower's business, finished goods, and all other inventory of whatever kind or nature, wherever located, whether now owned or hereafter existing or acquired by Borrower ("Inventory"), including without limitation, all wrapping, packaging, advertising, shipping materials, and all other goods consumed in Borrower's business, all labels and other devices, names or marks affixed or to be affixed thereto for purposes of selling or of identifying the same or the seller or manufacturer thereof and all of Borrower's right title and interest therein and thereto; all books, records, documents, other property and general intangibles at any time relating to the Inventory; all goods, wares and merchandise, finished or unfinished, held for sale or lease or furnished or to be furnished under contracts of service; all goods returned to or repossessed by Borrower; and all products and proceeds of the foregoing, in any form, including, without limitation, insurance proceeds and any claims against third parties for loss or damage to or destruction of any or all of the foregoing. The Collateral also includes all replacements, additions, accessions, substitutions, repairs, proceeds and products relating thereto or therefrom, and all document ledger sheets and files of Borrower relating thereto. Proceeds hereunder include (i) whatever is now or hereafter received by Borrower upon the sale, exchange, collection or other disposition of any item of Collateral, whether such proceeds 11 constitute inventory, accounts, accounts receivable, general intangibles, instruments, securities, credits, documents, letters of credit, chattel paper, documents of title, warehouse receipts, leases, deposit accounts, money, contract rights, goods or equipment; (ii) any such items which are now or hereafter acquired by Borrower with any proceeds of Collateral hereunder; and (iii) any insurance now or hereafter payable by reason of loss or damage to any item of Collateral or any proceeds thereof. SECTION 5. COLLATERAL COVENANTS 5.1 Inventory Covenants. (a) Borrower shall not remove any Inventory from the locations referenced in Section 6.3 hereof, without the prior written consent of Lender, except for sales of Inventory in the ordinary course of Borrower's business and except to move Inventory directly from one location referenced in Section 6.3 hereof to another such location; (b) upon Lender's request, Borrower shall, at its expense, no more than once in any twelve (12) month period, but at any time or times as Lender may request on or after an Event of Default, deliver or cause to be delivered to Lender written reports or appraisals as to the Inventory in form, scope and methodology acceptable to Lender and by an appraiser acceptable to Lender, addressed to Lender or upon which Lender is expressly permitted to rely; (c) Borrower shall produce, use, store and maintain the Inventory, with all reasonable care and caution and in accordance with applicable standards of any insurance and in conformity with applicable laws (including, but not limited to, the requirements of the Federal Fair Labor Standards Act of 1938, as amended, and all rules, regulations and orders related thereto); (d) Borrower assumes all responsibility and liability arising from or relating to the production, use, sale or other disposition of the Inventory; (e) Borrower shall not sell Inventory to any customer on approval, or any other basis which entitles the customer to return or may obligate Borrower to repurchase such Inventory; (f) Borrower shall keep the Inventory in good and marketable condition; and (g) Borrower shall not, without prior written notice to Lender, acquire or accept any Inventory on consignment or approval. In addition, the representations and warranties contained in Sections 6.5 and 6.6 of the Accounts Financing Agreement are incorporated herein by reference. 5.2 Equipment Covenants. (a) Borrower shall, at its expense, at any time or times as Lender may request on or after an Event of Default, deliver or cause to be delivered to Lender written reports or appraisals as to the Equipment in form, scope and methodology acceptable to Lender and by an appraiser acceptable to Lender; (b) Borrower shall keep the Equipment in good order, repair, running and marketable condition (ordinary wear and tear excepted); (c) Borrower shall use the Equipment, with 12 all reasonable care and caution and in accordance with applicable standards of any insurance and in conformity with all applicable laws; (d) the Equipment is and shall be used in Borrower's business and not for personal, family, household or farming use; (e) Borrower shall not remove any Equipment from the locations referenced in Section 6.3 hereof, except to the extent necessary to have any Equipment repaired or maintained in the ordinary course of the business of Borrower or to move Equipment directly from one location referenced in Section 6.3 hereof to another such location and except for the movement of motor vehicles used by or for the benefit of Borrower in the ordinary course of business; (f) the Equipment is now and shall remain personal property and Borrower shall not permit any of the Equipment to be or become a part of or affixed to real property; and (g) Borrower assumes all responsibility and liability arising from the use of the Equipment. 5.3 Power of Attorney. Borrower hereby irrevocably designates and appoints Lender (and all persons designated by Lender) as Borrower's true and lawful attorney-in-fact, and authorizes Lender, in Borrower's or Lender's name, to: (a) at any time an Event of Default or event which with notice or passage of time or both would constitute an Event of Default exists (i) demand payment of Accounts; (ii) enforce payment of Accounts by legal proceedings or otherwise; (iii) exercise all of Borrower's rights and remedies to collect any Account or other Collateral; (iv) sell or assign any Account or other Collateral upon such terms, for such amount and at such time or times as the Lender deems advisable; (v) settle, adjust, compromise, extend or renew an Account; (vi) discharge and release any Account; (vii) prepare, file and sign Borrower's name on any proof of claim in bankruptcy or other similar document against an account debtor; (viii) notify the post office authorities to change the address for delivery of Borrower's mail to an address designated by Lender, and open and dispose of all mail addressed to Borrower; and (ix) do all acts and things which are necessary, in Lender's determination, to fulfill Borrower's obligations under the Term Loan Financing Agreements and (b) at any time (i) take control in any manner of any item of payment of proceeds thereof; (ii) have access to any lockbox or postal box into which Borrower's mail is deposited; (iii) endorse Borrower's name upon any items of payment or proceeds thereof and deposit the same in Lender's account for application to the Term Loan Obligations; (iv) endorse Borrower's name upon any chattel paper, document, instrument, invoice, or similar document or agreement relating to any Account or any goods pertaining thereto or any other Collateral; (v) sign Borrower's name on any verification of Accounts and notices thereof to account debtors and (vi) execute in Borrower's name and file any UCC financing statements or amendments thereto. Borrower hereby releases Lender and its officers, employees and designees from any liabilities arising from any act or acts under this power of attorney and in furtherance thereof, whether of omission or commission, except as a result of Lender's own gross negligence or wilful misconduct as determined pursuant to a final non-appealable order of a court of competent jurisdiction. 13 5.4 Right to Cure. Lender may, at its option, (a) cure any default by Borrower under any agreement with a third party or pay or bond on appeal any judgment entered against Borrower, (b) discharge taxes, liens, security interests or other encumbrances at any time levied on or existing with respect to the Collateral and (c) pay any amount, incur any expense or perform any act which, in Lender's judgment, is necessary or appropriate to preserve, protect, insure, maintain, enforce and collect the Collateral and the rights of Lender with respect thereto. All amounts so expended shall constitute Term Loan Obligations and shall be repayable by Borrower on demand. Lender shall be under no obligation to effect such cure, payment or bonding and shall not, by doing so, be deemed to have assumed any obligation or liability of Borrower. Any payment made or other action taken by Lender under this Section 5.4 shall be without prejudice to any right to assert an Event of Default hereunder and to proceed accordingly. 5.5 Access to Premises. From time to time as requested by Lender, at the cost and expense of Borrower, (a) Lender or its designee shall have complete access to all of Borrower's premises during normal business hours and after notice to Borrower, or at any time and without notice to Borrower if an Event of Default exists, for the purposes of inspecting, verifying and auditing the Collateral and all of Borrower's books and records, including, without limitation, the Records, and (b) Borrower shall promptly furnish to Lender such copies of such books and records or extracts therefrom as Lender may request, and (c) Lender or its designee may use during normal business hours such of Borrower's personnel, equipment, supplies and premises as may be reasonably necessary for the foregoing and if an Event of Default exists for the collection of Accounts and realization of other Collateral. SECTION 6. REPRESENTATIONS AND WARRANTIES Borrower hereby represents and warrants to Lender the following (which shall survive the execution and delivery of this Term Note), the truth and accuracy of which are a condition to the making of the Term Loan: 6.1 Corporate Existence, Power and Authority; Nature of Obligation. Borrower is a corporation duly organized and in good standing under the laws of its state of incorporation and is duly qualified as a foreign corporation and in good standing in all states or other jurisdictions where the nature and extent of the business transacted by it or the ownership of assets 14 makes such qualification necessary, except for those jurisdictions in which the failure to so qualify would not have a material adverse effect on Borrower's financial condition, results of operation or business or the rights of Lender in or to any of the Collateral. The execution, delivery and performance of this Term Note and the other Term Loan Financing Agreements and the transactions contemplated hereunder and thereunder are all within Borrower's corporate powers, have been duly authorized and are not in contravention of law or the terms of Borrower's certificate of incorporation, by-laws or other organizational documentation, or the Indenture, any indenture, agreement or undertaking to which Borrower is a party or by which Borrower or its property are bound. The Term Loan Financing Agreements constitute legal, valid and binding obligations of Borrower enforceable in accordance with their respective terms. The Term Loan Obligations incurred by Borrower pursuant to this Term Note and the other Term Loan Financing Agreements shall constitute "Refinancing Debt," as that term is defined in the Indenture, and shall also constitute "Congress Obligations," as that term is defined in the Intercreditor Agreement. 6.2 Financial Statements and Filings; No Material Adverse Change. All financial statements relating to Borrower which have been or may hereafter be delivered by Borrower to Lender or filed with the Securities and Exchange Commission are or will be prepared in accordance with GAAP and fairly present the financial condition and the results of operation of Borrower as at the dates and for the periods set forth therein. Except as disclosed in any interim financial statements furnished by Borrower to Lender prior to the date of this Term Note, there has been no material adverse change in the assets, liabilities, properties and condition, financial or otherwise, of Borrower, since the date of the most recent audited financial statements furnished by Borrower to Lender prior to the date of this Term Note. 6.3 Chief Executive Office; Collateral Locations. The chief executive office of Borrower and Borrower's Records concerning Accounts are located only at the address set forth in the Revolving Loan Documents and its only other places of business and the only other locations of Collateral, if any, are the addresses set forth in the Revolving Loan Documents, subject to the right of Borrower to establish new locations in accordance with Section 7.2 hereof. The Revolving Loan Documents correctly identify any of such locations which are not owned by Borrower and set forth the owners and/or operators thereof, and to the best of Borrower's knowledge, the holders of any mortgages on such locations. 6.4 Status of Liens; Title to Properties. The security interests and liens granted to Lender under the Term Loan Financing Agreements constitute valid and, upon the filing of appropriate financing statements, mortgages and deeds of trust, perfected liens and 15 security interests in and upon the Collateral subject only to the liens permitted under Section 7.8 hereof. In addition, prior to the occurrence of a Transfer Event, (i) the Term Loan Obligations are included within the term "Obligations," as such term is defined in the Revolving Loan Documents, and (ii) the Term Loan Obligations are secured by the liens, security interests and other security granted in the Revolving Loan Documents and the other collateral documents related thereto. Borrower has good and marketable title to all of its properties and assets subject to no liens, mortgages, pledges, security interests, encumbrances or changes of any kind, except those granted to Lender and such others as are specifically permitted under Section 7.8 hereof. 6.5 Litigation. Except as previously disclosed to Lender, there are no judgments outstanding against Borrower, there is no present investigation by any governmental agency pending, or to the best of Borrower's knowledge threatened, against or affecting Borrower, its assets or business and there is no action, suit, proceeding or claim by any Person pending, or to the best of Borrower's knowledge threatened, against Borrower or its assets or goodwill, or against or affecting any transactions contemplated by the Term Loan Financing Agreements, which if adversely determined with respect to it would result in any material adverse change in the assets, business or prospects of Borrower or which would impair the ability of Borrower to perform its obligations hereunder or under any of the other Term Loan Financing Agreements to which it is a party, or of Lender to enforce this Term Note or any of the other Term Loan Financing Agreements or realize upon the Collateral. 6.6 Compliance with Other Agreements and Applicable Laws. Borrower is not in default under, or in violation of any of the terms of, any agreement, contract, instrument, lease or other commitment to which it is a party or by which it or any of its assets are bound. Borrower is in compliance in all material respects with all applicable provisions of laws, rules, regulations, licenses, permits, approvals and orders of any foreign, Federal, State or local governmental authority. 6.7 Accuracy and Completeness of Information. All information furnished by or on behalf of Borrower in writing to Lender in connection with this Term Note or any of the other Term Loan Financing Agreements or any transaction contemplated hereby or thereby is and will be true and correct in all material respects on the date as of which such information is dated or certified and does not omit and will not omit any material fact necessary in order to make such information not misleading. No event or circumstance has occurred which has had or could reasonably be expected to have a material adverse affect on the business, assets or prospects of Borrower, which has not been fully and accurately disclosed to Lender in writing. 16 6.8 Survival of Warranties; Cumulative. All representations and warranties contained in this Term Note and the other Term Loan Financing Agreements shall survive the execution and delivery of this Term Note and the other Term Loan Financing Agreements, and shall be conclusively presumed to have been relied on by Lender as of the date of this Term Note regardless of any investigation made or information possessed by Lender. The representations and warranties set forth herein shall be cumulative and in addition to any other representations or warranties which Borrower shall now or hereafter give, or cause to be given, to Lender. SECTION 7. AFFIRMATIVE AND NEGATIVE COVENANTS 7.1 Maintenance of Existence. Borrower shall at all times preserve, renew and keep in full, force and effect its corporate existence and rights and franchises with respect thereto and maintain in full force and effect all permits, licenses, trademarks, tradenames, approvals, authorizations, leases and contracts necessary to carry on the business as presently or proposed to be conducted. Borrower shall give Lender thirty (30) days prior written notice of any proposed change in its corporate name, which notice shall set forth the new name and Borrower shall deliver to Lender a copy of the amendment to the Certificate of Incorporation of Borrower providing for the name change certified by the Secretary of State of the jurisdiction of incorporation of Borrower as soon as it is available. 7.2 New Collateral Locations. Borrower may open any new location within the continental United States provided Borrower (a) gives Lender thirty (30) days prior written notice of the intended opening of any such new location and (b) executes and delivers, or causes to be executed and delivered, to Lender such agreements, documents, and instruments as Lender may deem reasonably necessary or desirable to protect its interests in the Collateral at such location, including, without limitation, UCC financing statements. 7.3 Compliance with Laws, Regulations, Etc. Borrower shall, at all times, comply in all material respects with all laws, rules, regulations, licenses, permits, approvals and orders applicable to it and duly observe all requirements of any Federal, State or local governmental authority. 7.4 Payment of Taxes and Claims. Borrower shall duly pay and discharge all taxes, assessments, contributions and governmental charges upon or against it or its properties or assets, except for taxes the validity of which are being contested in good faith by appropriate proceedings diligently pursued and available to Borrower and with respect to which adequate reserves have been set aside on its books. 17 7.5 Insurance. Borrower shall, at all times, maintain with financially sound and reputable insurers insurance with respect to the Collateral against loss or damage and all other insurance of the kinds and in the amounts customarily insured against or carried by corporations of established reputation engaged in the same or similar businesses and similarly situated. Said policies of insurance shall be satisfactory to Lender as to form, amount and insurer. Borrower shall furnish certificates, policies or endorsements to Lender as Lender shall require as proof of such insurance, and, if Borrower fails to do so, Lender is authorized, but not required, to obtain such insurance at the expense of Borrower. All policies shall provide for at least thirty (30) days prior written notice to Lender of any cancellation or reduction of coverage and that Lender may act as attorney for Borrower in obtaining, and at any time an Event of Default exists, adjusting, settling, amending and canceling such insurance. Borrower shall cause Lender to be named as a loss payee and an additional insured (but without any liability for any premiums) under such insurance policies and Borrower shall obtain non-contributory lender's loss payable endorsements to all insurance policies in form and substance satisfactory to Lender. Such lender's loss payable endorsements shall specify that the proceeds of such insurance shall be payable to Lender as its interests may appear and further specify that Lender shall be paid regardless of any act or omission by Borrower or any of its affiliates. At its option, Lender may apply any insurance proceeds received by Lender at any time to the cost of repairs or replacement of Collateral and/or to payment of the Term Loan Obligations, whether or not then due, in any order and in such manner as Lender may determine or hold such proceeds as cash collateral for Borrowers' obligations pursuant to the Term Loan Financing Agreements. 7.6 Financial Statements and Other Information (a) Borrower shall keep proper books and records in which full and true entries shall be made of all dealings or transactions of or in relation to the Collateral and the business of Borrower in accordance with GAAP and Borrower shall furnish or cause to be furnished to Lender: (i) within forty-five (45) days after the end of each fiscal month, monthly unaudited financial statements (including balance sheets, statements of income and loss and statements of shareholders' equity), all in reasonable detail, fairly presenting the financial position and the results of Borrower's operations as of the end of such fiscal month; (ii) within ninety (90) days after the end of each fiscal year, audited financial statements of Borrower (including balance sheets, statements of income and loss, statements of cash flow and statements of shareholders' equity), and the accompanying notes thereto, all in reasonable detail, fairly presenting the financial position and the results of Borrower's operations as of the end of such fiscal year, together with the opinion of independent certified public 18 accountants, which accountants shall be an independent accounting firm selected by Borrower and reasonably acceptable to Lender, that such financial statements have been prepared in accordance with GAAP, and present fairly the results of operations and financial condition of Borrower for the fiscal year then ended. (b) Borrower shall promptly notify Lender in writing of the details of (i) any loss, damage, investigation, action, suit, proceeding or claim relating to the Collateral or any other property which is security for the Term Loan Obligations or which would result in any material adverse change in Borrower's business, properties, assets, goodwill or condition, financial or otherwise, and (ii) the occurrence of any Event of Default or event which, with the passage of time or giving of notice or both, would constitute an Event of Default. ( c )Borrower shall promptly after the sending or filing thereof furnish or cause to be furnished to Lender copies of all reports which Borrower sends to its stockholders generally and copies of all reports and registration statements which Borrower files with the Securities and Exchange Commission, any national securities exchange or the National Association of Securities Dealers, Inc. (d) Borrower shall furnish or cause to be furnished to Lender such budgets, forecasts, projections and other information respecting the Collateral and the business of Borrower, as Lender may, from time to time, reasonably request. Lender is hereby authorized to deliver a copy of any financial statement or any other information relating to the business of Borrower to any court or other government agency or to any participant or assignee or prospective participant or assignee. Borrower hereby irrevocably authorizes and directs all accountants or auditors to deliver to Lender, at Borrower's expense, copies of the financial statements of Borrower and any reports or management letters prepared by such accountants or auditors on behalf of Borrower and to disclose to Lender such information as they may have regarding the business of Borrower. Any documents, schedules, invoices or other papers delivered to Lender may be destroyed or otherwise disposed of by Lender one (1) year after the same are delivered to Lender, except as otherwise designated by Borrower to Lender in writing. 7.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc. Borrower shall not, directly or indirectly, (a) merge into or with or consolidate with any other Person or permit any other Person to merge into or with or consolidate with it, (b) sell, assign, lease or transfer to any other Person, abandon or otherwise dispose of any stock or indebtedness or any of its assets to any other Person (except as expressly permitted in the Revolving Loan Documents or the Indenture), (c) form or acquire any subsidiaries, (d) wind up, (e) liquidate, (f) dissolve or (g) agree to do any of the foregoing. 19 7.8 Encumbrances. Borrower shall not create, incur, assume or suffer to exist any security interest, mortgage, pledge, lien or other encumbrance of any nature whatsoever on any of its assets or properties, including, without limitation, the Collateral, except as permitted by the Revolving Loan Documents, the Indenture or any of the other Term Loan Financing Agreements. 7.9 Dividends and Redemptions. Borrower shall not, directly or indirectly, declare or pay any dividends on account of any shares of any class of capital stock of Borrower now or hereafter outstanding, or set aside or otherwise deposit or invest any sums for such purpose, or redeem, retire, defease, purchase or otherwise acquire any shares of any class of capital stock (or set aside or otherwise deposit or invest any sums for such purpose) for any consideration other than common stock or apply or set apart any sum, or make any other distribution (by reduction of capital or otherwise) in respect of any such shares or agree to do any of the foregoing, except as permitted under the Revolving Loan Documents. 7.10 Transactions with Affiliates. Borrower shall not enter into any transaction for the purchase, sale or exchange of property or the rendering of any service to or by any affiliate, except in the ordinary course of and pursuant to the reasonable requirements of Borrower's business and upon fair and reasonable terms no less favorable to Borrower than Borrower would obtain in a comparable arm's length transaction with an unaffiliated person. 7.11 Costs and Expenses. Borrower shall pay to Lender on demand all costs, expenses, filing fees and taxes paid or payable in connection with the preparation, negotiation, execution, delivery, recording, administration, collection, liquidation, enforcement and defense of Lender's rights in the Collateral, this Term Note, the other Term Loan Financing Agreements and all other documents related hereto or thereto, including any amendments, supplements or consents which may hereafter be contemplated (whether or not executed) or entered into in respect hereof or thereto, including, but not limited to: (a) all costs and expenses of filing or recording (including Uniform Commercial Code financing statement filing taxes and fees, documentary taxes, intangibles taxes and mortgage recording taxes and fees, if applicable); (b) all title insurance and other insurance premiums, appraisal fees and search fees; (c) costs and expenses of preserving and protecting the Collateral; (d) costs and expenses paid or incurred in connection with obtaining payment of Borrower's obligations pursuant to the Term Loan Financing Agreements, enforcing the security interests and liens of Lender, selling or otherwise realizing upon the Collateral, and otherwise enforcing the provisions 20 of the Term Loan Financing Agreements or defending any claims made or threatened against Lender arising out of the transactions contemplated hereby or thereby (including, without limitation, preparations for and consultations concerning any such matters); and (e) the fees and disbursements of counsel (including legal assistants) to Lender in connection with any of the foregoing. 7.12 Further Assurances. At the request of Lender at any time and from time to time, Borrower shall, at its expense, duly execute and deliver, or cause to be duly executed and delivered, such further agreements, documents and instruments, and do or cause to be done such further acts as may be necessary or proper to evidence, perfect, maintain and enforce the security interests and the priority thereof in the Collateral and to otherwise effectuate the provisions or purposes of the Term Loan Financing Agreements. Lender may at any time and from time to time request a certificate from an officer of Borrower remaking, as of the date of such certificate, the representations and warranties set forth in this Term Note or any of the other Term Loan Financing Agreements. Where permitted by law, Borrower hereby authorizes Lender to execute and file one or more UCC financing statements signed only by Lender. SECTION 8. EVENTS OF DEFAULT AND REMEDIES 8.1 Events of Default. The occurrence or existence of any one or more of the following events are referred to herein individually as an "Event of Default", and collectively as "Events of Default": (a) Borrower (i) fails to pay when due any amount due and owing pursuant to the Term Loan Financing Agreements, (ii) breaches any of the terms, covenants, conditions or provisions contained in any of the Term Loan Financing Agreements and such breach is not cured within fifteen (15) Business Days after it occurs, or (iii) prior to the occurrence of a Transfer Event, fails to pay when due any amount due and owing pursuant to any of the Revolving Loan Documents or fails to perform any of the terms, covenants, conditions or provisions contained in any of the Revolving Loan Documents; (b) any representation, warranty or statement of fact made by Borrower to Lender either (i) in the Term Loan Financing Agreements or (ii) prior to the occurrence of a Transfer Event, in any of the Revolving Loan Documents, shall when made be false or misleading in any material respect; ( c ) any Obligor revokes, terminates or fails to perform any of the terms, covenants, conditions or provisions of any guarantee, endorsement or other agreement of such party in favor of Lender; or 21 (d) Borrower or any Obligor becomes insolvent (however defined or evidenced), makes an assignment for the benefit of creditors, makes or sends notice of a bulk transfer or calls a meeting of its creditors or principal creditors; (e) a case or proceeding under the bankruptcy laws of the United States of America now or hereafter in effect or under any insolvency, reorganization, receivership, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction now or hereafter in effect (whether at law or in equity) is filed against Borrower or any Obligor or all or any part of its properties and such petition or application is not dismissed within thirty (30) days after the date of its filing or Borrower or any Obligor shall file any answer admitting or not contesting such petition or application or indicates its consent to, acquiescence in or approval of, any such action or proceeding or the relief requested is granted sooner; (f) a case or proceeding under the bankruptcy laws of the United States of America now or hereafter in effect or under any insolvency, reorganization, receivership, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction now or hereafter in effect (whether at law or equity) is filed by Borrower or any Obligor or for all or any part of its property; (g) prior to the occurrence of a Transfer Event, there shall have occurred an Event of Default, as defined in the Loan Agreement, under any of the Revolving Loan Documents; or (h) Congress Financial Corporation (Central) accelerates the obligations of Borrower under the Revolving Loan Documents. 8.2 Remedies (a) At any time an Event of Default exists or has occurred and is continuing, Lender shall have all rights and remedies provided in (i) the Term Loan Financing Agreements, (ii) the Uniform Commercial Code, (iii) any other applicable law and (iv) prior to the occurrence of a Transfer Event, the Revolving Loan Documents, all of which rights and remedies may be exercised without notice to or consent by Borrower, except as such notice or consent is expressly provided for hereunder or required by applicable law. All rights, remedies and powers granted to Lender hereunder, under any of the Term Loan Financing Agreements, the Uniform Commercial Code or other applicable law, are cumulative, not exclusive and enforceable, in Lender's discretion, alternatively, successively, or concurrently 22 on any one or more occasions, and shall include, without limitation, the right to apply to a court of equity for an injunction to restrain a breach or threatened breach by Borrower of any of the Term Loan Financing Agreements or any of the Revolving Loan Documents. Lender may, at any time or times, proceed directly against Borrower to collect any amount which Borrower is obligated to pay pursuant to the Term Loan Financing Agreements without prior recourse to the Collateral. (b) Without limiting the foregoing, at any time an Event of Default exists or has occurred and is continuing, Lender may, in its discretion and without limitation (i) accelerate the payment of and demand immediate payment to Lender of (x) all Term Loan Obligations (provided, that, upon the occurrence of any Event of Default described in Sections 8.1(e) and 8.1(f), all Term Loan Obligations shall automatically become immediately due and payable) and, (y) prior to the occurrence of a Transfer Event, all obligations arising pursuant to the Revolving Loan Documents, (ii) with or without judicial process or the aid or assistance of others, enter upon any premises on or in which any of the Collateral may be located and take possession of the Collateral or complete processing, manufacturing and repair of all or any portion of the Collateral, (iii) require Borrower, at Borrower's expense, to assemble and make available to Lender any part or all of the Collateral at any place and time designated by Lender, (iv) collect, foreclose, receive, appropriate, setoff and realize upon any and all Collateral, (v) remove any or all of the Collateral from any premises on or in which the same may be located for the purpose of effecting the sale, foreclosure or other disposition thereof or for any other purpose, (vi) sell, lease, transfer, assign, deliver or otherwise dispose of any and all Collateral (including, without limitation, entering into contracts with respect thereto, public or private sales at any exchange, broker's board, at any office of Lender or elsewhere) at such prices or terms as Lender may deem reasonable, for cash, upon credit or for future delivery, with Lender having the right to purchase the whole or any part of the Collateral at any such public sale, all of the foregoing being free from any right or equity of redemption of Borrower, which right or equity of redemption is hereby expressly waived and released by Borrower. If any of the Collateral is sold or leased by Lender upon credit terms or for future delivery, the Term Loan Obligations shall not be reduced as a result thereof until payment therefor is finally collected by Lender. If notice of disposition of Collateral is required by law, five (5) days prior notice by Lender to Borrower designating the time and place of any public sale or the time after which any private sale or other intended disposition of Collateral is to be made, shall be deemed to be reasonable notice thereof and Borrower waives any other notice. In the event Lender institutes an action to recover any Collateral or seeks recovery of any Collateral by way of prejudgment remedy, Borrower waives the posting of any bond which might otherwise be required. 23 ( c ) Lender may apply the cash proceeds of Collateral actually received by Lender from any sale, lease, foreclosure or other disposition of the Collateral to payment of the Term Loan Obligations, in whole or in part and in such order as Lender may elect, whether or not then due. Borrower shall remain liable to Lender for the payment of any deficiency with interest at the highest rate provided for herein and all costs and expenses of collection or enforcement, including attorneys' fees and legal expenses. SECTION 9. JURY TRIAL WAIVER; OTHER WAIVERS AND CONSENTS; GOVERNING LAW 9.1 Governing Law; Choice of Forum; Service of Process; Jury Trial Waiver (a) The validity, interpretation and enforcement of this Term Note and any dispute arising out of the relationship between the parties hereto, whether in contract, tort, equity or otherwise, shall be governed by the internal laws (as opposed to the conflicts of law provisions) of the State of New York. (b) Borrower and Lender irrevocably consent and submit to the non-exclusive jurisdiction of the Federal and State courts sitting in New York County, New York and waive any objection based on venue or forum non conveniens with respect to any action instituted therein, and agree that any dispute arising out of the relationship between any such persons or the conduct of any such persons in connection with this Term Note or otherwise shall be heard only in the courts described above (except that Lender shall have the right to bring any action or proceeding against Borrower or its property in the courts of any other jurisdiction which Lender deems necessary or appropriate in order to realize on the Collateral). ( c ) Borrower hereby waives personal service of any and all process upon it and consents that all such service of process may be made by registered mail (return receipt requested) directed to its address set forth on the signature pages hereof and service so made shall be deemed to be completed five (5) days after the same shall have been so deposited in the U.S. mails, or, at Lender's option, by service upon CT Corporation, whom Borrower irrevocably appoints as its agent for the purpose of accepting service of process within the State of New York. In addition, Lender agrees promptly to forward by registered mail any process so served upon such agent to Borrower at its address set forth on the signature pages hereof. Borrower hereby consents to service of process as aforesaid. Within thirty (30) days after such service, Borrower shall appear in answer to such process, failing which Borrower shall be deemed in default and judgment may be entered by Lender against Borrower for the amount of the claim and other relief requested. 24 (d) BORROWER AND LENDER EACH HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (i) ARISING UNDER THIS TERM NOTE OR (ii) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR EITHER OF THEM IN RESPECT TO THIS TERM NOTE OR THE TRANSACTIONS RELATED HERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. BORROWER AND LENDER EACH HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT ANY OF THEM MAY FILE A COPY OF THIS TERM NOTE WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. (e) Nothing in this Section 9.1 shall affect the rights of Lender to serve legal process in any other manner permitted by law or affect the rights of Lender to bring any action or proceeding against Borrower or its property in the courts of any other jurisdiction. (f) Lender shall not have any liability to Borrower (whether in tort, contract, equity or otherwise) for losses suffered by Borrower in connection with, arising out of, or in any way related to the transactions or relationships contemplated by the Term Loan Financing Agreements, or any act, omission or event occurring in connection therewith, unless it is determined by a final and non-appealable judgment or court order binding on Lender, that the losses were the result of acts or omissions constituting gross negligence or willful misconduct. In any such litigation, Lender shall be entitled to the benefit of the rebuttable presumption that it acted in good faith and with the exercise of ordinary care in the performance by it of the terms of the Term Loan Financing Agreements. 9.2 Waiver of Notices. Borrower hereby expressly waives demand, presentment, protest and notice of protest and notice of dishonor with respect to any and all instruments and commercial paper, included in or evidencing any of the obligations of Borrower pursuant to the Term Loan Financing Agreements or the Collateral, and any and all other demands and notices of any kind or nature whatsoever with respect to Borrower's obligations, the Collateral and the Term Loan Financing Agreements, except such as are expressly provided for therein. No notice to or demand on Borrower which Lender may elect to give shall entitle Borrower to any other or further notice or demand in the same, similar or other circumstances. 25 9.3 Amendments and Waivers. Neither this Term Note, any of the other Term Loan Financing Agreements nor any provision hereof or thereof shall be amended, modified, waived or discharged orally or by course of conduct, but only by a written agreement signed by an authorized officer of Lender. Lender shall not, by any act, delay, omission or otherwise be deemed to have expressly or impliedly waived any of its rights, powers and/or remedies unless such waiver shall be in writing and signed by an authorized officer of Lender. Any such waiver shall be enforceable only to the extent specifically set forth therein. A waiver by Lender of any right, power and/or remedy on any one occasion shall not be construed as a bar to or waiver of any such right, power and/or remedy which Lender would otherwise have on any future occasion, whether similar in kind or otherwise. 9.4 Waiver of Counterclaims. Borrower waives all rights to interpose any claims, deductions, setoffs or counterclaims of any nature (other then compulsory counterclaims) in any action or proceeding with respect to this Term Note, any of the other Term Loan Financing Agreements, the Collateral or any matter arising therefrom or relating hereto or thereto. 9.5 Indemnification. Borrower shall indemnify, defend and hold Lender, and its directors, agents, employees and counsel, harmless from and against any and all losses, claims, damages, liabilities, deficiencies, judgments, penalties or expenses imposed on, incurred by or asserted against any of them in connection with any litigation, investigation, claim or proceeding commenced or threatened related to the negotiation, preparation, execution, delivery, enforcement, performance or administration of the Term Loan Financing Agreements or any undertaking or proceeding related to any of the transactions contemplated thereby or any act, omission to act, event or transaction related or attendant thereto, including, without limitation, amounts paid in settlement, court costs, and the fees and expenses of counsel. To the extent that the undertaking to indemnify, pay and hold harmless set forth in this Section may be unenforceable because it violates any law or public policy, Borrower shall pay the maximum portion which it is permitted to pay under applicable law to Lender in satisfaction of indemnified matters under this Section 9.5. The foregoing indemnity shall survive the payment of the Term Loan Obligations and the termination of the Term Loan Financing Agreements. All of the foregoing costs and expenses shall be part of Borrower's obligations in connection with the Term Loan and secured by the Collateral. SECTION 10. GENERAL PROVISIONS 10.1 Notices. All notices, requests and demands hereunder shall be in writing and (a) made to Lender at its address set forth below and to Borrower at its chief executive office or to such other address as either party may designate by written notice to the other in 26 accordance with this provision, and (b) deemed to have been given or made: if delivered in person, immediately upon delivery; if by telex, telegram or facsimile transmission, immediately upon sending and upon confirmation of receipt; if by nationally recognized overnight courier service with instructions to deliver the next Business Day, one (1) Business Day after sending; and if by certified mail, return receipt requested, five (5) days after mailing. 10.2 Partial Invalidity. If any provision of this Term Note or any of the other Term Loan Financing Agreements is held to be invalid or unenforceable, such invalidity or unenforceability shall not invalidate this Term Note or such other Term Loan Financing Agreement as a whole, but this Term Note or such other Term Loan Financing Agreement, as appropriate, shall be construed as though it did not contain the particular provision held to be invalid or unenforceable and the rights and obligations of the parties shall be construed and enforced only to such extent as shall be permitted by applicable law. 10.3 Successors and Transfers. The Term Loan Financing Agreements shall be binding upon and inure to the benefit of and be enforceable by Lender, Borrower and their respective successors and assigns, except that Borrower may not assign its rights under any of the Term Loan Financing Agreements without the prior written consent of Lender. Congress Financial Corporation (Central) may, after notice to Borrower, assign its rights and delegate its obligations under the Term Loan Financing Agreements and further may assign, or sell participations in, all or any part of the Term Loan Financing Agreements or any other interest herein to another financial institution or other person, in which event, the assignee or participant shall have, to the extent of such assignment or participation, the same rights and benefits as it would have if it were the Lender hereunder, except as otherwise provided herein or by the terms of such assignment or participation. Following the occurrence of a Transfer Event, (i) the rights, remedies, and obligations of the parties provided in this Term Note and the other Term Loan Financing Agreements may be subject to the terms of an intercreditor agreement executed by Congress Financial Corporation (Central) and any assignee, transferee or purchaser of Lender's interest in, and obligations under and pursuant to, this Term Note and (ii) Lender may, after notice to Borrower, assign its rights and delegate its obligations under the Term Loan Financing Agreements in their entirety, but not in part, to another financial institution or other person. Upon any such assignment and delegation, the assigning and delegating lender shall, to the extent of such assignment and delegation, without the need for any further action, be released from its obligations hereunder. 27 10.4 Entire Agreement. This Term Note, together with the other Term Loan Financing Agreements and any supplements hereto or thereto, and any instruments or documents delivered or to be delivered in connection herewith or therewith represents the entire agreement and understanding concerning the subject matter hereof and thereof between the parties hereto, and supersede all other prior agreements, understandings, negotiations and discussions, representations, warranties, commitments, proposals, offers and contracts concerning the subject matter hereof, whether oral or written. [Signature page follows] IN WITNESS WHEREOF, Borrower has caused these presents to be duly executed and delivered as of the day and year first above written. BORROWER FRUEHAUF TRAILER CORPORATION By:/s/ Timothy J. Wiggins ----------------------- Title:Executive Vice President CHIEF EXECUTIVE OFFICE: 111 Monument Circle Suite 3200 Indianapolis, Indiana 46204 Accepted and Agreed: CONGRESS FINANCIAL CORPORATION (CENTRAL) By: /s/ Thomas C. Lannon ---------------------- Title: Vice President Address: 100 South Wacker Drive, Suite 1940 Chicago, Illinois 60606 A-1 EXHIBIT A Additional Term Loan Financing Agreements 1. Working Capital Term Note by Fruehauf and accepted by Congress 2. Note Purchase and Assignment Agreement by and between Congress and K-H Corporation ("K-H") and accepted by Fruehauf 3. Subordination Agreement by and between Congress and K-H and acknowledged by Fruehauf and its subsidiaries 4. Assignment Agreement by K-H and accepted by Congress 5. Pledge Agreement executed by Fruehauf in favor of Congress, together with the following Schedules attached thereto: Schedule I -- Pledged Stock (none) Schedule II -- Pledged Notes 6. Pledge Agreement executed by Maryland Shipbuilding & Drydock Company in favor of Congress, together with the following Schedules attached thereto: Schedule I -- Pledged Stock Schedule II -- Pledged Notes 7. Pledge Agreement executed by Jacksonville Shipyards, Inc. in favor of Congress, together with the following Schedules attached thereto: Schedule I -- Pledged Stock Schedule II -- Pledged Notes 8. Pledge Agreement executed by Fruehauf International Limited in favor of Congress, together with the following Schedules attached thereto: Schedule I -- Pledged Stock Schedule II -- Pledged Notes 9. Guarantee in favor of Congress executed by: a. FGR, Inc. b. Fruehauf Corporation c. Maryland Shipbuilding & Drydock Company d. The Mercer Co. e. Fruehauf International Limited f. Deutsche-Fruehauf Holding Corporation g. Jacksonville Shipyards, Inc. h. M.J. Holdings, Inc. A-2 10. Trademark Security Agreement executed by Fruehauf in favor of Congress 11. Patent Collateral Assignment executed by Fruehauf in favor of Congress 12. Copyright Security Agreement executed by Fruehauf in favor of Congress 13. Guarantor General Security Agreement executed by each of the Subsidiaries named below in favor of Congress, together with the following Schedules attached thereto: Schedule 4.1 -- Subsidiaries Schedule 4.3 -- Collateral Locations Schedule 4.4 -- Priority of Liens Schedule 4.6 -- Litigation Schedule 5.9 -- Indebtedness Schedule 5.10 -- Loans, Investments, Guaranties a. FGR, Inc. b. Fruehauf Corporation c. Maryland Shipbuilding & Drydock Company d. The Mercer Co. e. Fruehauf International Limited f. Deutsche-Fruehauf Holding Corporation g. Jacksonville Shipyards, Inc. h. M.J. Holdings, Inc. 14. Mortgages/Deeds of Trust by and between Fruehauf and Congress in favor of Congress for each of the properties listed on Annex 1 attached hereto 15. UCC-1 Financing Statements filed against Fruehauf in favor of Congress with the offices of the Secretaries of State and County Clerks (or equivalent) listed on Annex 2 attached hereto 16. UCC Fixture Filings filed against Fruehauf in favor of Congress with the offices of the County Clerks (or equivalent) listed on Annex 1 attached hereto A-3 Annex 1 Morgan County, Alabama Morgan County, Alabama Maricopa County, Arizona Pulaski County, Arkansas Fresno County, California San Bernardino, California Yolo County, California Denver County, Colorado Dade County, Florida DeKalb County, Georgia Lee County, Iowa Polk County, Iowa Caddo Parish, Louisiana Independent City of St. Louis Yellowstone County, Montana Hudson County, New Jersey Bernalillo County, New Mexico Davidson County, North Carolina Mecklenberg County, North Carolina Allen County, Ohio Franklin County, Ohio Pike County, Ohio Multnomah County, Oregon Allegheny County, Pennsylvania Lackawanna County, Pennsylvania Dauphin County, Pennsylvania Philadelphia County, Pennsylvania Spartanburg County, South Carolina Shelby County, Tennessee Bexar County, Texas Dallas County, Texas Harris County, Texas Lubbock County, Texas Tarrant County, Texas Botetourt County, Virginia Independent City of Richmond, Virginia King County, Washington Spokane County, Washington Kanawha County, West Virginia mortgage/deed of trust was terminated, so one will not be prepared for this property fixture filing was terminated, so one will not be prepared for this property A-4 Annex 2 Alabama Secretary of State Arizona Secretary of State Arkansas Secretary of State Pulaski County, Arkansas California Secretary of State Colorado Secretary of State Florida Secretary of State DeKalb County, Georgia Fulton County, Georgia Indiana Secretary of State Iowa Secretary of State Parish of Caddo, Louisiana Parish of Bossier, Louisiana Michigan Secretary of State Minnesota Secretary of State Missouri Secretary of State Independent City of St. Louis, Missouri St. Louis County, Missouri Montana Secretary of State Nebraska Secretary of State New Jersey Secretary of State New Mexico Secretary of State North Carolina Secretary of State Mecklenburg County, North Carolina Ohio Secretary of State Allen County, Ohio Delaware County, Ohio Fairfield County, Ohio Franklin County, Ohio Pike County, Ohio Van Wert County, Ohio Oklahoma County, Oklahoma Oregon Secretary of State Pennsylvania Secretary of State Allegheny County, Pennsylvania Dauphin County, Pennsylvania Fayette County, Pennsylvania Indiana County, Pennsylvania Lackawanna County, Pennsylvania Philadelphia County, Pennsylvania South Carolina Secretary of State Tennessee Secretary of State Texas Secretary of State Virginia Secretary of State Independent City of Richmond, Virginia Independent City of Roanoke, Virginia Washington Department of Licensing West Virginia Secretary of State Wisconsin Secretary of State EX-4.36 5 FRUEHAUF TRAILER EXHIBIT 4.36 NOTE PURCHASE AND ASSIGNMENT AGREEMENT This Note Purchase and Assignment Agreement ("Agreement") dated as of April 19, 1996 is made with respect to that certain Working Capital Term Note executed by Fruehauf Trailer Corporation ("Borrower"), a copy of which is attached hereto as Exhibit A (the "Term Note"). Unless otherwise specified, all capitalized terms used herein without definition shall have the respective meanings given such terms in the Term Note. CONGRESS FINANCIAL CORPORATION (CENTRAL) ("Assignor") and K-H Corporation ("Assignee") agree as follows: 1. Effective as of April 25, 1996 (the "Settlement Date") Assignor hereby sells and assigns to Assignee, and Assignee hereby purchases and assumes from Assignor, without recourse and without any representations or warranties (except as expressly set forth in Paragraph 3 below), all of Assignor's right, title and interest (the "Assigned Interest") in and to all of Assignor's rights and obligations under the Term Note and all of the other documents listed on Annex I hereto (the "Assigned Documents") as of the date hereof, and in each case, subject to the provisions of the Intercreditor Agreement and Subordination Agreement (both as defined below). 2. Subject to the remaining provisions of this Paragraph, effective as of the Settlement Date, Assignor hereby sells and assigns to Assignee, and Assignee hereby purchases and assumes from Assignor, without recourse and without any representations or warranties, all of Assignor's right, title and interest in and to all of Assignor's rights and obligations under that certain First Amended and Restated Intercreditor 2 Agreement dated as of May 1, 1995 (the "Intercreditor Agreement") by and between Assignor and IBJ Schroder Bank and Trust Company as indenture trustee and collateral agent (in both such capacities, the "Trustee"), but solely to the extent that such rights and obligations relate to the Term Note and not to the Revolving Loan Documents. Notwithstanding the foregoing, until the Senior Obligations (as defined in the Subordination Agreement) are Paid in Full (as defined in the Subordination Agreement), and all financing arrangements under the Congress Loan Documents (as defined in the Subordination Agreement) have expired or been terminated, (a) Assignee shall not, and shall not be entitled to, exercise any rights, remedies, powers or privileges under the Intercreditor Agreement (whether or not any of such rights, remedies, powers or privileges relate to or otherwise affect the Term Note or the other Assigned Documents), (b) Assignor shall be entitled in its sole discretion to exercise in good faith any and all rights, remedies, powers and privileges or to take any other action under the Intercreditor Agreement on behalf of itself and/or Assignee, (and Assignee hereby irrevocably grants Assignor a power of attorney to exercise in good faith any such rights, remedies, powers and privileges or to take any such other action on behalf of Assignee, which power of attorney shall be coupled with an interest), and Assignor shall have no obligation or liability (whether contractual, fiduciary or otherwise, and whether now existing or hereafter arising) to Assignee in connection with any exercise of or failure to exercise in good faith any such rights, remedies, powers or privileges or any other action or omission taken in good faith under the Intercreditor Agreement or any of the Assigned Documents, (c) Assignee, in its capacity as holder of the Term Note, shall not contact or otherwise communicate with the Trustee or any Noteholders (as defined in the Intercreditor Agreement) without the prior consent of Assignor, which consent shall not be 3 unreasonably withheld, (d) Assignee shall not be entitled to receive any payments or proceeds of Collateral (as defined in the Intercreditor Agreement) remitted under or in connection with the Intercreditor Agreement and shall hold in trust and remit promptly to Assignor any such payments or Collateral proceeds received at any time by Assignee, and (e) promptly upon the request of Assignor, made in good faith, Assignee shall take any action or execute and deliver any agreements, instruments, lien releases, termination statements or other documents which, in Assignor's judgment, Assignee, as assignee of Assignor, is required to take or execute and deliver, as the case may be, under or in connection with the Intercreditor Agreement. 3. Assignor (i) represents and warrants that it is the legal and beneficial owner of the Assigned Interest being assigned by it hereunder and that such Assigned Interest is free and clear of any adverse claim (except that such Assigned Interest is subject to the provisions of the Intercreditor Agreement); (ii) makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Assigned Documents or the Intercreditor Agreement or the execution, legality, validity, enforceability, genuineness, completeness, sufficiency or value of the Term Note or any other Assigned Documents or the collectability of the obligations thereunder or any other warranty and assumes no responsibility with respect to the financial condition of Borrower or any Obligor or the performance or observance by Borrower or any Obligor of any of their respective obligations under the Assigned Documents, the Intercreditor Agreement or any other instrument or document furnished pursuant thereto. 4 4. Assignee (i) confirms that it has received a copy of the Assigned Documents, the Intercreditor Agreement and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment Agreement; (ii) agrees that it will, independently and without reliance, as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Assigned Documents; and (iii) agrees that it will perform in accordance with their terms all of the obligations of Assignor under the Assigned Documents, which obligations have been assumed by Assignee pursuant to this Assignment Agreement. 5. Assignee acknowledges that it has received proper assignments of each of the Assigned Documents and that it shall be solely responsible for recording, at its own expense and in its sole discretion, any and all of the Assigned Documents. Assignor agrees that it shall execute such additional assignments as Assignee may reasonably request. 6. Assignor and Assignee hereby appoint each other as their respective agent for purposes of perfecting any of their respective liens on Collateral which may at any time come into their respective control or possession. Notwithstanding anything to the contrary in the Assigned Documents, Assignee hereby agrees that Assignor shall remain named as the loss payee on behalf of both Assignee and Assignor on any insurance policies that currently name Assignor as loss payee with respect to the Collateral, and that Assignor shall, as between Assignor and Assignee, have the sole authority to and be entitled to enter into on behalf of itself and on behalf of Assignee any settlements with any insurers issuing such policies, and that Assignor shall have any and all right to receive and retain any proceeds of any such insurance policies until the Senior Obligations have been Paid in Full (as such terms are defined in the Subordination Agreement). 5 7. This Agreement shall become effective on the date that the parties hereto execute and deliver a Subordination Agreement substantially in the form attached hereto as Exhibit B ("Subordination Agreement"). 8. Assignee hereby agrees that if, at any time after the date of this Agreement, Congress executes waivers and/or consents or deems Borrower or any Obligor to be in compliance with respect to one or more provisions of any or all of the Revolving Loan Documents (except to the extent such provisions govern payment obligations to Assignor), then Assignee will be deemed to have waived and/or consented to the same extent under the corresponding provision or provisions of the applicable Term Loan Financing Agreement(s) (except to the extent such provisions govern payment obligations to Assignee). Assignee further agrees to execute such corresponding written waivers or consents as Assignor may reasonably request. 9. Following the Settlement Date, Assignee shall, within three (3) business days of receipt from Borrower, convey to Assignor any and all financial information and projections received from Borrower pursuant to Section 2.8 of the Term Note. Following the Settlement Date, Assignor shall, upon request by Assignee, notify Assignee as to the amount of Excess Availability calculated by Assignor as of the requested date. 6 10. From and after the Settlement Date, Borrower shall make all payments under the Term Note (including, without limitation, all payments of principal and interest and expenses (if applicable) with respect thereto) to Assignee. On the Settlement Date, the Borrower shall pay Assignor all accrued and unpaid interest in respect of the Term Note through and including the Settlement Date, and Assignee shall pay to Assignor the sum of $5,500,000 against delivery to Assignee of the Term Note endorsed to the order of Assignee. 11. Assignor may charge the revolving loan account of Borrower for interest accruing on the Term Note for the period ending on the Settlement Date. After the Settlement Date, to the extent that Assignee receives interest payments from Borrower on account of the Term Loan Obligations, simultaneously with such interest payment by Borrower to Assignee, Assignor shall be entitled to receive from Assignee a payment of one half percent (1/2%) of the outstanding principal amount of Term Loan Obligations owing under the Term Note during the period for which such interest payment was made ("Additional Purchase Price"). Upon receipt by Assignee of any interest payment by Borrower on account of the Term Loan Obligations, Assignee shall promptly remit to Assignor the corresponding amount of Additional Purchase Price due to Assignor pursuant to this Paragraph 11. 12. Assignee's agreement to purchase the Term Note is part of Borrower's plan to increase its liquidity. Another part of such plan is the sale, in one or more related transactions, by Borrower of Fruehauf International Limited (the "Sale") under circumstances where Borrower would be entitled to retain a larger portion of the sale proceeds than are permitted under 7 the terms of the Indenture, dated as of May 1, 1995, between Borrower and IBJ Schroder Bank & Trust Company, as trustee (the "Indenture"). In recognition of this plan, Assignor hereby agrees to issue a Limited Waiver in the form attached hereto as Exhibit C. 13. Notwithstanding anything to the contrary contained herein, Assignee shall not be obligated to purchase and assume the Assigned Interest unless and until the conditions precedent set forth in the letter agreement between Borrower and Assignee dated April 19, 1996 have been satisfied and/or waived and the other transactions set forth in such letter which are to occur concurrent with such purchase have occurred. In addition, in the event that the purchase and assumption of the Assigned Interest does not occur on or prior to April 29, 1996, Borrower shall pay to Assignor an agent working payment of $ 25,000 and a $ 50,000 group working payment (each of which payments, if payable in accordance with the terms hereof, shall be fully earned and payable as of the close of business on April 29, 1996). 14. THIS ASSIGNMENT AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES. S-2 IN WITNESS WHEREOF, the parties have hereunto set their hands as of the day and year first written above. CONGRESS FINANCIAL CORPORATION (CENTRAL) By: /s/ Thomas C. Lannon ---------------------- Address for Notices: 100 South Wacker Drive Suite 1940 Chicago, IL 60606 Attn: or William Bloom K-H CORPORATION By: /s/ Fred J. Chapman --------------------- Treasurer Address for Notices: c/o Treasurer 672 Delaware Avenue Buffalo, New York 14209 S-2 Fruehauf Trailer Corporation hereby accepts, and acknowledges receipt of a copy of, the foregoing Note Purchase and Assignment Agreement (the "Assignment Agreement") as of April 19, 1996, and agrees to be bound by its terms, and without limiting the generality of the foregoing, agrees that from and after the Settlement Date (as such term is defined in the Assignment Agreement), Assignor shall have no obligations or liabilities under the Assigned Documents (as such term is defined in the Assignment Agreement) and that all payments (except for interest accruing on or before the Settlement Date) made by Borrower pursuant to the Assigned Documents after the Settlement Date shall be made to Assignee (as such term is defined in the Assignment Agreement). FRUEHAUF TRAILER CORPORATION By: /s/ Timothy J. Wiggins ----------------------- Its: Executive Vice President A-1 ANNEX I TO NOTE PURCHASE AND ASSIGNMENT AGREEMENT Additional Term Loan Financing Agreements 1. Working Capital Term Note by Fruehauf and accepted by Congress 2. Note Purchase and Assignment Agreement by and between Congress and K-H Corporation ("K-H") and accepted by Fruehauf 3. Subordination Agreement by and between Congress and K-H and acknowledged by Fruehauf and its subsidiaries 4. Assignment Agreement by K-H and accepted by Congress 5. Pledge Agreement executed by Fruehauf in favor of Congress, together with the following Schedules attached thereto: Schedule I -- Pledged Stock (none) Schedule II -- Pledged Notes 6. Pledge Agreement executed by Maryland Shipbuilding & Drydock Company in favor of Congress, together with the following Schedules attached thereto: Schedule I -- Pledged Stock Schedule II -- Pledged Notes 7. Pledge Agreement executed by Jacksonville Shipyards, Inc. in favor of Congress, together with the following Schedules attached thereto: Schedule I -- Pledged Stock Schedule II -- Pledged Notes 8. Pledge Agreement executed by Fruehauf International Limited in favor of Congress, together with the following Schedules attached thereto: Schedule I -- Pledged Stock Schedule II -- Pledged Notes 9. Guarantee in favor of Congress executed by: a. FGR, Inc. b. Fruehauf Corporation c. Maryland Shipbuilding & Drydock Company d. The Mercer Co. e. Fruehauf International Limited f. Deutsche-Fruehauf Holding Corporation g. Jacksonville Shipyards, Inc. h. M.J. Holdings, Inc. A-2 10. Trademark Security Agreement executed by Fruehauf in favor of Congress 11. Patent Collateral Assignment executed by Fruehauf in favor of Congress 12. Copyright Security Agreement executed by Fruehauf in favor of Congress 13. Guarantor General Security Agreement executed by each of the Subsidiaries named below in favor of Congress, together with the following Schedules attached thereto: Schedule 4.1 -- Subsidiaries Schedule 4.3 -- Collateral Locations Schedule 4.4 -- Priority of Liens Schedule 4.6 -- Litigation Schedule 5.9 -- Indebtedness Schedule 5.10 -- Loans, Investments, Guaranties a. FGR, Inc. b. Fruehauf Corporation c. Maryland Shipbuilding & Drydock Company d. The Mercer Co. e. Fruehauf International Limited f. Deutsche-Fruehauf Holding Corporation g. Jacksonville Shipyards, Inc. h. M.J. Holdings, Inc. 14. Mortgages/Deeds of Trust by and between Fruehauf and Congress in favor of Congress for each of the properties listed on Annex I-A attached hereto 15. UCC-1 Financing Statements filed against Fruehauf in favor of Congress with the offices of the Secretaries of State and County Clerks (or equivalent) listed on Annex I-B attached hereto 16. UCC Fixture Filings filed against Fruehauf in favor of Congress with the offices of the County Clerks (or equivalent) listed on Annex I-A attached hereto A-3 Annex I-A Morgan County, Alabama Morgan County, Alabama Maricopa County, Arizona Pulaski County, Arkansas Fresno County, California San Bernardino, California Yolo County, California Denver County, Colorado Dade County, Florida DeKalb County, Georgia Lee County, Iowa Polk County, Iowa Caddo Parish, Louisiana Independent City of St. Louis Yellowstone County, Montana Hudson County, New Jersey Bernalillo County, New Mexico Davidson County, North Carolina Mecklenberg County, North Carolina Allen County, Ohio Franklin County, Ohio Pike County, Ohio Multnomah County, Oregon Allegheny County, Pennsylvania Lackawanna County, Pennsylvania Dauphin County, Pennsylvania Philadelphia County, Pennsylvania Spartanburg County, South Carolina Shelby County, Tennessee Bexar County, Texas Dallas County, Texas Harris County, Texas Lubbock County, Texas Tarrant County, Texas Botetourt County, Virginia Independent City of Richmond, Virginia King County, Washington Spokane County, Washington Kanawha County, West Virginia mortgage/deed of trust was terminated, so one will not be prepared for this property fixture filing was terminated, so one will not be prepared for this property A-4 Annex I-B Alabama Secretary of State Arizona Secretary of State Arkansas Secretary of State Pulaski County, Arkansas California Secretary of State Colorado Secretary of State Florida Secretary of State DeKalb County, Georgia Fulton County, Georgia Indiana Secretary of State Iowa Secretary of State Parish of Caddo, Louisiana Parish of Bossier, Louisiana Michigan Secretary of State Minnesota Secretary of State Missouri Secretary of State Independent City of St. Louis, Missouri St. Louis County, Missouri Montana Secretary of State Nebraska Secretary of State New Jersey Secretary of State New Mexico Secretary of State North Carolina Secretary of State Mecklenburg County, North Carolina Ohio Secretary of State Allen County, Ohio Delaware County, Ohio Fairfield County, Ohio Franklin County, Ohio Pike County, Ohio Van Wert County, Ohio Oklahoma County, Oklahoma Oregon Secretary of State Pennsylvania Secretary of State Allegheny County, Pennsylvania Dauphin County, Pennsylvania Fayette County, Pennsylvania Indiana County, Pennsylvania Lackawanna County, Pennsylvania Philadelphia County, Pennsylvania South Carolina Secretary of State Tennessee Secretary of State Texas Secretary of State Virginia Secretary of State Independent City of Richmond, Virginia Independent City of Roanoke, Virginia Washington Department of Licensing West Virginia Secretary of State Wisconsin Secretary of State EX-4.37 6 FRUEHAUF TRAILER EXHIBIT 4.37 SUBORDINATION AGREEMENT THIS SUBORDINATION AGREEMENT ("Agreement") is made and entered into as of April 25, 1996 by and between the undersigned, K-H Corporation, (together with its successors and assignees, "K-H"), and Congress Financial Corporation (Central) (together with its successors and assignees, "Congress"). Capitalized terms used herein which are not defined herein are used herein as such terms are defined in that certain Accounts Financing Agreement [Security Agreement] (the "Accounts Financing Agreement"), that certain Inventory and Equipment Security Agreement Supplement to Accounts Financing Agreement [Security Agreement] (the "Inventory and Equipment Supplement"), that certain Rider No. 1 to Accounts Financing Agreement [Security Agreement] and Inventory and Equipment Security Agreement Supplement to Accounts Financing Agreement [Security Agreement] (the "Rider") and that certain letter regarding Inventory Loans, each dated as of August 20, 1993 and each as amended by that certain First Amendment to Accounts Financing Agreement [Security Agreement] entered into as of April 4, 1994 by and between Borrower and Congress, that certain Second Amendment to Accounts Financing Agreement [Security Agreement] and Waiver entered into as of April 12, 1994 by and between Borrower and Congress, that certain Third Amendment to Accounts Financing Agreement [Security Agreement] entered into as of May 1, 1995 by and between Borrower and Congress, and that certain Fourth Amendment to Accounts Financing Agreement [Security Agreement] entered into as of April 19, 1996 (the "Fourth Amendment") (as hereinafter amended, restated or otherwise modified from time to time, the "Loan Agreement") with Fruehauf Trailer Corporation, a Delaware corporation ("Fruehauf"). Notwithstanding anything else in this Agreement, except as expressly provided in Section 13, all of the provisions of this Agreement that refer to K-H apply only to K-H or any assignee in its capacity as holder of Subordinated Debt. WITNESSETH: WHEREAS, pursuant to that certain Note Purchase and Assignment Agreement dated as of April 19, 1996 ("Assignment Agreement") between Congress and K-H, Congress assigned all of its right, title and interest to (i) that certain Working Capital Term Note dated April 19, 1996 in the total principal amount of Five Million Five Hundred Thousand Dollars ($5,500,000) (together with any instrument(s) which may hereafter be substituted therefor under the terms of any agreement between Borrower and K-H, and any note(s) evidencing any other indebtedness of Borrower hereafter acquired by K-H from Congress, collectively, are hereinafter referred to as the "Term Note"), (ii) the other Assigned Documents (as defined in the Assignment Agreement) and (iii) the Intercreditor Agreement (as defined in the Assignment Agreement) to the extent Congress' interest in the Intercreditor Agreement relates to the Term Note and except as otherwise provided in the Assignment Agreement. 2 WHEREAS, Borrower is indebted to Congress as a result of loans made and to be made by Congress to Borrower pursuant to the Loan Agreement and other loan and security documents relating thereto; WHEREAS, K-H acknowledges that the loans or other extensions of any financial accommodation or credit to Borrower by Congress is of value to K-H; and WHEREAS, the Assignment Agreement requires the execution and delivery of this Agreement as a condition to the sale of the Term Note to K-H; AGREEMENT NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by K-H, and in order to induce Congress, at its option, now or from time to time hereafter, to make loans or extend credit or any other financial accommodations to or for the benefit of Borrower; or to grant such renewals or extensions thereof as Congress may deem advisable; and to better secure Congress in respect of the foregoing, K-H hereby agrees with Congress as hereinafter set forth. As used herein the following terms shall have the meanings set forth below: "Affiliate" shall mean, with respect to any Person, any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such Person. "Bankruptcy Code" shall mean Title 11 of the United States Code (11 U.S.C. Section 101 et. seq.) or any replacement or supplemental federal statute dealing with the bankruptcy of debtors. "Borrower" shall mean Fruehauf and any successor or assign of Fruehauf, including, without limitation, a receiver, trustee or debtor-in-possession of or for Fruehauf. "Collateral" shall mean all Property or interests in Property of Borrower or any Subsidiary now or hereafter securing all or any portion of the Senior Obligations and all Proceeds of such Property or interests in such Property. "Congress Loan Documents" shall mean the Loan Agreement and all documents, instruments, guaranties, notes, security agreements, mortgages, deeds of trust and other agreements executed in connection therewith or delivered pursuant thereto, in each case as the same may be amended, supplemented, amended and restated or otherwise modified from time to time; provided that the term Congress Loan Documents shall not include any K-H Loan Documents other than the Intercreditor Agreement. 3 "Congress Purchase Price" shall mean, on the date (if any) on which K-H shall purchase the applicable Senior Obligations pursuant to Section 14 hereof, the sum of the outstanding principal balance of all Senior Obligations, plus all accrued interest, fees, indemnities and other amounts included in such Senior Obligations which are owing as of such date, plus all early termination fees, prepayment fees or similar amounts which would be payable to Congress if Borrower were prepaying such Senior Obligations in full and terminating the Congress Loan Documents on such date, plus a reserve equal to 110% of the aggregate amount of all contingent Senior Obligations (including, without limitation, all Letter of Credit Accommodations, as defined in the Loan Agreement), as reasonably estimated by Congress. "Enforcement Blockage Condition" shall mean any of the events, conditions or circumstances set forth in clauses (i), (ii) or (iv) of the first sentence of Section 2 hereof. "Indebtedness" shall mean, with respect to any Person, (a) all indebtedness of such Person for borrowed money or for the deferred purchase price of Property or services (other than trade liabilities incurred in the ordinary course of business and payable in accordance with customary practices) or which is evidenced by a note, bond, debenture or similar instrument, (b) all capitalized lease obligations of such Person, (c) all obligations of such Person in respect of letters of credit, banker's acceptances or similar obligations issued or created for the account of such Person, (d) liabilities of such Person in respect of foreign currency hedging arrangements and in respect of interest rate protection or hedging arrangements entered into by such Person to fix the floating interest rate or float the fixed interest rate of any indebtedness or obligations, (e) all guaranties and other obligations of any kind of such Person with respect to Indebtedness and obligations of other Persons of the type described in this definition and (f) all liabilities secured by any Lien on any Property owned by such Person even though such Person has not assumed or otherwise become liable for the payment thereof. "K-H Loan Documents" shall mean (i) all of the Assigned Documents (as such term is defined in the Assignment Agreement), and, to the extent of its interest therein, the Intercreditor Agreement, (ii) any note evidencing any indebtedness of Borrower which is hereafter acquired by K-H from Congress, and (iii) all other documents, instruments, guaranties, notes, security agreements, mortgages, deeds of trust and other agreements executed after the date hereof in favor of K-H as holder of the Term Note (including any note referenced in clause (ii)), in each case as the same may be amended, supplemented, amended and restated or otherwise modified from time to time. 4 "Lien" shall mean any mortgage, pledge, security interest, lien, encumbrance or other charge of any kind or Property. "Outer Standstill Date" shall mean the earlier of (i) the date on which the Senior Obligations are Paid in Full and completely performed and all financing arrangements under the Congress Loan Documents with respect to the Senior Obligations have expired or been terminated and (ii) the later of (A) the maturity date of the Term Note, as extended, if at all, pursuant to Section 2.3 thereof, and (B) if any Events of Default under the Congress Loan Documents have occurred and are continuing as of such maturity date, the thirtieth day after the earliest date on which any such Event of Default first occurred or the date on which such Event of Default is cured or waived in writing if earlier than such thirtieth day, and (C) if the maturity date of the Term Note has not been extended pursuant to Section 2.3 thereof to May 1, 1999, the first date on which no Enforcement Blockage Condition exists. "Paid in Full" or "Payment in Full" means, with respect to the Senior Obligations as of a particular date, the payment in full in cash on such date of all Senior Obligations then due and payable (including, without limitation, the outstanding principal amount of all Senior Obligations, and all accrued interest, fees, indemnities and other amounts then due and payable under the Congress Loan Documents) plus a cash collateral reserve equal to 110% of the aggregate amount of all contingent Senior Obligations (including, without limitation, all Letter of Credit Accommodations) as reasonably estimated by Congress. "Permitted Payments" shall mean (i) any regularly scheduled payments of interest on or after the due date thereof and only to the extent and in the amounts expressly provided in the K-H Loan Documents (as in effect on the date hereof or as hereafter amended with the prior written consent of Congress) and (ii) any Permitted Principal Reduction Payments (as defined in the Term Note as in effect on the date hereof or as hereafter amended with the prior written consent of Congress) on or after the due date thereof and only to the extent and in the amounts expressly provided in the Term Note (as in effect on the date hereof or as hereafter amended with the prior written consent of Congress). Permitted Payments may only be made to K-H to the extent expressly provided in Section 2 of this Agreement. "Person" shall mean an individual, partnership, corporation, company, association, trust or unincorporated organization, and a government or agency or political subdivision thereof. "Proceeds" shall mean and include all "proceeds" as such term is defined in the UCC, whether now existing or hereafter acquired, or acquired before or after the commencement of any bankruptcy case. 5 "Property" shall mean any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible. "Protective Advances" shall mean (i) all advances, costs, expenses and attorneys' and other professionals' fees, whensoever made, advanced or incurred by Congress in connection with the Senior Obligations (including, without limitation, all insurance-related, storage, maintenance and other payments respecting any Collateral which Borrower or any Subsidiary is required to make under any of the Congress Loan Documents) (ii) costs, expenses, attorneys' and other professionals' fees and expenses and all other amounts for which Borrower or any Subsidiary is obligated to reimburse Congress under any of the Congress Loan Documents; (iii) advances, costs, expenses, attorneys' and other professionals' fees and expenses and other amounts which are advanced or incurred by Congress in connection with any liquidation or disposition of any Collateral by Borrower or any Subsidiary; (iv) all advances, costs, expenses, attorneys' and other professionals' fees and expenses and other amounts which are advanced or incurred by Congress in respect of any environmental laws and as to which Congress is entitled to be reimbursed or indemnified pursuant to any of the Congress Loan Documents; (v) all advances made by Congress, in its sole discretion, for payment of any federal excise taxes or sales taxes owing by Borrower or any Subsidiary, (vi) all advances made by Congress, in its sole discretion, for payment of accrued and unpaid wages, salaries, commissions, vacation, sick leave or other fringe benefits (including payroll taxes with respect thereto) to employees of the Borrower or any Subsidiary as of the date on which Congress terminates the Loan Agreement, and (vii) all advances made by Congress, in its sole discretion, for payment of any liabilities or obligations of Borrower or any Subsidiary as to which Congress or any officers or directors of Borrower or any Subsidiary could be assessed personal liability if such liabilities or obligations are not otherwise satisfied or discharged. "Senior Obligations" shall mean any and all obligations, liabilities and indebtedness of every kind, nature and description owing by Borrower or any Subsidiary to Congress and/or its Affiliates, including principal, interest, charges, fees, indemnities, costs and expenses, however evidenced, whether as principal, surety, endorser, guarantor or otherwise, arising under the Congress Loan Documents, whether now existing or hereafter arising, whether arising before, during or after the initial or any renewal term of the Congress Loan Documents or after the commencement of any bankruptcy case, including, without limitation, (i) the payment of post-petition interest, costs of enforcement or preservation or protection of any Collateral (including attorneys' fees and expenses), and any and all other amounts which would accrue and become due but for the commencement of any bankruptcy case or the operation of any provision (including Section 506(b)) of or doctrine with respect to the Bankruptcy Code, even if 6 such post-petition amounts are disallowed in any bankruptcy case, (ii) any and all Protective Advances, and (iii) advances made to or claims against Borrower or any Subsidiary pursuant to or with respect to any cash collateral usage, financing or extension of credit provided to Borrower or any Subsidiary by Congress pursuant to Sections 363 or 364 of the Bankruptcy Code), in the case of each of the foregoing clauses whether direct or indirect, absolute or contingent, joint or several, due or not due, primary or secondary, liquidated or unliquidated, secured or unsecured, and however acquired by Congress; provided however, that Senior Obligations shall not include any Subordinated Debt. Any Obligations (as defined in the Loan Agreement) that are incurred in violation of Section 11 hereof shall not constitute Senior Obligations. "Subordinated Debt" shall mean any and all obligations, liabilities and indebtedness of every kind, nature and description owing by Borrower or any Subsidiary to K-H under the K-H Loan Documents, including principal, interest, charges, fees, indemnities, costs and expenses, however evidenced, whether as principal, surety, endorser, guarantor or otherwise, whether now existing or hereafter arising, whether arising before, during or after the initial or any renewal term of the K-H Loan Documents or after the commencement of any bankruptcy case. "Subsequent Triggering Notice" shall mean any Triggering Notice delivered after the first Triggering Notice delivered pursuant to this Agreement. "Subsidiary" shall mean any corporation, partnership or other entity as to which Borrower shall at the time, directly or indirectly though a subsidiary or other Affiliate, (i) have sufficient voting power to entitle it to elect immediately or to have had elected a majority of the board of directors or similar governing body of such corporation, partnership or other entity, or (ii) own 50% or more of the equity interests issued by such corporation, partnership or other entity. "Triggering Notice" shall mean a written notice from Congress to K-H stating that (a) an Event of Default under the Loan Agreement has occurred and is continuing and (b) either (i) Congress intends to accelerate or demand payment of the Senior Obligations, and/or foreclose its security interests in or repossess any Collateral, and/or commence an orderly liquidation of any substantial portion of the Collateral or (ii) the Borrower intends to commence or has commenced an orderly liquidation of any substantial portion of the Collateral. * "UCC" shall mean the Uniform Commercial Code as in effect in the State of New York from time to time. 7 1. Standby; Subordination; Subrogation. The payment and performance of the Subordinated Debt is hereby subordinated to the Senior Obligations and except as provided in Section 3 hereof, K-H will not ask, demand, accelerate, sue for, take or receive from Borrower or any Subsidiary by setoff or in any other manner, or otherwise exercise any rights or remedies in respect of, the whole or any part of the Subordinated Debt which may now or hereafter be owing by Borrower or any Subsidiary and will not take any negotiable instruments evidencing such amounts, nor any security (including guaranties and third party credit support) for any of the foregoing except as provided in the K-H Loan Documents (as now in effect or as hereafter amended with the prior written consent of Congress), unless and until all such Senior Obligations (whether now existing or hereafter arising and whether arising before or after the Borrower or any Subsidiary or the Borrower's or any Subsidiary's estate becomes the subject of proceedings under the Bankruptcy Code or whether such Senior Obligations are acquired outright, conditionally or as collateral security from another by Congress), shall have been Paid in Full and completely performed and all financing arrangements under the Congress Loan Documents with respect to the Senior Obligations have expired or been terminated. Notwithstanding the date, manner or order of attachment or perfection of any such Lien or any provisions of the UCC or any other applicable law or judicial decision or the Congress Loan Documents or the K-H Loan Documents, and regardless of whether Congress or K-H holds possession of any or all of the Collateral, and regardless of any invalidity, unenforceability or lack of perfection of any of the Senior Obligations or any of the Subordinated Debt or any of the Liens securing same, all Liens, rights and interests of or in favor of K-H securing any of the Subordinated Debt, whether now or hereafter howsoever existing, in any Property of Borrower or any Subsidiary or the Proceeds thereof or any other Property securing any of the Senior Obligations or any of the Subordinated Debt, shall be and hereby are subordinated to the Liens, rights and interest of Congress in such Property. K-H shall have no right to possession of any such Property or to foreclose or otherwise realize upon or exercise any rights or remedies in respect of any such Property, whether by judicial action or otherwise, with respect to the Subordinated Debt, unless and until all of the Senior Obligations shall have been Paid in Full and completely performed and all financing arrangements under the Congress Loan Documents with respect to the Senior Obligations have expired or been terminated. K-H also hereby agrees that, regardless of whether any of the Senior Obligations are secured or unsecured, except with respect to Permitted Payments, Congress shall be subrogated for K-H with respect to K-H's claims against Borrower or any Subsidiary under the K-H Loan Documents and K-H's rights, liens and security interests, if any, in any of the Property of Borrower or any Subsidiary or any of the Proceeds thereof to secure the Subordinated Debt until all of the Senior Obligations have been Paid in Full and completely performed and all financing arrangements under the Congress Loan Documents with respect to the Senior Obligations have expired or been terminated. In the event, in connection with the disposition of any Collateral which secures any or all of the Senior Obligations and the Subordinated Debt, 8 Congress releases any of its Liens on such Collateral, K-H shall thereupon execute and deliver to Congress (or if Congress so requests, to Borrower or the applicable Subsidiary) such termination statements and releases as Congress shall reasonably request to release K-H's Lien against such Property. K-H acknowledges and agrees that, to the extent the terms and provisions of this Agreement are inconsistent with the K-H Loan Documents, the K-H Loan Documents shall be deemed to be subject to this Agreement. To the extent there are any inconsistencies between the terms of this Agreement and those of the Term Note and/or the Note Purchase Agreement, the terms of this Agreement shall control. 2. Permitted Payments. Notwithstanding the provisions of Section 1 of this Agreement, unless (i) an Event of Default under Section 8.1(a)(i) or (d) of the Accounts Financing Agreement (in the case of any Event of Default under Section 8.1(d) thereof, only to the extent such Event of Default relates to the Borrower) has occurred and has not been cured or waived by Congress in writing (regardless of whether a Triggering Notice is then in effect), (ii) a Triggering Notice has been delivered to K-H and is then in effect, (iii) a Default or Event of Default under the Congress Loan Documents or an Advance in excess of the amounts otherwise available to Borrower under the Loan Agreement would result therefrom or (iv) K-H has breached any provision of this Agreement in any material respect and such breach has not been cured or waived by Congress in writing, Borrower may make any Permitted Payment to K-H. Any Triggering Notice delivered by Congress shall remain in effect until (i) all Events of Default on which such Triggering Notice is based have been cured or waived in writing by Congress, and no other Default or Event of Default has occurred and is then continuing or (ii) one hundred and thirty-five days shall have elapsed after the delivery of such Triggering Notice, and either (A) Congress has not accelerated the Senior Obligations or commenced the orderly liquidation of a substantial portion of the Collateral or otherwise commenced in any material respect the exercise of any of its rights and remedies under the Congress Loan Documents to obtain repayment of the Senior Obligations or (B) the Borrower has not commenced the orderly liquidation of a substantial portion of the Collateral; provided, however, that if all of the Events of Default on which such Triggering Notice is based occurred during the pendency of any prior Triggering Notice and were relied on by Congress (either as a matured Event of Default or an unmatured Default) to extend the effectiveness of any such prior Triggering Notice, then the aforesaid 135 day period shall commence from the earliest date on which Congress first relied on any such Event of Default (either as a matured Event of Default or an unmatured Default) in extending the effectiveness of any such prior Triggering Notice. Notwithstanding anything to the contrary in this Agreement, Congress' right to deliver a Triggering Notice shall be subject to the following limitations: 9 (i) no Triggering Notice may be based on any Event of Default which occurred before the date of delivery of any prior Triggering Notice and of which Congress then had actual knowledge; (ii) no Event of Default under Section 8.1(e) of the Accounts Financing Agreement may serve as the basis for a Triggering Notice unless (A) in the case of the first Triggering Notice which is based on an Event of Default under Section 8.1(e) of the Accounts Financing Agreement, such Event of Default consists of a material adverse change in Borrower's business, assets or condition (financial or otherwise) from the date of the Fourth Amendment, and (B) in the case of any Subsequent Triggering Notice delivered by Congress, such Event of Default is based on events or other circumstances occurring after the delivery of the immediately preceding Triggering Notice which is based on an Event of Default under Section 8.1(e) of the Accounts Financing Agreement and such Event of Default consists of a material adverse change in Borrower's business, assets or condition (financial or otherwise) which has occurred since the date of such prior Triggering Notice; and (iii) No Event of Default under Section 8.1(f) of the Accounts Financing Agreement may serve as the basis for any Subsequent Triggering Notice unless it is based on events or other circumstances occurring after the delivery of the immediately preceding Triggering Notice. Solely for the purposes of this Section and not for any other purpose, any failure of Congress to waive any Default or Event of Default shall not preclude a determination that such Default or Event of Default has been cured. 3. Enforcement Rights. Except with the prior written consent of Congress or as specifically provided in subsections (a) through (c) below, on or before the Outer Standstill Date, and at any time after Congress has accelerated the Senior Obligations or has commenced the orderly liquidation of a substantial portion of the Collateral or has otherwise commenced in any material respect the exercise of any of its rights and remedies under the Congress Loan Documents to obtain repayment of the Senior Obligations, K-H shall not, and shall not be entitled to, exercise (and, if applicable, shall discontinue any exercise of) any right or remedy in respect of the Subordinated Debt or enforce or otherwise realize on any Lien on any Property of the Borrower or any Subsidiary or any other Property securing any portion of the Subordinated Debt or otherwise take any action against Borrower or any Subsidiary or any Property of Borrower or any Subsidiary or any other Property securing any portion of the Subordinated Debt, in each case with respect to its rights and remedies under the K-H Loan Documents. 10 Notwithstanding the foregoing provisions of this Section 3: (a) If the Senior Obligations have been accelerated by Congress and remain due and payable, K-H may exercise any right under the K-H Loan Documents (as in effect on the date hereof or as hereafter amended with the prior written consent of Congress) to accelerate the Subordinated Debt. (b) In the event Congress commences any judicial proceedings in connection with the exercise of its rights and remedies under the Congress Loan Documents, K-H may intervene in such proceedings to the extent permitted by applicable law and the K-H Loan Documents (as in effect on the date hereof or as hereafter amended with the prior written consent of Congress); provided, however, that (i) K-H shall not, directly or indirectly, in such proceedings or otherwise (A) oppose or otherwise dispute Congress' right to exercise in good faith such rights or remedies through such proceedings or Congress' right to seek the relief sought by Congress in such proceedings or (B) seek in good faith any relief which is inconsistent with the relief sought by Congress in good faith or with any of the provisions of this Agreement, and (ii) in such proceedings, K-H shall enforce its applicable rights and remedies and otherwise act in such manner as Congress directs in accordance with commercially reasonable standards. (c) If (i) the Borrower fails to make a Permitted Payment which is permitted to be paid pursuant to this Agreement, (ii) K-H thereafter notifies Congress in writing of Borrower's failure to make such Permitted Payment, and (iii) at any time after Congress' receipt of such written notice, Congress makes a revolving loan, the proceeds of which are not used to make the Permitted Payment or to pay any Congress Obligations or other amounts required to be paid to Congress under the Congress Loan Documents, then K-H may exercise any available rights and remedies under the K-H Loan Documents (as in effect on the date hereof or as hereafter amended with the prior written consent of Congress), other than rights and remedies relating to any Collateral, for the purpose of obtaining payment of such Permitted Payment. 4. Subordinated Debt Owed Only to K-H. K-H warrants and represents that K-H has not previously assigned any interest in the Subordinated Debt or any Liens in connection therewith, that no other person, firm or corporation owns an interest in the Subordinated Debt or security therefor other than K-H (whether as joint holders of the Subordinated Debt, participants or 11 otherwise) and that the entire Subordinated Debt is owing only to K-H and covenants that the entire Subordinated Debt shall continue to be owing only to K-H and all security therefor shall continue to be held solely for the benefit of K-H unless assigned in accordance with the terms of this Agreement. 5. Lender Priority. In the event of any distribution, division, or application, partial or complete, voluntary or involuntary, by operation of law or otherwise, of all or any part of the Property of Borrower or any Subsidiary or the proceeds thereof to the creditors of Borrower or any Subsidiary or readjustment of the Senior Obligations and Subordinated Debt of Borrower or any Subsidiary (whether by reason of liquidation, bankruptcy, arrangement, receivership, assignment for the benefit of creditors, any marshalling of liens or assets or any other action or proceeding involving the readjustment of all or any part of the Senior Obligations or the Subordinated Debt), or upon the dissolution or other winding up of Borrower's or any Subsidiary's business, or upon the sale of all or substantially all of Borrower's or any Subsidiary's assets, or upon any disposition or liquidation by or on behalf of Congress of any Collateral or other Property of the Borrower or any Subsidiary, then, and in any such event, (i) Congress shall be entitled to receive Payment in Full of any and all of the Senior Obligations then owing prior to the payment of all or any part of the Subordinated Debt, and (ii) any payment or distribution of any kind or character, whether in cash, securities or other Property, which shall be payable or deliverable upon or with respect to any or all of the Subordinated Debt shall be paid or delivered directly to Congress for application on any of the Senior Obligations, due or not due, until such Senior Obligations shall have first been Paid in Full and completely performed. 6. Grant of Authority to Congress. In the event of the occurrence of any event described in Section 5 above, and in order to enable Congress to enforce Congress' rights hereunder in any of the aforesaid actions or proceedings, Congress is hereby irrevocably authorized and empowered, in Congress' discretion, to make and present for and on behalf of K-H such proofs of claims against Borrower and/or any Subsidiary on account of the Subordinated Debt or other motions or pleadings as Congress may deem expedient or proper and to vote such proofs of claims in any such proceeding and to receive and collect any and all dividends or other payments or disbursements made thereon in whatever form the same may be paid or issued and to apply the same on account of any of the Senior Obligations. K-H irrevocably authorizes and empowers Congress to demand, sue for, collect and receive each of the aforesaid payments and distributions described in Section 5 above and give acquittance therefor and to file claims and take such other actions, in Congress' own name or in the name of K-H or otherwise, as Congress may deem necessary or advisable for the enforcement of this Agreement. To the extent that payments or distributions are made in Property other than cash, K-H authorizes Congress to sell such Property to such buyers 12 and on such terms as Congress, in Congress' reasonable discretion, shall determine. K-H will execute and deliver to Congress such powers of attorney, assignments and other instruments or documents, including notes and stock certificates (together with such assignments or endorsements as Congress shall deem necessary), as may be requested by Congress in order to enable Congress to enforce any and all claims upon or with respect to any or all of the Subordinated Debt and to collect and receive any and all payments and distributions which may be payable or deliverable at any time upon or with respect to the Subordinated Debt, all for Congress' own benefit. Following Payment in Full and complete performance of the Senior Obligations, Congress will remit to K-H, to the extent of K-H's interest therein, all dividends or other payments or distributions paid to and held by Congress in excess of the Senior Obligations. 7. Payments Received by K-H. Except for Permitted Payments received by K-H in accordance with the provisions of Section 2 above, should any payment or distribution or security or instrument or proceeds thereof be received by K-H upon or with respect to the Subordinated Debt prior to the Payment in Full and complete performance of all of the Senior Obligations and termination or expiration of all financing arrangements under the Congress Loan Documents with respect to the Senior Obligations, K-H shall receive and hold the same in trust, as trustee, for the benefit of Congress, and shall forthwith deliver the same to Congress, in precisely the form received (except for the endorsement or assignment of K-H where necessary), for application on any of the Senior Obligations, due or not due, and, until so delivered, the same shall be held in trust by K-H as the Property of Congress. In the event of the failure of K-H to make any such endorsement or assignment to Congress, Congress, or any of its officers or employees, is hereby irrevocably authorized to make the same. 8. Instrument Legend. Any instrument evidencing any of the Subordinated Debt (including, without limitation, the Term Note), or any portion thereof, will, on the date hereof or promptly hereafter, be inscribed with a legend conspicuously indicating that payment thereof is subordinated to the claims of Congress pursuant to the terms of this Agreement, and (i) a copy thereof will be delivered to Congress on the date hereof, and (ii) the original of any such instrument will be immediately delivered to Congress upon request therefor by Congress after the occurrence of an Event of Default to the extent reasonably necessary for Congress to enforce its rights under this Agreement or to protect, enforce or perfect its interest in the K-H Loan Documents or K-H's interest in the collateral. Any instrument evidencing any of the Subordinated Debt, or any portion thereof, which is hereafter executed by Borrower or any Subsidiary, will, on the date thereof, be inscribed with the aforesaid legend and a copy thereof will be delivered to Congress on the date of its execution or within five (5) business days thereafter, and the original thereof will be delivered as and when described hereinabove. 13 9. Reimbursements for Expenses from Borrower. K-H agrees that until the Senior Obligations have been Paid in Full and completely performed and all financing arrangements under the Congress Loan Documents with respect to the Senior Obligations have expired or been terminated, K-H will not, directly or indirectly, accept or receive the benefit of any remuneration or reimbursement for expenses (other than attorneys' fees and expenses payable by Borrower in connection with the closing(s) of the assignment of the Term Note) from or on behalf of Borrower or any Subsidiary pursuant to or in connection with the K-H Loan Documents. 10. Continuing Nature of Subordination. This Agreement shall be effective and may not be terminated or otherwise revoked by K-H until the Senior Obligations shall have been Paid in Full and completely performed and all financing arrangements under the Congress Loan Documents with respect to the Senior Obligations have expired or been terminated. In the event K-H shall have any right under applicable law or otherwise to terminate or revoke this Agreement, which right cannot be waived, such termination or revocation shall not be effective until written notice of such termination or revocation, signed by K-H, is actually received by Congress' officer responsible for such matters. In the absence of the circumstances described in the immediately preceding sentence, this is a continuing agreement of subordination and Congress may continue, at any time and without notice to K-H, to extend credit or other financial accommodations and loan monies to or for the benefit of Borrower or any Subsidiary on the faith hereof. Any termination or revocation described hereinabove shall not affect this Agreement in relation to (a) any of the Senior Obligations which arose prior to receipt thereof, (b) any of the Senior Obligations which represent Protective Advances or interest on Senior Obligations, or (c) any of the Senior Obligations created after receipt thereof, if such Obligations were incurred through extensions of credit by Congress under the Congress Loan Documents in an aggregate outstanding principal amount not (exclusive of Protective Advances or interest on Senior Obligations) to exceed the amounts set forth in the last two sentences of Section 11 hereof. If, in reliance on this Agreement Congress makes loans or other Advances to or for the benefit of Borrower or any Subsidiary or takes other action under any of the Congress Loan Documents after such aforesaid termination or revocation by K-H but prior to the receipt by Congress of said written notice as set forth above, the rights of Congress shall be the same as if such termination or revocation had not occurred; and, in any event, no obligation of K-H hereunder shall be affected pursuant to this Section 10 by the death, incapacity or written revocation of K-H or any other subordinated party, pledgor, endorser, or guarantor, if any. 14 11. Additional Agreements Between Congress and Borrower. Except as expressly set forth in this Section and Section 16 hereof, Congress, at any time and from time to time, either before or after any such aforesaid notice of termination or revocation, may enter into such agreement or agreements with Borrower or any Subsidiary as Congress may deem proper, extending the time of payment of or renewing or otherwise altering the terms of all or any of the Senior Obligations or affecting the security underlying any or all of the Senior Obligations, and may exchange, sell, release, surrender or otherwise deal with any such security, without in any way thereby impairing or affecting this Agreement. Notwithstanding the foregoing but subject to the immediately following sentence, Congress shall not make any extensions of credit which cause the outstanding principal balance of the Senior Obligations (exclusive of interest on Senior Obligations and Protective Advances) to exceed (i) at any time the sum of (A) the difference between the Maximum Credit and the then outstanding principal balance of the Term Note plus (B) $6.5 million or (ii) for any period of more than 14 consecutive days the sum of (A) the difference between the Maximum Credit and the then outstanding principal balance of the Term Note plus (B) $2.5 million or (iii) at any time during any two week period immediately following any period of 14 consecutive days during which the outstanding principal balance of the Senior Obligations (exclusive of interest on Senior Obligations and Protective Advances) exceeds the amount specified in clause (ii), the difference between the Maximum Credit and the then outstanding principal balance of the Term Note. Congress shall be conclusively entitled to rely on, and assume the accuracy and completeness of, any borrowing base certificates, inventory or other collateral reports or other documents prepared by Borrower or any Subsidiary in connection with the Congress Loan Documents, and Congress shall not be deemed to have breached its covenant in the immediately preceding sentence to the extent Congress made any extensions of credit in excess of the levels specified in the immediately preceding sentence in reliance on such certificates, reports or other documents. 12. Undersigned's Waivers. All of the Senior Obligations shall be deemed to have been made or incurred in reliance upon this Agreement. K-H expressly waives all notice of the acceptance by Congress of the subordination and other provisions of this Agreement and all other notices not specifically required pursuant to the terms of this Agreement whatsoever, and K-H expressly waives reliance by Congress upon the subordination and other agreements as herein provided. K-H agrees that Congress has made no warranties or representations with respect to the due execution, legality, validity, completeness or enforceability of any of the Congress Loan Documents, or the collectability of the Senior Obligations, that Congress shall be entitled to manage and supervise its loans, extensions of credit or other financial accommodations to Borrower in accordance with applicable law and Congress' usual practices, modified from time to time as 15 Congress deems appropriate in its sole discretion under the circumstances, without regard to the existence of any rights that K-H may now or hereafter have in or to any of the Property of Borrower or any Subsidiary, and that Congress shall have no liability to K-H for, and waives any claim which K-H may now or hereafter have against, Congress arising out of any and all actions which Congress, in good faith and without gross negligence, takes or omits to take (including, without limitation, actions with respect to the creation, perfection or continuation of Liens in the Collateral and other security for the Senior Obligations, actions with respect to the occurrence of an Event of Default, actions with respect to the foreclosure upon, sale, release, or depreciation of, or failure to realize upon, any of the Collateral and actions with respect to the collection of any claim for all or any part of the Senior Obligations from any account debtor, guarantor or any other party) with respect to any of the Congress Loan Documents or any other agreement related thereto or to the collection of the Senior Obligations or the valuation, use, protection or release of the Collateral and/or other security for the Senior Obligations. 13. Bankruptcy Issues. If Borrower or any Subsidiary or Borrower's or any Subsidiary's estate becomes the subject of a bankruptcy case under the Bankruptcy Code and if Congress desires to permit the use of cash collateral or to provide financing to Borrower or any Subsidiary under either Section 363 or Section 364 of the Bankruptcy Code, K-H agrees that adequate notice of such financing to K-H, in its capacity as a holder of the Subordinated Debt, shall have been provided if K-H received notice two (2) business days prior to the entry of any order approving such cash collateral usage or financing. Notice of a proposed financing or use of cash collateral shall be deemed given upon the sending of such notice by telegraph, telecopy or hand delivery to K-H at the address indicated below. All allocations of payments between Congress, in its capacity as holder of the Congress Obligations, and K-H, in its capacity as holder of the Subordinated Debt, shall continue to be made after the filing of a petition under the Bankruptcy Code on the same basis that the payments were to be allocated prior to the date of such filing. On behalf of itself (in any capacity) and its Affiliates, K-H hereby consents to, and waives any objections to (or any right to object to), and agrees to cause its Affiliates not to object to, the entry of any interim or final order entered in any such bankruptcy case approving any use of cash collateral permitted by Congress or financing provided by Congress so long as (i) the interim order contains terms substantially similar to (or less favorable to Congress than) those in the April 11, 1996 draft Interim Order (1) Authorizing Debtors-In-Possession To Incur Post-Petition Secured Indebtedness, (2) Granting Security Interests And Priority Pursuant To 11 U.S.C. Section 364, (3) Modifying Automatic Stay And (4) Setting Further Hearing and (ii) the final order contains terms substantially similar to (or less favorable to Congress than) those in the aforesaid draft Interim Order except that the provisional findings of fact, conclusions of law and 16 decretal provisions in the Interim Order shall not be provisional and shall instead be binding on all creditors, equity interest holders and other parties in interest. In its capacity as the holder of the Subordinated Debt, K-H agrees that in any bankruptcy case of which Borrower or any Subsidiary is the subject, it will not, without the prior written consent of Congress, (i) assert any right it may have to adequate protection of its interest in any Property of the Borrower or any Subsidiary, (ii) seek any relief from the automatic stay of Section 362 of the Bankruptcy Code, or (iii) object to any aspect of Congress' claims in such bankruptcy case or otherwise take any position inconsistent with Congress' position in such bankruptcy case. In its capacity as holder of the Subordinated Debt, K-H waives any objection, claim or defense K-H may now or hereafter have arising out of the election by Congress, in any bankruptcy case under the Bankruptcy Code, of the application of Section 1111(b)(2) of the Bankruptcy Code, and notwithstanding any such election by Congress, Congress shall be entitled to have all of the Senior Obligations Paid in Full from any and all Property of the Borrower or any Subsidiary prior to any payment or distribution made in respect of any Subordinated Debt. To the extent that Congress receives payments on, or proceeds of Collateral for, any of the Senior Obligations which are subsequently invalidated, declared to be fraudulent or preferential, set aside and/or required to be repaid to a trustee, receiver or any other party under any bankruptcy law, state or federal law, common law, or equitable cause, then, to the extent of such payment or proceeds received, the Senior Obligations, or part thereof, intended to be satisfied shall be revived and continue in full force and effect as if such payments or proceeds had not been received by Congress. Nothing in this Paragraph 13 shall limit K-H's right to take any action as, or to recommend any action to, a member of any committee in any such bankruptcy case. 14. K-H Purchase Option. Subject to the provisions of this Section 14, if (a) the outstanding amount of the Subordinated Debt exceeds the outstanding amount of the Senior Obligations and (b) either (i) an Event of Default (as defined in the Term Note) has occurred and is continuing or (ii) an interest or principal payment is due and payable, or would have been due and payable but for Section 2.5(c) of the Term Note, to K-H under the K-H Loan Documents but has not been, and is not permitted to be, paid under the provisions of this Agreement, then K-H shall have the option, but not the obligation, to purchase from Congress all of its right, title and interest in and to the Senior Obligations and the Liens securing the same except for Congress' indemnification and other reimbursement rights under the Congress Loan Documents and the right to receive all charges, fees and expenses thereunder in connection with the Letter of Credit Accommodations. To exercise such option, K-H must, within ten (10) days of the simultaneous occurrence of the conditions set forth in clauses (a) and (b) of this Section 14, give Congress written notice of its intent to exercise such option and 17 specify the date (which shall be at least three (3) business days but not more than seven (7) business days after Congress receives such notice) of such purchase and, on such specified date, pay to Congress, in immediately available funds, an amount equal to the Congress Purchase Price on the date of such payment, without any representations or warranties from or recourse against Congress. Upon the termination or expiration of any contingency as to which any reserve was paid to Congress as part of the Congress Purchase Price, the unused amount of the reserve related to such contingency shall be returned to K-H. 15. Congress' Waivers. No waiver shall be deemed to be made by Congress of its rights hereunder, unless the same shall be in writing signed on behalf of Congress and each waiver, if any, shall be a waiver only with respect to the specific instance involved and shall in no way impair the rights of Congress or the obligations of K-H to Congress in any other respect at any other time. 16. Modifications. K-H shall not, without the prior written consent of Congress, amend or otherwise modify any of the K-H Loan Documents. Congress shall not, without the prior written consent of K-H, amend or otherwise modify the Congress Loan Documents (i) to increase the Maximum Credit or (ii) to increase the advance rates above the percentages set forth in the definition of Indenture Test Amount set forth in the Fourth Amendment. 17. Information Concerning Financial Condition of Borrower. K-H hereby assumes responsibility for keeping itself informed of the financial condition of Borrower and each Subsidiary, any and all endorsers and any and all guarantors of the Senior Obligations and of all other circumstances bearing upon the risk of nonpayment of the Senior Obligations and/or Subordinated Debt that diligent inquiry would reveal, and K-H hereby agrees that Congress shall have no duty to advise K-H of information known to Congress regarding such condition or any such circumstances. In the event Congress, in Congress' sole discretion, undertakes, at any time or from time to time, to provide any such information to K-H, Congress shall be under no obligation (i) to provide any such information to K-H on any subsequent occasion, or (ii) to undertake any investigation not a part of Congress' regular business routine and shall be under no obligation to disclose any information which Congress wishes to maintain confidential. K-H hereby agrees that all payments received by Congress may be applied, reversed, and reapplied, in whole or in part, to any of the Senior Obligations, as Congress, in Congress' sole discretion, deems appropriate and assents to any extension or postponement of the time of payment of the Senior Obligations or to any other indulgence with respect thereto, to any substitution, exchange or, in connection with any disposition, the release of Collateral or any other security which may at any time secure the Senior Obligations and to the addition or release of any other Person primarily or secondarily liable therefor. 18 18. No Offset. In the event K-H at any time purchases goods or services from Borrower or any Subsidiary, K-H hereby irrevocably agrees that it shall pay for such goods or services in cash or cash equivalents in accordance with the terms of such purchases and shall not deduct from or setoff against any amounts billed to K-H by Borrower or such Subsidiary in connection with such purchases any amounts K-H claims are due to it with respect to the Subordinated Debt and that the non-monetary terms and conditions of any such purchases shall be not more favorable to K-H than arms'-length terms and conditions made available by Borrower or such Subsidiary to third parties. 19. Notices. Unless otherwise provided herein, all notices required or desired to be given hereunder shall be deemed validly given or delivered: if by hand, telex, telegram or facsimile, immediately upon sending; if by Federal Express, Express Mail or any other overnight delivery service, one (1) day after dispatch; and if mailed by certified mail, return receipt requested, five (5) days after mailing. All notices, requests and demands are to be given or made to Congress or K-H at the following addresses: Congress Financial Corporation (Central) 100 South Wacker Drive Suite 1940 Chicago, Illinois 60606 Attention: Mr. William Bloom with a copy to: Latham & Watkins 233 South Wacker Drive Suite 5800 Sears Tower Chicago, Illinois 60606 Attention: Mr. Donald L. Schwartz K-H Corporation c/o Treasurer 672 Delaware Avenue Buffalo, New York 14209 20. Severability. Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. 21. Headings. The headings contained in this Agreement are and shall be without substantive meaning or content of any kind whatsoever and are not a part of the agreement between the parties hereto. 19 22. Authority. K-H hereby certifies that it has all necessary authority to grant the subordination evidenced hereby and to execute this Agreement on behalf of K-H. 23. Binding Effect. This Agreement shall be immediately binding upon K-H and its successors and assigns, and shall inure to the benefit of the successors and assigns of Congress, and no other Person shall have any rights under this Agreement, whether as a third party beneficiary or otherwise. 24. Restrictions on Pledges, Assignments and Participations. (a) K-H shall not pledge its rights under this Agreement, or any other K-H Documents to any Person, and any attempted pledge in violation of this Section 24 shall be void ab initio. (b) K-H shall not assign or sell participations in its rights or obligations under this Agreement or any other K-H Documents or in or to the Collateral or any other security for the Subordinated Debt to any other Person without prior written consent of Congress which shall not be unreasonably withheld so long as such proposed assignee is reasonably acceptable to Congress. (c) Without the consent of K-H: (i) Congress may sell further participations in the Senior Obligations to any Person under one or more separate agreements without in any way affecting any of the rights and obligations of the parties to this Agreement, and (ii) Congress may assign all or any portion of its interest in the Senior Obligations to any Person. (d) No assignment made by K-H or Congress in violation of this Section 24 shall release K-H or Congress from its obligations and liabilities under this Agreement. 25. GOVERNING LAW; SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL; WAIVER OF DAMAGES. (a) THIS AGREEMENT SHALL BE GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK AND ANY DISPUTE ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN K-H AND CONGRESS IN CONNECTION WITH THIS AGREEMENT, AND WHETHER ARISING IN CONTRACT, TORT, EQUITY OR OTHERWISE, SHALL BE RESOLVED IN ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED TO THE CONFLICTS OF LAWS PROVISIONS) AND DECISIONS OF THE STATE OF NEW YORK. (b) EXCEPT AS PROVIDED IN THE NEXT PARAGRAPH, K-H AND CONGRESS AGREE THAT ALL DISPUTES BETWEEN THEM ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT, AND 20 WHETHER ARISING IN CONTRACT, TORT, EQUITY, OR OTHERWISE, SHALL BE RESOLVED ONLY BY STATE OR FEDERAL COURTS LOCATED IN NEW YORK, NEW YORK, BUT K-H AND CONGRESS ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF NEW YORK, NEW YORK. K-H WAIVES IN ALL DISPUTES ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT CONSIDERING THE DISPUTE INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS. (c) K-H AGREES THAT CONGRESS SHALL HAVE THE RIGHT, TO THE EXTENT PERMITTED BY APPLICABLE LAW, TO PROCEED AGAINST K-H OR ITS PROPERTY IN A COURT IN ANY LOCATION REASONABLY SELECTED IN GOOD FAITH TO ENABLE CONGRESS TO REALIZE ON SUCH PROPERTY, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF CONGRESS. K-H AGREES THAT IT WILL NOT ASSERT ANY PERMISSIVE COUNTERCLAIMS IN ANY PROCEEDING BROUGHT BY CONGRESS TO REALIZE ON SUCH PROPERTY, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF CONGRESS. K-H WAIVES ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT IN WHICH CONGRESS HAS COMMENCED A PROCEEDING DESCRIBED IN THIS PARAGRAPH INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS. (d) EACH OF K-H AND CONGRESS WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE ARISING OUT OF, CONNECTED WITH, RELATED TO OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT. INSTEAD, ANY DISPUTES RESOLVED IN COURT WILL BE RESOLVED IN A BENCH TRIAL WITHOUT A JURY. (e) K-H (I) AGREES THAT CONGRESS SHALL HAVE NO LIABILITY TO K-H (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) FOR LOSSES SUFFERED BY K-H IN CONNECTION WITH, ARISING OUT OF, OR IN ANY WAY RELATED TO, THE TRANSACTIONS CONTEMPLATED AND THE RELATIONSHIP ESTABLISHED BY THIS AGREEMENT, OR ANY ACT, OMISSION OR EVENT OCCURRING IN CONNECTION THEREWITH, UNLESS IT IS DETERMINED BY A JUDGMENT OF A COURT THAT IS BINDING ON CONGRESS, (WHICH JUDGMENT SHALL BE FINAL AND NOT SUBJECT TO REVIEW ON APPEAL), THAT SUCH LOSSES WERE THE RESULT OF ACTS OR OMISSIONS ON THE PART OF CONGRESS, CONSTITUTING WILLFUL MISCONDUCT, GROSS NEGLIGENCE, BAD FAITH, OR KNOWING VIOLATIONS OF LAW AND (II) WAIVES, RELEASES AND AGREES NOT TO SUE UPON ANY CLAIM AGAINST CONGRESS (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE), EXCEPT A CLAIM BASED UPON WILLFUL MISCONDUCT, GROSS NEGLIGENCE, BAD FAITH, OR KNOWING VIOLATIONS OF LAW. WHETHER OR NOT SUCH DAMAGES ARE RELATED TO A CLAIM THAT IS SUBJECT TO THE WAIVER EFFECTED ABOVE AND WHETHER OR NOT SUCH WAIVER IS EFFECTIVE, CONGRESS SHALL NOT HAVE ANY LIABILITY WITH RESPECT TO, AND K-H HEREBY WAIVES, RELEASES AND AGREES NOT TO SUE UPON ANY CLAIM FOR, ANY SPECIAL, INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES SUFFERED BY K-H IN CONNECTION WITH, ARISING OUT OF, OR IN ANY WAY RELATED TO THE TRANSACTIONS CONTEMPLATED OR THE RELATIONSHIP ESTABLISHED BY THIS AGREEMENT, OR ANY ACT, OMISSION OR 21 EVENT OCCURRING IN CONNECTION THEREWITH, UNLESS IT IS DETERMINED BY A JUDGMENT OF A COURT THAT IS BINDING ON CONGRESS (WHICH JUDGMENT SHALL BE FINAL AND NOT SUBJECT TO REVIEW ON APPEAL), THAT SUCH DAMAGES WERE THE RESULT OF ACTS OR OMISSIONS ON THE PART OF CONGRESS, CONSTITUTING WILLFUL MISCONDUCT, GROSS NEGLIGENCE, BAD FAITH, OR KNOWING VIOLATIONS OF LAW. [Signature Page Follows] S-1 IN WITNESS WHEREOF, this instrument has been signed and sealed this 25th day of April, 1996. K-H CORPORATION By: /s/ Fred J. Chapman ------------------ Title: Treasurer Acknowledged and accepted in Chicago, Illinois this 25th day of April, 1996. CONGRESS FINANCIAL CORPORATION (Central) By: /s/ Thomas Lannon ------------------- Title: Vice President S-2 Each of FRUEHAUF TRAILER CORPORATION and the undersigned direct and indirect subsidiaries of Fruehauf Trailer Corporation, hereby accepts, and acknowledges receipt of a copy of, and agrees to be bound by, the foregoing Subordination Agreement (the "Agreement") this 25th day of April, 1996, and, without limiting the generality of the foregoing, further agrees and acknowledges, jointly and severally, as follows: 1. Each of the undersigned will not pay any amount due under any of the K-H Loan Documents (this term and all other capitalized terms used and not otherwise defined herein shall have the respective meanings given such terms in the Agreement) or grant any security therefor, except as the Agreement provides. 2. The breach by K-H of any of the provisions of the Agreement shall constitute an "Event of Default" under and as defined in the Congress Loan Documents. 3. Congress shall be entitled, but not obligated, to make any Permitted Payment on behalf of the Borrower to K-H or to cure any event of default under any of the K-H Loan Documents, and each of the undersigned shall be, jointly and severally, obligated to reimburse and indemnify Congress, upon demand, for all payments made or other obligations incurred by Congress in exercising any such cure rights, and all such reimbursement and indemnification obligations shall constitute part of the "Obligations" under and as defined in the Loan Agreement and shall be secured by the Collateral. 4. The terms of this Agreement shall not give any undersigned any substantive rights vis-a-vis Congress and/or K-H. If Congress and/or K-H shall enforce its rights or remedies in violation of the terms of this Agreement, the undersigned shall not use such violation as a defense to the enforcement by any of the foregoing Persons of any of their respective rights and remedies under the Congress Loan Documents or the K-H Loan Documents, as applicable, and shall not assert such violation as a counterclaim or basis for setoff or recoupment against Congress and/or K-H. FRUEHAUF TRAILER CORPORATION By: /s/ Timothy J. Wiggins ------------------------ Title: Executive Vice President FGR, INC. By: /s/ Timothy J. Wiggins ----------------------- Title: Executive Vice President S-3 FRUEHAUF CORPORATION By: /s/ Timothy J. Wiggins ------------------------ Title: Executive Vice President MARYLAND SHIPBUILDING & DRYDOCK COMPANY By: /s/ Timothy J. Wiggins ------------------------ Title: Executive Vice President THE MERCER CO. By: /s/ Timothy J. Wiggins ------------------------ Title: Executive Vice President DEUTSCHE-FRUEHAUF HOLDING CORPORATION By: /s/ Timothy J. Wiggins ------------------------ Title: Executive Vice President FRUEHAUF HOLDINGS CORP. By: /s/ Timothy J. Wiggins ------------------------ Title: Executive Vice President FRUEHAUF INTERNATIONAL LIMITED By: /s/ Timothy J. Wiggins ------------------------ Title: Executive Vice President S-4 M.J. HOLDINGS, INC. By: /s/ Timothy J. Wiggins ------------------------ Title: Executive Vice President E.L. DEVICES, INC. By: ------------------------ Title: EX-4.38 7 FRUEHAUF TRAILER EXHIBIT 4.38 __________________________________________________________ WARRANT AGREEMENT between FRUEHAUF TRAILER CORPORATION and K-H CORPORATION __________________ Dated as of April 25, 1996 __________________________________________________________ TABLE OF CONTENTS SECTION Page SECTION 1. Certain Defined Terms; Representations of Initial Holder .................. 1 1.1 Certain Defined Terms ........... 1 1.2 Representations of Initial Holder ...................... 2 SECTION 2. Form of Warrant; Execution; Registration ....................... 3 2.1. Form of Warrant; Execution of Warrants .................... 3 2.2. Registration ................ 3 SECTION 3. Transfer and Exchange of Warrants .... 4 SECTION 4. Term of Warrants; Exercise of Warrants; Compliance with Government Regulations; Redemption ....................... 4 4.1. Term of Warrants ............ 4 4.2. Exercise of Warrants ........ 5 4.3. Compliance with Government Regulations; Qualification under the Securities Laws ...... 6 4.4 Redemption .................. 7 SECTION 5. Payment of Taxes ................... 8 SECTION 6. Mutilated or Missing Warrant Certificates......................... 9 SECTION 7. Reservation of Warrant Shares ...... 9 SECTION 8. Stock Exchange Listings ............ 10 SECTION 9. Adjustment of Exercise Price; Number of Warrant Shares and Shares of Capital Stock Warrants Are Exercisable Into..10 9.1. Mechanical Adjustments ...... 10 -i- (a) Adjustment for Change in Capital Stock .... 10 (b) Adjustment for Rights Issue ............. 11 (c) Adjustment for Other Distributions ..... 11 (d) Adjustment for Common Stock Issue ............ 13 (e) Current Market Price; Price Per Share ........ 14 (f) When De Minimis Adjustment May Be Deferred .. 16 (g) Other Dilutive Events ... 16 (h) Adjustment in Exercise Price ............ 17 (i) When No Adjustment Required ......... 17 (j) Shares of Common Stock . 17 (k) Expiration of Rights, etc. 18 9.2. Voluntary Adjustment by the Company ................... 18 9.3. Notice of Adjustment ........ 18 9.4. Preservation of Purchase Rights upon Merger or Consolidation .. 19 9.5. No Impairment of Holder's Rights ................... 19 9.6. Statement on Warrants ....... 20 SECTION 10. Fractional Interests................ 20 SECTION 11. No Rights as Stockholders; Notices to Holders .......................... 20 SECTION 12. SEC Registration ..................... 22 12.1. SEC Restrictions ............ 22 12.2. Certificates To Bear Legends.. 22 -ii- 12.3. Registration Statements ..... 23 (a)(I) Demand Registration 23 (a)(II) Piggyback Registration Rights ............... 24 (b) Restrictions on Public Sale by the Company and Others.. 25 12.4. Certain Agreements of Holders..26 12.5. Underwritten Registrations .. 26 12.6. Registration Procedures ..... 27 12.7. Registration Expenses ....... 33 12.8. Indemnification ............. 34 (a) Indemnification by the Company .............. 34 (b) Indemnification by Holders of Registrable Securities..36 (c) Conduct of Indemnification Proceedings ........ 37 (d) Contribution .......... 38 (e) Other Indemnities ..... 39 12.9. Rule 144 ..................... 39 SECTION 13. Payments in U.S. Currency ........... 39 SECTION 14. Identity of Transfer Agent .......... 40 SECTION 15. Notices ............................. 40 SECTION 16. Furnishing Information .............. 40 SECTION 17. Supplements and Amendments .......... 41 SECTION 18. Successors .......................... 41 SECTION 19. APPLICABLE LAW ...................... 41 SECTION 20. Benefits of this Agreement .......... 41 -iii- SECTION 21. Counterparts ........................ 41 SECTION 22. Captions ............................ 41 Signature ......................................... 42 Exhibit A Form of Warrant Certificate ......... A-1 -iv- INDEX OF DEFINED TERMS Defined Term Section - - ------------ ------- Act ............................ 1.1 Agreement ...................... Recitals Assets ......................... 9.1(c)(i) Cashless Exercise .............. 4.2 Cashless Exercise Ratio ........ 4.2 Common Stock ................... Recitals Company ........................ Recitals Convertible Securities ......... 9.1(c)(i) Current Market Price ........... 9.1(e) DTC ............................ 12.6(i) Exchange Act ................... 12.6(a) Exercise Period................. 4.1 Exercise Price ................. 4.2 Holders ........................ Recitals Indemnified Party .............. 12.8(a) Inspector ...................... 12.6(n) Minimum Market Price ........... 4.4(a) NASD ........................... 1.1 NASDAQ ......................... 9.1(e)(i) Number of Shares ............... 9.1(e)(ii) Price Per Share ................ 9.1(e)(ii) Proceeds ....................... 9.1(e)(ii) Prospectus ..................... 1.1 Redemption Election Date ....... 1.1 Redemption Notice .............. 4.4(b) Redemption Payment Date ........ 4.4(b) Redemption Price ............... 4.4(a) Registrable Securities ......... 1.1 Registration Statement ......... 1.1 Rights ......................... 9.1(b) SEC ............................ 1.1 Securities ..................... 9.1(d) Shares of Common Stock ......... 9.1(j) Transfer Agent ................. 7 Transfer Restricted Securities.. 1.1 Trustee ........................ 9.1(c)(ii) Warrant ........................ Recitals Warrant Certificates ........... 2.1 Warrant Register ............... 2.2 Warrant Shares ................. Recitals -v- WARRANT AGREEMENT ("this Agreement"), dated as of April 25, 1996, between FRUEHAUF TRAILER CORPORATION, a Delaware corporation (together with any successors, the "Company"), and K-H CORPORATION, a Delaware corporation (the "Initial Holder"). WHEREAS, the Initial Holder has made a loan to the Company and has agreed, subject to certain conditions to make an additional loan (collectively, the "Term Loan"); and WHEREAS, the Company proposes to issue 2,000,000 Warrants (each a "Warrant," together the "Warrants") for the purchase of an aggregate (subject to adjustment as herein provided) of 2,000,000 shares of its common stock, par value $.01 per share (the "Common Stock"), pursuant to the Letter Agreement, dated April 19, 1996 (as amended, supplemented, restated or otherwise modified from time to time, the "Agreement"), by and among the Company and the Initial Holder of the Warrants and as further consideration for the Term Loan. Subject to Section 9 hereof, each Warrant entitles the holder thereof to purchase one share of Common Stock. The shares of Common Stock deliverable upon exercise of the Warrants are referred to herein as the "Warrant Shares." NOW, THEREFORE, in consideration of the foregoing and for the purpose of defining the terms and provisions of the Warrants and the respective rights and obligations thereunder of the Company and the registered owners of the Warrants and any security into which they may be exchanged (the "Holders"), the parties hereby agree as follows: SECTION 1. Certain Defined Terms; Representations of Initial Holder. 1.1. Certain Defined Terms. "Act" means the Securities Act of 1933, as amended from time to time, and the rules and regulations of the SEC promulgated thereunder. "Business Day" means a day other than (a) a Saturday or Sunday, (b) any day on which banking institutions located in the City of New York, New York are required or authorized by law or local proclamation to close or (c) a day on which the New York Stock Exchange is closed. 2 "NASD" means the National Association of Securities Dealers, Inc. "Prospectus" means the prospectus included in any Registration Statement, as amended or supplemented by any prospectus supplement with respect to the terms of the offering of any portion of the Registrable Securities covered by the Registration Statement and by all other amendments and supplements to the prospectus, including post-effective amendments and all material incorporated by reference in such prospectus. "Redemption Election Date" means the date of receipt by the Holders of the written direction of the Company referred to in Section 4.4(b) hereof. "Registrable Securities" means the Warrants, the Warrant Shares and any other securities issued or issuable with respect to the Warrants or the Warrant Shares by way of a stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization, provided that a security ceases to be a Registrable Security when it is no longer a Transfer Restricted Security. "Registration Statement" means any registration statement of the Company filed with the SEC under the Act which covers the transfer of Registrable Securities pursuant to the provisions of this Agreement, including the Prospectus, amendments and supplements to such Registration Statement, including post-effective amendments, and all exhibits and all material incorporated by reference in such Registration Statement. "SEC" means the Securities and Exchange Commission. "Transfer Restricted Securities" means a Warrant or Warrant Share, until such Warrant or Warrant Share (i) has been transferred under the Act in accordance with a Registration Statement covering it or (ii) is sold pursuant to Rule 144 under the Act. 1.2. Representations of Initial Holder. The Initial Holder hereby represents and warrants to the Company as follows: (a) The Initial Holder has been afforded (i) the opportunity to ask such questions as it has deemed necessary of, and to recieve answers from, representatives of the Company concerning the Warrants and the merits and risks of investing in the Warrants and (ii) access to information about the Company and the Company's financial condition, results of operations, business, properties, management and prospects, sufficient to enable it to evaluate its investment in the Warrants. 3 (b) The Initial Holder represents that the Initial Holder will hold the Warrants for its own account for investment and not with a view to distribution except in compliance with the Act. The Initial Holder acknowledges that the Warrants have not been registered under the Act or the securities laws of any state, and this Agreement is being made in reliance upon an exemption from registration under the Act for an offer and sale of securities that does not involve a public offering. (c) The Initial Holder is an accredited investor within the meaning of Rule 501(a) of Regulation D promulgated under the Act. SECTION 2. Form of Warrant; Execution; Registration. 2.1. Form of Warrant; Execution of Warrants. The certificates evidencing the Warrants (the "Warrant Certificates") shall be in registered form only and shall be in the form set forth as Exhibit A hereto. The Warrant Certificates shall be signed on behalf of the Company by its Chairman of the Board, President or one of its Vice Presidents. The signature of any such officers on the Warrant Certificates may be manual or facsimile. Any Warrant Certificate may be signed on behalf of the Company by any person who, at the actual date of the execution of such Warrant Certificate, shall be a proper officer of the Company to sign such Warrant Certificate, although at the date of the execution of this Warrant Agreement any such person was not such officer. Each Warrant Certificate shall be dated the date it is executed by the Company either upon initial issuance or upon division, exchange, substitution or transfer. 2.2. Registration. The Warrant Certificates shall be numbered and shall be registered on the books of the Company (the "Warrant Register") as they are issued. The Company shall be entitled to treat the registered owner of any Warrant as the owner in fact thereof for all purposes and shall not be bound to recognize any equitable or other claim to or interest in such Warrant on the part of any other person. 4 SECTION 3. Transfer and Exchange of Warrants. Subject to Sections 4.4(c), 11 and 12 hereof and the receipt of such documentation as the Company may reasonably reQuire, the Company shall from time to time register the transfer of any outstanding Warrants upon the records to be maintained by it for that purpose, upon surrender of the Certificate or Certificates evidencing such Warrants duly endorsed or accompanied (if so required by it) by a written instrument or instruments of transfer in form reasonably satisfactory to the Company, duly executed by the registered Holder or Holders thereof or by the duly appointed legal representative thereof or by a duly authorized attorney. Subject to the terms of this Agreement, each Warrant Certificate may be exchanged for another Warrant Certificate or Certificates entitling the Holder thereof to purchase a like aggregate number of Warrants Shares as the Warrant Certificate or Certificates surrendered then entitle such Holder to purchase. Any Holder desiring to exchange a Warrant Certificate or Certificates shall make such request in writing delivered to the Company and shall surrender, duly endorsed or accompanied (if so required by the Company) by a written instrument or instruments of transfer in form reasonably satisfactory to the Company, the Warrant Certificate or Certificates to be so exchanged. Upon registration of transfer, the Company shall issue and deliver by certified mail a new Warrant Certificate or Certificates to the persons entitled thereto. No service charge shall be made for any exchange or registration of transfer of a Warrant Certificate or of Warrant Certificates, but the Company may require payment of a sum sufficient to cover any stamp tax or other tax or other governmental charge that is imposed in connection with any such exchange or registration of transfer. SECTION 4. Term of Warrants; Exercise of Warrants; Compliance with Government Regulations; Redemption. 4.1. Term of Warrants. Subject to the terms of this Agreement, each Holder shall have the right, which may be exercised at any time from 9:00 a.m., New York City time, on April 25, 1996 to 5:00 p.m., New York City time, on April 25, 2001 (the "Exercise Period"), to receive from the Company the number of Warrant Shares which the Holder may at the time be entitled to receive upon exercise of such Warrants and the Warrant Shares issued to a Holder upon exercise of its Warrants shall be duly authorized, validly issued, fully paid, nonassessable and not subject to any preemptive rights. Each Warrant not exercised prior to the expiration of the Exercise Period shall become void, and all rights thereunder and all rights in respect thereof under this Agreement shall cease as of such time. 5 4.2. Exercise of Warrants. During the Exercise Period, each Holder may, subject to this Agreement, exercise from time to time some or all of the Warrants evidenced by its Warrant Certificate(s) by (i) surrendering to the Company such Certificate(s) with the form of election to purchase on the reverse thereof duly filled in and signed, and (ii) paying to the Warrant Agent for the account of the Company a purchase price of $2.50 per Warrant Share, as such may theretofore have been adjusted pursuant to Section 9 hereof (the "Exercise Price"), for the number of Warrant Shares in respect of which such Warrants are exercised. Warrants shall be deemed exercised on the date such Warrant Certificate(s) are surrendered to the Company and (unless such exercise is a Cashless Exercise) tender of payment of the Exercise Price is made. Payment of the aggregate Exercise Price shall be made in cash by wire transfer of immediately available funds to the Company or by certified or official bank check or checks to the order of the Company or by any combination thereof. Notwithstanding the above, a Warrant may also be exercised solely by the surrender of the Warrant Certificate, and without the payment of the Exercise Price in cash, for such number of Warrant Shares equal to the product of (1) the number of Warrant Shares for which such Warrant is exercisable with payment of the Exercise Price as of the date of exercise and (2) the Cashless Exercise Ratio. For purposes of this Agreement, the "Cashless Exercise Ratio" shall equal a fraction, the numerator of which is the excess of the Current Market Price per share of Common Stock on the date of exercise (calculated as set forth in Section 9.1(e) hereof) over the Exercise Price per share of Common Stock of the Warrant as of the date of exercise and the denominator of which is the Current Market Price per share of Common Stock on the date of exercise (calculated as set forth in Section 9.1(e) hereof). An exercise of a Warrant in accordance with the immediately preceding sentences is herein called a "Cashless Exercise." Upon surrender of a Warrant Certificate evidencing more than one Warrant in connection with the Holder's option to elect a Cashless Exercise, such Holder shall specify the number of Warrants to be exercised pursuant to such Cashless Exercise, and the number of Warrant Shares deliverable upon such Cashless Exercise shall be equal to the number of Warrant Shares for which such Warrants are so exercised, multiplied by the Cashless Exercise Ratio. All provisions of this Agreement shall be applicable with respect to a Cashless Exercise of less than the full number of Warrants evidenced by the surrendered Warrant Certificate. 6 Upon the exercise of any Warrants in accordance with this Agreement, the Company shall issue and cause to be delivered with all reasonable dispatch, and in any event within five (5) Business Days thereafter, to or upon the written order of the Holder and in such name or names as the Holder may designate, a certificate or certificates for the number of full Warrant Shares issuable upon the exercise of such Warrants and shall take such other actions at its sole expense as are necessary to complete the exercise of the Warrants (including, without limitation, payment of any cash with respect to fractional interest required under Section 10 hereof). The certificate or certificates representing such Warrant Shares shall be deemed to have been issued and any person so designated to be named therein shall be deemed to have become a holder of record of such Warrant Shares as of the date the Warrants are exercised hereunder. Each Warrant Share, when issued upon exercise of the Warrants, will be duly authorized, validly issued, fully paid and nonassessable and will not have been issued in violation of any preemptive rights. In the event that less than all of the Warrants evidenced by a Warrant Certificate are exercised, the Holder thereof shall be entitled to receive a new Warrant Certificate or Certificates as specified by such Holder evidencing the remaining Warrant or Warrants, and the Company shall issue and deliver the required new Warrant Certificate or Certificates evidencing such remaining Warrant or Warrants pursuant to the provisions of this Section 4.2 and of Section 3 hereof. 4.3. Compliance with Government Regulations; Qualification under the Securities Laws. (a) The Company covenants that if any shares of Common Stock required to be reserved for purposes of exercise of Warrants require, under any federal or state law or applicable governing rule or regulation or any national securities exchange, registration with or approval of any governmental authority, or listing on any such national securities exchange, before such shares may be issued upon exercise the Company will, unless the Company has received an opinion of counsel to the effect that such registration is not then permitted by such laws, in good faith and as expeditiously as possible use its best efforts to cause such shares to be duly so registered or approved, or listed on such national securities exchange, as the case may be, provided that in no event shall such shares of Common Stock be issued, and the exercise of all Warrants shall be suspended, and the Holders promptly notified in writing of such suspension, for the period during which such registration, approval or listing is required but not in effect, provided, further, that the Exercise Period shall be extended one day for each day (or portion thereof) that any such suspension is in effect. Notwithstanding the foregoing, any suspension resulting solely from a failure to list the shares of Common Stock shall be effective for a period not to exceed 90 days and the Company shall take all necessary steps so the listing of such shares shall not be necessary. The Company shall have no right to redeem the Warrants pursuant to Section 4.4 hereof so long as any such suspension is in effect or if the Company is unable to comply fully with its obligations under Sections 3 and 4.2 hereof. 7 (b) The Company will register or otherwise qualify the shares of Common Stock issuable upon exercise of the Warrants pursuant to the provisions of the Act, and pursuant to applicable state securities laws. 4.4. Redemption. (a) Subject to the limitations set forth below and in Section 4.3(a) hereof, the Company shall have the right to redeem all (but not less than all) of the Warrants, at a price equal to $.01 per Warrant (the "Redemption Price"), at any time (i) after the third anniversary of the date hereof and prior to the fourth such anniversary, provided that the Current Market Price per share of Common Stock on the Redemption Election Date (calculated as set forth in Section 9.1(e) hereof) (the "Minimum Market Price") is at least equal to 181.8% of the Exercise Price in effect on the Redemption Election Date and (ii) on and after the fourth anniversary of the date hereof and prior to the fifth such anniversary, provided that the Minimum Market Price is at least equal to 209.0% of the Exercise Price in effect on the Redemption Election Date. (b) The right of redemption set forth in Section 4.4(a) shall be exercisable upon prior written irrevocable (except as provided in this paragraph (b)) notice (the "Redemption Notice") of the Company to the Holders, which written direction shall set forth the date to be fixed as the redemption date (the "Redemption Payment Date") and shall be given to the Holders not less than one hundred five (105) days prior to the Redemption Payment Date nor more than one hundred twenty (120) days prior to the Redemption Payment Date sent by first-class U.S. mail, postage prepaid, certified or registered mail, return receipt requested, at its address as the same shall appear on the Warrant Register. The Redemption Notice shall specify (i) the Redemption Price, (ii) the Redemption Payment Date, (iii) the place where the Warrant Certificates shall be delivered, (iv) that subject to the terms of this Agreement, the right to exercise or transfer 8 the Warrant shall terminate at 5:00 p.m. (New York City time) on the Business Day immediately preceding the Redemption Payment Date, and (v) that after the Redemption Payment Date, all rights of the Holders in the Warrants, except the right to receive the Redemption Price, shall cease and terminate and the Warrants shall no longer be deemed outstanding or in effect. No failure to mail such notice nor any defect therein or in the mailing thereof shall affect the validity of the proceedings for such redemption except as to a Holder to whom notice was not mailed or whose notice was defective. Within two (2) days after the Redemption Election Date, the Company shall deliver to the Holders a certificate signed by the Chairman of the Board, the President, an Executive Vice President, a Vice President, the Treasurer or the Controller of the Company setting forth in reasonable detail the computations of the Minimum Market Price and the Exercise Price pursuant to clause (i) or (ii), as applicable, of Section 4.4(a) hereof. If the Holders shall not have received such certificate within such time, the redemption that was requested in such written direction shall automatically be cancelled without any further act or deed of the Company. On and after the Redemption Payment Date, all rights of the Holders in the Warrants, except the right to receive the Redemption Price, shall cease and terminate and the Warrants shall no longer be deemed outstanding or in effect. On or before the Redemption Payment Date, the Holders shall deliver to the Company their Warrant Certificates evidencing the Warrants. If any Holder shall fail to so deliver its Warrant Certificates, the Company shall have the right to cancel Warrants evidenced by such Warrant Certificates upon its books and pay to the Holder the Redemption Price for such Warrants. The Warrants so cancelled shall for all purposes be considered to have been redeemed as provided herein. The Redemption Price for each Warrant so redeemed shall be paid by the Company in cash or by check on the Redemption Payment Date to the registered Holder of such Warrant as set forth in the Warrant Register. (c) Subject to compliance with the terms hereof, any Warrantholder whose Warrant is to be redeemed may transfer the Warrant to a third party, and may exercise the Warrant, up to 5:00 p.m., New York City time, on the Business Day immediately preceding the Redemption Payment Date. SECTION 5. Payment of Taxes. The Company will pay all documentary stamp and other like taxes, if any, attributable to the initial issuance and delivery of Warrant Shares upon the exercise of Warrants, provided that the Company shall not be required to pay any tax or taxes which may be payable in respect of any transfer involved in the issue or delivery of any Warrant Shares in a name other than that of the Holder of the Warrants being exercised. 9 SECTION 6. Mutilated or Missing Warrant Certificates. In the event that any Warrant Certificate shall be mutilated, lost, stolen or destroyed, the Company shall issue and deliver in exchange and substitution for and upon cancellation of the mutilated Warrant Certificate or in lieu of and substitution for the Warrant Certificate lost, stolen or destroyed, a new Warrant Certificate of like tenor and representing an equivalent right or interest, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction of such Warrant Certificate and an indemnity or bond, if requested by the Company also reasonably satisfactory to it. An applicant for such a substitute Warrant Certificate shall also comply with such other reasonable procedures as the Company may reasonably require. SECTION 7. Reservation of Warrant Shares. There have been reserved, and the Company shall at all times keep reserved, out of its authorized Common Stock, free of all preemptive rights, a number of shares of Common Stock sufficient to provide for the exercise of the rights of purchase represented by the outstanding Warrants. The transfer agent for the Common Stock and every subsequent or other transfer agent for any shares of the Company's capital stock issuable upon the exercise of the Warrants (each, a "Transfer Agent") will be and are hereby irrevocably authorized and directed at all times to reserve such number of authorized shares as shall be required for such purpose. The Company will keep a copy of this Agreement on file with each Transfer Agent. The Company will supply the Transfer Agent with duly executed stock certificates for Warrant Shares required to honor outstanding Warrants upon exercise thereof in accordance with the terms of this Agreement. The Company covenants that all Warrant Shares which may be issued upon exercise of Warrants are or will be duly authorized and will, upon issuance thereof as provided herein, be validly issued, fully paid, nonassessable and free of preemptive rights and free of all taxes, liens, charges, encumbrances and security interests. The Company will supply its Transfer Agents with duly executed stock certificates for such purposes and will itself provide or otherwise make available any cash which may be payable as provided in Section 10 hereof. The Company will furnish to its Transfer Agent a copy of all notices of adjustments and certificates related thereto, transmitted to each Holder pursuant to Section 9.3 hereof. 10 Before taking any action which would cause an adjustment pursuant to Section 9 reducing the Exercise Price, the Company will take any and all corporate action which may be necessary in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares at the Exercise Price as so adjusted. SECTION 8. Stock Exchange Listings. The Company shall use its best efforts to list the Warrant Shares on each national securities exchange on which the Common Stock may at any time be listed, if any, subject to official notice of issuance upon the exercise of the Warrants, and shall use its best efforts to maintain such listing, so long as any of the Common Stock shall be so listed. Any such listing and inclusion shall be at the Company's sole expense. SECTION 9. Adjustment of Exercise Price; Number of Warrant Shares and Shares of Capital Stock Warrants Are Exercisable Into. The number and kind of securities purchasable upon the exercise of each Warrant, and the Exercise Price, shall be subject to adjustment from time to time upon the happening of certain events, as hereinafter described. 9.1. Mechanical Adjustments. The number of Warrant Shares purchasable upon the exercise of each Warrant and the Exercise Price shall be subject to adjustment as follows: (a) Adjustment for Change in Capital Stock. In case the Company shall (i) pay a dividend on its outstanding shares of Common Stock in shares of Common Stock or make a distribution of shares of Common Stock on its outstanding shares of Common Stock, (ii) subdivide its outstanding shares of Common Stock, (iii) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock, (iv) make a distribution on its outstanding shares of Common Stock in shares of its capital stock other than Common Stock, or (v) issue, by reclassification of its shares of Common Stock, other securities of the Company (including any such reclassification in connection with a consolidation or merger in which the Company is the surviving entity), the number of Warrant Shares purchasable upon exercise of each 11 Warrant immediately prior thereto shall be adjusted so that the Holder of each Warrant shall be entitled to receive the kind and number of Warrant Shares or other securities of the Company which such Holder would have owned or have been entitled to receive upon the happening of any of the events described above had such Warrant been exercised immediately prior to the happening of such event or any record date with respect thereto. If a Holder is entitled to receive shares of two or more classes of capital stock of the Company pursuant to the foregoing upon exercise of Warrants, the allocation of the adjusted Exercise Price between such classes of capital stock shall be determined reasonably and in good faith by the Board of Directors of the Company. After such allocation, the exercise privilege and the Exercise Price with respect to each class of capital stock shall thereafter be subject to adjustment on terms substantially identical to those applicable to Common Stock in this Section 9. An adjustment made pursuant to this paragraph (a) shall become effective immediately after the record date for such event or, if none, immediately after the effective date of such event. Such adjustment shall be made successively whenever such an event is made. (b) Adjustment for Rights Issue. In case the Company shall issue rights, options or warrants (collectively, "Rights") to all holders of its outstanding Common Stock entitling them to subscribe for or purchase shares of Common Stock at a Price Per Share (as defined in paragraph (e) below) which is lower at the record date mentioned below than the then Current Market Price (as defined in paragraph (e) below) per share of Common Stock, the number of Warrant Shares thereafter purchasable upon the exercise of each Warrant shall be determined by multiplying the number of Warrant Shares theretofore purchasable upon exercise of each Warrant by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding on the date of issuance of such Rights plus the additional Number of Shares (as defined in paragraph (e) below) of Common Stock offered for subscription or purchase in connection with such Rights and the denominator of which shall be the number of shares of Common Stock outstanding on the date of issuance of such Rights plus the number of shares which the aggregate Proceeds (as defined in paragraph (e) below) received or receivable by the Company upon exercise of such Rights would purchase at the Current Market Price per share of Common Stock at such record date. Such adjustments shall be made whenever Rights are issued, and shall become effective immediately after the record date for the determination of shareholders entitled to receive Rights. (c) Adjustment for Other Distributions. (i) In case the Company shall distribute to all holders of its shares of Common Stock (x) evidences of its indebtedness or assets (excluding cash dividends or distributions payable out of the consolidated net income of the Company earned after the date hereof (as determined in accordance with generally accepted accounting principles as in effect 12 immediately prior to such event) and dividends or distributions referred to in paragraph (a) above) or (y) Rights (excluding those referred to in paragraph (b) above) or convertible, exchangeable or exercisable securities (collectively, "Convertible Securities") containing the right to subscribe for or purchase debt securities or assets or securities of the Company (such assets and securities as set forth in clauses (x) and (y) above, collectively, "Assets"), then in each case the number of Warrant Shares thereafter purchasable upon the exercise of each Warrant shall be determined by multiplying the number of Warrant Shares theretofore purchasable upon the exercise of each Warrant by a fraction, the numerator of which shall be the Current Market Price per share of Common Stock on the date of such distribution and the denominator of which shall be such Current Market Price per share of Common Stock less the fair value as of such record date as determined reasonably and in good faith by the Board of Directors of the Company of the portion of the Assets applicable to one share of Common Stock. Such adjustment shall be made whenever any such distribution is made, and shall become effective on the date of distribution retroactive to the record date for the determination of shareholders entitled to receive such distribution. (ii) No adjustment shall be made pursuant to this paragraph (c) unless, on the record date for such distribution, the Current Market Price per share of Common Stock exceeds the fair market value of the Assets applicable to each outstanding share of Common Stock. In the event, and each time, that the Company distributes Assets to all holders of its Common Stock and the Current Market Price per share of Common Stock on the record date for such distribution is less than or equal to the fair market value of the Assets applicable to each share of outstanding Common Stock on such date, the Company shall either (x) distribute Assets to the Holders of record on the record date for such distribution when such Assets are distributed to the holders of Common Stock as though all then outstanding Warrants had been exercised for the number of Warrant Shares for which such Warrants are then exercisable as of such record date or (y) irrevocably deposit Assets in the amount distributable under clause (x) above in trust with a reputable and financially sound trustee (a "Trustee") for the sole and exclusive benefit of the Holders, subject only to the interests of the Company as set forth in the last sentence of this paragraph. If the Company elects to distribute Assets to the Holders, the Company shall, on the date Assets are distributed to holders of Common Stock, distribute to each Holder the Assets that such Holder would have been entitled to receive on such date if such Holder had exercised its then outstanding Warrants for the number of 13 Warrant Shares for which such Warrants are then exercisable immediately prior to the record date for such distribution. If, however, the Company elects to deposit the Assets due Holders in trust, the Company shall, on the fifth Business Day after the date of the making of the distribution of such Assets to holders of Common Stock, irrevocably deposit in trust with a Trustee the Assets that all Holders would have been entitled to receive on such date if all of their then outstanding Warrants had been exercised for the number of Warrant Shares for which such Warrants are then exercisable immediately prior to the record date for such distribution; and each Holder shall be entitled upon exercise of Warrants to receive the Warrant Shares then issuable upon exercise thereof, the Assets deposited in trust in respect of such Holder's Warrants, and the interest and dividends paid on such Assets since being placed in trust plus all other assets, securities, money and other items of value declared or distributed in respect of such Assets to the holders thereof since the date the Company was obligated hereunder to deposit such Assets in trust. In the event any Warrants have not been exercised by 5:00 p.m., New York City time, on the last day of the Exercise Period, any Assets or other trust assets shall be delivered over to the Company. (d) Adjustment for Common Stock Issue. In case the Company shall issue shares of its capital stock, shares of its Common Stock, Rights containing the right to subscribe for or purchase shares of Common Stock, Convertible Securities with respect to Common Stock or Rights to subscribe for or purchase such Convertible Securities (collectively, "Securities") (excluding the issuance of (i) shares, Rights or Convertible Securities issued in any of the transactions described in paragraph (a), (b) or (c) above, (ii) Warrant Shares issued upon exercise of the Warrants, (iii) Securities to officers, directors or employees of the Company as incentive compensation pursuant to incentive compensation plans adopted by the Company and (iv) Securities in settlement of litigation against the Company which the Board of Directors determines to be in the best interest of the Company) at a Price Per Share of Common Stock, in the case of the issuance of Common Stock, or at a Price Per Share of Common Stock initially deliverable upon conversion or exercise or exchange of such Securities, in each case, together with any other consideration received by the Company in connection with such issuance, more than 10% lower than the then Current Market Price per share of Common Stock on the date the Company fixed the offering, conversion or exercise or exchange price of such additional shares, then the number of Warrant Shares thereafter purchasable upon the exercise of each Warrant 14 shall be determined by multiplying the number of Warrant Shares theretofore purchasable upon exercise of each Warrant by a fraction, the numerator of which shall be the total number of shares of Common Stock outstanding on such date plus the additional number of Shares of Common Stock offered for subscription or purchase and the denominator of which shall be the number of shares of Common Stock outstanding on such date plus the number of shares of Common Stock which the aggregate Proceeds of the total amount of Securities so offered would purchase at the Current Market Price Per Share of Common Stock at such record date. In case the Company shall issue and sell Securities for a consideration consisting, in whole or in part, of property other than cash or its equivalent, then in determining the "Price Per Share" of Common Stock and the "consideration received by the Company" for purposes of the first sentence and the immediately preceding sentence of this paragraph (d), the Board of Directors of the Company shall reasonably and in good faith determine the fair value of such property. The determination of whether any adjustment is required under this paragraph (d), by reason of the sale and issuance of any Securities and the amount of such adjustment, if any, shall be made at such time and not at the subsequent time of issuance of shares of Common Stock upon the exercise, conversion or exchange of Securities. (e) Current Market Price; Price Per Share. (i) For the purpose of any computation under Section 4.2 hereof, paragraph (a) of Section 4.4 hereof, or this Section 9.1, the Current Market Price per share of Common Stock at any date shall be the average of the daily closing prices for the 20 consecutive trading days preceding the date of such computation. The closing price for each day shall be (x) if the Common Stock shall be then listed or admitted to trading on the New York Stock Exchange, the closing price on the NYSE - Consolidated Tape (or any successor composite tape reporting transactions on the New York Stock Exchange) or, if such a composite tape shall not be in use or shall not report transactions in the Common Stock, or if the Common Stock shall be listed on a stock exchange other than the New York Stock Exchange, the last reported sales price regular way or, in case no such reported sale takes place on such day, the average of the closing bid and asked prices regular way for such day, in each case on the principal national securities exchange on which the shares of Common Stock are listed or admitted to trading (which shall be the national securities exchange on which the greatest number of shares of the Common Stock has been traded during such 20 consecutive trading days), or (y) if the Common Stock is not listed or admitted to trading, the average of the closing bid and asked prices of the Common 15 Stock in the over-the-counter market as reported by National Association of Securities Dealers Automated Quotations ("NASDAQ") or NASDAQ/NMS or comparable system then in use or, if not so reported, the average of the closing bid and asked prices as furnished by two members of the NASD selected reasonably and in good faith from time to time by the Board of Directors for that purpose. In the absence of one or more such quotations, the Current Market Price per share of the Common Stock shall be determined reasonably and in good faith by the Board of Directors of the Company. (ii) For purposes of this Section 9.1, "Price Per Share" shall be defined and determined according to the following formula: R P = --- N where P = Price Per Share. R = the "Proceeds received or receivable by the Company," which (i) in the case of shares of Common Stock is the total amount received or receivable by the Company in consideration for the issuance and sale of such shares; (ii) in the case of Rights or of Convertible Securities with respect to shares of Common Stock, is the total amount received or receivable by the Company in Rights or such Convertible Securities, plus the minimum aggregate amount of additional consideration, other than the surrender of such Convertible Securities, payable to the Company upon exercise, conversion or exchange thereof; and (iii) in the case of Rights to subscribe for or purchase such Convertible Securities, is the total received or receivable by the Company in consideration for the issuance and sale of such Rights plus the minimum aggregate amount of additional consideration, other than the surrender of such Convertible Securities, payable upon the conversion or exchange or exercise of such Convertible 16 Securities, provided that in each case the proceeds received or receivable by the Company shall be the net cash proceeds after deducting therefrom any compensation paid or discount allowed in the sale, underwriting or purchase thereof by underwriters or dealers or others performing similar services, and N = the "Number of Shares," which (i) in the case of Common Stock is the number of shares issued; (ii) in the case of Rights or of Convertible Securities with respect to shares of Common Stock is the maximum number of shares of Common Stock initially issuable upon exercise, conversion or exchange thereof; and (iii) in the case of Rights to subscribe for or purchase such Convertible Securities, is the maximum number of shares of Common Stock initially issuable upon conversion, exchange or exercise of such Convertible Securities. (f) When De Minimis Adjustment May Be Deferred. No adjustment in the number of Warrant Shares purchasable hereunder shall be required unless such adjustment would require an increase or decrease of at least one percent (1%) in the number of Warrant Shares purchasable upon the exercise of each Warrant, provided that any adjustments which by reason of this paragraph (f) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations shall be made to the nearest one-thousandth of a Warrant Share and the nearest cent. (g) Other Dilutive Events. In case any event shall occur as to which the provisions of paragraphs (b), (c) or (d) of this Section 9.1 are not strictly applicable but the failure to make an adjustment would not fairly protect the purchase rights represented by this Agreement and the Warrants in accordance with the essential intent and principles of those paragraphs, then, in each such case, the Company shall appoint a firm of independent certified public accountants of recognized national standing (which may be the regular independent auditors of the Company), which shall give their opinion upon the adjustment, if any, on a basis consistent with the essential intent and principles established in such Sections, necessary to preserve, without dilution, the purchase rights represented by this Agreement and the Warrants. Upon receipt of such opinion, the Company will promptly mail a copy thereof to the Holders and shall make the adjustments described therein. 17 (h) Adjustment in Exercise Price. Whenever the number of Warrant Shares purchasable upon the exercise of each Warrant is adjusted as herein provided, the Exercise Price payable upon exercise of each Warrant immediately prior to such adjustment shall be adjusted by multiplying such Exercise Price by a fraction, the numerator of which shall be the number of Warrant Shares purchasable upon the exercise of each Warrant immediately prior to such adjustment and the denominator of which shall be the number of Warrant Shares purchasable immediately thereafter. (i) When No Adjustment Required. No adjustment in the number of Warrant Shares purchasable upon the exercise of each Warrant need be made under paragraphs (b), (c) and (d) of this Section 9.1 if the Company issues or distributes to each Holder of Warrants the Rights, Convertible Securities, Securities, evidences of indebtedness or assets referred to in those paragraphs which each Holder of Warrants would have been entitled to receive had the Warrants been exercised for the number of Warrant Shares for which Warrants are then exercisable prior to the happening of such event or the record date with respect thereto. No adjustment in the number of Warrant Shares purchasable upon the exercise of each Warrant need be made for sales of Common Stock pursuant to a Company plan for reinvestment of dividends or interest. No adjustment need be made for a change in the par value or to no par value of Warrant Shares, provided that the Exercise Price shall at no time be less than the par value of the Common Stock of the Company. The Company will take appropriate action to assure that the par value of Warrant Shares shall not exceed $.01, and to reduce the par value of its Common Stock from time to time as necessary so that such par value shall not be more than the Exercise Price then in effect. (j) Shares of Common Stock. For all purposes of this Agreement, the term "shares of Common Stock" shall mean (i) the class of stock designated as the Common Stock of the Company at the date of this Agreement or (ii) any other class of stock resulting from successive changes or reclassifications of such shares consisting solely of changes in par value, or from par value to no par value, or from no par value to par value. In the event that at any time, as a result of an adjustment made pursuant to paragraph (a) above, the Holders shall become entitled to purchase any securities of the Company other than shares of Common Stock, thereafter the number of such other 18 shares so purchasable upon exercise of each Warrant and the Exercise Price of such shares shall be subject to adjustment from time to time in a manner and on terms substantially identical to the provisions with respect to the Warrant Shares contained in paragraphs (a) through (i) above, and the provisions of this Agreement with respect to the Warrant Shares shall apply on like terms to any such other securities. (k) Expiration of Rights, etc. Upon the expiration of any Rights or conversion or exchange or exercise rights, if any thereof shall not have been exercised, the Exercise Price and the number of Warrant Shares purchasable upon the exercise of each Warrant shall, upon such expiration, be readjusted and shall thereafter be such as it would have been had it been originally adjusted (or had the original adjustment not been required, as the case may be) as if (A) the only shares of Common Stock so issued were the shares of Common Stock, if any, actually issued or sold upon the exercise of such Rights or conversion or exchange or exercise rights and (B) such shares of Common Stock, if any, were issued or sold for the consideration actually received by the Company upon such exercise plus the aggregate consideration, if any, actually received by the Company for the issuance, sale or grant of all of such Rights or conversion or exchange or exercise rights whether or not exercised, provided that no such readjustment shall have the effect of increasing the Exercise Price or decreasing the number of Warrant Shares purchasable upon the exercise of each Warrant by an amount in excess of the amount of the adjustment initially made in respect of the issuance, sale or grant of such Rights or conversion or exchange or exercise rights. 9.2. Voluntary Adjustment by the Company. The Company may at its option, at any time during the term of the Warrants, reduce the then current Exercise Price to any amount deemed appropriate by the Board of Directors of the Company, provided the Company may not in any case increase the Exercise Price pursuant to this Section 9.2, and provided, further, if the Company elects to reduce the then current Exercise Price, such reduction shall remain in effect for at least a 30 day period, after which time the Company may, at its option, reinstate the Exercise Price in effect immediately prior to such reduction, provided, however, that notice of such option to reinstate shall have been given to the Holders of the Warrants prior to such reduction. 19 9.3. Notice of Adjustment. Whenever the number of Warrant Shares purchasable upon the exercise of each Warrant or the Exercise Price of Warrant Shares is adjusted, as herein provided, the Company shall promptly mail at its sole expense by first class mail, postage prepaid, to each Holder notice of such adjustment or adjustments and a certificate of a firm of independent public accountants (who may be the regular accountants employed by the Company) setting forth the number of Warrant Shares purchasable upon the exercise of each Warrant and the Exercise Price of Warrant Shares after such adjustment, setting forth a brief statement of the facts requiring such adjustment and setting forth in reasonable detail the computations by which such adjustment was made. 9.4. Preservation of Purchase Rights upon Merger or Consolidation. In case of any consolidation of the Company with or merger of the Company with or into another entity, the Company or such successor entity shall execute and deliver to the Holders an agreement that each Holder shall have the right thereafter upon payment of the Exercise Price in effect immediately prior to such action to purchase upon exercise of each Warrant the kind and amount of shares and other securities and property (including cash) which such Holder would have owned or have been entitled to receive after the happening of such consolidation or merger had such Warrant been exercised immediately prior to such action, plus all dividends, interest or other income on or from such shares or other securities and property during the period from the effective date of the distribution thereof in connection with such event and until the exercise of such Warrant. The Company shall at its sole expense mail by first class mail, postage prepaid, to each Holder notice of the execution of any such agreement. Such agreement shall provide for adjustments, which shall be substantially identical to the adjustments provided for in this Section 9. In addition, the Company shall not merge or consolidate with or into any other entity unless the successor entity (if not the Company) shall expressly assume, by supplemental agreement executed and delivered to the Holders, and satisfactory to the Holders, the due and punctual performance and observance of each and every covenant and condition of this Agreement to be performed and observed by the Company. The provisions of this Section 9.4 shall similarly apply to successive consolidations or mergers. 9.5. No Impairment of Holder's Rights. The Company shall not, by amendment of its Certificate of Incorporation or through any consolidation, merger, reorganization, transfer of assets, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms hereof or of the Warrants, but at all times in good 20 faith carry out all such terms and take all such action as may be necessary or appropriate in order to protect the rights of the Holders against dilution or other impairment. Without limiting the generality of the foregoing, the Company (a) not permit the par value of any shares of stock receivable upon the exercise of the Warrants to exceed the amount payable therefor upon such exercise, (b) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue, free from preemptive rights, fully paid and non-assessable shares of stock upon the exercise of all Warrants from time to time outstanding, and (c) not take any action which results in any adjustment of the Exercise Price if the total number of shares of Common Stock issuable after the action upon the exercise of all the Warrants would exceed the total number of shares of Common Stock then authorized by the Company's Certificate of Incorporation and available for the purpose of issue upon such exercise. 9.6. Statement on Warrants. Irrespective of any adjustments in the Exercise Price or the number or kind of shares purchasable upon the exercise of the Warrants, Warrants theretofore or thereafter issued may continue to express the same price and number and kind of shares as are stated in the Warrants initially issuable pursuant to this Agreement. SECTION 10. Fractional Interests. The Company shall not be required to issue fractional Warrant Shares on the exercise of Warrants. If more than one Warrant shall be exercised at the same time by the same Holder, the number of full Warrant Shares which shall be issuable upon such exercise shall be computed on the basis of the aggregate number of Warrants so exercised. If any fraction of a Warrant Share would, except for the provisions of this Section 10, be issuable on the exercise of any Warrant, the Company shall pay an amount in cash equal to the closing price for one share of Common Stock on the date the Warrant Certificate is presented for exercise (determined in accordance with the second sentence of Section 9.1(e)(i) hereof), multiplied by such fraction. SECTION 11. No Rights as Stockholders; Notices to Holders. Nothing contained in this Agreement or in any of the Warrants shall be construed as conferring upon the Holders or their transferees the right to vote or to receive dividends or to consent or to receive notice as stockholders in respect of any meeting of stockholders for the election of directors of the Company or any other matter, or any rights whatsoever as stockholders of the Company. In case: 21 (a) the Company shall authorize the issuance to all holders of shares of Common Stock of rights, options or warrants to subscribe for or purchase shares of Common Stock or of any other subscription rights or warrants; or (b) the Company shall authorize the distribution to all holders of shares of Common Stock of evidences of its indebtedness or assets (other than cash dividends); or (c) of any consolidation or merger to which the Company is a party and for which approval of any shareholders of the Company is required, or of the conveyance or transfer of a substantial portion of the properties and assets of the Company for which approval of any shareholders of the Company is required, or of any reclassification or change of Common Stock issuable upon exercise of the Warrants (other than change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination), or a tender offer or exchange offer for shares of Common Stock; or (d) of the voluntary or involuntary dissolution, liquidation or winding up of the Company; or (e) the Company proposes to take any action which would require an adjustment of the Exercise Price pursuant to Section 9 hereof; then the Company shall cause to be given to each Holder at its address appearing on the Warrant Register, at least twenty (20) days prior to the applicable record date hereinafter specified, or promptly in the case of events for which there is no record date, by first class mail, postage prepaid, a written notice stating (i) the date as of which the holders of record of shares of Common Stock entitled to receive any such rights, options, warrants or distribution are to be determined, or (ii) the initial expiration date set forth in any tender offer or exchange offer for shares of Common Stock, or (iii) the date on which any such reclassification, consolidation, merger, conveyance, transfer, dissolution, liquidation, winding up or action is expected to become effective or consummated, as well as the date as of which it is expected that holders of record of shares of Common Stock shall be entitled to exchange such shares for securities or other property, if any, deliverable upon such reclassification, consolidation, merger, conveyance, transfer, dissolution, liquidation, winding up or action. The failure to give the notice required by this Section 11 or any defect therein shall not affect the legality or validity of any distribution, right, option, warrant, reclassification, consolidation, merger, conveyance, transfer, dissolution, liquidation, winding up or action, or the vote upon any of the foregoing. 22 SECTION 12. SEC Registration. 12.1. SEC Restrictions. Each Holder represents and warrants to the Company that it will not transfer any Warrants or Warrant Shares (unless such Warrants or Warrant Shares were previously transferred pursuant to an effective registration statement under the Act) except pursuant to (i) an effective registration statement under the Act, (ii) to the extent applicable, Rule 144 under the Act (or any similar rule under the Act relating to the disposition of restricted securities as defined thereunder) or (iii) an opinion of counsel reasonably satisfactory to the Company to the effect that an exemption from registration under the Act is available in connection with such transfer. 12.2. Certificates To Bear Legends. The Warrant Certificates shall initially bear the following legend, by which each Holder shall be bound: "THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE SHARES OF COMMON STOCK OR OTHER SECURITIES ISSUABLE UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("ACT"), (ii) TO THE EXTENT APPLICABLE, RULE 144 UNDER THE ACT (OR ANY SIMILAR RULE UNDER THE ACT RELATING TO THE DISPOSITION OF SECURITIES) OR (iii) AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY TO THE EFFECT THAT AN EXEMPTION FROM REGISTRATION UNDER THE ACT IS AVAILABLE IN CONNECTION WITH SUCH SALE. The Warrant Shares or other securities issued upon exercise of the Warrants shall initially, unless previously issued pursuant to an effective registration statement under the Act, bear the following legend, by which the holder thereof shall be bound: 23 "THE SHARES OR OTHER SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("ACT"), (ii) TO THE EXTENT APPLICABLE, RULE 144 UNDER THE ACT (OR ANY SIMILAR RULE UNDER THE ACT RELATING TO THE DISPOSITION OF SECURITIES) OR (iii) AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY TO THE EFFECT THAT AN EXEMPTION FROM REGISTRATION UNDER THE ACT IS AVAILABLE IN CONNECTION WITH SUCH SALE. 12.3. Registration Statements. (a) (I) Demand Registration. (1) At any time after the date hereof, the Holders of the Registrable Securities representing a majority of such Registrable Securities shall have the right, exercisable by written notice to the Company, to require the Company to prepare and file with the SEC, on two occasions, a registration statement and such other documents, including a prospectus, as may be necessary in the opinion of both counsel for the Company and counsel for the Holders, in order to comply with the provisions of the Act, so as to permit a public offering and sale of their respective Registrable Securities and the Registrable Securities of any other Holders who notify the Company of their decision to join therein within ten (10) days after receiving notice from the Company of such request in accordance with Section 12.3(a)(I)(2) below. (2) The Company covenants and agrees to give written notice of any registration request under this Section 12.3(a)(I) by any Holder or Holders to all other Holders of the Retgistrable Securities within ten (10) days from the date of receipt of any such registration request. (3) The Company shall use its best efforts to file a registration statement as soon as practicable, but in any event within thirty (30) days of receipt of any demand for registration pursuant to Section 12.3(a)(I)(1) above and shall use its best efforts to have any such registration statement declared effective at the earliest practicable time, shall cause such registration statement to remain effective for the period during which the delivery of a prospectus is required and shall furnish each Holder desiring to sell Registrable Securities such number of prospectuses as shall reasonably be requested. 24 (a) (II) Piggyback Registration Rights. In the event the Company proposes to file a registration statement under the Act prior to the last day of the Exercise Period with respect to an offering of any class of equity security for the Company's account and/or for the account of others (other than in connection with an exchange offer or a registration statement on Form S-4 or S-8 or other similar registration statements not available to register securities so requested to be included) which registration statement the Company believes will be or become effective at any time on or after the first day of the Exercise Period, the Company shall in each case give written notice of such proposed filing to each Holder of Registrable Securities in each case at least 30 days before the earlier of the anticipated or the actual effective date of the Registration Statement and at least 10 days before the initial filing of such Registration Statement. Such notice shall offer to such Holders the opportunity to include in such Registration Statement such number of Registrable Securities as they may request. Holders desiring inclusion of Registrable Securities in such registration statement shall so inform the Company by written notice, given within 10 days of the giving of such notice by the Company in accordance with the provisions of Section 15 hereof. The Company shall permit, or shall cause the managing underwriter or underwriters of a proposed offering to permit, the Holders of Registrable Securities requested to be included in the Registration Statement to include the transfer of such securities in the proposed offering on the same terms and conditions as applicable to securities of the Company, if any, included therein for the account of any person other than the Company and the holders of Registrable Securities and in any event on such terms as are customary for holders of securities of a company to be offered in a public underwritten offering by selling security holders, provided that to the extent the terms of this Agreement are applicable, the terms of this Agreement shall control. Notwithstanding the foregoing, if any such managing underwriter or underwriters shall advise the Company and the Holders of Registrable Securities in writing that, in its opinion, the distribution of securities by holders thereof, including all or a portion of Registrable Securities, requested to be included in the registration statement concurrently with the securities being registered by the Company would materially adversely affect the distribution of the securities by the Company for its own account, then the Company will include in the registration, to the extent of the number of securities that the Company is so advised can be sold in the offering (a) first, securities proposed by the Company to be sold for its own account, (b) second, Restructuring Securities (as defined in Section 12.4) and (c) third, Registrable 25 Securities and securities of the Company held by any other holders thereof whose rights to have securities of the Company included in the registration pre-date those of the Holders of Registrable Securities, pro rata on the basis of the number of securities so proposed to be sold and so requested to be included. The Company, in its sole discretion, may decide to suspend any offering under, or to terminate, any such registration statement at any time. (b) Restrictions on Public Sale by the Company and Others. The Company agrees (i) that, except for public offerings pursuant to registration statements required by agreements of the Company in effect prior to or contemporaneous with the effectiveness of this Agreement, it shall not, and that it shall not cause or permit any of its subsidiaries to, effect any public sale or distribution of any securities similar to the Registrable Securities or any securities convertible into or exchangeable or exercisable for such securities (or any option or other right for such securities) (except for any securities that may be issued to the Holders pursuant to this Agreement and the Warrants) during the 15-day period prior to, and during the 60-day period beginning on, the commencement of any underwritten offering of Registrable Securities; (ii) that any agreement entered into after the date of this Agreement pursuant to which the Company (or, if applicable, any subsidiary of the Company) issues or agrees to issue any securities which have registration rights shall contain (x) a provision under which the holders of such securities agree not to effect any public sale or distribution of any securities similar to the Registrable Securities (or any securities convertible into or exchangeable or exercisable for any such securities) during the periods described in clause (i) of this Section 12.3(c), in each case including a sale pursuant to Rule 144 under the Act (or any similar provision then in effect) and (y) a provision that effects, upon notice given pursuant to Section 12.3(a)(I) hereof to the Company that an underwritten offering of Registrable Securities is to be undertaken, the lapse of any demand registration rights with respect to any securities of the Company (or, if applicable, of any subsidiary of the Company) until the expiration of 180 days after the date of the completion of any such underwritten offering and (iii) that the Company (and, if applicable, each subsidiary of the Company) will not after the date hereof enter into any agreement or contract wherein the holders of any securities of the Company or of any subsidiary of the Company issued or to be issued are granted any "piggyback" registration rights with respect to any registration effected pursuant to Section 12.3(a)(I) or (II) hereof. 26 12.4. Certain Agreements of Holders. The Holders agree (a) not to effect any public sale or distribution, including a sale pursuant to Rule 144 under the Act (or any similar provision then in effect), of any Registrable Securities (or any securities convertible into or exchangeable or exercisable for Registrable Securities) during the 15-day period prior to, and during the 60-day period beginning on, the commencement of any underwritten offering of warrants issued pursuant to the Warrant Agreement between the Company and IBJ Schroder Bank & Trust Company, as Warrant Agent, dated as of May 1, 1995 or any shares of the Company's Common Stock issued upon exercise of such warrants ("Restructuring Securities") and (b) that upon receipt of notice that an underwritten offering referenced in Section 12.4(a) is to be undertaken, the Holders' demand rights set forth in Section 12.3(a)(I) shall be suspended until 180 days after the date of the completion of such underwritten offering. The Company shall notify the Holders in writing as soon as practicable that such an underwritten offering is to occur. 12.5. Underwritten Registrations. If any of the Registrable Securities covered by the Registration Statement required by Section 12.3(a)(I) are to be sold in an underwritten offering, the investment banker or investment bankers and manager or managers that will manage the offering will be selected by the Holders of a majority of the Registrable Securities and will be reasonably acceptable to the Company. If the managing underwriter or underwriters advise the Company and the Holders in writing that in the opinion of such underwriter or underwriters the amount of Registrable Securities proposed to be sold in such offering exceeds the amount of securities that can be sold in such offering, there shall be included in such underwritten offering the amount of Registrable Securities which in the opinion of such underwriter or underwriters can be sold, and such amount shall be allocated pro rata among the Holders of Registrable Securities on the basis of the number of Registrable Securities requested to be included by all Holders. The Holders of Registrable Securities sold in any such offering shall pay all underwriting discounts and commissions of the underwriter or underwriters pro rata. No Holder of Registrable Securities may participate in any underwritten registration hereunder unless such Holder (a) agrees to sell such Holder's Registrable Securities on the basis provided in any underwriting arrangements approved by the Holders of not less than a majority of the Registrable Securities and (b) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements. 27 12.6. Registration Procedures. In connection with any Registration Statement, the Company shall effect such registrations to permit the offering and sale of the Registrable Securities in accordance with the intended method or methods of disposition thereof, and pursuant thereto the Company shall as expeditiously as possible: (a) Before filing a Registration Statement, any amendments or supplements thereto or to any related Prospectus (including documents that would be incorporated or deemed to be incorporated therein by reference, including such documents filed under the Securities Exchange Act of 1934, as amended (the "Exchange Act") that would be incorporated therein by reference), the Company shall afford promptly to the Holders of the Registrable Securities covered by the Registration Statement, their counsel and the managing underwriter or underwriters, if any, an opportunity to review copies of all such documents proposed to be filed a reasonable time prior to the proposed filing thereof. The Company shall not file any Registration Statement or Prospectus or any amendments or supplements thereto if the Holders of the Registrable Securities covered by such Registration Statement, their counsel, or the managing underwriter or underwriters, if any, shall reasonably object in writing. The objections of such Persons shall be deemed to be reasonable if such Registration Statement, amendment, Prospectus or supplement, as applicable, as proposed to be filed, contains a material misstatement or omission, or fails to comply with the applicable requirements of the Act. (b) During the time period specified in Section 12.3(a)(I)(3), prepare and file with the SEC such amendments and post-effective amendments to the Registration Statement as may be necessary to keep such Registration Statement continuously effective for the time periods prescribed hereby; cause the related Prospectus to be supplemented by any required prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 (or any similar provisions then in force) under the Act; and comply with the provisions of the Act, the Exchange Act and the rules and regulations of the SEC promulgated thereunder applicable to it with respect to the disposition of all securities covered by such Registration Statement as so amended or in such prospectus as so supplemented. 28 (c) Notify the Holders of Registrable Securities, their counsel and the managing underwriter or underwriters, if any, promptly (but in any event within five (5) Business Days), and confirm such notice in writing, (i) when a Prospectus or any prospectus supplement or post-effective amendment has been filed, and, with respect to the Registration Statement or any post-effective amendment, when the same has become effective (including in such notice a written statement that any Holder may, upon request, obtain, without charge, one conformed copy of such Registration Statement or post-effective amendment including financial statements and schedules and exhibits), (ii) of the issuance by the SEC of any stop order suspending the effectiveness of such Registration Statement or of any order preventing or suspending the use of any preliminary prospectus or the initiation or threatening of any proceedings for that purpose, (iii) if at any time when a prospectus is required by the Act to be delivered in connection with sales of the Registrable Securities the representations and warranties of the Company (or, if applicable, any subsidiary of the Company) contained in any agreement (including any underwriting agreement) contemplated by Section 12.6(m) below, to the knowledge of the Company, cease to be true and correct in any material respect, (iv) of the receipt by the Company (or, if applicable, any subsidiary of the Company) of any notification with respect to (A) the suspension of the qualification or exemption from qualification of the Registration Statement or any of the Registrable Securities covered thereby for offer or sale in any jurisdiction, or (B) the initiation or threatening of any proceeding for such purpose, (v) of the happening of any event or information becoming known that requires the making of any changes in such Registration Statement, Prospectus or documents so that, in the case of such Registration Statement, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, not misleading, and that in the case of the Prospectus, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and (vi) of the Company's reasonable determination that a post-effective amendment to such Registration Statement would be appropriate. (d) Use every reasonable effort to prevent the issuance of any order suspending the effectiveness of the Registration Statement or of any order preventing or suspending the use of a Prospectus or suspending the qualification (or exemption from qualification) of any of the Registrable Securities covered thereby for sale in any jurisdiction, and, if any such order is issued, to obtain the withdrawal of any such order at the earliest possible moment. 29 (e) If requested by the managing underwriter or underwriters, if any, or the Holders of a majority of the Registrable Securities being sold in connection with an underwritten offering, (i) promptly incorporate in a prospectus supplement or post-effective amendment such information as the managing underwriter or underwriters, if any, or such Holders reasonably request to be included therein to comply with applicable law, (ii) make all required filings of such prospectus supplement or such post-effective amendment as soon as practicable after the Company (and, if applicable, a subsidiary of the Company) has received notification of the matters to be incorporated in such prospectus supplement or post-effective amendment, and (iii) supplement or make amendments to such Registration Statement. (f) Furnish to each Holder of Registrable Securities who so requests and to counsel for the holders of Registrable Securities and each managing underwriter, if any, without charge, one conformed copy of the Registration Statement and each post-effective amendment thereto, including financial statements and schedules, and of all documents incorporated or deemed to be incorporated therein by reference and all exhibits. (g) Deliver to each Holder of Registrable Securities, their counsel and each underwriter, if any, without charge, as many copies of each Prospectus (including each form of prospectus) and each amendment or supplement thereto as such persons may reasonably request; and, subject to the last paragraph of this Section 12.6, the Company hereby consents to the use of such Prospectus and each amendment or supplement thereto by each of the holders of Registrable Securities and the underwriter or underwriters or agents, if any, in connection with the offering and sale of the Registrable Securities covered by such Prospectus and any amendment or supplement thereto. (h) Prior to any offering of Registrable Securities, to register or qualify, and cooperate with the holders of Registrable Securities, the underwriter or underwriters, if any, and their respective counsel in connection with the registration or qualification (or exemption from such registration or qualification) of, such Registrable Securities for offer and sale under the securities or Blue Sky laws of such jurisdictions within the United States as may be required to permit the resale thereof by the Holders of Registrable Securities, or as 30 the managing underwriter or underwriters reasonably request in writing; keep each such registration or qualification (or exemption therefrom) effective during the period during which the Registration Statement is required to be kept effective and do any and all other acts or things necessary or advisable to enable the disposition in such jurisdictions of the securities covered thereby, provided that the Company will not be required to (A) qualify generally to do business in any jurisdiction where it is not then so qualified, (B) take any action that would subject it to general service of process in any such jurisdiction where it is not then so subject or (C) become subject to taxation in any jurisdiction where it is not then so subject. (i) Cooperate with the Holders of Registrable Securities and the managing underwriter or underwriters, if any, to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold, which certificates shall not bear any restrictive legends whatsoever and shall be in a form eligible for deposit with The Depository Trust Company ("DTC"); and enable such Registrable Securities to be in such denominations and registered in such names as the managing underwriter or underwriters, if any, or Holders may reasonably request at least two Business Days prior to any sale of Registrable Securities in a firm commitment underwritten public offering. (j) Use its best efforts to cause the Registrable Securities covered by the Registration Statement to be registered with or approved by such other governmental agencies or authorities within the United States as may be necessary to enable the seller or sellers thereof or the underwriter or underwriters, if any, to complete the transfer of such Registrable Securities. (k) Upon the occurrence of any event contemplated by Section 12.6(c)(v) or 12.6(c)(vi) above, as promptly as practicable prepare a supplement or post-effective amendment to the Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, and, subject to Section 12.6(a) hereof, file such with the SEC so that, as thereafter delivered to the purchasers of Registrable Securities being sold thereunder, such Prospectus will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading and will otherwise comply with law. 31 (l) Prior to the effective date of the Registration Statement, (i) provide the registrar for the Warrant Shares or such other Registrable Securities with printed certificates for such securities which certificates shall not bear any restrictive legends whatsoever and shall be in a form eligible for deposit with DTC and (ii) provide a CUSIP number for such securities. (m) Enter into an underwriting agreement in form, scope and substance as is customary in underwritten offerings and take all such other actions as are reasonably requested by the managing underwriter or underwriters in order to expedite or facilitate the registration and transfer of such Registrable Securities in any underwritten offering to be made of the Registrable Securities in accordance with this Agreement, and in such connection, (i) make such representations and warranties to the underwriter or underwriters with respect to the business of the Company and the subsidiaries of the Company, and the Registration Statement, Prospectus and documents, if any, incorporated or deemed to be incorporated by reference therein, in each case, in form, substance and scope as are customarily made by issuers to underwriters in underwritten offerings, and confirm the same if and when requested; (ii) obtain "cold comfort" letters and updates thereof (which letters and updates shall be reasonably satisfactory in form, scope and substance to the managing underwriter or underwriters) from the independent certified public accountants of the Company (and, if applicable, the subsidiaries of the Company) and, if necessary, any other independent certified public accountants of any subsidiary of the Company or of any business acquired by the Company for which financial statements and financial data are, or are required to be, included in the Registration Statement, addressed to each of the underwriters, such letters to be in customary form and covering matters of the type customarily covered in "cold comfort" letters in connection with underwritten offerings; and (iv) if an underwriting agreement is entered into, the same shall contain indemnification provisions and procedures no less favorable to the Holders than those set forth in Section 12.8 hereof (or such other provisions and procedures acceptable to Holders of a majority of Registrable Securities covered by such Registration Statement and the managing underwriter or underwriters or agents) with respect to all parties to be indemnified pursuant to said Section. The above shall be done at each closing under such underwriting agreement, or as and to the extent required thereunder. Obtain opinions of counsel to the Company (and, if applicable, the subsidiaries of the Company) and updates thereof (which counsel and opinions (in form, scope and substance) shall be, reasonably satisfactory to the Holders and, if in connection with an underwritten offering, to the managing underwriter or underwriters), covering the matters customarily covered in opinions requested in public offerings and such other matters as may be reasonably requested. 32 (n) Make available for inspection by a representative of the Holders of Registrable Securities being sold, any underwriter participating in any such disposition of Registrable Securities, if any, and any attorney or accountant retained by such representative of the holders or underwriter (collectively, the "Inspectors"), at the offices where normally kept, during reasonable business hours, all financial and other records, pertinent corporate documents and properties of the Company and the subsidiaries of the Company, and cause the officers, directors and employees of the Company and the subsidiaries of the Company to supply all information in each case reasonably requested by any such Inspector in connection with such Registration Statement. (o) Comply with all applicable rules and regulations of the SEC and make generally available to its securityholders earnings statements satisfying the provisions of Section 11(a) of the Act and Rule 158 thereunder (or any similar rule promulgated under the Act) no later than forty-five (45) days after the end of any 12-month period (or ninety (90) days after the end of any 12-month period if such period is a fiscal year (i) commencing at the end of any fiscal quarter in which Registrable Securities are sold to an underwriter or to underwriters in a firm commitment or best efforts underwritten offering and (ii) if not sold to an underwriter or to underwriters in such an offering, commencing on the first day of the first fiscal quarter of the Company after the effective date of the Registration Statement, which statements shall cover said 12-month periods. Each seller of Registrable Securities as to which any registration is being effected agrees, as a condition to the registration obligations with respect to such Holder provided herein, to furnish to the Company as the Company may, from time to time, reasonably request in writing, (i) such information specified in item 507 of Regulation S-K under the Act, (ii) if such Holder's plan of distribution includes any manner of offer or sale other than ordinary course sales in the public markets through brokers at ordinary rates of commission, such information as is required by Item 508 of Regulation S-K, or (iii) otherwise required by the Act or the SEC, for use in connection with any Registration Statement or Prospectus 33 or preliminary Prospectus included therein. The Company may exclude from such registration the Registrable Securities of any seller who unreasonably fails to furnish such information within a reasonable time after receiving such request. If the identity of a seller of Registrable Securities is to be disclosed in the Registration Statement, such seller shall be permitted to include all information regarding such seller as it shall reasonably request. Each Holder of Registrable Securities agrees by acquisition of such Registrable Securities that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 12.6(c)(ii), 12.6(c)(iv), 12.6(c)(v), or 12.6(c)(vi), such Holder will forthwith discontinue transfer of such Registrable Securities covered by the Registration Statement or Prospectus until such Holder's receipt of the copies of the supplemented or amended Prospectus contemplated by Section 12.6(k), or until it is advised in writing by the Company that the use of the applicable prospectus may be resumed, and has received copies of any amendments or supplements thereto, and, if so directed by the Company, such Holder will deliver to the Company or destroy all copies, other than permanent file copies, then in such Holder's possession, of the Prospectus covering such Registrable Securities current at the time of receipt of such notice. 12.7. Registration Expenses. All fees and expenses incident to the performance of or compliance with the provisions of Section 12 of this Agreement by the Company shall be borne by the Company whether or not the Registration Statement is filed or becomes effective, including, without limitation, (i) all registration and filing fees (including, without limitation, (A) fees with respect to filings required to be made with the NASD in connection with an underwritten offering and (B) fees and expenses of compliance with state securities or Blue Sky laws (including, without limitation, fees and disbursements of counsel for the underwriter or underwriters in connection with Blue Sky qualifications of the Registrable Securities and determination of the eligibility of the Registrable Securities for investment under the laws of such jurisdictions as provided in Section 12.6(h)), (ii) reasonable printing expenses (including, without limitation, expenses of printing certificates for Registrable Securities in a form eligible for deposit with DTC and of printing prospectuses if the printing of prospectuses is requested by the managing underwriter or underwriters, if any, or, in respect of Registrable Securities, by the Holders of a majority of Registrable Securities included in any Registration Statement), (iii) fees and disbursements of all 34 independent certified public accountants referred to in Section 12.6(m)(ii) (including, without limitation, the expenses of any special audit and "cold comfort" letters required by or incident to such performance), (iv) the fees and expenses of one "qualified independent underwriter" or other independent appraiser participating in an offering pursuant to Schedule E to the By-laws of the NASD, (v) liability insurance under the Act, if the Company so desires such insurance, (vi) fees and expenses of all attorneys, advisors, appraisers and other persons retained by the Company or any subsidiary of the Company, (vii) all reasonable fees and disbursements of one counsel for the Holders of the Registrable Securities to be selected by Holders of a majority of Registrable Securities, (viii) internal expenses of the Company and the subsidiaries of the Company (including, without limitation, all salaries and expenses of officers and employees of the Company and the subsidiaries of the Company performing legal or accounting duties), (ix) the expense of any annual audit, (x) the fees and expenses incurred in connection with the listing of the securities to be registered on any securities exchange and (xi) the expenses relating to printing, word processing and distributing all Registration Statements, underwriting agreements, securities sales agreements and any other documents necessary in order to comply with this Agreement. 12.8. Indemnification. (a) Indemnification by the Company. The Company shall, without limitation as to time, indemnify and hold harmless each Holder and each holder of Registrable Securities, the officers, directors, agents, investment advisors and employees of each of them, each person who controls any such person (within the meaning of Section 15 of the Act or Section 20 of the Exchange Act) and the officers, directors, agents and employees of each such controlling person (individually, an "Indemnified Party") from and against any and all losses, liabilities, claims, damages and expenses whatsoever (and actions in respect thereof) (including but not limited to attorneys' fees and any and all expenses whatsoever incurred in investigating, preparing or defending against any litigation, commenced or threatened, or any claim whatsoever, and any and all amounts paid in settlement of any claim asserted or in any action, proceeding or litigation), joint or several, to which they or any of them may become subject under the Act, the Exchange Act or other Federal or state statutory law or regulation, at common law or otherwise, insofar as such losses, liabilities, claims, damages or expenses (or actions in respect thereof) arise out of or are based upon a breach 35 of any representation, warranty or covenant made by the Company in this Agreement or based upon any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement, preliminary Prospectus or Prospectus, or in any supplement thereto or amendment thereof, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse each Indemnified Party for any legal or other expenses reasonably incurred by the Indemnified Party in connection with investigating or defending against such loss, claim, damage, liability or action as such expenses are incurred; provided, however, that the Company will not be liable in any such case to the extent, but only to the extent, that any such loss, liability, claim, damage or expense arises out of or is based upon any such untrue statement or alleged untrue statement or omission or alleged omission made therein in reliance upon and in conformity with written information furnished to the Company by or on behalf of any Indemnified Party expressly for use therein; and provided, further, that the Company shall not be liable to any Indemnified Party under the indemnity agreement in this Section 12.8(a) with respect to any Registration Statement, preliminary Prospectus or Prospectus, or any supplement thereto or amendment thereof, to the extent that any such loss, claim, judgment, liability or expense results solely from an untrue statement of material fact contained in, or the omission of any material fact from, such Registration Statement, preliminary Prospectus or Prospectus, or any supplement thereto or amendment thereof, which untrue statement or omission was corrected in the Prospectus or any supplement thereto or amendment thereof, if the Company shall sustain the burden of proving that the Indemnified Party sold Registrable Securities to the person alleging such loss, claim, damage or liability without sending or giving, at or prior to the written confirmation of such sale, a copy of the Prospectus, as amended, to correct any misstatement or omission, if the Company had previously furnished copies thereof to the Indemnified Party. This indemnity agreement will be in addition to any liability which the Company may otherwise have, including under this Agreement. The Company acknowledges that the information provided pursuant to the second paragraph of Section 12.6(o) of this Agreement which is included in any Registration Statement, preliminary Prospectus or Prospectus, or any supplement thereto or amendment thereof, constitutes the only information relating to a Holder that will be furnished in writing to the Company by the Holder expressly for inclusion in a Registration Statement, preliminary Prospectus or Prospectus, or any supplement thereto or amendment thereof. 36 (b) Indemnification by Holders of Registrable Securities. Each Holder of Registrable Securities severally, and not jointly, hereby agrees to indemnify and hold harmless the Company and any underwriter and each person, if any, who controls the Company and any underwriter within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, and each other Holder against any losses, liabilities, claims, damages and expenses whatsoever (and actions in respect thereof) (including but not limited to attorneys' fees and any and all expenses whatsoever incurred in investigating, preparing or defending against any litigation, commenced or threatened, or any claim whatsoever, and any and all amounts paid in settlement of any claim asserted in any action, proceeding or litigation), joint or several, to which they or any of them may become subject under the Act, the Exchange Act or other Federal or state statutory law or regulation, at common law or otherwise, insofar as such losses, liabilities, claims, damages or expenses (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement, any related preliminary Prospectus or Prospectus, or in any amendment thereof or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made therein in reliance upon and in conformity with written information furnished to the Company by such Holder (or its related Indemnified Party) expressly for use therein; provided, however, that in no event shall the liability of any Holder of Registrable Securities hereunder be, or be claimed by the Company to be, greater in amount than the dollar amount of the proceeds (net of payment of all expenses) received by such Holder upon the sale of Registrable Securities pursuant to such Registration Statement giving rise to such indemnification obligation. The Company acknowledges that the information provided pursuant to the second paragraph of Section 12.6(o) of this Agreement which is included in any Registration Statement, preliminary Prospectus or Prospectus, or any supplemental thereto or amendment thereof, constitutes the only information relating to a Holder that will be furnished in writing to the Company by the Holder expressly for inclusion in a Registration Statement, preliminary Prospectus or Prospectus, or any supplement thereto or amendment thereof. This indemnity will be in addition to any liability which such Holder may otherwise have, including under this Agreement. 37 (c) Conduct of Indemnification Proceedings. Promptly after receipt by an indemnified party under paragraph (a) or (b) of this Section 12.8 of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under such paragraph, notify each party against whom indemnification is to be sought in writing of the commencement thereof (but the failure so to notify an indemnifying party shall not relieve it from any liability which it may have under this Section 12.8, except to the extent that it has been prejudiced in any material respect by such failure, or from any liability which it may otherwise have). In case any such action is brought against any indemnified party, and it notifies an indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein, and to the extent it may elect by written notice delivered to the indemnified party promptly after receiving the aforesaid notice from such indemnified party, to assume the defense thereof with counsel reasonably satisfactory to such indemnified party. Notwithstanding the foregoing, the indemnified party or parties shall have the right to employ its or their own counsel in any such case, but the fees and expenses of such counsel shall be at the expense of such indemnified party or parties unless (i) the employment of such counsel shall have been authorized in writing by the indemnifying parties in connection with the defense of such action, (ii) the indemnifying parties shall not have employed counsel to have charge of the defense of such action within a reasonable time after notice of commencement of the action, or (iii) such indemnified party or parties shall have reasonably concluded that there may be defenses available to it or them which are different from or additional to those available to one or all of the indemnifying parties (in which case the indemnifying parties shall not have the right to direct the defense of such action on behalf of the indemnified party or parties). The Company shall not, in connection with any one such action or proceeding or separate but substantially similar or related actions or proceedings in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the reasonable fees and expenses of more than one separate firm of attorneys (in addition to any local counsel) at any time for such indemnified parties, which firm shall be designated by the Holders of a majority of the Registrable Securities then outstanding. Anything in this subsection to the contrary notwithstanding, an Indemnifying Party shall not be liable for any settlement of any claim or action effected without its written consent; provided, however, that such consent was not unreasonably withheld. 38 (d) Contribution. In order to provide for contribution in circumstances in which the indemnification provided for in this Section 12.8 is for any reason held to be unavailable to any indemnified party or is insufficient to hold harmless such indemnified party thereunder, then each applicable indemnifying party shall contribute to the aggregate losses, claims, damages, liabilities and expenses of the nature contemplated by such indemnification provisions (including any investigation, legal and other expenses incurred in connection with, and any amount paid in settlement of, any action, suit or proceeding or any claims asserted, but after deducting, in the case of losses, claims, damages, liabilities and expenses suffered by the Company, any contribution received by the Company from persons, other than any Indemnified Parties, who may also be liable for contribution, including persons who control the Company within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act) to which such indemnifying party may be subject, in such proportion as is appropriate to reflect the relative fault of such indemnifying party in connection with the statements or omissions which resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative fault of the indemnifying parties shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the indemnified party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and each Holder agree that it would not be just and equitable if contribution pursuant to this Section 12.8(d) were determined by pro rata allocation or by any other method of allocation which does not take into account the equitable considerations referred to above. Notwithstanding the provisions of this Section 12.8(d), (i) an indemnifying party that is a Holder of Registrable Securities shall not be required to contribute any amount in excess of the amount by which the total price at which the Registrable Securities sold by such indemnifying party and distributed to the public were offered to the public exceeds the amount of any damages which such indemnifying party has otherwise paid or been required to pay by reasons of such untrue or alleged untrue statement or omission or alleged omission and (ii) no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this Section 12.8(d), each person, if any, who controls any Holder within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act shall have the same 39 rights to contribution as such Holder, and each person, if any, who controls the Company within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act shall have the same rights to contribution as the Company, subject in each case to clauses (i) and (ii) of this Section 12.8(d). Any party entitled to contribution will, promptly after receipt of notice of commencement of any action, suit or proceeding against such party in respect of which a claim for contribution may be made against another party or parties under this Section 12.8(d), notify such party or parties from whom contribution may be sought, but the omission to so notify such party or parties shall not relieve the party or parties from whom contribution may be sought from any obligation it or they may have under this Section 12.8 or otherwise. No party shall be liable for contribution with respect to any action or claim settled without its written consent; provided, however, that such written consent was not unreasonably withheld. (e) Other Indemnities. The indemnity, contribution and expense reimbursement obligations under this Section 12.8 shall be in addition to any liability each indemnifying person may otherwise have. 12.9. Rule 144. The Company shall file the reports required to be filed by it under the Act and the Exchange Act and the rules and regulations adopted by the SEC thereunder in a timely manner and, if at any time the Company is not required to file such reports, it will, upon the reasonable request of any holder of Registrable Securities, make publicly available other information so long as necessary to permit sales pursuant to Rule 144 and Rule 144A under the Act. The Company further covenants that it will take such further action as any holder of Registrable Securities may reasonable request, all to the extent required from time to time to enable such holder to sell Registrable Securities without registration under the Act within the limitation of the exemptions provided by (a) Rule 144 and Rule 144A under the Act, as such Rules may be amended from time to time, or (b) any similar rule or regulation hereafter adopted by the SEC. Upon the request of any holder of Registrable Securities, the Company will deliver to such holder a written statement as to whether it has complied with the foregoing requirements. SECTION 13. Payments in U.S. Currency. All payments required to be made hereunder shall be made in lawful money of the United States of America. 40 SECTION 14. Identity of Transfer Agent. The name and address of the Company's Transfer Agent as of the date hereof is Mellon Financial Services, Fiduciary Securities Transfer Services, 111 Founders Plaza, 11th Floor, East Hartford, Connecticut 06108, Attention: Joan B. Hayes. Forthwith upon the appointment of any subsequent or other Transfer Agent for the Common Stock, or any other shares of the Company's capital stock issuable upon the exercise of the Warrants, the Company shall provide each Holder with a statement setting forth the name and address of such Transfer Agent. SECTION 15. Notices. Any notice pursuant to this Agreement by the Company to any Holder or by any Holder to the Company, shall be in writing and shall be delivered in person or by facsimile transmission, or mailed first class, postage prepaid, (a) to the Company, at its offices at 111 Monument Circle, Suite 3200, Indianapolis, Indiana 46204, Attention: President, Telecopier No.: (317) 630-3090, or (b) to the Initial Holder, at 672 Delaware Avenue, Buffalo, New York 14209, Attention: Treasurer, Telecopier No.: (716) 888-8010. Each party hereto may from time to time change the address to which notices to it are to be delivered or mailed hereunder by notice to the other party. Any notice mailed pursuant to this Agreement by the Company to the Holders shall be in writing and shall be mailed first class, postage prepaid, or otherwise delivered, to such Holders at their respective addresses in the Warrant Register. Any Holder may change its address by notice to the Company given in accordance with this Section 15. SECTION 16. Furnishing Information. So long as the Warrants remain outstanding, the Company shall cause its annual report to stockholders and any quarterly or other financial reports furnished by it to stockholders to be mailed within five (5) days to the Holders, at their addresses as set forth in the Warrant Register. At any time that the Company does not have a class of securities registered under the Exchange Act, the Company will prepare, for the first three quarters of each fiscal year quarterly reports, and for each fiscal year an annual report, containing information (including, but not limited to, combined or consolidated financial statements which in the case of annual reports shall be audited) substantially equivalent to that required to be included in reports on Form 10-Q and on Form 10-K, respectively, under the Exchange Act. All financial statements will be prepared in accordance with generally accepted accounting 41 principles consistently applied, except for changes with which the Company's independent public accountants concur and except that quarterly statements need not comply with footnote disclosure requirements, may be subject to normal year-end adjustments and shall be certified by the Chief Financial Officer of the Company, and the annual financial statements shall be certified by the Company's independent public accountants. The Company will cause at the Company's expense a copy of the respective reports to be mailed to each Holder within sixty (60) days after the close of each of the first three quarters of each fiscal year and within one hundred fifteen (115) days after the close of each fiscal year, to each Holder at its address set forth in the Warrant Register. SECTION 17. Supplements and Amendments. The Company and the Holders of a majority of the Warrants may amend this Agreement from time to time. SECTION 18. Successors. All the covenants and provisions of this Agreement by or for the benefit of the Company and the Holders shall bind and inure to the benefit of their respective successors hereunder. SECTION 19. APPLICABLE LAW. THIS AGREEMENT AND EACH WARRANT ISSUED HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. SECTION 20. Benefits of this Agreement. Nothing in this Agreement shall be construed to give to any person or corporation other than the Company and the Holders any legal or equitable right, remedy or claim under this Agreement; but this Agreement shall be for the sole and exclusive benefit of the Company, its successors and the Holders of the Warrants. SECTION 21. Counterparts. This Agreement may be executed in any number of counterparts; each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument. SECTION 22. Captions. The captions of the Sections and subsections of this Agreement have been inserted for convenience only and shall have no substantive effect. [This space intentionally left blank - signature page follows] 42 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed, all as of the day and year first above written. FRUEHAUF TRAILER CORPORATION By:/s/ Timothy J. Wiggins ------------------------ Name: Timothy J. Wiggins Title: Executive Vice President and Chief Financial Officer K-H CORPORATION By:/s/ Fred J. Chapman ----------------------- Name: Fred J. Chapman Title: Treasurer EXHIBIT A [Form of Warrant Certificate] [Face] THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE SHARES OF COMMON STOCK OR OTHER SECURITIES ISSUABLE UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("ACT"), (ii) TO THE EXTENT APPLICABLE, RULE 144 UNDER THE ACT (OR ANY SIMILAR RULE UNDER THE ACT RELATING TO THE DISPOSITION OF SECURITIES) OR (iii) AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY TO THE EFFECT THAT AN EXEMPTION FROM REGISTRATION UNDER THE ACT IS AVAILABLE IN CONNECTION WITH SUCH SALE. No. _____ Warrants Warrant Certificate FRUEFAUF TRAILER CORPORATION This Warrant Certificate certifies that _________, or registered assigns, is the registered holder of Warrants expiring April 25, 2001 (the "Warrants") to purchase Common Stock, par value $.01 per share (the "Common Stock"), of Fruehauf Trailer Corporation, a Delaware corporation (the "Company"). Each Warrant entitles the registered holder upon exercise on or after the date hereof and on or before 5:00 p.m. New York City Time on April 25, 2001, to receive from the Company one fully paid and nonassessable share of Common Stock (each such share, a "Warrant Share") at the exercise price of $2.50 per share (the "Exercise Price") payable (i) in cash or (ii) by certified or official bank check. The Warrants represented by this Warrant Certificate may be exercised upon surrender of this Warrant Certificate and payment of the Exercise Price at the office of the Company designated for such purpose, but only subject to the conditions set forth herein and in the Warrant Agreement referred to on the reverse hereof. In the alternative, Warrants may be exercised without the exchange of funds pursuant to the net exercise provisions of Section 4.2 of the Warrant Agreement. The number of Warrant Shares issuable upon exercise of the Warrants and the Exercise Price are subject to adjustment upon the occurrence of certain events set forth in the Warrant Agreement. 2 No Warrant may be exercised after 5:00 p.m., New York City Time, on April 25, 2001, and to the extent not exercised by such time such Warrants shall expire. This Warrant is subject to redemption at the option of the Company after the third anniversary of the initial date of issuance of the Warrants if certain conditions relating to the market price of the Common Stock are met, as set forth in the Warrant Agreement. Reference is hereby made to the further provisions of this Warrant Certificate set forth on the reverse hereof and such further provisions shall for all purposes have the same effect as though fully set forth at this place. This Warrant Certificate shall be governed by and construed in accordance with the internal laws of the State of New York. IN WITNESS WHEREOF, Fruehauf Trailer Corporation has caused this Warrant Certificate to be signed by its duly authorized officer. Dated: April 25, 1996 FRUEHAUF TRAILER CORPORATION By: /s/ Timothy J. Wiggins ------------------------ Title: Executive Vice President and Chief Financial Officer 3 [Form of Warrant Certificate] [Reverse] The Warrants evidenced by this Warrant Certificate are part of a duly authorized issue of Warrants expiring April 25, 2001, entitling the holder on exercise to receive shares of Common Stock, par value $.01 per share, of the Company (the "Common Stock"), and are issued or to be issued pursuant to a Warrant Agreement dated as of April 25, 1996 (the "Warrant Agreement"), between the Company and K-H Corporation, which Warrant Agreement is hereby incorporated by reference in and made a part of this instrument and is hereby referred to for a description of the rights, limitation of rights, obligations, duties and immunities thereunder of the Company and the holders (the words "holders" or "holder" meaning the registered holders or registered holder) of the Warrants. A copy of the Warrant Agreement may be obtained by the holder hereof upon written request to the Company. Capitalized terms used herein without definition shall have the meanings ascribed to them in the Warrant Agreement. Warrants may be exercised at any time on or after the date hereof and on or before 5:00 p.m., New York City Time, on April 25, 2001. The holder of Warrants evidenced by this Warrant Certificate may exercise them by surrendering this Warrant Certificate, with the form of election to purchase set forth hereon properly completed and executed, together with payment of the Exercise Price (i) in cash or (ii) by certified or official bank check. In the alternative, Warrants may be issued without the exchange of funds pursuant to the net exercise provisions of Section 4.2 of the Warrant Agreement. In the event that upon any exercise of Warrants evidenced hereby the number of Warrants exercised shall be less than the total number of Warrants evidenced hereby, there shall be issued to the holder hereof or his assignee a new Warrant Certificate evidencing the number of Warrants not exercised. No adjustment shall be made for any dividends on any Common Stock issuable upon exercise of this Warrant. The Warrant Agreement provides that upon the occurrence of certain events the number of shares of Common Stock issuable upon the exercise of each Warrant and the Exercise Price shall be adjusted. No fractions of a share of Common Stock will be issued upon the exercise of any Warrant, but the Company will pay the cash value thereof determined as provided in the Warrant Agreement. 4 The holders of the Warrants are entitled to certain registration rights with respect to the Warrants and the Common Stock purchasable upon exercise of the Warrants. Said registration rights are set forth in full in the Warrant Agreement. Warrant Certificates, when surrendered at the office of the Company by the registered holder thereof in person or by legal representative or attorney duly authorized in writing, may be exchanged, in the manner and subject to the limitations provided in the Warrant Agreement, but without payment of any service charge, for another Warrant Certificate or Warrant Certificates of like tenor evidencing in the aggregate a like number of Warrants. Upon due presentation for registration of transfer of this Warrant Certificate at the office of the Company, a new Certificate or Warrant Certificates of like tenor and evidencing in the aggregate a like number of Warrants shall be issued to the transferee(s) in exchange for this Warrant Certificate, subject to the limitations provided in the Warrant Agreement, without charge except for any tax or other governmental charge imposed in connection therewith. The Company may deem and treat the registered holder(s) hereon as the absolute owner(s) of this Warrant Certificate (notwithstanding any notation of ownership or other writing hereon made by anyone), for the purpose of any exercise hereof, of any distribution to the holder(s) hereof, and for all other purposes, and the Company shall not be affected by any notice to the contrary. Neither the Warrants nor this Warrant Certificate entitles any holder hereof to any rights of a stockholder of the Company, except as otherwise provided in the Warrant Agreement. 5 Form of Election to Purchase (To Be Executed Upon Exercise Of Warrant) The undersigned hereby irrevocably elects to exercise _______ Warrants containing the right, represented by this Warrant Certificate, to receive ________ shares of Common Stock and herewith (check item) tenders payment for such shares to the order of Fruehauf Trailer Corporation in the amount of $2.50 per share of Common Stock in accordance with the terms hereof, as follows: / / $________ in cash or by certified or official bank check to the order of Fruehauf Trailer Corporation; or / / by surrender of Warrant Shares having a Current Market Value (as defined in the Warrant Agreement) of $__________. The undersigned requests that a certificate for such shares be registered in the name of ___________, whose address is ____________________, and that such shares be delivered to ______________, whose address is __________________________. If said numbers of shares is less than all of the shares of Common Stock purchasable hereunder, the undersigned requests that a new Warrant Certificate for _________ Warrants representing the remaining balance of such Warrants be registered in the name of _____________________, whose address is __________________________________, and that such Warrant Certificate be delivered to ________________________, whose address is ___________________________________. ____________________________ Signature Date: ______________________ 6 ASSIGNMENT FORM To assign this Warrant, fill in the form below: (I) or (we) assign and transfer this Warrant to ________________________________________________________ (Insert assignee's soc. sec. or tax I.D. No.) _________________________________________________________ ________________________________________________________ _________________________________________________________ _________________________________________________________ (Print or type assignee's name, address and zip code) and irrevocably appoint _________________________________ to transfer this Warrant on the books of the Company. The agent may substitute another to act for him. _________________________________________________________ Date: _____________ Your Signature: _______________ (Sign exactly as your name appears on the face of this Warrant) EX-4.39 8 FRUEHAUF TRAILER EXHIBIT 4.39 1 THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE SHARES OF COMMON STOCK OR OTHER SECURITIES ISSUABLE UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("ACT"), (ii) TO THE EXTENT APPLICABLE, RULE 144 UNDER THE ACT (OR ANY SIMILAR RULE UNDER THE ACT RELATING TO THE DISPOSITION OF SECURITIES) OR (iii) AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY TO THE EFFECT THAT AN EXEMPTION FROM REGISTRATION UNDER THE ACT IS AVAILABLE IN CONNECTION WITH SUCH SALE. No. R-1 2,000,000 Warrants Warrant Certificate FRUEFAUF TRAILER CORPORATION This Warrant Certificate certifies that K-H Corporation, or registered assigns, is the registered holder of Warrants expiring April 25, 2001 (the "Warrants") to purchase Common Stock, par value $.01 per share (the "Common Stock"), of Fruehauf Trailer Corporation, a Delaware corporation (the "Company"). Each Warrant entitles the registered holder upon exercise on or after the date hereof and on or before 5:00 p.m. New York City Time on April 25, 2001, to receive from the Company one fully paid and nonassessable share of Common Stock (each such share, a "Warrant Share") at the exercise price of $2.50 per share (the "Exercise Price") payable (i) in cash or (ii) by certified or official bank check. The Warrants represented by this Warrant Certificate may be exercised upon surrender of this Warrant Certificate and payment of the Exercise Price at the office of the Company designated for such purpose, but only subject to the conditions set forth herein and in the Warrant Agreement referred to on the reverse hereof. In the alternative, Warrants may be exercised without the exchange of funds pursuant to the net exercise provisions of Section 4.2 of the Warrant Agreement. The number of Warrant Shares issuable upon exercise of the Warrants and the Exercise Price are subject to adjustment upon the occurrence of certain events set forth in the Warrant Agreement. 2 No Warrant may be exercised after 5:00 p.m., New York City Time, on April 25, 2001, and to the extent not exercised by such time such Warrants shall expire. This Warrant is subject to redemption at the option of the Company after the third anniversary of the initial date of issuance of the Warrants if certain conditions relating to the market price of the Common Stock are met, as set forth in the Warrant Agreement. Reference is hereby made to the further provisions of this Warrant Certificate set forth on the reverse hereof and such further provisions shall for all purposes have the same effect as though fully set forth at this place. This Warrant Certificate shall be governed by and construed in accordance with the internal laws of the State of New York. IN WITNESS WHEREOF, Fruehauf Trailer Corporation has caused this Warrant Certificate to be signed by its duly authorized officer. Dated: April 25, 1996 FRUEHAUF TRAILER CORPORATION By: /s/ Timothy J. Wiggins ----------------------- Title: Executive Vice President and Chief Financial Officer 3 [Reverse] The Warrants evidenced by this Warrant Certificate are part of a duly authorized issue of Warrants expiring April 25, 2001, entitling the holder on exercise to receive shares of Common Stock, par value $.01 per share, of the Company (the "Common Stock"), and are issued or to be issued pursuant to a Warrant Agreement dated as of April 25, 1996 (the "Warrant Agreement"), between the Company and K-H Corporation, which Warrant Agreement is hereby incorporated by reference in and made a part of this instrument and is hereby referred to for a description of the rights, limitation of rights, obligations, duties and immunities thereunder of the Company and the holders (the words "holders" or "holder" meaning the registered holders or registered holder) of the Warrants. A copy of the Warrant Agreement may be obtained by the holder hereof upon written request to the Company. Capitalized terms used herein without definition shall have the meanings ascribed to them in the Warrant Agreement. Warrants may be exercised at any time on or after the date hereof and on or before 5:00 p.m., New York City Time, on April 25, 2001. The holder of Warrants evidenced by this Warrant Certificate may exercise them by surrendering this Warrant Certificate, with the form of election to purchase set forth hereon properly completed and executed, together with payment of the Exercise Price (i) in cash or (ii) by certified or official bank check. In the alternative, Warrants may be issued without the exchange of funds pursuant to the net exercise provisions of Section 4.2 of the Warrant Agreement. In the event that upon any exercise of Warrants evidenced hereby the number of Warrants exercised shall be less than the total number of Warrants evidenced hereby, there shall be issued to the holder hereof or his assignee a new Warrant Certificate evidencing the number of Warrants not exercised. No adjustment shall be made for any dividends on any Common Stock issuable upon exercise of this Warrant. The Warrant Agreement provides that upon the occurrence of certain events the number of shares of Common Stock issuable upon the exercise of each Warrant and the Exercise Price shall be adjusted. No fractions of a share of Common Stock will be issued upon the exercise of any Warrant, but the Company will pay the cash value thereof determined as provided in the Warrant Agreement. 4 The holders of the Warrants are entitled to certain registration rights with respect to the Warrants and the Common Stock purchasable upon exercise of the Warrants. Said registration rights are set forth in full in the Warrant Agreement. Warrant Certificates, when surrendered at the office of the Company by the registered holder thereof in person or by legal representative or attorney duly authorized in writing, may be exchanged, in the manner and subject to the limitations provided in the Warrant Agreement, but without payment of any service charge, for another Warrant Certificate or Warrant Certificates of like tenor evidencing in the aggregate a like number of Warrants. Upon due presentation for registration of transfer of this Warrant Certificate at the office of the Company, a new Certificate or Warrant Certificates of like tenor and evidencing in the aggregate a like number of Warrants shall be issued to the transferee(s) in exchange for this Warrant Certificate, subject to the limitations provided in the Warrant Agreement, without charge except for any tax or other governmental charge imposed in connection therewith. The Company may deem and treat the registered holder(s) hereon as the absolute owner(s) of this Warrant Certificate (notwithstanding any notation of ownership or other writing hereon made by anyone), for the purpose of any exercise hereof, of any distribution to the holder(s) hereof, and for all other purposes, and the Company shall not be affected by any notice to the contrary. Neither the Warrants nor this Warrant Certificate entitles any holder hereof to any rights of a stockholder of the Company, except as otherwise provided in the Warrant Agreement. 5 Form of Election to Purchase (To Be Executed Upon Exercise Of Warrant) The undersigned hereby irrevocably elects to exercise _______ Warrants containing the right, represented by this Warrant Certificate, to receive ________ shares of Common Stock and herewith (check item) tenders payment for such shares to the order of Fruehauf Trailer Corporation in the amount of $2.50 per share of Common Stock in accordance with the terms hereof, as follows: / / $________ in cash or by certified or official bank check to the order of Fruehauf Trailer Corporation; or / / by surrender of Warrant Shares having a Current Market Value (as defined in the Warrant Agreement) of $__________. The undersigned requests that a certificate for such shares be registered in the name of ___________, whose address is ____________________, and that such shares be delivered to ______________, whose address is __________________________. If said numbers of shares is less than all of the shares of Common Stock purchasable hereunder, the undersigned requests that a new Warrant Certificate for _________ Warrants representing the remaining balance of such Warrants be registered in the name of _____________________, whose address is __________________________________, and that such Warrant Certificate be delivered to ________________________, whose address is ___________________________________. ____________________________ Signature Date: ______________________ 6 ASSIGNMENT FORM To assign this Warrant, fill in the form below: (I) or (we) assign and transfer this Warrant to _________________________________________________________ (Insert assignee's soc. sec. or tax I.D. No.) _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ (Print or type assIgnee's name, address and zip code) and irrevocably appoint _________________________________ to transfer this Warrant on the books of the Company. The agent may substitute another to act for him. __________________________________________________________ Date: _____________ Your Signature: ___________________ (Sign exactly as your name appears on the face of this Warrant) EX-10.18 9 FRUEHAUF TRAILER EXHIBIT 10.18 April 19, 1996 K-H Corporation 38481 Huron River Drive Romulus, MI 48174 Ladies and Gentlemen: This letter agreement (this "Agreement") confirms the agreement between K-H Corporation, a Delaware corporation ("K-H"), and Fruehauf Trailer Corporation, a Delaware corporation ("Fruehauf"), pursuant to which K-H, or an affiliate of K-H, will purchase an interest in the amount of approximately $6,500,000 in Fruehauf's existing credit facility (the "Credit Facility") with Congress Financial Corporation (Central) ("Congress"). In consideration of K-H's agreement to purchase the interest in the Credit Facility, the covenants and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, K-H and Fruehauf agree as follows: (1) K-H shall, or shall cause one of its creditworthy affiliates to, purchase an interest in the aggregate amount of $6,500,000 (the "Funding") in the Credit Facility by entering into one or more Note Purchase and Assignment Agreements in substantially the form of Exhibit A attached hereto, pursuant to which K-H or its affiliate shall purchase a working capital term note in the amount of $5,500,000 payable to Congress by Fruehauf an additional working capital term note in the amount of $1,000,000 on the condition that the consents of the Holders described in paragraph 4 are received. The initial Funding shall occur no later than 11:00 a.m. eastern standard time on Thursday, April 25, 1996. K-H shall purchase $5,500,000 of the interest at the initial Funding and shall purchase the remaining $1,000,000 on the condition that, and as soon as practicable following, the receipt by Fruehauf of the consents of Holders described in paragraph 4. This condition concerning consent by Holders may be waived by mutual consent of K-H and Fruehauf. (2) Fruehauf shall execute and deliver to K-H at the closing of the initial Funding a letter agreement in the form of Exhibit B attached hereto which could be furnished by K-H to the Internal Revenue Service. (3) K-H shall execute and deliver to Fruehauf at the closing of the initial Funding and concurrently with Fruehauf's delivery of the letter agreement referred to in paragraph 2, an indemnification agreement in the form of Exhibit C attached hereto. 2 (4) Fruehauf will use its reasonable best efforts to obtain as promptly as possible following the execution of this Agreement from the holders (the "Holders") of the senior notes issued under the indenture, dated as of May 1, 1995, between Fruehauf and IBJ Schroder Bank & Trust Company, as trustee (the "Indenture"), their consent to (i) such matters as shall satisfy the conditions contained in the limited waiver, dated as of April 19, 1996, between Congress and Fruehauf, attached as an Exhibit to the Note Purchase and Assignment Agreement referred to on paragraph 1 above and (ii) the incurrence by Fruehauf of additional junior debt through future financing arrangements with K-H or an affiliate of K-H and (iii) the grant by Fruehauf of security interests to K-H or an affiliate of K-H junior to the security interests of the Holders to secure any such financing arrangements. Such consent must include a consent to a supplemental indenture, an amendment to the First Amended and Restated Intercreditor Agreement made and entered into as of May 1, 1995 by and among Congress, IBJ Schroder Bank & Trust Company, as Trustee and Collateral Agent, and the Existing Lenders (as defined therein) and such other documents and instruments as may be required to effectuate the transactions contemplated by this paragraph 4. Fruehauf shall use its reasonable best efforts to sell Fruehauf International Limited reasonably promptly following the initial Funding and, in connection therewith, will immediately commence negotiations with the party making the proposal, a copy of which has been provided to K-H. Nothing in this paragraph 4 may be construed to require Fruehauf to sell Fruehauf International Limited. (5) Fruehauf shall provide K-H with full and timely access to all information (including Fruehauf's records, personnel, counsel and auditors) as may reasonably be requested by K-H and without limitation will provide K-H with information on an on-going basis concerning Fruehauf's trailing liabilities, cash position and financial projections, proposed business combinations, the proposed disposition of Fruehauf International Limited, the Consent referred to in paragraph 4 and any other communications with Holders and cost savings plans and opportunities. (6) Fruehauf shall consult with K-H regarding any potential cost saving opportunities with respect to Fruehauf's corporate headquarters office structure and shall implement such cost saving measures as may be mutually agreed upon by Fruehauf and K-H. (7) Fruehauf shall cooperate with K-H on an on-going basis in efforts to reduce Fruehauf's trailing liabilities and, to the extent that Fruehauf has cash available beyond its reasonably prudent working 3 capital needs to do so, to accept or otherwise utilize opportunities to settle or reduce the trailing liabilities at a discount. Notwithstanding the foregoing sentence, Fruehauf retains the sole discretion to determine whether to accept or utilize such opportunities to settle or reduce the trailing liabilities at a discount, except to the extent that K-H advances additional funding for such purpose. (8) Fruehauf hereby confirms its liability to reimburse K-H for up to $367,951 in environmental expenses incurred by K-H, subject to an accounting by K-H to show actual environmental expenses incurred. In addition, Fruehauf shall pay the legal expenses of K-H in connection with this Agreement and the transactions contemplated by this Agreement. Fruehauf shall pay the amount of fees of counsel up an aggregate of $200,000 plus disbursements of counsel at the initial Funding and, as to any additional such fees and disbursements, at any second Funding. (9) On or before May 31, 1996, Fruehauf will meet with K-H to discuss and determine amounts owing by Fruehauf, if any, to K-H as a result of legal expenses incurred by K-H in connection with the Assumption Agreement (the "Assumption Agreement"), dated as of July 13, 1989, between Fruehauf Corporation and Terex Trailer Corporation (now Fruehauf) and that certain letter agreement dated January 5, 1994, between K-H and Fruehauf (the "Letter Agreement"). (10) If Fruehauf files a petition under chapter 11 of the United States Bankruptcy Code, Fruehauf will seek injunctive protection for any liability K-H may have with respect to the trailing liabilities. (11) Fruehauf hereby reaffirms its obligations under the Assumption Agreement and the Letter Agreement and acknowledges that such agreements continue in full force and effect. In particular, Fruehauf affirms its obligations under both the Assumption Agreement and the Letter Agreement to reimburse K-H for legal expenses incurred by K-H as provided in such agreements. Fruehauf reaffirms that it will perform its obligations under both the Assumption Agreement and the Letter Agreement. Fruehauf will not assert any defense or right of offset against any obligation to K-H arising from the Assumption Agreement or the Letter Agreement. (12) Fruehauf shall, and shall cause each of Fruehauf International Limited, a Delaware corporation, Fruehauf Corporation, a Delaware corporation, M.J. Holdings, an Ohio corporation, The Mercer Co., a Delaware corporation, Deutsche-Fruehauf Holding Corporation, a Delaware corporation, Fruehauf Holding Corp., a Delaware corporation, FGR, Inc, a Michigan corporation, Jacksonville Shipyards, Inc., a 4 Florida corporation, E.L. Devices, Inc., a Florida corporation, and Maryland Shipbuilding & Drydock Company, a Maryland corporation (collectively, the "Fruehauf Subsidiaries"), to execute and deliver to K-H a release in the form of Exhibit D attached hereto. (13) In further consideration for the Funding, Fruehauf will issue at the time of Funding to K-H warrants to purchase up to 2,000,000 shares of Fruehauf's common stock pursuant to a warrant agreement in the form of Exhibit E attached hereto. The terms of such warrants will permit their exercise by K-H at any time for a five-year period from the date of their issuance at a price of $2.50 per share. Such warrants will be in the form of Exhibit F attached hereto. (14) Within thirty days from the execution of this Agreement, Fruehauf shall pay all overdue amounts owed to Dayton-Walther Corporation ("Dayton-Walther") on account of materials supplied to Fruehauf. Fruehauf will pay any future accounts payable to Dayton-Walther on a current and timely basis according to the current payment terms between Fruehauf and Dayton-Walther. In the near term, the current payment terms between Fruehauf and Dayton-Walther will continue in full force and effect provided that such payment terms will be changed to reflect any terms more favorable to suppliers which Fruehauf may adopt generally for other similarly situated suppliers. (15) Fruehauf shall use its reasonable best efforts to settle its current litigation with Deloitte & Touche LLP in an amount equal to or greater than $3,000,000. K-H's obligations under this Agreement are subject to the satisfaction of the following conditions precedent before or concurrently with each Funding: (a) No action, suit, investigation, litigation or proceeding against or involving Fruehauf may be pending or threatened before any court, governmental agency or arbitrator that purports to affect the legality, validity or enforceability of this Agreement, any document required by this Agreement to be executed by Fruehauf or the Fruehauf Subsidiaries or the Note Purchase and Assignment Agreement or the consummation of the transactions contemplated hereby or thereby. (b) Fruehauf's counsel shall deliver an opinion letter dated the date of such Funding, addressed to K-H, satisfactory in form and substance to K-H. (c) A certificate of Fruehauf dated the date of such Funding shall be executed on its behalf by its Secretary certifying that this Agreement and all 5 other documents to be executed by Fruehauf in connection with this Agreement have been duly authorized by all necessary corporate action on the part of Fruehauf. (d) Fruehauf shall enter into an agreement with Deloitte & Touche LLP in settlement of Fruehauf's existing claims against Deloitte & Touche LLP on terms not less favorable than described in paragraph 15 with payment due within 7 days. This Agreement may be executed in any number of counterparts, each of which will be deemed to be an original and all of which taken together will constitute one and the same agreement. This Agreement will be governed by and construed in accordance with the laws of the state of New York, without giving effect to principles of conflicts of laws. If any provision, term or portion of this Agreement is for any reason held to be illegal or invalid, such illegality or invalidity will not affect any other provision, term or portion of this Agreement, each of which will be construed and enforced as if such illegal or invalid provision, term or portion were not contained in this Agreement. Any illegality or invalidity of any application of this Agreement will not affect any legal and valid application of this Agreement, and each provision, term and portion of this Agreement will be deemed to be effective, operative, made, entered into or taken in the manner and to the full extent permitted by law. 6 Please sign and return one copy of this Agreement to evidence your acceptance of and agreement to the foregoing, whereupon this letter agreement will become the binding obligation of each of the undersigned. FRUEHAUF TRAILER CORPORATION By: /s/ Timothy J. Wiggins ----------------------- Name: Timothy J. Wiggins Title:Executive Vice President Accepted and agreed to as of the date first above written: K-H CORPORATION By: /s/ Fred J. Chapman -------------------- Name: Fred J. Chapman Title: Treasurer EX-10.19 10 FRUEHAUF TRAILER EXHIBIT 10.19 INDEMNIFICATION AGREEMENT THIS INDEMNIFICATION AGREEMENT (this "Agreement") is made and entered into as of April 25, 1996, by and between Fruehauf Trailer Corporation, a Delaware corporation ("Fruehauf"), and K-H Corporation, a Delaware corporation ("K-H"). RECITALS WHEREAS, K-H and Fruehauf have entered into a letter agreement dated as of April 19, 1996 (the "Letter Agreement") pursuant to which K-H has agreed to purchase a term loan or loans from Congress Financial Corporation (Central) ("Congress") in the aggregate amount of up to approximately $6,500,000 that constitutes part of the existing credit facility between Fruehauf and Congress (the "Funding"); and WHEREAS, K-H is required by the Letter Agreement to purchase $5,500,000 of the term loans at the initial Funding and the remaining $1,000,000 on the condition that Fruehauf receives the consents as described in the Letter Agreement from the holders of the senior notes issued under the indenture, dated as of May 1, 1995, between Fruehauf and IBJ Schroder Bank & Trust Company, as trustee; and WHEREAS, in consideration of the Funding, K-H has required, among other things, that Fruehauf execute and deliver a letter agreement in the form of Exhibit A attached hereto regarding certain federal income tax information (the "Tax Letter Agreement"); and WHEREAS, pursuant to the Letter Agreement, K-H has agreed to indemnify Fruehauf for liabilities that may result from the Tax Letter Agreement; NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: AGREEMENT 1. Indemnification and Hold Harmless. K-H and its successors and assigns (the "Indemnitor"), shall indemnify, defend and hold harmless, for an unlimited duration of time, Fruehauf, its affiliates, directors, officers, partners, employees, agents, successors and assigns (collectively, "Indemnitee"), from and against seventy-five percent (75%) of any and all (a) reasonable documented out-of-pocket professional fees and expenses, including attorney and accountant fees and expenses, and other similar expenses and (b) additional tax liability related to federal income tax and alternative minimum tax (including penalties, 2 additions to tax and interest) incurred by Indemnitee, and paid in cash by Indemnitee or set-off against or collected from a tax refund that would otherwise have been paid in cash to Indemnitee, after the date of execution of this Agreement and incurred as a result of (i) the execution by Fruehauf of the Tax Letter Agreement or (ii) any implementation or use by K-H of any information contained in the Tax Letter Agreement. Indemnitor's obligation to indemnify Indemnitee under this paragraph 1 is limited only to payment by Indemnitor of an aggregate amount of $3,500,000. 2. Defense of Claims. Indemnitee shall give written notice to Indemnitor with respect to any suit or claim initiated or threatened to be initiated against Indemnitee which Indemnitee has reason to believe is likely to give rise to a claim for indemnity under this Agreement. In any litigation, administrative proceeding, negotiation or arbitration pertaining to any claim for which indemnification is sought under this Agreement, Indemnitee may select legal counsel or other representatives to represent itself, and to otherwise control such litigation, proceeding, negotiation or arbitration. If Indemnitee elects to control such litigation, proceeding, negotiation or arbitration, the Indemnitor has the right to fully participate in the defense at its own expense. If the claim is one that cannot by its nature be defended solely by Indemnitee, then the Indemnitor shall make available all information and assistance as Indemnitee may reasonably request; provided, however, that Indemnitee shall pay the reasonable documented fees and expenses of any third party incurred by Indemnitor as a result of such request. Neither Indemnitor nor Indemnitee may make any settlement of a suit or claim for which Indemnitee is requesting indemnification under this Agreement without the prior written consent of the other, which consent shall not be unreasonably withheld or delayed. With respect to other matters, including federal or state tax audits or administrative appeals matters, that do not constitute litigation, administrative proceedings, negotiations or arbitrations, but for which indemnity is nevertheless potentially available to Indemnitee, Indemnitee is entitled to process such matters in the normal course of business, giving Indemnitor periodic notice of the actions it has taken and the costs of such action, until such time as Indemnitee determines to make a claim for indemnity under this Agreement. 3. Notices. Any notice or other communication required or desired to be given hereunder shall be given in writing by personal delivery, a nationally recognized overnight courier service, by certified mail, return receipt requested and postage prepaid, or via facsimile addressed as set forth below. All notices and demands given by personal delivery, overnight courier service or facsimile will be effective upon receipt; all notices given by mail will be effective on the second business day after mailing. 3 If to Fruehauf: 111 Monument Circle, Suite 3200 Indianapolis, IN 46204 Facsimile: (317) 630-3090 Attn: Timothy J. Wiggins with a copy to: Jones, Day, Reavis & Pogue 901 Lakeside Avenue Cleveland, OH 44114 Facsimile: (216) 579-0212 Attn:William H. Coquillette,Esq. If to K-H: c/o Treasurer 672 Delaware Ave. Buffalo, NY 14209 Facsimile: (716) 888-8010 The parties may give notice hereunder of a change of name or address, and notices to that party shall thereafter be given as directed in that notice. 4. Authority and Enforceability. The Indemnitor hereby represents and warrants that the execution and delivery of this Agreement, and the liabilities created by the obligations assumed and indemnities granted hereunder, have been duly authorized by all necessary corporate action, and will not conflict with, result in any violation of, or constitute a default under, any provision of any agreement or other instrument binding upon or applicable to the Indemnitor, or any present law or governmental regulation or court decree applicable to the Indemnitor. The Indemnitor expressly waives any defense to the enforcement of any provision of this Agreement arising from a claim of lack of consideration and warrants that this Agreement constitutes a legal, valid and binding obligation upon the Indemnitor, enforceable against the Indemnitor in accordance with its terms. 5. No Offset. The Indemnitor shall not for any reason deduct from or set off against any amounts claimed by Indemnitee for indemnification under this Agreement. 6. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without giving effect to principles of conflicts of laws. 7. Amendment. This Agreement can be amended only by a written instrument executed and delivered by each of the parties to this Agreement. 4 8. Entire Agreement. This Agreement contains the entire agreement between the parties respecting the subject matter of this Agreement and supersedes all prior understanding and agreements, whether oral or in writing, between the parties respecting the subject matter of this Agreement. 9. Severability. If any term, covenant, condition or provision of this Agreement, or the application thereof to any person or circumstance, is to any extent held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder to the terms, covenants, conditions or provisions of this Agreement, or the application thereof to any person or circumstance, will remain in full force and effect and will in no way be affected, impaired, or invalidated thereby. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and date first above written. K-H CORPORATION By:/s/ Fred J. Chapman -------------------- Name: Fred J. Chapman Title: Treasurer FRUEHAUF TRAILER CORPORATION By: /s/ Timothy J. Wiggins ---------------------- Name: Timothy J. Wiggins Title: Executive Vice President and Chief Financial Officer EX-10.20 11 FRUEHAUF TRAILER EXHIBIT 10.20 RELEASE THIS RELEASE ("Release") is effective as of this 25th day of April 1996 by and among Fruehauf Trailer Corporation, a Delaware corporation ("Fruehauf"), Fruehauf International Limited, a Delaware corporation ("FIL"), Fruehauf Corporation, a Delaware corporation, M.J. Holdings, Inc., an Ohio corporation ("M.J. Holdings"), The Mercer Co., a Delaware corporation ("Mercer"), Deutsche-Fruehauf Holding Corporation, a Delaware corporation ("Deutsche-Fruehauf"), Fruehauf Holdings Corp., a Delaware corporation ("Fruehauf Holdings"), FGR, Inc, a Michigan corporation ("FGR"), Jacksonville Shipyards, Inc., a Florida corporation ("Jacksonville"), E.L. Devices, a Florida corporation ("E.L. Devices"), Maryland Shipbuilding and Drydock Company, a Maryland corporation ("Maryland") (Fruehauf, FIL, Fruehauf Corporation, M.J. Holdings, Mercer, Deutsche-Fruehauf, Fruehauf Holdings, FGR, Jacksonville, E.L. Devices, and Maryland are sometimes referred to collectively as the "Fruehauf Parties"), and K-H Corporation, a Delaware corporation ("K-H"). RECITALS: WHEREAS, K-H and Fruehauf have entered into a letter agreement dated April 19, 1996 (the "Letter Agreement") pursuant to which K-H has agreed to purchase a term loan or loans from Congress Financial Corporation (Central) ("Congress") in the aggregate amount of up to approximately $6,500,000 that constitutes part of the existing credit facility between Fruehauf and Congress (the "Funding"); and WHEREAS, K-H is required by the Letter Agreement to purchase $5,500,000 of the term loans at the initial Funding and the remaining $1,000,000 on the condition that Fruehauf receives the consent as described in the Letter Agreement from the holders of the senior notes issued under the indenture, dated as of May 1, 1995, between Fruehauf and IBJ Schroder Bank & Trust Company, as trustee; and WHEREAS, in consideration of the Funding, K-H has required that the Fruehauf Parties execute and deliver this Release in favor of K-H; NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: AGREEMENT: 1. From and after the time of the initial Funding, each of Fruehauf, FIL, Fruehauf Corporation, M.J. Holdings, Mercer, Deutsche-Fruehauf, Fruehauf Holdings, FGR, Jacksonville, E.L. Devices and Maryland 2 hereby fully and forever releases and discharges K-H, its successors, assigns and affiliates, and their respective officers, agents and employees from any and all claims, demands, actions or causes of action, sums of money, accounts, reckonings, bonds, bills, specialties, covenants, contracts, controversies, agreements, promises, variances, trespasses, damages, judgments, extents, executions, losses, costs, debts, dues, demands, obligations or other claims of any kind whatsoever, in law or in equity, that any of the Fruehauf Parties now possess against K-H. This release shall not affect any obligations any of the Fruehauf Parties have to K-H or any other releasee. 2. This Release constitutes the entire agreement among the parties regarding the subject matter of this Release and supersedes all prior understandings and agreements with respect to this Release. Notwithstanding the foregoing sentence, this Release may not be interpreted (i) to release K-H from any claims, demands, actions or causes of action that may arise from facts or circumstances occurring after the date of this Agreement against K-H; or (ii) to release any claims Fruehauf may have arising from its business relationship with Dayton-Walther Corporation or from the purchase of products or services from Dayton-Walther, including, without limitation, claims for defective goods supplied by Dayton-Walther Corporation to Fruehauf. 3. This Release may not be amended, except by a written document signed by all of the parties to this Release. 4. This Release will be governed by the laws of the state of New York, without giving effect to principles of conflicts of law. IN WITNESS WHEREOF, the undersigned have hereunto set their hands as of the date set forth above. K-H CORPORATION By: /s/ Fred J. Chapman --------------------- Name: Fred J. Chapman Title: Treasurer FRUEHAUF TRAILER CORPORATION By: /s/ Timothy J. Wiggins ----------------------- Name: Timothy J. Wiggins Title: Executive Vice President 3 FRUEHAUF INTERNATIONAL LIMITED By: /s/ Timothy J. Wiggins ----------------------- Name: Timothy J. Wiggins Title: Executive Vice President FRUEHAUF CORPORATION By: /s/ Timothy J. Wiggins ----------------------- Name: Timothy J. Wiggins Title: Executive Vice President M.J. HOLDINGS, INC. By: /s/ Timothy J. Wiggins ----------------------- Name: Timothy J. Wiggins Title: Executive Vice President THE MERCER CO. By: /s/ Timothy J. Wiggins ----------------------- Name: Timothy J. Wiggins Title: Executive Vice President DEUTSCHE-FRUEHAUF HOLDING CORPORATION By: /s/ Timothy J. Wiggins ----------------------- Name: Timothy J. Wiggins Title: Executive Vice President FRUEHAUF HOLDINGS CORP. By: /s/ Timothy J. Wiggins ----------------------- Name: Timothy J. Wiggins Title: Executive Vice President FGR, INC. By: /s/ Timothy J. Wiggins ----------------------- Name: Timothy J. Wiggins Title: Executive Vice President JACKSONVILLE SHIPYARDS, INC. By: /s/ Timothy J. Wiggins ----------------------- Name: Timothy J. Wiggins Title: Executive Vice President E.L. DEVICES, INC. By: /s/ Timothy J. Wiggins ----------------------- Name: Timothy J. Wiggins Title: Executive Vice President 4 MARYLAND SHIPBUILDING AND DRYDOCK COMPANY By: /s/ Timothy J. Wiggins ----------------------- Name: Timothy J. Wiggins Title: Executive Vice President FRUEHAUF CORPORATION By: ----------------------- Name: Title: EX-11 12 FRUEHAUF TRAILER EXHIBIT 11 EXHIBIT 11 FRUEHAUF TRAILER CORPORATION AND SUBSIDIARIES COMPUTATION OF EARNINGS (LOSS) PER SHARE (in thousands, except per share amounts)
Three Months Ended March 31, -------------------- 1996 1995 ------ ------ PRIMARY: - - -------- Average shares outstanding. . . . . . . . . . 39,212 30,733 Net effect of dilutive stock options and warrants based on the treasury stock method using average market price . . . . -- 675 ------ ------ Totals . . . . . . . . . . . . . . . 39,212 31,408 ====== ====== Net income (loss) . . . . . . . . . . . . . . $(4,307) $ 259 ======= ====== Primary earnings (loss) per share . . . . . . $ (.11) $ .01 ====== ===== FULLY DILUTED: Average shares outstanding. . . . . . . . . . 39,212 30,733 Net effect of dilutive stock options and warrants based on the treasury stock method using average market price as the average market price exceeds the period end market price . . . . . . . . . . . . . -- 675 ------ ------ Totals . . . . . . . . . . . . . . . . 39,212 31,408 ====== ====== Net income (loss) . . . . . . . . . . . . . . $(4,307) $ 259 ======= ====== Fully diluted earnings (loss) per share . . . $ (.11) $ .01 ====== ===== Not applicable as inclusion is anti-dilutive.
EX-27 13 FTC FINANCIAL DATA SCHEDULE WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FRUEHUAF TRAILER CORPORATION'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1996 MAR-31-1996 5,531 0 28,707 0 41,149 79,477 32,882 12,282 135,570 103,973 67,450 0 0 392 (105,722) 135,570 90,306 90,306 79,601 88,225 273 2,143 3,851 (4,186) 121 (4,307) 0 0 0 (4,307) (.11) (.11) Amount includes: Accumulated Deficit of ($244,542), Additional paid-in capital of $130,244, Common stock purchase warrants of $8,892 and Foreign currency translation adjustment of ($316). -----END PRIVACY-ENHANCED MESSAGE-----