-----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, TN3IH5kOGovIIsfi9i1Yr3gIKj63f9ozFwFFc64et0FsMhLwmkWA/9nYqJm4xtxR Sh7/ol6wdjtvDXqH5s41MQ== 0000874268-96-000010.txt : 19960906 0000874268-96-000010.hdr.sgml : 19960906 ACCESSION NUMBER: 0000874268-96-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 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: 96613610 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 June 30, 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 August 14, 1996. 2 INDEX FRUEHAUF TRAILER CORPORATION AND SUBSIDIARIES PART I - FINANCIAL INFORMATION Page No. --------------------- -------- Item 1 Condensed Financial Statements Condensed Consolidated Statement of Operations - Three months and six months ended June 30, 1996 and 1995 . . . . . . . . . . 3 Condensed Consolidated Balance Sheet - June 30, 1996 and December 31, 1995. . . . 4 Condensed Consolidated Statement of Cash Flows - Six months ended June 30, 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 . . . . . . . . . . . . . . . . 16 PART II - OTHER INFORMATION Item 1 Legal Proceedings. . . . . . . . . . . . . . 31 Item 3 Defaults Upon Senior Securities. . . . . . . 31 Item 6 Exhibits and Reports on Form 8-K . . . . . . 32 SIGNATURES . . . . . . . . . . . . . . . . . . . . . 34 3 PART I - FINANCIAL INFORMATION FRUEHAUF TRAILER CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (in thousands, except per share amounts, unaudited)
Three Months Six Months Ended June 30, Ended June 30, ------------------ ----------------- 1996 1995 1996 1995 ------ ------ ------ ------ Net sales. . . . . . . . . . $67,458 $109,695 $157,764 $221,397 Cost of goods sold . . . . . 61,165 94,896 140,766 192,406 ------- -------- -------- -------- Gross margin . . . . . . . 6,293 14,799 16,998 28,991 Engineering, selling and administrative expenses . . 11,432 13,369 23,747 26,210 Royalty income . . . . . . . (273) (771) (964) (1,233) Nonrecurring gain. . . . . . -- -- (3,000) -- Restructuring credit . . . . -- (2,970) -- (2,970) ------- -------- -------- -------- Income (loss) from operations. . . . . . . (4,866) 5,171 (2,785) 6,984 Other income (expense): Interest expense . . . . . (3,360) (3,849) (7,211) (7,203) Equity in net income of affiliate companies. . . -- 853 -- 1,718 Gain on sale of excess assets. . . . . . . . . 14,014 715 14,051 1,638 Impairment in value of promissory note . . . . -- -- (2,143) -- Other income (expense)-net 42 24 (268) 141 ------- -------- -------- -------- Income before income taxes 5,830 2,914 1,644 3,278 Provision for income taxes 92 165 213 270 ------- -------- -------- -------- Income before extraordinary items. . . 5,738 2,749 1,431 3,008 Extraordinary items: Gain on satisfaction of payable to Terex Corporation . . . . -- 1,156 -- 1,156 Loss on early extinguishment of debt . . . . . . . -- (1,216) -- (1,216) ------- -------- -------- ------- Net income . . . . . . . $ 5,738 $ 2,689 $ 1,431 $ 2,948 ======= ======== ======== ======= Primary and fully diluted earnings per share: Income before extraordinary items . $ .15 $ .07 $ .04 $ .09 Gain on satisfaction of payable to Terex Corporation. . -- .03 -- .03 Loss on early extinguishment of debt -- (.03) -- (.03) ----- ------ ------ ------ Primary and fully diluted earnings per share. . . . . $ .15 $ .07 $ .04 $ .09 ===== ===== ===== ===== Dividends per share. . . . $ -- $ -- $ -- $ -- ===== ===== ===== ===== Weighted average common and common equivalent shares outstanding (See Exhibit 11). . . . 39,212 37,055 39,212 34,250 ====== ====== ====== ======
The accompanying notes are an integral part of these statements. 4 FRUEHAUF TRAILER CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET (in thousands)
June 30, December 31, 1996 1995 ----------- ------------ (unaudited) ASSETS Current assets Cash and cash equivalents . . . . . $ 2,574 $ 3,804 Net receivables . . . . . . . . . . 25,837 38,589 Net inventories (See Note B). . . . 32,130 55,162 Other current assets. . . . . . . . 1,657 841 -------- -------- Total current assets. . . . . . 62,198 98,396 Restricted cash. . . . . . . . . . . 10,464 1,427 Prepaid pension cost . . . . . . . . 12,104 11,757 Investments in affiliate companies (See Note D). . . . . . -- 3,441 Assets held for sale . . . . . . . . 4,030 6,986 Unamortized deferred debt issuance costs . . . . . . . . . 6,173 6,232 Other assets . . . . . . . . . . . . 7,694 7,255 Property, plant and equipment Property, plant and equipment . . . 31,521 32,906 Less - accumulated depreciation . . (12,320) (11,887) ------- ------- Net property, plant and equipment 19,201 21,019 Total assets. . . . . . . . . . $121,864 $156,513 ======== ========
The accompanying notes are an integral part of these statements. 5 FRUEHAUF TRAILER CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET (Continued) (in thousands)
June 30, December 31, 1996 1995 ----------- ------------ (unaudited) LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities Trade accounts payable. . . . . . . . . . $ 36,702 $ 51,703 Accrued compensation and benefits . . . . 6,745 7,835 Accrued warranties and products liability 6,604 6,876 Other current liabilities . . . . . . . . 20,693 19,762 Current portion of long-term debt (See Note C). . . . . . . . . . . 82,157 33,592 -------- -------- Total current liabilities . . . . . . 152,901 119,768 Long-term debt, less current portion (See Note C). . . . . . . . . 169 67,374 Postretirement benefits. . . . . . . . . . 33,776 34,353 Other long-term liabilities. . . . . . . . 34,400 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 . . . . . 9,102 8,892 Accumulated deficit . . . . . . . . . . . (238,804) (240,235) Foreign currency translation adjustment . . (316) (316) -------- -------- Total stockholders' deficit . . . . . (99,382) (101,023) -------- -------- Total liabilities and stockholders' deficit. . . . . . . . . . . . . . . $121,864 $156,513 ======== ========
The accompanying notes are an integral part of these statements. 6 FRUEHAUF TRAILER CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (in thousands, unaudited)
Six Months Ended June 30, -------------------- 1996 1995 ------ ------ Operating Activities: Net income (loss) . . . . . . . . . . . . $ 1,431 $ 2,948 Adjustments to reconcile net income to net cash from (used in) operating activities: Depreciation. . . . . . . . . . . . . . . 830 804 Amortization of deferred debt issuance costs. 669 366 Unremitted earnings from affiliate companies. -- (1,718) Gain on sale of excess assets . . . . . . . . (14,051) (1,638) Non-cash restructuring credit . . . . . . . . -- (2,970) Impairment in value of promissory note. . . . 2,143 -- Extraordinary gain on satisfaction of payable to Terex Corporation . . . . . . . . -- (1,156) Extraordinary loss on early extinguishment of debt. . . . . . . . . . . . . . . . . . . -- 1,216 Increase (decrease) in cash due to changes in operating assets and liabilities: Net receivables . . . . . . . . . . . . 12,208 (7,971) Net inventories . . . . . . . . . . . . 23,032 (3,982) Trade accounts payable. . . . . . . . . (15,507) 111 Other assets and liabilities. . . . . . (3,907) (14,725) ------- ------- Net cash from (used in) operating activities. . 6,848 (28,715) Investing Activities: Capital expenditures . . . . . . . . . . . . (231) (878) Proceeds from sale of excess assets. . . . . 20,414 9,500 Decrease (increase) in restricted cash . . . (9,037) 4,883 ------- ------- Net cash from investing activities. . . . . . . 11,146 13,505 Financing Activities: Net increase (decrease) in Revolving Credit Facility borrowings. . . . . . . . . . . . (25,254) 5,810 Issuance of Working Capital Term Note. . . . 6,500 -- Net repayments under notes payable . . . . . -- (77) Principal repayments of long-term debt . . . (147) (9,013) Proceeds from issuance of Common Stock . . . -- 20,666 Issuance of Senior Notes . . . . . . . . . . -- 66,617 Extinguishment of former bank credit facility. -- (66,617) Debt issuance costs . . . . . . . . . . . . (323) (4,403) ------- ------- Net cash from (used in) financing activities . (19,224) 12,983 ------- ------- Net decrease in cash and cash equivalents. . . (1,230) (2,227) Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . . . 3,804 7,789 -------- -------- Cash and cash equivalents at end of period . . $ 2,574 $ 5,562 ======== ========
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) June 30, 1996 NOTE A - BASIS OF PRESENTATION The accompanying condensed consolidated financial statements of Fruehauf Trailer Corporation and Subsidiaries ("Fruehauf" or the "Company") as of June 30, 1996 and for the three and six months ended June 30, 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 and six months ended June 30, 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:
June 30, December 31, 1996 1995 -------- ------------ New trailers. . . . . . . . . . . . . $10,791 $19,324 Used trailers . . . . . . . . . . . . 2,320 4,288 Finished parts. . . . . . . . . . . . 9,105 14,923 Work-in-process and raw materials . . 13,213 19,926 ------- ------- Gross inventories. . . . . . . 35,429 58,461 FIFO inventory value over LIFO costs. (3,299) (3,299) ------- ------- Net inventories. . . . . . . . $32,130 $55,162 ======= =======
8 NOTE C - LONG-TERM DEBT Long-term debt consisted of the following at:
June 30, December 31, 1996 1995 -------- ------------ Senior Notes bearing interest at 14.75% due April 2002 (net of unamortized debt discount of $3,908 at June 30, 1996 and $4,094 at December 31, 1995) . . . . $ 58,666 $ 58,480 Revolving Credit Facility bearing interest at prime (8.25% at June 30, 1996) plus 2.5%, due May 1997. . . . 8,089 33,343 Working Capital Term Note bearing interest at prime (8.25% at June 30, 1996) plus 2.5%, due May 1997 (net of unamortized debt discount of $175 at June 30, 1996) . . . . . . . . . . . . . . . . . . . . 6,325 -- Subordinated Revolving Note bearing interest at prime (8.25% at June 30, 1996) plus 2.5%, due the later of December 1, 1999 or 15 days after the full redemption of the Senior Notes . . . . . . . . . . . . -- -- Warrant Notes bearing interest at 15% due October 1998. . 8,692 8,692 Other . . . . . . . . . . . . . . . . . . . . . . . . . . 554 451 -------- -------- Total long-term debt. . . . . . . . . . . . . . . . . 82,326 100,966 Less: Current portion of long-term debt . . . . . . . . (82,157) (33,592) -------- -------- Long-term debt, less current portion . . . . . . . . . $ 169 $ 67,374 ======== ========
Balance Sheet Classification at June 30, 1996 The Company's revolving credit facility (the "Revolving Credit Facility") and Working Capital Term Note (as hereinafter defined) mature on May 1, 1997. While it is the Company's intent to either (i) seek lender consent to extend the maturity of the Revolving Credit Facility and the Working Capital Term Note or (ii) refinance such borrowings, there can be no assurance that the Company will be able to refinance the borrowings beyond the May 1, 1997 maturity date. Accordingly, the Revolving Credit Facility and Working Capital Term Note have been classified as current in the Condensed Consolidated Balance Sheet at June 30, 1996. In addition, the Company had received and was operating under a limited waiver through August 31, 1996 from its Revolving Credit Facility lender, Congress Financial Corporation (Central) ("Congress"), regarding certain noncompliance with covenants relating to the payment of trailing liabilities with advances under the Revolving Credit Facility. In connection with the recent amendment to the Revolving Credit Facility on June 21, 1996, Congress extended a forbearance to the Company, subject to the payment of a forbearance fee, in lieu of the limited waiver with respect to the same matters. See further discussion in Note F - "Management's Action Plan and Outlook". Interest on the Company's unsecured promissory notes due October 1998 (the "Warrant Notes") is payable semiannually on June 30 and December 31. The Company has not yet made the required June 30, 1996 interest payment. Pursuant to the terms of a subordination agreement between the holders of the Warrant Notes, the Revolving Credit Facility lenders and the trustee (the "Trustee") under the indenture (the "Indenture") governing the issuance of the Company's senior secured notes (the "Senior Notes"), the holders of the Warrant Notes are prohibited from exercising their remedies, including acceleration of the principal balance of the Warrant Notes for a period of 180 days. However, the holders of the Warrant Notes have indicated to the Company their intent to accelerate the Warrant Notes for purposes of commencing the 180 day standstill provisions. At the current time, there can be no assurance that the Company will be able to make the required interest payment prior to the expiration of the standstill period. Accordingly, the Warrant Notes have been classified as current in the Condensed Consolidated Balance Sheet at June 30, 1996. 9 Acceleration by the holders of the Warrant Notes would constitute an event of default under the Indenture. As such, the Senior Notes may be callable by the holders of the Senior Notes within one year of the balance sheet date. Accordingly, the Company has presented the Senior Notes as current in the Condensed Consolidated Balance Sheet at June 30, 1996. Interest on the Company's Senior Notes is payable semiannually on May 1 and November 1 on each year. The Company did not make the required May 1, 1996 interest payment within the 30 day grace period, which resulted in an event of default under the Indenture. However, the Company made the required interest payment on June 21, 1996. See further discussion in Note F - "Management's Action Plan and Outlook". Offer to Repurchase Senior Notes Pursuant to the terms of the Indenture, the Company commenced an offer dated June 28, 1996 to repurchase Senior Notes with an aggregate principal balance, plus accrued interest, of approximately $8.1 million (consisting of approximately $7.5 million of remaining Foreign Sale (as defined below) proceeds and approximately $0.6 million on deposit with the Trustee from previous asset sales). The offer to repurchase Senior Notes was fully subscribed. Accordingly, the Company repurchased Senior Notes with an aggregate principal balance of $8.1 million on August 5, 1996. After giving effect to the repurchase, Senior Notes with an aggregate principal balance of $54.5 million remained outstanding. 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 secured by a mortgage on the underlying property and assumption of liabilities related to the property. The purchaser has 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. Such discussions, however, including the proposed economic terms, indicated 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. More recently, Jacksonville has entered into a Note and Mortgage purchase agreement whereby Jacksonville will sell the note and underlying mortgage for $2.6 million in cash and assumption of liabilities of approximately $0.1 million. Jacksonville expects to close the sale in the fourth quarter of 1996. The Company completed the sale of certain of the Company's foreign assets (the "Foreign Sale") on June 21, 1996. Proceeds to the Company, net of transaction costs and $1.0 million held in escrow, totaled approximately $18.3 million. The assets sold in the Foreign Sale consisted of the Company's interest in (i) capital stock of certain foreign trailer manufacturers, including Societe Europeene de Semi-Remorques, S.A. ("SESR"), Nippon Fruehauf Company, Ltd. ("Nippon Fruehauf") and Henred Fruehauf (Pty) Ltd. ("Henred Fruehauf") (such stock interests excluded Fruehauf de Mexico, S.A. de C.V.), (ii) certain trademark and technology license agreements currently operative outside North America (including without limitation, all rights to any fees payable under any such existing agreements and any renewals thereof that may be made in the future), (iii) the trademark "Fruehauf" outside North America and (iv) certain excess machinery and equipment and the rights to collect certain export trade receivables. The Company 10 recognized a gain of approximately $14.0 million related to the Foreign Sale. As a result of the Foreign Sale, the Company will no longer generate income from equity affiliates, dividend income or royalty income. The Company recognized a gain of $3.0 million in the first quarter of 1996 in connection with the settlement of litigation. 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 in the amount of $3.3 million, and (c) issue warrants for the purchase of 325,000 shares of Common Stock. To the extent that the warrants do not have an agreed upon value 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 $12.5 million at June 30, 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 and the Indenture. 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 impact on the Company. In the event 11 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 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 $11.9 million at June 30, 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 exceed 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 The Company is party to a lease with respect to a former manufacturing plant in Fort Worth, Texas (the "Fort Worth Lease"). The Fort Worth Lease expires pursuant to its terms in October 1996. The landlord recently notified the Company of its belief that the Company is in default of the Fort Worth Lease with respect to certain covenants relating to the maintenance of the leased property. The landlord has indicated its desire that the Company perform certain repair and maintenance to the facility which the landlord estimates the cost of such repair at approximately $1.7 million. The Company intends to vigorously defend itself in this matter. The actual amount of any liability or the extent that the Company may be liable cannot be determined at this time. As such, the Company has not recorded a reserve related to such contingency. In March 1994, the SEC initiated a formal investigation of the Company. This investigation followed an informal inquiry by the SEC that had existed for some period of time. The SEC is 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 Company and certain former officers of the Company, without admitting or denying any findings of the SEC, made an offer of settlement, which, if accepted by the SEC, would result in the entry of an order that the Company and such former officers cease and desist from committing or causing any violations of federal securities laws. 12 The Internal Revenue Service (the "Service") had been 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 Service notified the Company of its intent to discontinue the examination of the 1989 federal tax return and issue a no-change letter resulting in no adjustment to the Company's tax return as filed. 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 impact on the Company. NOTE F - MANAGEMENT'S ACTION PLAN AND OUTLOOK The ability of the Company to meet ongoing debt service requirements, 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. In response to such liquidity constraints, the Company: (i) has significantly reduced its investment in working capital, (ii) has increased the borrowing capacity under its Revolving Credit Facility, (iii) has entered into a loan agreement to provide for assistance in the funding of the payment of trailing liabilities with the financial assistance of a party potentially liable for certain of the Company's trailing liabilities and (iv) received the consent of the holders of the Senior Notes to a noncomforming split of the Foreign Sale proceeds, a portion of which will be used for operating capital purposes. During the six months ended June 30, 1996, the Company reduced its investment in operating working capital (defined as net receivables and net inventories less trade accounts payable) by approximately $19.7 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 half 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. A substantial number of the Company's trade vendors have placed the Company on "cash-in-advance" or "cash-on-delivery" terms for new shipments of goods. 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 aggregate $6.5 million collectively referred to as the "Working Capital Term Note"). 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 fair value of the K-H warrant (the "K-H Warrant"), as determined by an independent valuation firm, was $0.2 million. Such amount allocable to the K-H Warrant was recorded as "Common Stock Purchase Warrants" in the stockholders' deficit section with a corresponding amount recorded as debt discount. The initial funding of $5.5 million of the Working Capital Term Note was consummated 13 on April 25, 1996 and the additional funding of $1.0 million of the Working Capital Term Note was consummated on June 21, 1996, resulting in a $6.5 million expansion of the Company's liquidity under its Revolving Credit Facility. The K-H Letter Agreement also contemplated, 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. On June 21, 1996, the Company and K-H entered into a loan agreement (the "Subordinated Revolving Note"), whereby K-H has agreed to lend at least $3.5 million to the Company and K-H may, in its sole discretion, lend additional amounts to be used to resolve trailing liabilities for which it may have contingent liability. Pursuant to this commitment, K-H will determine which trailing liabilities will be paid with the proceeds of the loans. These loans bear interest at prime plus 2.5% and are secured by a lien on collateral subordinate to the security interests of Congress and the Trustee and Collateral Agent under the Indenture and such loans will be fully subordinate to the indebtedness of the Company to Congress and the indebtedness represented by the Senior Notes. Interest is payable monthly and the Subordinated Revolving Note matures the later of December 1, 1999 or 15 days after the full redemption of the Senior Notes. There were no advances under the Subordinated Revolving Note as of June 30, 1996. During the second quarter of 1996, the Company mailed a consent solicitation statement (the "Consent Solicitation Statement") to the holders of the Senior Notes seeking consent to, among other things, a nonconforming split of the Foreign Sale proceeds (the "Consent Solicitation"). Pursuant to the terms of the Consent Solicitation, the Company, the holders of the Senior Notes and Congress agreed to apply the proceeds of the Foreign Sale as follows: (i) the interest payment on the Senior Notes scheduled for May 1, 1996 in the amount of approximately $4.6 million was deposited with the trustee (the "Trustee") to be paid to the holders, (ii) approximately $0.2 million was deposited with the Trustee to be used to pay a consent fee equal to .25% of the outstanding principal amount of the Senior Notes to the holders of the Senior Notes, (iii) $6.0 million of the proceeds were paid to Congress for application to the Revolving Credit Facility (and available for reborrowing by the Company in accordance with the terms of the Revolving Credit Facility), (iv) amounts totaling approximately $1.0 million held in escrow related to the Foreign Sale would be paid either to Congress (if and to the extent there are any Congress obligations outstanding on the date of release) for application to the Congress obligations and application to a reserve under the Revolving Credit Facility, which would not be available to the Company for re-borrowing, or to the Trustee and used to make an asset sale offer, and (v) the balance of all other net cash proceeds generated from the Foreign Sale (including proceeds, if any, received upon the sale of certain property located in Germany) and up to $0.1 million held in escrow related to the Foreign Sale were deposited with the Trustee to be held in trust for the benefit of the holders of the Senior Notes and used to make an asset sale offer. Pursuant to the terms of the Indenture, the Company commenced an offer dated June 28, 1996 to repurchase Senior Notes with an aggregate principal balance, plus accrued interest, of approximately $8.1 million (consisting of approximately $7.5 million of remaining Foreign Sale proceeds and approximately $0.6 million on deposit with the Trustee from previous asset sales). The offer to repurchase Senior Notes was fully subscribed. Accordingly, the Company repurchased Senior Notes with an aggregate principal balance of $8.1 million on August 5, 1996. The Company will be required to write off approximately $1.2 million during the third quarter of 1996, representing a proportionate share of the remaining unamortized deferred debt issuance costs and debt discount. In connection with the Foreign Sale, the Company and Congress entered into an Amendment to the Revolving Credit Facility, pursuant to which, among other things, Congress has waived the provisions of the Revolving Credit Facility to permit the Foreign Sale to occur as set forth above. In addition, Congress and the Trustee under the Indenture entered 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 (the "Asset Sale Reserve") or the permanent 14 reserve (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 Intercreditor Agreement was also amended to provide that the Asset Sale Reserve be reduced to zero and the Permanent Reserve be immediately increased by the amount of the Asset Sale Reserve and the proceeds of any future asset sale - up to a maximum of $7.5 million would be applied to the Permanent Reserve. The Permanent Reserve totaled approximately $2.8 million at June 30, 1996. 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 June 30, 1996 was less than the required minimum of $10.0 million. The payment of trailing liabilities represents a technical violation of the Revolving Credit Facility constituting an event of default thereunder. Congress has granted a forebearance whereby, among other things, Congress has agreed to refrain from exercising its rights or remedies it may have as a result of the payment of trailing liabilities with borrowings under the Revolving Credit Facility as long as (i) no other event of default has occurred and (ii) the Company has paid a forbearance fee in a timely manner. On the first day of each month after August 31, 1996, if the Permanent Reserve is not equal to at least $7.5 million, the Company is required to pay Congress a forbearance fee of $10,000. At such time as the Permanent Reserve equals $7.5 million, Congress has agreed, upon request by the Company, to enter into a agreement pursuant to which Congress permanently waives any and all forbearance events which have occurred prior to such time. However, there can be no assurance that the conditions precedent to the amendment of the Revolving Credit Facility will be met or that the Company will maintain the minimum month end borrowing availability in the future. The Company and the Trustee also entered into an amendment of the Indenture providing for the creation of (i) an asset sale account (the "Asset Sale Account"), with amounts deposited therein to be available to the Company under certain circumstances for the repair, replacement or acquisition of machinery and equipment substantially related to the design, manufacture or sale of truck trailers, components and related parts, and (ii) an interest payment account (the "Interest Payment Account"), with amounts deposited therein held for application to the interest payment due under the Senior Notes on November 1, 1996. Once the Permanent Reserve totals $7.5 million, these accounts will be filled with net cash proceeds from asset sales, without regard to classification as core or non-core under the Indenture. The first $0.2 million of such proceeds will be deposited in the Asset Sale Account and the next approximately $4.0 million (the amount required to make the November 1, 1996 interest payment) of such proceeds will be deposited in the Interest Payment Account. Once the Interest Payment Account has been filled, all additional net cash proceeds of asset sales will be applied under the Indenture as follows: (a) Proceeds from the sale of Core Assets and Class I Non-Core Assets (both as defined in the Indenture) are to be used to make an offer to repurchase Senior Notes; and (b) 85% of the proceeds of Class II Non-Core Assets (as defined in the Indenture) will be used to make an offer to repurchase Senior Notes, with the remaining proceeds to be retained by the Company for general corporate purposes. Other amendments to the Indenture included changes to (i) the provisions relating to the requirement to make an offer to repurchase Senior Notes upon a change of control occurring on or prior to March 31, 1997 to (a) reduce the repurchase price from 101% to 100% and (b) provide for the elimination of certain covenants in the 15 Indenture relating to limitations on debt, liens, restricted payments and transactions with affiliates and (ii) reduce the 30-day interest payment grace period to 10 days. In connection with and in consideration of securing the consent of the holders of the Senior Notes to these and other amendments to the Indenture, the Company increased by two the number of directors on its Board of Directors and appointed Messrs. Chriss W. Street and Worth W. Frederick to fill such vacancies. Despite the actions consummated to date, the Company continues to operate within severe liquidity constraints and is confronted by several substantial issues including: (i) the Company has not yet made the required June 30, 1996 interest payment on the Warrant Notes, and the holders of the Warrant Notes have indicated their intent to accelerate the indebtedness represented by the Warrant Notes following the expiration of a "standstill" period, (ii) the Company's efforts to increase days payables outstanding has increased the level of trade accounts payable past normal terms and has affected material flow to the Company's operating locations, (iii) a substantial number of the Company's trade vendors have placed the Company on "cash-in-advance" or "cash-on-delivery" terms for new shipments of goods, (iv) the Company expects that the reduced retail market demand in the trailer industry will continue into the second half of 1996, and (v) the ability of the Company to fund the scheduled November 1, 1996 interest payment on the Senior Notes is uncertain. As a result of these issues, the Company must complete some form of liquidity generating strategic transaction in the near future. While the Company has been exploring various strategic alternatives for some period of time, management now believes that an outright sale of the Company is unlikely. As a consequence, the Company is currently exploring an alternative strategy whereby: (i) one or more of the Company's business units would be sold, (ii) the proceeds of such sales would be used to repay indebtedness, and (iii) the Company would endeavor to restructure around the remaining core business. Management currently believes that the foregoing plan will need to include the following three elements: (i) the receipt of non-core asset sale proceeds in an amount sufficient to (a) generate liquidity to the Company, (b) repurchase all or substantially all the Senior Notes currently outstanding ($54.5 million after giving effect to the August 5, 1996 repurchase) and (c) reduce borrowings under the Revolving Credit Facility, (ii) additional extensions of credit by K-H to fund the payment of trailing liabilities and (iii) satisfactory agreements with the Company's unsecured creditors. Due to the Company's limited liquidity, there can be no assurance that the Company will have sufficient time to consummate such a strategic transaction. If the Company is unsuccessful in consummating a liquidity generating strategic transaction in the near future, the Company will likely not have sufficient liquidity both to operate its business and to satisfy its obligations to its various lenders. In these circumstances, the Company 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, management currently believes that a successful reorganization would likely require a similar strategic transaction of one or more of the Company's businesses to generate a source of liquidity during the chapter proceeding. If the Company would be unsuccessful in generating such liquidity, liquidation might occur. 16 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 risks and uncertainties, 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. In addition, further discussion of risks and uncertainties that could affect the Company's outlook is included under the headings "Results of Operations" and "Liquidity and Capital Resources." RESULTS OF OPERATIONS Six Months Ended June 30, 1996 versus June 30, 1995 Sales The Company generated sales of $157.7 million during the first six months of 1996 compared to $221.4 million for the corresponding 1995 period. The table below is a comparison of net sales by product line for the six months ended June 30, 1996 and 1995 (in millions of dollars): June 30, June 30, 1996 1995 --------- -------- New trailers. . . . . . . . . . . . . . . $ 96.3 $143.2 Used trailers . . . . . . . . . . . . . . 10.3 16.9 Replacement parts and accessories . . . . 33.8 37.9 Service . . . . . . . . . . . . . . . . . 11.1 12.1 International . . . . . . . . . . . . . . 6.2 11.3 ------ ------ $157.7 $221.4 ====== ======
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 six months of 1996 and the related additional constraints on the Company's liquidity. The order cancellation activity experienced by the Company in the first six months 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. In the second quarter of 1996 the Company idled Fort Madison for a week to conserve cash and balance its production schedule. Production levels into the third quarter of 1996 at Fort Madison, as well as Scott County are substantially below production levels experienced throughout most of 1995. The Company's backlog of new trailer orders decreased to approximately $70 million at June 30, 1996 as compared to $172 million as of December 31, 1995, which is reflective of the substantial reduction in industry demand. The Company has experienced and continues to experience cancellations of new trailer orders prior to scheduled production. As such, there can be no assurance that no cancellations will occur with respect to the current backlog of new trailer orders. Domestic new trailer production for the first six months of 1996 totaled approximately 4,900 as compared to approximately 8,600 for the first six months of 1995. Domestic new trailer unit sales totaled approximately 5,500 and 8,600 for the six months ended June 30, 1996 and 1995, respectively, reflective of the reduced retail market demand. In addition, the Company's Mexican subsidiary revenue sources continue to be adversely 17 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 six months of 1996 due to excess manufacturing capacity and resultant price competition in the domestic trailer market. Replacement parts/service sales and used trailer sales for the six months ended June 30, 1996 decreased by $5.1 million and $6.6 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. Parts availability percentages at the Company's wholesale parts distribution center decreased to below 60% during the second quarter of 1996. Improvement in parts and used trailer availability and resultant replacement parts and used trailer sales are dependent on improved liquidity. The Company's Mexican trailer manufacturing subsidiary continued to experience decreases in Mexican domestic sales volume. Sales were $2.7 million for the first six months of 1996 compared to $5.0 million for the first six months of 1995. Mexican domestic sales have been adversely impacted by the depressed Mexican economy throughout 1995 and continuing in 1996. In part to offset the reduced Mexican domestic new trailer sales, Fruehauf de Mexico has produced 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 six months of 1996 totaled $3.5 million compared to export sales of $6.3 million for the first six months of 1995. Gross Margin The Company's consolidated gross margin decreased to $17.0 million for the first six months of 1996 from $29.0 million for the first six months of 1995. This decrease is primarily the result of the decreased sales volumes, as discussed above and deterioration in new trailer pricing. The gross margin percentage for the first six months of 1996 declined to 10.8% as compared to 13.1% for the first six 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 in the market. Gross margin was also adversely affected in the first half of 1996 due to an increase in certain product liability reserves. Engineering, Selling and Administrative Expenses Engineering, selling and administrative expenses decreased to $23.7 million for the first six months of 1996 from $26.2 million for the six months ended June 30, 1995. The decrease in engineering, selling and administrative expenses is primarily attributable to cost containment measures taken at all the Company's locations, lower variable costs associated with reduced sales volume and lower professional fees due, in part, 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 (approximately $0.5 million). The Company recognized a gain of $3.0 million in connection with the settlement of litigation. Restructuring Credit In 1991, the Company, under prior management, implemented a restructuring program which included restructuring the Company's distribution system by closing Company-owned sales and service branches or converting them to independent dealers. The Company had 59 Company-owned branches at the end of 1991. During 1992, the Company converted 21 locations to independent dealers and five were closed and an additional branch was closed in early 1993. The Company's turnaround program initially contemplated the continuance of the branch restructuring initiated by the Company's prior management. Management had temporarily suspended the branch restructuring program in order to evaluate the feasibility of revising 18 the branch restructuring program. During the second quarter of 1995, management concluded to significantly revise the branch restructuring program. Based upon these conclusions, the Company recorded a $3.0 million non-cash restructuring credit in the second quarter of 1995 to reflect the revised program. Income (Loss) from Operations The loss from operations for the six months ended June 30, 1996 was $2.8 million compared to income from operations of $7.0 million for the first six months of 1995. Excluding the impact of the $3.0 million litigation settlement in the first six months of 1996 and the $3.0 million restructuring credit in the first six months of 1995, the $9.8 million 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. 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 third and fourth quarters of 1996. Other Income (Expense) Interest expense was $7.2 million for the six months ended June 30, 1996 compared to $7.2 million for the six months ended June 30, 1995. 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 31, 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 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 and lower average borrowings under the Revolving Credit Facility. The Company's share of net income of affiliate companies, accounted for using the equity method, was $1.7 million for the six months ended June 30, 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%. The Company disposed of its remaining 5% interest in Henred Fruehauf in June 1996 as part of the Foreign Sale. 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 secured by a mortgage on the underlying property and assumption of liabilities related to the property. The purchaser has 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. Such discussions, however, including the proposed economic terms, indicated 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. More recently, Jacksonville has entered into a Note and Mortgage purchase agreement whereby Jacksonville will sell the note and underlying mortgage for $2.6 million in cash and assumption of liabilities of approximately $0.1 million. Jacksonville expects to close the sale in the fourth quarter of 1996. As previously discussed, the Company recognized a gain of $14.0 million on the Foreign Sale. In addition to the gain on the Foreign Sale, the Company recognized a gain on the sale of excess assets of approximately 19 $0.1 million during the six months ended June 30, 1996 as compared to a gain of approximately $1.6 million during the six months ended June 30, 1995. Extraordinary Gain on Satisfaction of Payable to Terex Corporation In November 1992, Terex Corporation ("Terex") advanced $2.0 million to the Company. The Company subsequently entered into an agreement with Terex whereby the Company would provide parts produced by the Company's Delphos operation. The $2.0 million advance was considered an advance on subsequent Terex parts purchases from the Company. The Company never produced any parts for Terex and had recorded deferred revenue in the consolidated liabilities to reflect the Company's outstanding obligations pursuant to the agreement. In June 1995, the Company and Terex agreed to terminate the agreement and, on June 30, 1995, the Company issued 250,000 shares of Common Stock to Terex in satisfaction of the $2.0 million advance. The shares were issued at a price equivalent to $8.00 per share. The resulting gain of $1.2 million was calculated using $3.375 per share as the fair value of the Common Stock, which was the closing price of the Common Stock on the New York Stock Exchange on June 30, 1995. Such gain was recorded in the second quarter of 1995. Extraordinary Loss on Early Extinguishment of Debt The Company accounted for the issuance of the Senior Notes in 1995 to the Company's lenders under its former bank credit facility in an amendment and restatement of the bank credit facility and the amendment to the Company's Revolving Credit Facility as extinguishments of debt. Accordingly, the Company recorded a write off of the remaining unamortized deferred debt issuance costs of approximately $1.2 million during the second quarter of 1995. Quarter Ended June 30, 1996 versus June 30, 1995 Sales The Company generated sales of $67.4 million during the three months ended June 30, 1996 compared to $109.7 million for the corresponding 1995 period. The table below is a comparison of net sales by product line for the three months ended June 30, 1996 and 1995 (in millions of dollars): June 30, June 30, 1996 1995 -------- -------- New trailers. . . . . . . . . . . . . . . $ 38.1 $ 71.4 Used trailers . . . . . . . . . . . . . . 4.3 8.1 Replacement parts and accessories . . . . 16.0 18.3 Service . . . . . . . . . . . . . . . . . 5.5 6.1 International . . . . . . . . . . . . . . 3.5 5.8 ------ ------ $ 67.4 $109.7 ====== ======
Consistent with the decrease in sales for the year-to-date period, this 39% decrease in quarter to quarter sales principally reflects the significantly reduced retail demand in the new trailer industry through the second quarter of 1996 and the additional constraints on the Company's liquidity. New trailer production decreased to approximately 1,900 units in the second quarter of 1996 from 4,100 in the second quarter of 1995. Domestic new trailer unit sales totaled approximately 2,200 and 4,100 for the three months ended June 30, 1996 and 1995, respectively. 20 Replacement parts/service sales and used trailer sales for the second quarter ended June 30, 1996 decreased by $2.9 million and $3.8 million, respectively, as compared to the respective 1995 period. The decreased sales levels are primarily attributable to lower than planned liquidity levels and the resultant impact on availability of replacement parts and used trailer to fill orders. The Company's Mexican trailer manufacturing subsidiary experienced a decrease in sales volume from $2.2 million for the second quarter of 1995 to $1.3 million for the second quarter of 1996. Mexican sales were adversely impacted by the same conditions noted in the year-to-date periods. Export sales from the Company's United States operations of wholesale parts and components for the three months ended June 30, 1996 totaled $2.2 million compared to export sales of $3.6 million for the three months ended June 30, 1995. Gross Margin Gross margin for the second quarter of 1996 decreased to $6.3 million compared to $14.8 million for the second quarter of 1995. The decrease results primarily from decreased sales volumes and a deterioration in new trailer pricing. The gross margin percentage for the three months ended June 30, 1996 declined to 9.3% as compared to 13.5% for the three months ended June 30, 1995. Such decrease in the gross margin percentage is due primarily to reduced absorption of fixed overhead costs resulting from lower production levels, unfavorable labor variances and increasing price sensitivity in the market. Gross margin was also adversely affected in the second quarter of 1996 due to an increase in certain product liability reserves. Engineering, Selling and Administrative Expenses Engineering, selling and administrative expenses decreased to $11.4 million for the second quarter of 1996 from $13.4 million for the second quarter of 1995. The decrease in engineering, selling and administrative expenses is primarily attributable to cost containment measures taken at all the Company's locations, lower variable costs associated with the reduced sales volume and lower professional fees. Restructuring Credit In 1991, the Company, under prior management, implemented a restructuring program which included restructuring the Company's distribution system by closing Company-owned sales and service branches or converting them to independent dealers. The Company had 59 Company-owned branches at the end of 1991. During 1992, the Company converted 21 locations to independent dealers and five were closed and an additional branch was closed in early 1993. The Company's turnaround program initially contemplated the continuance of the branch restructuring initiated by the Company's prior management. Management had temporarily suspended the branch restructuring program in order to evaluate the feasibility of revising the branch restructuring program. During the second quarter of 1995, management concluded to significantly revise the branch restructuring program. Based upon these conclusions, the Company recorded a $3.0 million non-cash restructuring credit in the second quarter of 1995 to reflect the revised program. Income (Loss) from Operations The loss from operations for the three months ended June 30, 1996 was $4.9 million compared to income from operations of $5.2 million for the second quarter of 1995. Excluding the impact of the $3.0 million restructuring credit in the second quarter of 1995, income from operations decreased by $7.1 million. The decrease in income from operations is primarily attributable to decreased sales volumes and resultant lower gross margin dollars and lower royalty income, partially offset by the decreased engineering, selling and administrative expenses. 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 third and fourth quarters of 1996. 21 Other Income (Expense) Interest expense was $3.4 million for the three months ended June 30, 1996 compared to $3.8 million for the three months ended June 30, 1995. This decrease in interest expense is primarily attributable to the repurchase of $11.5 million of Senior Notes during the fourth quarter of 1995 and lower 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 June 30, 1995. The equity in net income of affiliate companies relates solely to Henred Fruehauf. As discussed previously, the Company completed the sale of its remaining interest in Henred Fruehauf during the second quarter of 1996. As previously discussed, the Company recognized a gain of $14.0 million in the second quarter of 1996 on the Foreign Sale. The Company recognized a gain on the sale of excess assets of approximately $0.7 million during the three months ended June 30, 1995. Extraordinary Gain on Satisfaction of Payable to Terex Corporation In November 1992, Terex advanced $2.0 million to the Company. The Company subsequently entered into an agreement with Terex whereby the Company would provide parts produced by the Company's Delphos operation. The $2.0 million advance was considered an advance on subsequent Terex parts purchases from the Company. The Company never produced any parts for Terex and had recorded a deferred revenue in the consolidated liabilities to reflect the Company's outstanding obligations pursuant to the agreement. In June 1995, the Company and Terex agreed to terminate the agreement and, on June 30, 1995, the Company issued 250,000 shares of Common Stock to Terex in satisfaction of the $2.0 million advance. The shares were issued at a price equivalent to $8.00 per share. The resulting gain of $1.2 million was calculated using $3.375 per share as the fair value of the Common Stock, which was the closing price of the Common Stock on the New York Stock Exchange on June 30, 1995. Such gain was recorded in the second quarter of 1995. Extraordinary Loss on Early Extinguishment of Debt The Company accounted for the issuance of the Senior Notes in 1995 to the Company's lenders under its former bank credit facility in an amendment and restatement of the bank credit facility and the amendment to the Company's Revolving Credit Facility as extinguishment of debt. Accordingly, the Company recorded a write off of the remaining unamortized deferred debt issuance costs of approximately $1.2 million during the second quarter of 1995. LIQUIDITY AND CAPITAL RESOURCES Discussion of Cash Flows The Company's cash and cash equivalents totaled $2.6 million and $3.8 million at June 30, 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 the proceeds of asset sales. In addition, the Company is required to deposit certain amounts in restricted cash accounts as security for certain obligations and certain amounts are held in escrow pending resolution of certain post-closing conditions on certain asset sales. Accordingly, restricted cash of $10.5 million and $1.4 million at June 30, 1996 and 22 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. Operating Activities After considering changes in assets and liabilities, the Company generated cash from operating activities of $6.8 million during the six months ended June 30, 1996 and used cash for operating activities of $28.7 million during the six months ended June 30, 1995. Cash generated from operating activities during the six months ended June 30, 1996 principally related to a reduction in operating working capital (defined as net receivables and net inventories less trade accounts payable) of $19.7 million, offset by operating losses, the funding of trailing liabilities, interest on debt and cash-in-advance payments to vendors. 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 six months 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 six months ended June 30, 1995 principally related to (i) increased receivables ($8.0 million), (ii) increased inventories ($4.0 million), (iii) recognition of deferred revenue resulting from certain advance deposits received in the latter part of 1994 on new trailer orders ($4.8 million), (iv) settlement of liabilities principally funded by excess asset sale proceeds during the six months ended June 30, 1995 ($1.0 million), including liabilities such as property taxes and accrued interest on the Fresno mortgage, and (v) the funding of trailing liabilities and the Company's restructuring efforts. The cash used for operating activities in the first six 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 June 30, 1996, other current liabilities, noncurrent postretirement benefits and other long-term liabilities of approximately $20.7 million, $33.8 million and $34.4 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 $4 million for the remainder of 1996 and $3 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, the Company's borrowing availability under the Revolving Credit Facility at June 30, 1996 was less than the required minimum of $10.0 million. The payment of trailing liabilities represents a technical violation of the Revolving Credit Facility constituting an event of default thereunder. Congress has granted a forebearance whereby, among other things, Congress has agreed to refrain from exercising its rights or remedies it may have as a result of the payment of trailing liabilities with borrowings under the Revolving Credit Facility as long as (i) no other event of default has occurred and (ii) the Company has paid a forbearance fee in a timely manner. On the first day of each month after August 31, 1996, if the Permanent Reserve is not equal to at least $7.5 million, the Company is required to pay Congress a forbearance fee of $10,000. Should 23 the Company not be in compliance with such forbearance provision and Congress prohibit the payment of trailing liabilities, 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 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 six months of 1996, the Company sold property, plant and equipment and other excess assets, including the Foreign Sale, with proceeds totaling $20.4 million. Excess assets sale proceeds in the corresponding period of 1995 totaled $9.5 million. The Company made capital expenditures of $0.2 million during the first six months of 1996 compared to capital expenditures of $0.9 million during the first six months of 1995. The significant increase in restricted cash at June 30, 1996 as compared to December 31, 1995 principally relates to the $8.1 million held by the Trustee at June 30, 1996 to repurchase Senior Notes ($7.5 million of which resulted from the Foreign Sale) and an additional $1.0 million held in escrow related to the Foreign Sale pending resolution of certain post-closing conditions. Financing Activities The Company had net repayments under the Revolving Credit Facility of approximately $25.3 million during the six months ended June 30, 1996 and net borrowings of $5.8 million during the six months ended June 30, 1995. The source of cash to fund the reduction in Revolving Credit Facilities borrowings principally includes the reduction in operating working capital investment, proceeds from the issuance of the Working Capital Term Note ($6.5 million) and certain of the proceeds from the Foreign Sale ($6.0 million). Outstanding borrowings pursuant to the Revolving Credit Facility totaled $8.1 million at June 30, 1996. As discussed previously, the K-H Letter Agreement provided for, among other things, that K-H purchase an initial $5.5 million interest and, upon successful completion of the Consent Solicitation, an additional $1.0 million interest in the Revolving Credit Facility (the aggregate $6.5 million collectively being referred to as the Working Capital Term Note). The initial funding of $5.5 million of the Working Capital Term Note was consummated on April 25, 1996 and the additional funding of $1.0 million was consummated on June 21, 1996, resulting in a $6.5 million reduction in the Company's borrowings under the Revolving Credit Facility. In May 1995, the Company completed a series of recapitalization transactions which included, among other things, the following transactions: (i) the issuance of the Senior Notes to the Company's lenders under its then existing bank credit facility; (ii) the issuance by the Company of detachable warrants to purchase 2,791,907 shares of the Company's common stock pro rata to the holders of the Senior Notes; and (iii) the issuance by the Company of an aggregate of 8,136,500 shares of common stock in a private placement. The Senior Notes were issued in an aggregate principal amount of $74.1 million, representing $66.6 million of then outstanding indebtedness under the former bank credit facility, $4.1 million of previously accrued amendment fees and approximately $3.4 million in fees associated with the Senior Notes. Costs incurred in conjunction with entering into the amended Revolving Credit Facility, as well as the costs associated with the issuance of the Senior Notes to the lenders under the former bank credit facility, totaled $7.8 million. Such amount of debt issuance costs were comprised of $4.4 million of cash expenditures during the first six months 24 of 1995 and approximately $3.4 million in fees associated with the Senior Notes which were included in the aggregate principal balance of the Senior Notes. The 1995 private placement included the issuance of an aggregate of 8,136,500 shares of common stock at a price of $2.75 share. Proceeds to the Company, net of certain placement agent fees and other equity placement fees, were $20.7 million. The Company repaid term debt pursuant to the former bank credit facility of approximately $4.9 million during the six months ended June 30, 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 As part of the K-H Letter Agreement, K-H received the K-H Warrant. The fair value of the K-H Warrant, as determined by an independent valuation firm, was $0.2 million. Such amount allocable to the K-H Warrant was recorded as "Common Stock Purchase Warrants" in the stockholders' deficit section with a corresponding amount recorded as debt discount. 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. On June 30, 1995, the Company issued 250,000 shares of Common Stock to Terex at a price equivalent to $8.00 per share in satisfaction of a $2.0 million advance. The resulting gain of $1.2 million was calculated using $3.375 per share as the fair value of the Common Stock, which was the closing price of the Common Stock on the New York Stock Exchange on June 30, 1995. The Company increased "Common Stock" and "Additional Paid-In Capital" by $0.8 million to reflect the issuance of the 250,000 shares in satisfaction of the payable to Terex. As part of the 1995 recapitalization transactions, warrants for 2,791,907 shares of the Company's Common Stock were issued on May 3, 1995. The warrants are exercisable at a price of $3.30 per share. The fair value of the warrants, as determined by an independent valuation firm, was $5.1 million. Such amount allocable to the warrants was recorded as "Common Stock Purchase Warrants" in the stockholders' deficit section with a corresponding amount recorded as debt discount. In June 1995, the Company issued 79,195 shares of Common Stock (net of Common Shares surrendered in payment of withholding tax obligations) pursuant to restricted stock awards made in 1994 to certain officers of the Company. The Company increased "Common Stock" and "Additional Paid-In Capital" by $0.6 million to reflect the issuance of the 79,195 shares. The Company issued a warrant to purchase 75,000 shares of Common Stock to the placement agent in the 1995 private placement as a component of the placement agent's compensation. The warrant is exercisable at $2.75 per share. The fair value of the warrant, as determined by an independent valuation firm, was approximately $0.1 million at the date of issuance. The Company recorded 25 the fair value of the warrant as a component of "Common Stock Purchase Warrants" in the stockholders' deficit section with a corresponding reduction of additional paid-in capital. As discussed previously, the Company incurred approximately $7.8 million of debt issuance costs associated with entering into the amended Revolving Credit Facility, as well as the issuance of the Senior Notes to the lenders under the former bank credit facility. Approximately $3.4 million of such fees were included in the aggregate principal balance of the Senior Notes. 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, 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. In response to such liquidity constraints, the Company: (i) has significantly reduced its investment in working capital, (ii) has increased the borrowing capacity under its Revolving Credit Facility, (iii) has entered into a loan agreement to provide for assistance in the funding of the payment of trailing liabilities with the financial assistance of a party potentially liable for certain of the Company's trailing liabilities and (iv) received the consent of the holders of the Senior Notes to a noncomforming split of the Foreign Sale proceeds, a portion of which will be used for operating capital purposes. During the six months ended June 30, 1996, the Company reduced its investment in operating working capital (defined as net receivables and net inventories less trade accounts payable) by approximately $19.7 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 half 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. A substantial number of the Company's trade vendors have placed the Company on "cash-in-advance" or "cash-on-delivery" terms for new shipments of goods. 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 with 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, 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 fair value of the K-H Warrant, as determined by an independent valuation firm, was $0.2 million. Such amount allocable to the K-H Warrant was recorded as "Common Stock Purchase Warrants" in the stockholders' deficit section with a corresponding amount recorded as debt discount. The initial funding of $5.5 million was consummated on April 25, 1996 and the additional funding of $1.0 million was consummated on June 21, 1996, resulting in a $6.5 million expansion of the Company's liquidity under its Revolving Credit Facility. The K-H Letter Agreement also contemplated, 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 26 those of the holders of the Senior Notes to secure such arrangements. On June 21, 1996, the Company and K-H entered into the Subordinated Revolving Note, whereby K-H has agreed to lend at least $3.5 million to the Company and K-H may, in its sole discretion, lend additional amounts to be used to resolve trailing liabilities for which it may have contingent liability. Pursuant to this commitment, K-H will determine which trailing liabilities will be paid with the proceeds of the loans. The Subordinated Revolving Note bears interest at prime plus 2.5% and is secured by a lien on collateral subordinate to the security interests of Congress and the Trustee and Collateral Agent under the Indenture and such loans will be fully subordinate to the indebtedness of the Company to Congress and the indebtedness represented by the Senior Notes. Interest is payable monthly and the Subordinated Revolving Note matures the later of December 1, 1999 or 15 days after the full redemption of the Senior Notes. There were no advances under the Subordinated Revolving Note as of June 30, 1996. During the second quarter of 1996, the Company mailed a Consent Solicitation Statement to the holders of the Senior Notes seeking consent to, among other things, a nonconforming split of the Foreign Sale proceeds. Pursuant to the terms of the Consent Solicitation, the Company, the holders of the Senior Notes and Congress agreed to apply the proceeds of the Foreign Sale as follows: (i) the interest payment on the Senior Notes scheduled for May 1, 1996 in the amount of approximately $4.6 million was deposited with the Trustee to be paid to the holders, (ii) approximately $0.2 million was deposited with the Trustee to be used to pay a consent fee equal to .25% of the outstanding principal amount of the Senior Notes to the holders of the Senior Notes, (iii) $6.0 million of the proceeds were paid to Congress for application to the Revolving Credit Facility (and available for reborrowing by the Company in accordance with the terms of the Revolving Credit Facility), (iv) amounts totaling approximately $1.0 million held in escrow related to the Foreign Sale would be paid either to Congress (if and to the extent there are any Congress obligations outstanding on the date of release) for application to the Congress obligations and application to a reserve under the Revolving Credit Facility, which would not be available to the Company for re-borrowing, or to the Trustee and used to make an asset sale offer, and (v) the balance of all other net cash proceeds generated from the Foreign Sale (including proceeds, if any, received upon the sale of the certain property located in Germany) and up to $0.1 million held in escrow related to the Foreign Sale were deposited with the Trustee to be held in trust for the benefit of the holders of the Senior Notes and used to make an asset sale offer. Pursuant to the terms of the Indenture, the Company commenced an offer dated June 28, 1996 to repurchase Senior Notes with an aggregate principal, plus accrued interest, of approximately $8.1 million (consisting of approximately $7.5 million of remaining Foreign Sale proceeds and approximately $0.6 million on deposit with the Trustee from previous asset sales). The offer to repurchase Senior Notes was fully subscribed. Accordingly, the Company repurchased Senior Notes with an aggregate principal balance of $8.1 million on August 5, 1996. The Company will be required to write off approximately $1.2 million during the third quarter of 1996, representing a proportionate share of the remaining unamortized deferred debt issuance costs and debt discount. In connection with the Foreign Sale, the Company and Congress entered into an amendment to the Revolving Credit Facility, pursuant to which, among other things, Congress has waived the provisions of the Revolving Credit Facility to permit the Foreign Sale to occur as set forth above. The Trustee entered 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 Company to the Revolving Credit Facility permitting such application and such ability. The Intercreditor Agreement was also amended to provide that the Asset Sale Reserve be reduced to zero and the Permanent Reserve be immediately increased by the amount of the Asset Sale Reserve and the proceeds of any future asset sale - up to a maximum of $7.5 million would be applied to the Permanent Reserve. The Permanent Reserve totaled approximately $2.8 million at June 30, 1996. 27 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 June 30, 1996 was less than the required minimum of $10.0 million. The payment of trailing liabilities represents a technical violation of the Revolving Credit Facility constituting an event of default thereunder. Congress has granted a forebearance whereby, among other things, Congress has agreed to refrain from exercising its rights or remedies it may have as a result of the payment of trailing liabilities with borrowings under the Revolving Credit Facility as long as (i) no other event of default has occurred and (ii) the Company has paid a forbearance fee in a timely manner. On the first day of each month after August 31, 1996, if the Permanent Reserve is not equal to at least $7.5 million, the Company is required to pay Congress a forbearance fee of $10,000. At such time as the Permanent Reserve equals $7.5 million, Congress has agreed, upon request by the Company, to enter into a agreement pursuant to which Congress permanently waives any and all forbearance events which have occurred prior to such time. However, there can be no assurance that the conditions precedent to the amendment of the Revolving Credit Facility will be met or that the Company will maintain the minimum month end borrowing availability in the future. The Company and the Trustee also entered into an amendment of the Indenture providing for the creation of (i) the Asset Sale Account, with amounts deposited therein to be available to the Company under certain circumstances for the repair, replacement or acquisition of machinery and equipment substantially related to the design, manufacture or sale of truck trailers, components and related parts, and (ii) the Interest Payment Account, with amounts deposited therein held for application to the interest payment due under the Senior Notes on November 1, 1996. Once the Permanent Reserve totals $7.5 million, these accounts will be filled with net cash proceeds from asset sales, without regard to classification as core or non-core under the Indenture. The first $0.2 million of such proceeds will be deposited in the Asset Sale Account and the next approximately $4.0 million (the amount required to make the November 1, 1996 interest payment) of such proceeds will be deposited in the Interest Payment Account. Once the Interest Payment Account has been filled, all additional net cash proceeds of asset sales will be applied under the Indenture as follows: (a) Proceeds from the sale of Core Assets and Class I Non-Core Assets (both as defined in the Indenture) are to be used to make an offer to repurchase Senior Notes; and (b) 85% of the proceeds of Class II Non-Core Assets (as defined in the Indenture) will be used to make an offer to repurchase Senior Notes, with the remaining proceeds to be retained by the Company for general corporate purposes. Other amendments to the Indenture included changes to (i) the provisions relating to the requirement to make an offer to repurchase Senior Notes upon a change of control occurring on or prior to March 31, 1997 to (a) reduce the repurchase price from 101% to 100% and (b) provide for the elimination of certain covenants in the Indenture relating to limitations on debt, liens, restricted payments and transactions with affiliates and (ii) reduce the 30-day interest payment grace period to 10 days. In connection with and in consideration of securing the consent of the holders of the Senior Notes to these and other amendments to the Indenture, the Company increased by two the number of directors on its Board of Directors and appointed Messrs. Chriss W. Street and Worth W. Frederick to fill such vacancies. Despite the actions consummated to date, the Company continues to operate within severe liquidity constraints and is confronted by several substantial issues including: (i) the Company has not yet made the required 28 June 30, 1996 interest payment on the Warrant Notes, and the holders of the Warrant Notes have indicated their intent to accelerate the indebtedness represented by the Warrant Notes following the expiration of a "standstill" period, (ii) the Company's efforts to increase days payables outstanding has increased the level of trade accounts payable past normal terms and has affected material flow to the Company's operating locations, (iii) a substantial number of the Company's trade vendors have placed the Company on "cash-in-advance" or "cash-on-delivery" terms for new shipments of goods, (iv) the Company expects that the reduced retail market demand in the trailer industry will continue into the second half of 1996, and (v) the ability of the Company to fund the scheduled November 1, 1996 interest payment on the Senior Notes is uncertain. As a result of these issues, the Company must complete some form of liquidity generating strategic transaction in the near future. While the Company has been exploring various strategic alternatives for some period of time, management now believes that an outright sale of the Company is unlikely. As a consequence, the Company is currently exploring an alternative strategy whereby: (i) one or more of the Company's business units would be sold, (ii) the proceeds of such sales would be used to repay indebtedness, and (iii) the Company would endeavor to restructure around the remaining core business. Management currently believes that the foregoing plan will need to include the following three elements: (i) the receipt of non-core asset sale proceeds in an amount sufficient to (a) generate liquidity to the Company, (b) repurchase all or substantially all the Senior Notes currently outstanding ($54.5 million after giving effect to the August 5, 1996 repurchase) and (c) reduce borrowings under the Revolving Credit Facility, (ii) additional extensions of credit by K-H to fund the payment of trailing liabilities and (iii) satisfactory agreements with the Company's unsecured creditors. Due to the Company's limited liquidity, there can be no assurance that the Company will have sufficient time to consummate such a strategic transaction. If the Company is unsuccessful in consummating a liquidity generating strategic transaction in the near future, the Company will likely not have sufficient liquidity both to operate its business and to satisfy its obligations to its various lenders. In these circumstances, the Company 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, management currently believes that a successful reorganization would likely require a similar strategic transaction of one or more of the Company's businesses to generate a source of liquidity during the chapter proceeding. If the Company would be unsuccessful in generating such liquidity, 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 Directors and officers, 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 in the amount of $3.3 million, and (c) issue warrants for the purchase of 325,000 shares of Common Stock. To the extent that the warrants do not 29 have an agreed upon value 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 $12.5 million at June 30, 1996. However, the Company's present liquidity situation may make settlements in 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 and the Indenture. 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 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 $11.9 million at June 30, 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 exceed the Company's available cash resources, there could be a material adverse effect on the Company. Even if these liabilities 30 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 The Company is party to the Fort Worth Lease, which expires pursuant to its terms in October 1996. The landlord recently notified the Company of its belief that the Company is default of the Fort Worth Lease with respect to certain covenants relating to the maintenance of the leased property. The landlord has indicated its desire that the Company perform certain repair and maintenance to the facility which the landlord estimates the cost of such repair at approximately $1.7 million. The Company intends to vigorously defend itself in this matter. The actual amount of any liability or the extent that the Company may be liable cannot be determined at this time. As such, the Company has not recorded a reserve related to such contingency. In March 1994, the SEC initiated a formal investigation of the Company. The investigation followed an informal inquiry by the SEC that had existed for some period of time. 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 Company and certain former officers of the Company, without admitting or denying any findings of the SEC, made an offer of settlement, which, if accepted by the SEC, would result in the entry of an order that the Company and such former officers cease and desist from committing or causing any violations of federal securities laws. The Service had been 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 Service has notified the Company of its intent to discontinue the examination of the 1989 federal income tax return and issue a no-change letter resulting in no adjustment to the Company's tax return as filed. The DOL has alleged that the Company's former Chairman, Randolph W. Lenz; Terex Corporation, the Company's former parent; and the Company violated certain provision 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 on the Company. 31 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 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 June 30, 1996 was less than the required minimum of $10.0 million. The payment of trailing liabilities represents a technical violation of the Revolving Credit Facility constituting an event of default thereunder. Congress has granted a forebearance whereby, among other things, Congress has agreed to refrain from exercising its rights or remedies it may have as a result of the payment of trailing liabilities with borrowings under the Revolving Credit Facility as long as (i) no other event of default has occurred and (ii) the Company has paid a forbearance fee in a timely manner. On the first day of each month after August 31, 1996, if the Permanent Reserve is not equal to at least $7.5 million, the Company is required to pay Congress a forbearance fee of $10,000. At such time as the Permanent Reserve equals $7.5 million, Congress has agreed, upon request by the Company, to enter into a agreement pursuant to which Congress permanently waives any and all forbearance events which have occurred prior to such time. The Company has not yet made the required June 30, 1996 interest payment on the Warrant Notes. Pursuant to the terms of a subordination agreement between the holders of the Warrant Notes, the Revolving Credit Facility lenders and the Trustee, the holders of the Warrant Notes are prohibited from exercising their remedies, including acceleration of the principal balance of the Warrant Notes for a period of 180 days. However, the holders of the Warrant Notes have indicated to the Company their intent to accelerate the Warrant Notes for purposes of commencing the 180 day standstill provisions. At the current time, there can be no assurance that the Company will be able to make the required interest payment prior to the expiration of the standstill period. Acceleration by the holders of the Warrant Notes would constitute an event of default under the Indenture. As such, the Senior Notes may be callable by the holders of the Senior Notes within one year of the balance sheet date. Interest on the Company's Senior Notes is payable semiannually on May 1 and November 1 on each year. The Company did not make the required May 1, 1996 interest payment within the 30 day grace period, which resulted in an event of default under the Indenture. However, the Company made the required interest payment on June 21, 1996. 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." 32 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 - - ----------- ------- 4.40 Fifth Amendment, dated as of June 21, 1996, to Accounts Financing Agreement [Security Agreement] and Limited Waiver by and between Congress Financial Corporation (Central) and Fruehauf Trailer Corporation. 4.41 Amendment No. 1 to First Amended and Restated Intercreditor Agreement, dated as of June 21, 1996, by and between Congress Financial Corporation (Central) and IBJ Schroder Bank & Trust Company. 4.42 Supplemental Working Capital Term Note, dated as of June 21, 1996, payable to the order of Congress Financial Corporation (Central), in the principal amount of $1,000,000, due May 1, 1997. 4.43 Multi-Party Subordination Agreement, dated as of June 21, 1996, by and between K-H Corporation, IBJ Schroder Bank & Trust Company and Congress Financial Corporation (Central). 4.44 First Supplemental Indenture, dated as of June 21, 1996, by and between Fruehauf Trailer Corporation and IBJ Schroder Bank & Trust Company, as Trustee. 4.45 Subordinated Revolving Note, dated as of June 21, 1996, by and between Fruehauf Trailer Corporation and K-H Corporation. 4.46 Guarantor General Security Agreement, dated as of June 21, 1996, by and between FGR, Inc., Fruehauf Corporation, Maryland Shipbuilding & Drydock Company, The Mercer Co., Fruehauf International Limited, Deutsche-Fruehauf Holding Corporation, Jacksonville Shipyards, Inc., M.J. Holdings, Inc., Fruehauf Holdings Corp., E.L. Devices, Inc., and K-H Corporation. 4.47 Guarantee, dated as of June 21, 1996, by and between FGR, Inc., Fruehauf Corporation, Maryland Shipbuilding & Drydock Company, The Mercer Co., Fruehauf International Limited, Deutsche-Fruehauf Holding Corporation, Jacksonville Shipyards, Inc., M.J. Holdings, Inc., Fruehauf Holdings Corp., E.L. Devices, Inc., and K-H Corporation. 11 Computation of Earnings 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. On May 10, 1996, the Company filed a Current Report on Form 8-K under Item 5 reporting the Consent Solicitation to the Holders of the 14.75% Senior Secured Notes due 2002 seeking certain waivers and amendments to the Indenture under which the Senior Notes were issued. On June 4, 1996, the Company filed a Current Report on Form 8-K 33 under Item 5 updating the status of discussions with bondholders. On June 18, 1996, the Company filed a Current Report on Form 8-K under Item 5 regarding an Amended and Restated Consent Solicitation to the Holders of the 14.75% Senior Secured Notes due 2002. On June 25, 1996, the Company filed a Current Report on Form 8-K reporting the completion of the foreign asset sale, the interest payment on the Senior Notes, and improved liquidity. No financial statements were required to be filed with any of these reports. 34 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: August 14, 1996 /s/ Timothy J. Wiggins ---------------------- Timothy J. Wiggins Executive Vice President and Chief Financial Officer (Duly Authorized Officer) Date: August 14, 1996 /s/ Gregory G. Fehr ---------------------- Gregory G. Fehr Vice President - Corporate Controller (Principal Accounting Officer)
EX-4.40 2 FRUEHAUF TRAILER EXHIBIT 4.40 FIFTH AMENDMENT TO ACCOUNTS FINANCING AGREEMENT [SECURITY AGREEMENT] AND LIMITED WAIVER This FIFTH AMENDMENT TO ACCOUNTS FINANCING AGREEMENT [SECURITY AGREEMENT] AND LIMITED WAIVER (the "Fifth Amendment") is entered into as of June 21, 1996 by and between FRUEHAUF TRAILER CORPORATION, a Delaware corporation ("Debtor") and CONGRESS FINANCIAL CORPORATION (CENTRAL), an Illinois corporation ("Congress"). Except for terms which are expressly defined herein, all capitalized terms used herein shall have the meanings ascribed to them in the Loan Agreement (as defined below). 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], 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 (collectively, as amended, restated, supplemented or otherwise modified from time to time, the "Loan Agreement"); WHEREAS, Debtor and Congress are parties to that certain Limited Waiver dated as of April 25, 1996 (the "Limited Waiver"), which, among other things, provided for Congress' waiver of certain provisions under the Loan Agreement relating to trailing liabilities and the Foreign Assets Sale; WHEREAS, Debtor has requested that Congress consent to the restructuring of part of the loan facility (the "Restructuring"); and WHEREAS, in connection with the Restructuring, Congress has required that Debtor enter into this Fifth 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 Loan Agreement. A. Definitions. 1. The definition of "Indenture" set forth in Section 1 of the Loan Agreement is hereby amended and restated in its entirety to read as follows: "Indenture" shall mean that certain Indenture dated as of May 1, 1995, by and between Debtor and IBJ Schroder Bank & Trust Company, as Trustee thereunder, as amended by that certain First Supplemental Indenture dated as of June 21, 1996 and as it may be further amended, supplemented, amended and restated or otherwise modified from time to time. 2. Clause (b) of the definition of the term "Net Cash Proceeds" set forth in Section 1 of the Loan Agreement is hereby amended and restated in its entirety to read as follows: (b) amounts deposited in escrow or on deposit as collateral, in respect of (i)environmental or other liabilities not assumed by the purchaser in connection with such Asset Sale (ii) the sale of the Waverly Equipment and the Partec Receivable or (iii) up to $100,000 in connection with certain regulatory approvals required in order to transfer certain of the Foreign Assets, but, in each case, only so long as such amounts remain on deposit or in escrow, and 3. The definition of the term "Net Cash Proceeds" set forth in Section 1 of the Loan Agreement is hereby amended by inserting "provided, however, that the Cash Proceeds realized by Jacksonville Shipyards, Inc. ("JSI") from the sale of the Jacksonville Assets shall not, if JSI has granted Congress a Lien on such proceeds pursuant to documents in form and substance satisfactory to Congress, constitute Net Cash Proceeds" immediately after the words "required to be repaid under the terms thereof as a result of such Asset Sale" therein. 4. The definition of the term "Required Month End Availability" set forth in Section 1 of the Loan Agreement is hereby amended and restated to read in its entirety as follows: "Required Month End Availability" shall mean (a) at all times prior to the time at which the Permanent Reserve shall equal $7,500,000, $10,000,000 and (b) at all times thereafter, $2,500,000. 5. The definition of the term "Intercreditor Agreement" set forth in Section 1 of the Loan Agreement is hereby amended and restated in its entirety to read as follows: 3 "Intercreditor Agreement" shall mean that certain First Amended and Restated Intercreditor Agreement dated as of May 1, 1995 by and between Congress, the Trustee, the Collateral Agent and certain other parties, as amended by that certain Amendment No. 1 to First Amended and Restated Intercreditor Agreement dated as of June 21, 1996 and as it may be further amended, supplemented, restated or otherwise modified from time to time. 6. Section 1 of the Loan Agreement is hereby amended by adding the following defined terms in the appropriate alphabetical order: a. "Bankruptcy Case" shall mean any voluntary or involuntary case arising under the Bankruptcy Code. b. "Consent Solicitation" shall mean that letter dated June 14, 1996 from Borrower to the Holders (as defined in the Indenture) regarding the Amended and Restated Consent Solicitation. c. "Congress Consent Fee" shall mean a consent fee payable to Congress and equal to $112,500. d. "DIP Collateral" shall have the definition ascribed to such term in the Interim Order. e. "Escrow Account" shall mean that certain Escrow Account established under the Escrow Agreement into which the certain proceeds from the sale of the Partec Receivable, the Waverly Equipment and certain other proceeds (in an amount equal to $100,000) from the Foreign Assets Sale shall be deposited and held by Congress as escrow agent under and pursuant to the Escrow Agreement. f. "Escrow Agreement" shall mean that certain Escrow Agreement dated as of June __, 1996, by and between FIL Partners, L.P., Congress, Borrower, Fruehauf Corporation and Fruehauf International Limited, as the same may from time to time be amended, restated, supplemented or otherwise modified. g. "Escrow Reserve" shall mean an amount equal to the distributions made out of the Escrow Account to Congress which are to be applied to increase the Escrow Reserve. h. "Foreign Assets" shall mean (i) the Debtor's current ownership interest in Societe Europeenne de Semi-Remorques, S.A., a French corporation, 4 (ii) the stock or other ownership interests currently owned by Fruehauf International Limited, a wholly owned subsidiary of the Debtor ("FIL"), in Henred Fruehauf (PTY) Limited, Henred Fruehauf Properties (PTY) Limited, Nippon Fruehauf Company Ltd., and F.L.A. Licensing, L.L.C., (iii) the Debtor's and FIL's current interests in certain trademark and technology license agreements currently operative outside North America (including, without limitation, all of the Debtor'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), (iv) all of the Debtor's current interests in (a) the trademark, service mark, trade or corporate name "Fruehauf" and (b) patents and patent applications, in each case, outside North America and (v) the Debtor's indirect ownership interest in certain real property located in Germany. i. "Foreign Assets Sale" shall mean the sale of the Foreign Assets by Debtor, Fruehauf Corporation or FIL, as the case may be, to Private Equity Investors, Inc. or an affiliate thereof in one or more transactions described in the Consent Solicitation. j. "Interim Order" shall mean the draft of that certain 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, which is dated April 11, 1996, relating to Debtor and its Subsidiaries. k. "Jacksonville Assets" shall mean (i) that certain real property owned by Jacksonville Shipyards, Inc. and located at Mayport Road, Jacksonville, Florida and (ii) that certain Pledged Note made by Jacksonville Riverfront Development, Ltd., dated February 10, 1995. l. "K-H Loan Agreement" shall mean that certain Subordinated Revolving Note dated as of June 21, 1996 made by Debtor in favor of K-H Corporation, as the same may from time to time be amended, restated, supplemented or otherwise modified. m. "K-H Security Documents" shall mean those security agreements, pledge agreements, mortgages and similar documents each dated June 21, 1996 and executed by Debtor and/or its Subsidiaries in favor of K-H Corporation, as the same may from time to time be amended, restated, supplemented or otherwise modified. 5 n. "Partec Receivable" shall mean those accounts receivable in the face amount of approximately $639,000 owed the Debtor and FIL by U.S. Partec Licensing, Inc. and U.S. Partec Corporation. o. "Pre-Petition Collateral" shall have the definition ascribed to such term in the Interim Order. p. "Pre-Petition Guarantor Collateral" shall have the definition ascribed to such term in the Interim Order. q. "Waverly Equipment" shall mean that certain idle trailer manufacturing equipment owned by the Debtor and located, as of June 13, 1996, in Waverly, Ohio. II. Amendments to the Accounts Financing Agreement. A. Section 2.1. Section 2.1 of the Accounts Financing Agreement is hereby amended by deleting "(vi) the Asset Sale Reserve at such time;" in the eighteenth line thereof and inserting "(vi) the Escrow Reserve at such time;" in its place. B. Section 2.3. Section 2.3 of the Accounts Financing Agreement is hereby amended by amending and restating the first sentence thereof to read as follows: "Except in your discretion, the outstanding principal amount of all loans by you to us hereunder, under any rider or supplement hereto and/or evidenced by any promissory note executed in connection herewith shall not at any time exceed (i) the Maximum Credit minus (ii) the Escrow Reserve at such time, minus (iii) the Permanent Reserve at such time minus (iv) an amount equal to the aggregate amount of all outstanding Letter of Credit Accommodations hereunder." C. Merger of Fruehauf Holdings Corporation. Section 6.2 of the Accounts Financing Agreement is hereby amended by inserting ", except for the merger of Fruehauf Holdings Corporation into Debtor in accordance with the terms of the Consent Solicitation" immediately between the word "us" and the period in the third line thereof. D. Notices. Section 10 of the Accounts Financing Agreement is hereby amended and restated in its entirety to read as follows: Section 10. NOTICES. 6 10.1 All notices, requests and demands hereunder shall be in writing and (a) made to Congress at its address as set forth below and to Debtor at its chief executive office set forth below, or to such other address as either party may designate by written notice to the other in 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. Congress Debtor Congress Financial Fruehauf Trailer Corporation (Central) Corporation 100 South Wacker Drive 111 Monument Circle Suite 1940 Suite 3200 Chicago, IL 60606 Indianapolis, IN 46204 E. Addresses on Signature Page. The Debtor's address as set forth on the signature page to the Accounts Financing Agreement is hereby deleted in its entirety. III. Amendments to the Rider. A. Section 6(bb)(b). Section 6(bb)(b) of the Rider is hereby amended and restated in its entirety to read as follows: "(b) use any Advances to make a payment of or on any Trailing Liabilities (as defined in the Indenture) to the extent Debtor can obtain funds under or pursuant to the K-H Loan Agreement to make such payment (it being agreed that to the extent available, Debtor shall borrow amounts under the K-H Loan Agreement to make payments of or on Trailing Liabilities). Amounts to make payments of or on Trailing Liabilities that may not be obtained under or pursuant to the K-H Loan Agreement may be funded by Advances; provided that Debtor make only a payment of or on a particular Trailing Liability if as of the last Business Day of the calendar month immediately preceding the month in which such payment is to be made, the Excess Loan Availability was at least equal to the Required Month End Availability; provided, additionally, Debtor may only use Advances to make payments of or on Trailing Liabilities during a particular month in an amount not to exceed the amount set forth opposite such month below (each such monthly permitted payment, a "Permitted Monthly Payment"): Month Permitted Monthly Payment June 1 - June 30 $ 750,000 7 July 1 - July 31 $ 750,000 August 1 - August 31 $ 700,000 September 1 - September 30 $ 700,000 October 1 - October 31 $ 700,000 November 1 - November 30 $ 650,000 December 1 - December 31 $ 600,000 The unused amount of any Permitted Monthly Payment for a particular month may be carried forward to the next successive month. B. Exhibit 6(a). Exhibit 6(a) of the Rider is hereby amended to add the text accompanying, immediately following the text accompanying number 13 thereof, "14. Liens in favor of K-H Corporation granted pursuant to the K-H Security Documents and/or the Assigned Documents (as defined in that certain Note Purchase and Assignment Agreement dated as of April 19, 1996, by and between Congress and K-H Corporation). 15. Those Liens pursuant to the put-call arrangement related to the Sindorf Property as described in the Consent Solicitation. 16. Subordinate Liens securing the indebtedness of the Debtor incurred in connection with the settlement of the lawsuit styled Rebenstock v. Fruehauf Trailer Corporation, et al., Case No. 92 CV 77050 DT, United States District Court for the Eastern District of Michigan, Southern Division, as long as (a) such Liens and indebtedness are subordinated, pursuant to documentation in form and substance satisfactory to Congress in its sole discretion, to the Liens and indebtedness of or owing to Congress and (b) no payments are made or permitted to be made on or with respect to such indebtedness until the Obligations have been indefeasibly paid in full." C. Section 6. Section 6 of the Rider is hereby amended by adding the new Section 6 (oo), 6 (pp), 6(qq), (6)(rr) and 6(ss) thereto, immediately following Section 6(nn) thereof, wherein such sections shall read as follows: (oo) In anticipating the potential need for the filing by Debtor of a Chapter 11 proceeding pursuant to the Bankruptcy Code, Debtor and Congress have negotiated the terms of the Interim Order and Debtor agrees that, in the event of such a filing, it will use its best efforts to assure that an order substantially similar to the Interim Order is obtained prior to using any Cash Collateral (as defined below) for the payment of any outstanding debts under any interim or final order pursuant to a Bankruptcy Case. As used herein, "Cash Collateral" shall mean all property of Debtor and the Subsidiaries (whether as pre-petition debtors or as debtors-in-possession or otherwise) that constitutes cash collateral in which Congress has an interest as provided in Section 363(a) of the Bankruptcy Code and shall include, without limitation: 8 (i) All cash proceeds arising from the collection, sale, lease or other disposition, use or conversion of any property upon which Congress holds a lien or a replacement lien, whether as part of the Pre-Petition Collateral, Pre-Petition Guarantor Collateral or other DIP Collateral or pursuant to an order of the bankruptcy court or applicable law or otherwise; and (ii) All deposits of Debtor and its Subsidiaries. All of Debtor's and its Subsidiaries' cash on hand and cash flow from operations consists of proceeds of pre-petition Revolving Loans, or Accounts or Inventory that are Pre-Petition Collateral or Pre-Petition Guarantor Collateral and, therefore, all such cash is Cash Collateral. (pp) Debtor shall not seek to modify the terms of the Interim Order. (qq) In the event that a Bankruptcy Case is commenced by or against Debtor, Debtor shall use its best effort to provide that all amounts under the Loan Documents are paid on a current basis. (rr) Whenever Debtor shall be entitled, pursuant to the Indenture, to obtain funds aggregating more than $10,000 from the Asset Sale Account (as defined in the Indenture), Debtor shall promptly obtain such funds from the Asset Sale Account pursuant to the procedures set forth in the Indenture prior to borrowing any funds under the Loan Agreement to be used for any or all of the purposes for which funds may be obtained from the Asset Sale Account. (ss) Debtor shall use its best efforts to undertake (i) the orderly sale, assignment or other transfer of its assets or (ii) the merger, consolidation or other business combination of its business into or with another business entity. Debtor shall generate Net Cash Proceeds from 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. D. Section 13. Section 13 of the Rider is hereby amended and restated in its entirety to read as follows: 9 13. Application of Proceeds of Collateral. The provisions of this Section 13 shall govern the application and payment to Congress, the Trustee and/or the Collateral Agent, as the case may be, of Net Cash Proceeds of any Asset Sale of the Partec Receivable or any Other Collateral (as defined in the Intercreditor Agreement) and shall be applicable in all circumstances, including, without limitation, in any Bankruptcy Case of which the Debtor or any Subsidiary is the subject or any other circumstance involving the distribution, division or application, partial or complete, voluntary or involuntary, by operation of law or otherwise, of all or any part of the Collateral or any other Property of the Debtor or any Subsidiary. (a) Foreign Assets Sale. The Debtor, either directly or through the actions of one or more of its subsidiaries, shall cause the Purchaser thereof to pay, upon the Receipt Date, the Net Cash Proceeds of the Foreign Assets Sale as follows: (i) the first $4,614,832.50 shall be directly deposited with the Trustee to be held in trust for the benefit of the Holders to be paid to the Holders by the Trustee as the interest payment on the Noteholder Debt originally scheduled to be made May 1, 1996, (ii) the next $156,435 shall be directly deposited with the Trustee to be held in trust for the benefit of the Holders and used to pay the Noteholders Consent Fee (as defined in the Intercreditor Agreement), (iii) the next $6,000,000 shall be paid directly to Congress for application to the Congress Obligations in such order as Congress in its sole discretion shall elect, but shall not be applied to the Permanent Reserve and shall not limit or otherwise affect Congress' ability or right to have Net Cash Proceeds from Asset Sales (other than the Foreign Assets Sale) be paid to Congress to be applied to the Congress Obligations and/or the Permanent Reserve and (iv) the balance shall be directly deposited with the Trustee to be held in trust for the benefit of the Holders and used to make an Asset Sale Offer (as defined in the Indenture) in accordance with the Indenture. (b) Partec Receivable and Waverly Equipment. The proceeds from the sale of the Partec Receivable and the Waverly Equipment shall immediately be deposited into the Escrow Account and be subject to the Escrow Agreement. When and to the extent that funds are released to Congress pursuant to such Escrow Agreement, Congress shall apply such funds to the Congress Obligations in such order as Congress in its sole discretion shall elect and the Escrow Reserve shall be increased by the amount of such funds so released to Congress. (c) All Other Asset Sales. All Net Cash Proceeds of any Asset Sale (other than the Foreign Assets Sale, the sale of the Partec Receivable and the sale of the Waverly Equipment) of any Other Collateral shall be paid and applied as follows: (1) Prior to the Turnover Time, to the extent the Permanent Reserve will not, after application of such Net Cash Proceeds to the Permanent Reserve, exceed the Maximum Deficiency Amount, such Net Cash Proceeds (or 10 such lesser portion equal to the difference between the Maximum Deficiency Amount and the Permanent Reserve immediately prior to such Asset Sale) shall be immediately paid to Congress for application to the Congress 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 the amount of such payment); (2) After the Turnover Time, the remainder of such Net Cash Proceeds, if any, shall be immediately paid to the Trustee for application in accordance with the Indenture until the Noteholder Debt has been paid in full; (3) In all other circumstances thereafter, the remainder of such Net Cash Proceeds, if any, shall be paid to Congress for application to the Congress obligations in such order as Congress in its sole discretion shall elect (and at such time the Permanent Reserve shall be increased by the amount of such payment). E. Section 14. Section 14 of the Rider is hereby amended and restated in its entirety to read as follows: "14. The Permanent Reserve. (a) The Permanent Reserve shall be increased from time to time as provided in Sections 13(c)(1) and 13(c)(3) hereof. (b) If (i) the aggregate principal amount of the Securities (as defined in the Indenture) tendered pursuant to an Asset Sale Offer (as defined in the Indenture), together with accrued interest thereon, is less than the aggregate amount of the Net Cash Proceeds available to make such Asset Sale Offer, and (ii) the Trustee is obligated pursuant to the Indenture to pay over such excess Net Cash Proceeds to Debtor, such excess Net Cash Proceeds shall be paid by the Trustee directly to Congress for application to the Obligations in such order as Congress in its sole discretion shall elect (and at such time the Permanent Reserve shall be increased by the amount of such payment), and Debtor hereby irrevocably authorizes and directs the Trustee to pay any such excess Net Cash Proceeds directly to Congress. IV. Conditions to Effectiveness of Fifth Amendment. The effectiveness of this Fifth Amendment is subject to the satisfaction of the following conditions: 11 A. Fifth Amendment. Debtor shall have duly executed and delivered this Fifth Amendment. B. Other Documents. All of the following documents shall have been executed and delivered by the relevant parties in form and substance satisfactory to Congress: 1. that certain Amendment No. 1 to First Amended and Restated Inter-creditor Agreement dated as of the date hereof, by and between Congress and IBJ Schroder Bank & Trust Company, as Trustee and Collateral Agent, and accepted and acknowledged by Debtor; 2. that certain Multi-Party Subordination Agreement dated as of the date hereof, by and among Congress, K-H Corporation and IBJ Schroder Bank & Trust Company, as Trustee and as Collateral Agent; 3. that certain Supplemental Note Purchase and Assignment Agreement dated as of the date hereof, by and among Congress and K-H Corporation and accepted and acknowledged by Debtor; 4. that certain Supplemental Working Capital Term Note dated as of the date hereof, made by Debtor in favor of Congress; 5. the Escrow Agreement; 6. that certain First Supplemental Indenture dated as of the date hereof, by and among Debtor, the Trustee and the Collateral Agent; 7. the K-H Loan Agreement; 8. the K-H Security Documents; 9. the release by the Trustee and/or the Collateral Agent of all liens and security interests and the relinquishment of all Collateral as contemplated by the Consent Solicitation; and 10. the letter agreement with respect to certain representations and warranties and the amendment to the Jacksonville Security Agreement (as defined in the Indenture) as contemplated by the Consent Solicitation. C. Congress Consent Fee. Debtor shall have paid Congress the Congress Consent Fee. 12 D. 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, the consummation of the transactions effected pursuant to the terms of the Loan Documents or the completion of the Foreign Assets Sale, the sale of the Partec Receivable or the sale of the Waverly Equipment. E. 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 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. V. Limited Waiver. A. This Section V of this Fifth Amendment hereby replaces and supersedes that certain Limited Waiver dated as of April 25, 1996 by and between Debtor and Congress which shall cease to have any further force and effect. B. Congress hereby waives the provisions of the Loan Agreement to the extent necessary to permit (i) the Foreign Assets Sale to occur strictly in accordance with the definition of Foreign Assets Sale and (ii) the sale of the Partec Receivable and the Waverly Equipment. C. Each of Debtor and Congress acknowledge and agree that (i) an Event of Default exists pursuant to Section 8(b) of the Rider as a result of the failure to pay the interest due on the Noteholder Debt on or about May 1, 1996 when due and (ii) an Event of Default has occurred or may occur as a result of Debtor's breach of Section 6(bb)(b) of the Rider (any and all such Events of Default, the "Forbearance Events"). D. As long as (i) no Event of Default (other than a Forbearance Event) has occurred, and (ii) Debtor has paid the Forbearance Fee (as defined below) in a timely manner, Congress agrees to refrain from exercising any rights or remedies it may have as a result of a Forbearance Event. On the first day of each month after August 31, 1996, if the Permanent Reserve is not equal to at least $7,500,000, the Debtor shall pay Congress a Forbearance Fee of $10,000 (which fee shall be fully earned and payable as of the first day of each such month) (such fee, the "Forbearance Fee"). At such time as the Permanent Reserve equals $7,500,000, Congress agrees, upon the request of Debtor, to enter into an agreement, in form and substance satisfactory to 13 Congress, pursuant to which Congress permanently waives any and all Forbearance Events which have occurred prior to such time. VI. Representations and Warranties. In order to induce Congress to enter into this Fifth Amendment, Debtor represents and warrants to Congress, upon the effectiveness of this Fifth Amendment, which representations and warranties shall survive the execution and delivery of this Fifth Amendment, that: A. Unencumbered Assets. Neither Debtor, nor any of its Subsidiaries, has any assets that are free from a security interest, mortgage, pledge, lien, charge or other encumbrance. B. Priority of Liens. The security interests and liens granted to Congress under the Loan Agreement and the other Loan Documents constitute valid and perfected first priority liens and security interests in and upon the Collateral subject only to existing liens indicated on Exhibit 6(a) to the Loan Agreement or the other liens expressly permitted pursuant to Section 6(a) of the Rider. C. Adequate Collateral. The fair market value of Debtor's Collateral is greater than the sum of the outstanding balance of (i) the amounts owing to Congress pursuant to the Loan Agreement, (ii) all amounts owing to K-H Corporation pursuant to the K-H Loan Agreement, that certain Working Capital Term Note dated April 19, 1996 and that certain Supplemental Working Capital Term Note dated June 21, 1996 and originally made by Debtor in favor of Congress and (iii) the Noteholder Debt. D. 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. E. No Default; etc. No Default or Event of Default (other than Forbearance Events (as defined above) has occurred and is continuing after giving effect to this Fifth Amendment or would result from the execution or delivery of this Fifth Amendment or the consummation of the transactions contemplated hereby. F. Corporate Power and Authority; Authorization. Debtor has the corporate power and authority to execute, deliver and carry out the terms and provisions of this Fifth 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. 14 G. Execution and Delivery. Debtor has duly executed and delivered this Fifth Amendment. Debtor and each of the Subsidiaries has duly executed and delivered each Loan Document to which it is a party. H. Enforceability. The Loan Agreement, as amended by this Fifth 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' rights generally, and by general principles of equity. I. No Conflicts; etc. Neither the execution, delivery or performance by Debtor of this Fifth Amendment, the K-H Loan Agreement and the K-H Security Documents, nor compliance by Debtor with the terms and provisions hereof or thereof, nor the completion of the Foreign Assets Sale nor the execution, delivery and performance by each Subsidiary of each Loan Document or K-H Security 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. J. 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 Fifth 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 Fifth Amendment or the consummation of any of the transactions contemplated hereby. 15 K. K-H Loan Agreement. The K-H Loan Agreement has been duly executed and delivered and a certified copy of the K-H Loan Agreement has been delivered to Congress. L. First Supplemental Indenture. The execution and delivery of the First Supplemental Indenture dated as of June 21, 1996, by and between Debtor and Trustee has been duly authorized by, and consented to by an affirmative vote of, the Holders (as defined in the Indenture) required to authorize and/or consent to the execution and delivery of such document. M. Supplemental Indenture. The Supplemental Indenture has been duly approved by a vote of the Holders (as defined in the Indenture). N. 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 Fifth Amendment after giving effect to this Fifth Amendment. VII. Miscellaneous. A. 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 Fifth 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. B. 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 Fifth 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 16 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 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 Fifth 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 the Foreign Assets Sale or any of the foregoing. C. 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 Fifth 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 17 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 Fifth Amendment. D. Effectiveness. This Fifth Amendment shall immediately become effective as of the date first written above upon (i) the receipt by Congress of duly executed counterparts of this Fifth Amendment from Debtor and (ii) the satisfaction or written waiver of each condition precedent contained herein. E. Counterparts. This Fifth Amendment may be executed in any number of counterparts, each such counterpart constituting an original but all together constitute one and the same instrument. F. Severability. Any provision contained in this Fifth 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 Fifth Amendment in that jurisdiction or the operation, enforceability or validity of that provision in any other jurisdiction. G. GOVERNING LAW. THIS FIFTH AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. [Remainder of page intentionally blank] 18 IN WITNESS WHEREOF, the parties hereto have executed this Fifth 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-4.41 3 FRUEHAUF TRAILER EXHIBIT 4.41 AMENDMENT NO. 1 TO FIRST AMENDED AND RESTATED INTERCREDITOR AGREEMENT This AMENDMENT NO. 1 TO FIRST AMENDED AND RESTATED INTERCREDITOR AGREEMENT (the "Amendment") is made and entered into as of June 21, 1996, by and among CONGRESS FINANCIAL CORPORATION (CENTRAL) (together with its successors and assigns, "Congress") and IBJ SCHRODER BANK & TRUST COMPANY ("IBJS"), solely in the capacities described below. IBJS is entering into this Amendment not in its individual capacity but solely in its capacities (i) as trustee under the Indenture dated as of May 1, 1995 (as amended, supplemented, amended and restated or otherwise modified from time to time, the "Indenture") between Fruehauf Trailer Corporation ("Borrower") and IBJS, as trustee (in such capacity, together with its successors and assigns as such, the "Trustee"), providing for the issuance by the Borrower of its 14.75% Senior Secured Notes due 2002, and (ii) as Collateral Agent (as defined in the Indenture) and, in such capacities, on behalf of the Holders (as defined in the Indenture). Except for terms which are expressly defined herein, all capitalized terms used herein shall have the meanings ascribed to them in the Agreement (as defined below), as amended by this Amendment. R E C I T A L S A. Congress and Borrower 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] (the "Rider") and Inventory and Equipment Security Agreement Supplement to Accounts Financing Agreement [Security Agreement] and that certain letter re: Inventory, each dated as of August 20, 1993 (as amended from time to time prior to the date hereof, collectively, the "Existing Loan Agreement"). B. Congress and IBJS are parties to that certain First Amended and Restated Intercreditor Agreement dated as of May 1, 1995 (as amended by this Amendment, the "Agreement"). C. Borrower is undertaking a restructuring of certain of its indebtedness (the "Restructuring") pursuant to which, among other things (i) Borrower and Congress will amend the Existing Loan Agreement by executing that certain Fifth Amendment to Accounts Financing Agreement [Security Agreement] and Limited Waiver dated as of June 21, 1996 (the "Fifth Amendment"), (ii) Borrower and the Trustee will amend the Indenture by executing that certain First Supplemental Indenture, dated as of June 21, 1996, between the Borrower and IBJS as Trustee and Collateral Agent (the "Supplemental Indenture") and (iii) Borrower will refinance a portion of the revolving loans outstanding pursuant to the Existing Loan 2 Agreement through that certain Supplemental Working Capital Term Note dated as of June 21, 1996 executed by Borrower in favor of Congress. D. As a condition precedent to the effectiveness of the Restructuring, Congress, the Trustee and the Collateral Agent have agreed to amend the Agreement as provided in this Amendment. A G R E E M E N T NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereby agree as follows: I. Amendments to Agreement. A. Definitions in Preamble. 1. The first parenthetical phrase in the Preamble to the Agreement is hereby amended and restated in its entirety to read as follows: (as amended by Amendment No. 1 to First Amended and Restated Intercreditor Agreement dated as of June 21, 1996, the "Amended Agreement") 2. The first parenthetical phrase in clause (i) of the Preamble to the Agreement is hereby amended and restated in its entirety to read as follows: (as amended by the First Supplemental Indenture dated as of June 21, 1996 (the "Supplemental Indenture") and as it may be further amended, supplemented, amended and restated or otherwise modified from time to time, the "Indenture") B. Definitions in Recitals. The following defined terms in Recital D of the Agreement are hereby amended and restated in their entirety to read as follows: 1. "Accounts Financing Agreement" shall mean the Existing Accounts Financing Agreement as amended by the Loan Agreement Amendments and as it may be further amended, supplemented, amended and restated or otherwise modified from time to time. 2. "Loan Agreement" shall mean the Existing Loan Agreement, as amended by that certain Fifth Amendment to Accounts Financing Agreement [Security Agreement] dated as of June 21, 1996 (the "Fifth Amendment," and collectively, with the Third Amendment to Accounts Financing Agreement [Security Agreement] dated as of May 1, 1995 and the Fourth Amendment to Accounts Financing Agreement [Security Agreement] dated as of April 19, 3 1996, the "Loan Agreement Amendments") and as it may be further amended, supplemented, amended and restated or otherwise modified from time to time. C. Loan Agreement Amendment. All references to "Loan Agreement Amendment" shall be deleted and the term "Loan Agreement Amendments" shall be substituted therefor. The definition of "Loan Agreement Amendments" shall have the meaning ascribed to such term in the definition of "Loan Agreement". D. Section 1 Definitions. Section 1 of the Agreement is hereby amended to add the following definitions in their appropriate alphabetical location: 1. "Escrow Agreement" shall mean that certain Escrow Agreement dated as of June 21, 1996, by and between FIL Partners, L.P., Congress, Borrower, Fruehauf Corporation and Fruehauf International Limited, as the same may from time to time be amended, restated, supplemented or otherwise modified. 2. "Escrow Account" shall mean that certain Escrow Account established under the Escrow Agreement into which certain proceeds from the sale of the Partec Receivable, the Waverly Equipment and certain other proceeds (in an amount equal to $100,000) from the Foreign Assets Sale shall be deposited and held by Congress as escrow agent under and pursuant to the Escrow Agreement. 3. "Foreign Assets" shall mean (i) the Borrower's current ownership interest in Societe Europeenne de Semi-Remorques, S.A., a French corporation, (ii) the stock or other ownership interests currently owned by Fruehauf International Limited, a wholly owned subsidiary of the Borrower ("FIL"), in Henred Fruehauf (PTY) Limited, Henred Fruehauf Properties (PTY) Limited, Nippon Fruehauf Company Ltd., and F.L.A. Licensing, L.L.C., (iii) the Borrower's and FIL's current interests in certain trademark and technology license agreements currently operative outside North America (including, without limitation, all of the Borrower'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), (iv) all of the Borrower's current interests in (a) the trademark, service mark, trade or corporate name "Fruehauf" and (b) patents and patent applications, in each case, outside North America, and (v) the Borrower's indirect ownership interest in certain real property located in Germany. 4. "Foreign Assets Sale" shall mean the sale of the Foreign Assets by Borrower, Fruehauf Corporation or FIL, as the case may be, to Private Equity Investors, Inc. or an affiliate thereof in one or more transactions 4 as described in that certain letter (the "Consent Solicitation") dated June 14, 1996 from Borrower to the Holders regarding the Amended and Restated Consent Solicitation. 5. "Noteholders Consent Fee" shall mean a consent fee payable to the Trustee for the benefit of the holders of the Notes and equal to $156,435. 6. "Partec Receivable" shall mean those accounts receivable in the face amount of approximately $639,000 owed the Borrower and FIL by U.S. Partec Licensing, Inc. and/or U.S. Partec Corporation. 7. "Waverly Equipment" shall mean that certain idle trailer manufacturing equipment owned by the Borrower and located, as of June 13, 1996, in Waverly, Ohio. E. Amended and Restated Definitions. Each of the following definitions contained in Section 1 of the Agreement are hereby amended and restated in their entirety to read as follows: 1. "Congress Primary Collateral" shall mean all Accounts, Inventory, Records and all of Borrower's right, title and interest in and to the Escrow Account. 2. "Maximum Deficiency Amount" shall equal Seven Million Five Hundred Thousand Dollars ($7,500,000). F. Deletion of Certain Definitions. The definitions of "Asset Sale Reserve" and "Asset Sale Account" set forth in Section 1 of the Agreement are hereby deleted in their entirety. G. Section 4 Amendments. Section 4 of the Agreement is hereby amended and restated in its entirety to read as follows: 4. Application of Proceeds of Certain Collateral. The provisions of this Section 4 shall govern the application and payment to Congress, the Trustee and/or the Collateral Agent, as the case may be, of Net Cash Proceeds of any Asset Sale of the Partec Receivable or any Other Collateral and shall be applicable in all circumstances, including, without limitation, in any Bankruptcy Case of which the Borrower or any Subsidiary is the subject or any other circumstance involving the distribution, division or application, partial or complete, voluntary or involuntary, by operation of law or otherwise, of all or any part of the Collateral or any other Property of the Borrower or any Subsidiary. 5 (a) Foreign Assets Sale. The Borrower, either directly or through the actions of one or more of its subsidiaries, shall cause the Purchaser thereof to pay, upon the Receipt Date, the Net Cash Proceeds of the Foreign Assets Sale as follows: (i) the first $4,614,832.50 shall be directly deposited with the Trustee to be held in trust for the benefit of the Holders to be paid to the Holders by the Trustee as the interest payment on the Noteholder Debt originally scheduled to be made May 1, 1996, (ii) the next $156,435 shall be directly deposited with the Trustee to be held in trust for the benefit of the Holders and used to pay the Noteholders Consent Fee, (iii) the next $6,000,000 shall be paid directly to Congress for application to the Congress Obligations in such order as Congress in its sole discretion shall elect, but shall not be applied to the Permanent Reserve and shall not limit or otherwise affect Congress' ability or right to have Net Cash Proceeds from Asset Sales (other than the Foreign Assets Sale) be paid to Congress to be applied to the Congress Obligations and/or the Permanent Reserve and (iv) the balance shall be directly deposited with the Trustee to be held in trust for the benefit of the Holders and used to make an Asset Sale Offer (as defined in the Indenture) in accordance with the Indenture. (b) Partec Receivable and Waverly Equipment. The proceeds from the sale of the Partec Receivable and the Waverly Equipment shall immediately be deposited into the Escrow Account and be subject to the Escrow Agreement. When and to the extent that funds are released to Congress pursuant to such Escrow Agreement, Congress shall apply such funds to the Congress Obligations in such order as Congress in its sole discretion shall elect and the Escrow Reserve (as defined in the Loan Agreement) shall be increased by the amount of such funds so released to Congress. (c) All Other Asset Sales. All Net Cash Proceeds of any Asset Sale (other than the Foreign Assets Sale, the sale of the Partec Receivable and the sale of the Waverly Equipment) of any Other Collateral shall be paid and applied as follows: (1) Prior to the Turnover Time, to the extent the Permanent Reserve will not, after application of such Net Cash Proceeds to the Permanent Reserve, exceed the Maximum Deficiency Amount, such Net Cash Proceeds (or such lesser portion equal to the difference between the Maximum Deficiency Amount and the Permanent Reserve immediately prior to such Asset Sale) shall be immediately paid to Congress for application to the Congress 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 the amount of such payment); (2) After the Turnover Time, the remainder of such Net Cash Proceeds, if any, shall be immediately paid to the Trustee for application in accordance with the Indenture until the Noteholder Debt has been paid in full; 6 (3) In all other circumstances thereafter, the remainder of such Net Cash Proceeds, if any, shall be paid to Congress for application to the Congress Obligations in such order as Congress in its sole discretion shall elect (and at such time the Permanent Reserve shall be increased by the amount of such payment). (d) Payment of Excess Net Cash Proceeds After Asset Sale Offer. If the Trustee shall be required to pay over to Borrower any excess Net Cash Proceeds remaining on deposit with the Trustee pursuant to Section 3.16(e) of the Indenture (as in effect on the date hereof or as modified from time to time with the written consent of Congress), the Trustee shall, notwithstanding the terms of Section 3.16(e) of the Indenture, pay such excess Net Cash Proceeds to Congress for application to the Congress Obligations in such order as Congress, in its sole discretion, shall elect (and at such time the Permanent Reserve shall be increased by the amount of such payment). II. Consents. A. Any reference in the Agreement to any Congress Loan Document or Noteholder Document shall be deemed to be a reference to such document, as amended by the following documents, and solely for such purposes and for purposes of Section 9 of the Agreement, but without agreeing to or approving any of the matters addressed in Sections 6(oo), 6(pp) and 6(qq) of the Rider, each of Congress, the Trustee and the Collateral Agent, on behalf of itself and the Holders, hereby acknowledge and consent to the execution and delivery of the following documents as in effect on the date hereof and, solely for such purposes, to all of the modifications and amendments thereby effected to the Congress Loan Documents and the Noteholder Documents: 1. that certain Fifth Amendment to Accounts Financing Agreement [Security Agreement] and Limited Waiver dated of even date herewith, by and between Congress and Borrower; 2. that certain Multi-Party Subordination Agreement dated of even date herewith, by and among Congress, K-H Corporation and IBJS, as Trustee and as Collateral Agent (the "Multi-Party Subordination Agreement"); 3. that certain Supplemental Note Purchase and Assignment Agreement dated of even date herewith, by and among Congress and K-H Corporation and accepted and acknowledged by Borrower; 4. that certain Supplemental Working Capital Term Note dated of even date herewith, made by Borrower in favor of Congress; 7 5. the Escrow Agreement; 6. that certain First Supplemental Indenture dated as of the date hereof, by and among Debtor, Trustee and the Collateral Agent; 7. that certain Subordinated Revolving Note dated as of the date hereof made by Borrower in favor of K-H Corporation (the "Subordinated Revolving Note"); 8. the release by the Trustee and/or the Collateral Agent of all liens and security interests and the relinquishment of all Collateral as contemplated by the Consent Solicitation; 9. the letter agreement with respect to certain representations and warranties and the amendment to the Jacksonville Security Agreement (as defined in the Indenture) as contemplated by the Consent Solicitation; 10. the Letter of Pledge dated as of the date hereof by the Borrower to the Collateral Agent and the Patent, Trademark, Copyright and Other Intellectual Property Security Interest dated as of the date hereof by Borrower in favor of the Collateral Agent; and 11. those security agreements, pledge agreements, mortgages and similar documents each dated as of the date hereof and executed by Borrower and/or its Subsidiaries (as defined in the Loan Agreement) in favor of K-H Corporation, securing the Subordinated Revolving Note and subject to the Multi-Party Subordination Agreement. B. Any references in the Agreement to any Congress Loan Document or Noteholder Document shall be deemed to be a reference to such document, as amended by the following documents, and solely for such purposes and for purposes of Section 9 of the Agreement, the Trustee and the Collateral Agent, on behalf of itself and the Holders, each hereby acknowledges and consents to the execution and delivery of the following documents and, solely for such purposes, to the modifications and amendments thereby effected to the Congress Loan Documents (as in effect on the date of original execution thereof and as amended with the prior written consent of the Trustee, collectively, the "April 19 Documents"): 1. that certain Fourth Amendment to Accounts Financing Agreement [Security Agreement] dated as of April 19, 1996, by and between Borrower and Congress; 2. that certain Working Capital Term Note dated as of April 19, 1996, executed by Borrower in favor of Congress; 8 3. that certain Note Purchase and Assignment Agreement dated as of April 19, 1996, by and between Congress and K-H Corporation and accepted by Borrower; 4. that certain Subordination Agreement dated as of April 19, 1996, by and between Congress and K-H Corporation; 5. that certain Assignment Agreement dated as of April 19, 1996, by K-H Corporation and accepted by Congress; and 6. that certain Limited Waiver dated as of April 19, 1996, by and between Borrower and Congress. Each of Congress, the Trustee and the Collateral Agent, on behalf of itself and the Holders, hereby acknowledges and agrees that (i) all of the indebtedness and obligations arising at any time under the April 19 Documents constitute Congress Obligations and (ii) the April 19 Documents constitute Congress Loan Documents. III. Miscellaneous. A. 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 Agreement or (ii) prejudice any right or rights that any of Congress, the Trustee, the Collateral Agent or the Holders may now have or may have in the future under or in connection with the Agreement, the Indenture, the other Documents (as defined in the Indenture) or the Loan Agreement. This Amendment shall be construed in connection with and as part of the Agreement, and all terms, conditions, representations, warranties, covenants and agreements set forth in the Agreement, except as herein amended or waived, are hereby ratified and confirmed and shall remain in full force and effect. B. Effectiveness. This Amendment shall be effective on the date on which the Fifth Amendment and the Supplemental Indenture have both become effective in accordance with their respective terms. C. Counterparts. This Amendment may be executed in any number of counterparts, each such counterpart constituting an original but all together constitute one and the same instrument. D. Severability. Any provision contained in this 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 9 Amendment in that jurisdiction or the operation, enforceability or validity of that provision in any other jurisdiction. E. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. [remainder of page intentionally blank] 10 IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first above written. IBJ SCHRODER BANK & TRUST COMPANY, not individually but solely as Trustee and as Collateral Agent By:/s/ Barbara McCluskey ------------------------ Title: Assistant Vice President -------------------------- CONGRESS FINANCIAL CORPORATION (CENTRAL) By:/s/ Thomas C. Lannon ------------------------ Title: Vice President -------------------- Fruehauf Trailer Corporation hereby accepts, and acknowledges receipt of a copy of, the foregoing Amendment as of June 21, 1996, and agrees to be bound by the Agreement, as amended by the Amendment, and without limiting the generality of the foregoing, agrees that it will not make any payments in violation of the Agreement, as amended by this Amendment. FRUEHAUF TRAILER CORPORATION By: /s/ Timothy J. Wiggins -------------------------- Its: Executive Vice President and Chief Financial Officer EX-4.42 4 FRUEHAUF TRAILER EXHIBIT 4.42 SUPPLEMENTAL WORKING CAPITAL TERM NOTE June 21, 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 One Million Dollars ($1,000,000) 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, that certain Fourth Amendment to Accounts Financing Agreement [Security Agreement] (the "Fourth Amendment") entered into as of April 19, 1996 by and between Borrower and Lender, and that certain Fifth Amendment to Accounts Financing Agreement [Security Agreement] 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 Supplemental Working Capital Term Note ("Supplemental 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 2 Company ("IBJS"), as indenture trustee and Collateral Agent (as that term is defined in the Intercreditor Agreement) and certain other parties, as amended by that certain Amendment Number 1 to First Amended and Restated Intercreditor Agreement entered into as of even date herewith by and among Lender, IBJS, as indenture trustee and Collateral Agent, and certain other parties. 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, with the consent of Lender, has previously converted a portion of the revolving loans outstanding pursuant to the Revolving Loan Documents to a term loan to Borrower, as evidenced by that certain Working Capital Term Note, dated as of April 19, 1996, in the principal amount of Five Million Five Hundred Thousand Dollars ($5,500,000) (the "Original Term Note"). E. 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 Supplemental Term Note. F. The term loan to be made under this Supplemental 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 Supplemental 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 Supplemental Term Note" and words of similar import when used in this Supplemental Term Note shall refer to this Supplemental Term Note as a whole and not any particular provision of this Supplemental Term Note and as this Supplemental Term Note now exists or may hereafter be amended, modified, supplemented, 3 extended, renewed, restated or replaced. Any accounting term used herein unless otherwise defined in this Supplemental Term Note shall have the meaning customarily given to such term in accordance with GAAP. For purposes of this Supplemental 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. 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. 1.5 "Collateral" shall have the meaning set forth in Section 4 hereof. 1.6 "Collateral Documents" shall mean those documents set forth in Exhibit A to the Original Term Note. 1.7 "Equipment" shall have the meaning set forth in Section 4 hereof. 1.8 "Event of Default" shall mean the occurrence or existence of any event or condition described in Section 8.1 hereof. 1.9 "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 4 during the next twelve (12) month period or (ii) Average Book Availability for the ninety (90) day period ending on such date. 1.10 "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. 1.11 "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. 1.12 "Inventory" shall have the meaning set forth in Section 4 hereof. 1.13 "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. 1.14 "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. 1.15 "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. 1.16 "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. 1.17 "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. 1.18 "Records" shall have the meaning set forth in Section 4 hereof. 5 1.19 "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. 1.20 "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. 1.21 "Term Loan" shall have the meaning set forth in Section 2.1 hereof. 1.22 "Term Loan Financing Agreements" shall mean, collectively, this Supplemental Term Note, 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 Supplemental Term Note. 1.23 "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 Supplemental 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. 6 1.24 "Transfer Documents" shall mean (i) that certain Supplemental Note Purchase and Assignment Agreement, dated as of even date herewith by and between Congress Financial Corporation (Central) and K-H Corporation (the "Supplemental Note Purchase Agreement"), and (ii) any assignment of any or all of the Term Loan Financing Agreements executed in connection with the Supplemental Note Purchase Agreement. 1.25 "Transfer Event" shall mean a sale or other transfer of this Supplemental Term Note by Congress Financial Corporation (Central) to any third party, which shall then become a "Lender" hereunder. SECTION 2. CREDIT FACILITIES 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 One Million Dollars ($1,000,000), 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 Fifty Thousand Dollars ($50,000), 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; 7 (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 Supplemental 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. 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 June 21, 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 (2.5%) 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) prior to the occurrence of a Transfer Event, whenever the default rate is imposed on Borrower's outstanding Obligations pursuant to the Revolving Loan Documents, or (ii) 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 8 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 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 Supplemental 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 Supplemental 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. 9 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 Supplemental Term Note and the other Term Loan Financing Agreements are subject to the terms of the Intercreditor Agreement and, when executed, the Transfer Documents. 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, among other things, all Term Loan Obligations, Borrower has heretofore granted to Lender a continuing security interest in, a lien upon, and a right of set off against, and has heretofore assigned to Lender as security (all of which shall be applicable to any Lender holding this Supplemental 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, 10 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 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 11 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 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 12 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 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 13 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 the Collateral Documents 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. 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. 14 SECTION 6. REPRESENTATIONS AND WARRANTIES Borrower hereby represents and warrants to Lender the following (which shall survive the execution and delivery of this Supplemental 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 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 Supplemental 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 is 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 Supplemental 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 of 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 Supplemental 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 Supplemental Term Note. 15 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 in connection with the execution and delivery of the Original Term Note constitute valid and, upon the filing of appropriate financing statements, mortgages and deeds of trust, perfected liens and 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 or the Collateral Documents to which it is a party, or of Lender to enforce this Supplemental Term Note or any of the other Term Loan Financing Agreements or the Collateral Documents or realize upon the Collateral. 16 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. Except as previously disclosed in writing by Borrower to both Lender and K-H Corporation, 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 Supplemental Term Note or any of the other Term Loan Financing Agreements or the Collateral Documents 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. 6.8 Survival of Warranties; Cumulative. All representations and warranties contained in this Supplemental Term Note and the other Term Loan Financing Agreements shall survive the execution and delivery of this Supplemental 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 Supplemental 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. 17 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. 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 such 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 or the Collateral Documents. 18 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 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. 19 (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, except for the merger of Fruehauf Holdings Corporation into Borrower in accordance with the terms of that certain letter dated June 14, 1996 from Borrower to the Holders (as defined in the Indenture) regarding the Amended and Restated Consent Solicitation, (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. 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. 20 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, the Original Term Note, this Supplemental 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 and the Collateral Documents, enforcing the security interests and liens of Lender, selling or otherwise realizing upon the Collateral, and otherwise enforcing the provisions of the Term Loan Financing Agreements and the Collateral Documents 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 and the Collateral Documents. 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 21 representations and warranties set forth in this Supplemental 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 or the Collateral Documents, (ii) breaches any of the terms, covenants, conditions or provisions contained in any of the Term Loan Financing Agreements or Collateral Documents 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 the Collateral Documents 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; (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 shall indicate its consent to, acquiescence in or approval of, any such action or proceeding or the relief requested; 22 (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) shall have accelerated 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 Collateral Documents, (iii) the Uniform Commercial Code, (iv) any other applicable law and (v) 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 Collateral Documents, the Uniform Commercial Code or other applicable law, are cumulative, not exclusive, and enforceable, in Lender's discretion, alternatively, successively, or concurrently 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, Collateral Documents 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 or the Collateral Documents 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) 23 hereof, 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 part or all of the 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. (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. 24 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 Supplemental 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 Supplemental 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. (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 SUPPLEMENTAL 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 SUPPLEMENTAL 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 25 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 SUPPLEMENTAL 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 the Collateral Documents, 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 and the Collateral Documents. 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 and the Collateral Documents, and any and all other demands and notices of any kind or nature whatsoever with respect to Borrower's obligations, the Collateral, the Collateral Documents 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. 9.3 Amendments and Waivers. Neither this Supplemental 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. 26 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 Supplemental 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 9.5 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 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. 27 10.2 Partial Invalidity. If any provision of this Supplemental 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 Supplemental Term Note or such other Term Loan Financing Agreement as a whole, but this Supplemental 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 Supplemental 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 Supplemental 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. 10.4 Entire Agreement. This Supplemental Term Note, together with the Collateral Documents, 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 supersedes 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] S-1 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 and Chief Financial Officer 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. Supplemental Note Purchase and Assignment Agreement by and between Congress and K-H Corporation ("K-H") and accepted by Fruehauf 2. Multi-Party Subordination Agreement by and among Lender, K-H Corporation and IBJS, as Trustee and Collateral Agent 3. Subordination Agreement by and between Congress and K-H and acknowledged by Fruehauf and its subsidiaries EX-4.43 5 FRUEHAUF TRAILER EXHIBIT 4.43 MULTI-PARTY SUBORDINATION AGREEMENT THIS MULTI-PARTY SUBORDINATION AGREEMENT ("Agreement") is made and entered into as of June 21, 1996 by and between the undersigned, K-H Corporation (together with its successors and assignees, "K-H"), IBJ Schroder Bank & Trust Company ("IBJS"), solely in the capacities described below, and Congress Financial Corporation (Central) (together with its successors and assignees, "Congress"). IBJS is entering into this Agreement not in its individual capacity but solely in its capacity as (i) Trustee (as defined in the Indenture hereinafter referred to) under the Indenture dated as of May 1, 1995, between Fruehauf Trailer Corporation ("Fruehauf") and IBJS, as such Trustee, as amended by that certain First Supplemental Indenture dated as of June 21, 1996 (collectively, as so amended and as it may be further amended, supplemented, amended and restated or otherwise modified from time to time, the "Indenture") by and between Fruehauf and IBJS, as Trustee and as Collateral Agent (as defined in the Indenture), and (ii) Collateral Agent, and, in such capacities, on behalf of the Holders (as defined in the Indenture). K-H enters into this Agreement as the holder of both (i) the Senior K-H Obligations (as defined herein) and (ii) the Subordinated Debt (as defined herein). Capitalized terms used herein which are not defined herein are used herein as such terms are defined in (i) 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, 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, that certain Fourth Amendment to Accounts Financing Agreement [Security Agreement] entered into as of April 19, 1996 (the "Fourth Amendment") by and between Borrower and Congress and that certain Fifth Amendment to Accounts Financing Agreement [Security Agreement] entered into as of June 21, 1996 (the "Fifth Amendment") by and between Borrower and Congress (collectively, as hereinafter amended, restated or otherwise modified from time to time, the "Loan Agreement"), and (ii) that certain First Amended and Restated Intercreditor Agreement, dated as of May 1, 1995, as amended by that certain Amendment No. 1 to First Amended and Restated Intercreditor Agreement, dated as of June 21, 1996 2 (collectively, as hereinafter amended, restated or otherwise modified from time to time, the "Intercreditor Agreement") by and among Congress, the Trustee and the Collateral Agent and acknowledged and accepted by Borrower. To the extent that both the Loan Agreement and the Intercreditor Agreement contain capitalized terms used herein that are not defined herein, the definitions of capitalized terms in the Loan Agreement shall be used herein. WITNESSETH: WHEREAS, Borrower is indebted to Congress as a result of loans made or to be made by Congress to Borrower pursuant to the Loan Agreement and other loan and security documents relating thereto; WHEREAS, Borrower is indebted to the Indenture Persons with respect to the Noteholder Debt; WHEREAS, Congress and IBJS, as Trustee and Collateral Agent, and certain Existing Lenders are parties to the Intercreditor Agreement; WHEREAS, pursuant to that certain Note Purchase and Assignment Agreement dated as of April 19, 1996 and that certain Supplemental Note Purchase and Assignment Agreement dated as of June 21, 1996 between Congress and K-H (collectively "Assignment Agreements"), Congress has assigned to K-H all of its right, title and interest to (i) that certain Working Capital Term Note dated as of April 19, 1996 in the total principal amount of Five Million Five Hundred Thousand Dollars ($5,500,000) and that certain Supplemental Working Capital Term Note dated as of June 21, 1996 in the total principal amount of One Million Dollars ($1,000,000) (collectively, as the same may from time to time be amended, restated, supplemented or otherwise modified, the "Term Notes"), (ii) the other Assigned Documents (as defined in the Assignment Agreements) and (iii) the Intercreditor Agreement to the extent that Congress' interest in the Intercreditor Agreement relates to the Term Notes; WHEREAS, pursuant to that certain Subordinated Revolving Note ("Subordinated Revolving Note") dated as of June 21, 1996 made by Borrower in favor K-H, K-H may make additional loans to Borrower; and WHEREAS, the parties hereto wish to better establish the relationship between and among them; 3 AGREEMENT NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by all of the parties hereto, each of those parties hereby agrees as follows: 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 or the Subordinated Debt 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, K-H Subordinated Loan Documents, or Noteholder Documents, other than the Intercreditor Agreement. "Enforcement Blockage Condition" shall mean any of the events, conditions or circumstances set forth in clauses (i), (ii), (iv) or (v) 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 4 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. "Indenture Persons" shall mean the Secured Parties (as defined in the Indenture). "K-H Loan Documents" shall mean (i) all of the Assigned Documents (as such term is defined in the Assignment Agreements); (ii) the Term Notes; (iii) the Intercreditor Agreement to the extent that Congress' interest in the Intercreditor Agreement relates to the Term Notes; (iv) that certain Subordination Agreement ("Subordination Agreement") dated as of April 25, 1996 by and between K-H and Congress; and (v) 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 Notes, in each case as the same may be amended, supplemented, amended and restated or otherwise modified from time to time. "K-H Subordinated Loan Documents" shall mean (i) the Subordinated Revolving Note and (ii) except for the K-H Loan Documents, any other documents, instruments, guaranties, notes, security agreements, mortgages, deeds of trust and other agreements executed by Borrower in favor of K-H as the holder of the Subordinated Debt, in each case as the same may be amended, supplemented, amended and restated or otherwise modified from time to time in accordance with the terms hereof. "Lien" shall mean any mortgage, pledge, security interest, lien, encumbrance or other charge of any kind in respect of any Property or interest therein and shall include any Liens (as defined in the Indenture). "Noteholder Documents" shall mean the Noteholder Documents (as defined in the Intercreditor Agreement) and the Documents (as defined in the Indenture). "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 final maturity date of the indebtedness under the K-H Subordinated Loan 5 Documents and (B) if any Event of Default under the Congress Loan Documents has occurred and is 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. "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 Senior Creditor 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 the applicable Senior Creditor. "Permitted Payments" shall mean (i) any regularly scheduled payments of interest by Borrower to K-H on or after the due date thereof and only to the extent and in the amounts expressly provided in the K-H Subordinated Loan Documents (as in effect on the date hereof or as hereafter amended with the prior written consent of Congress and the Trustee), and (ii) regularly scheduled payment of principal on or after the date on which the Senior Noteholder Obligations have been Paid in Full and only to the extent and in the amounts expressly provided in the K-H Subordinated Loan Documents (as in effect on the date hereof or as hereafter amended with the prior written consent Congress and IBJS, as Trustee). 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. "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 or any Indenture Person in connection with the Senior Obligations (including, without limitation, all insurance-related, storage, 6 maintenance and other payments respecting any Collateral which Borrower or any Subsidiary is required to make under any of the Congress Loan Documents or Noteholder 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 or any Indenture Person under any of the Congress Loan Documents or Noteholder Documents; (iii) advances, costs, expenses, attorneys' and other professionals' fees and expenses and other amounts which are advanced or incurred by Congress or any Indenture Person 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 or any Indenture Person in respect of any environmental laws and as to which Congress or any Indenture Person is entitled to be reimbursed or indemnified pursuant to any of the Congress Loan Documents or Noteholder Documents; (v) all advances made by Congress or any Indenture Person, 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 Congress 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 such post-petition amounts are disallowed in any bankruptcy case, (ii) any and all Protective Advances made by Congress, and (iii) advances made to or claims 7 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 Congress Obligations shall not include any Subordinated Debt. "Senior Creditors" shall mean, collectively, Congress, the Indenture Persons, and, only to the extent that K-H maintains Senior K-H Obligations, K-H, and "Senior Creditor" shall mean, individually, one of the Senior Creditors. "Senior Creditor Loan Documents" shall mean, collectively, the Congress Loan Documents, the K-H Loan Documents, and the Noteholder Documents. "Senior K-H Obligations" shall mean obligations, liabilities and indebtedness of every kind, 8 nature and description owing by Borrower or any Subsidiary to K-H pursuant to the Assignment Agreements, including principal, interest, charges, fees, indemnities, costs and expenses, however evidenced, whether as principal, surety, endorser, guarantor or otherwise, arising under the K-H Loan Documents; provided however, that Senior K-H Obligations shall not include any Subordinated Debt or any obligations, liabilities or indebtedness of any kind, nature or description owing by Borrower or any Subsidiary to K-H pursuant to the K-H Subordinated Loan Documents. "Senior Noteholder Obligations" shall mean all Indenture Obligations (as defined in the Indenture), all Noteholder Debt, all Protective Advances made by any Indenture Person and any other obligations, liabilities and indebtedness of every kind, nature and description owing by Borrower or any Subsidiary to any Indenture Person, including principal, interest, charges, fees, indemnities, costs and expenses, however evidenced, whether as principal, surety, endorser, guarantor or otherwise, arising under or in connection with any of the Noteholder Documents whether now existing or hereafter arising and whether arising before, during or after the commencement of a bankruptcy case; provided however, that Senior Noteholder Obligations shall not include any Subordinated Debt. "Senior Obligations" shall mean collectively the Senior Congress Obligations, the Senior K-H Obligations and the Senior Noteholder Obligations. "Subordinated Debt" shall mean any and all obligations, liabilities and indebtedness of every kind, nature and description, other than obligations, liabilities and indebtedness arising pursuant to the K-H Loan Documents, owing by Borrower or any Subsidiary to K-H pursuant to the K-H Subordinated Loan Documents including principal, interest, charges, fees, indemnities, costs and expenses, however evidenced, thereon 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 Subordinated 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 any Senior Creditor, other than K-H, to K-H stating that (a) an Event of Default under and as defined in such Senior Creditor's Senior Creditor Loan Documents has occurred and is continuing and (b) if such Senior Creditor is Congress, either (i) such Senior Creditor intends to accelerate or demand payment of its 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. 1. Standby; Subordination; Subrogation. The payment and performance of the Subordinated Debt (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) is hereby subordinated to the Senior Obligations and, except as provided in Section 2 or 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, except as expressly granted by the K-H Subordinated Loan 9 Documents, any security (including guaranties and third party credit support) for any of the foregoing, 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 any Senior Creditor), shall have been Paid in Full and completely performed and all financing arrangements under the Senior Creditor 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 any Senior Creditor Loan Documents or the K-H Subordinated Loan Documents, and regardless of whether any Senior Creditor 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 interests of the Senior Creditors 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 Senior Creditor 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, the Senior Creditors shall be subrogated for K-H with respect to K-H's claims against Borrower or any Subsidiary under the K-H Subordinated 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 Senior Creditor 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, each Senior Creditor, other than K-H, releases any of its Liens on such Collateral, K-H shall thereupon execute and deliver to each such Senior Creditor (or if such Senior Creditor so requests, to Borrower or the 10 applicable Subsidiary) such termination statements and releases as such Senior Creditor 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 Subordinated Loan Documents, the K-H Subordinated Loan Documents shall be deemed to be subject to this Agreement. All aspects of this Section 1 shall remain in effect for all purposes should Borrower or any Subsidiary or the Borrower's estate or any Subsidiary's estate become the subject of proceedings under the Bankruptcy Code. 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 8.1(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, (iv) an Event of Default has occurred under (and as defined in) any of the Noteholder Documents and has not been cured or waived in writing or would occur after giving effect to such Permitted Payment, or (v) K-H has breached any provision of this Agreement in any material respect and such breach has not been cured or waived by each of the Senior Creditors in writing, Borrower may make any Permitted Payment to K-H. Any Triggering Notice shall be effective from the date delivered until (i) each Event of Default (as defined in any Senior Creditor Loan Document) on which such Triggering Notice is based has been cured or waived in writing by the Senior Creditor delivering such notice and no other Default or Event of Default (as defined in any Senior Creditor Loan Document) 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) none of the Senior Creditors has accelerated any of 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 such Senior Creditor's rights and remedies under the respective Senior Creditor 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 any Event of Default (as defined in any Senior Creditor Loan Document) on which such Triggering Notice is based occurred during the pendency of any prior Triggering Notice and was relied on by any Senior Creditor (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 11 from the earliest date on which such Senior Creditor first relied on any such Event of Default (either as a matured Event of Default (as defined in any Senior Creditor Loan Document) or an unmatured Default (as defined in any Senior Creditor Loan Document)) in extending the effectiveness of any such prior Triggering Notice. Notwithstanding anything to the contrary in this Agreement, the Senior Creditor's right to deliver a Triggering Notice shall be subject to the following limitations: (i) no Triggering Notice may be based on any Event of Default (as defined in any Senior Creditor Loan Document) which occurred before the date of delivery of any prior Triggering Notice and of which such Senior Creditor 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 Fifth 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; (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; and (iv) Congress shall not, at any time, be entitled to deliver any Triggering Notice as a result of any event or circumstance which, pursuant to the terms of the Fifth Amendment, Congress is, at such time, refraining from exercising rights or remedies it may have as a result of such event or circumstance. 12 Solely for the purposes of this Section and not for any other purpose, any failure of any Senior Creditor to waive any Default or Event of Default (as both are defined in any Senior Creditor Loan Document) 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 each of the Senior Creditors or as specifically provided in subsections (a) and (b) below, 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 Subordinated Loan Documents. Notwithstanding the foregoing provisions of this Section 3: (a) If the Senior Obligations of all Senior Creditors, other than K-H, have been accelerated by such Senior Creditors and remain due and payable, K-H may exercise any right under the K-H Subordinated Loan Documents (as in effect on the date hereof or as hereafter amended with the prior written consent of the Senior Creditors in accordance with the terms hereof) to accelerate the Subordinated Debt. (b) In the event any Senior Creditor, other than K-H, commences any judicial proceedings in connection with the exercise of its rights and remedies under the Senior Creditor Loan Documents, K-H may intervene in such proceedings to the extent permitted by applicable law and the K-H Subordinated Loan Documents (as in effect on the date hereof or as hereafter amended with the prior written consent of the Senior Creditors in accordance with the terms hereof); provided however, that (i) K-H shall not, directly or indirectly, in such proceedings or otherwise (A) oppose or otherwise dispute any Senior Creditor's right to exercise in good faith such rights or remedies through such proceedings or any Senior Creditor's, other than K-H's, right to seek the relief sought by such Senior Creditor in such proceedings or (B) seek in good faith any relief which is inconsistent with the relief sought by any Senior Creditor, other than K-H, 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 13 remedies and otherwise act in such manner as Congress or the Trustee directs in accordance with commercially reasonable standards. If such directions are inconsistent, K-H shall nevertheless be permitted to enforce such rights and remedies so long as it acts in accordance with commercially reasonable standards and in compliance with the other provisions of this Section 3(b). 4. Subordinated Debt Owed Only to K-H; Enforceability. 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 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. K-H, as the holder of the Subordinated Debt, hereby represents and warrants to the Senior Creditors that this Agreement has been duly authorized, executed and delivered by K-H and constitutes the legal, valid and binding obligation of K-H, enforceable against K-H in accordance with its terms except as may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or similar laws relating to or affecting creditors' rights generally and except as such enforceability may be limited by the application of general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). 5. Lender Priority. (a) 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 any of the Senior Creditors or to the holder of the Subordinated Debt, of any Collateral or other Property of the Borrower or any Subsidiary, then, and in any such event, (i) the Senior Creditors 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, to be 14 distributed among the Senior Creditors in the manner set forth in subsection (b) below, 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, or its designee (or, if the Senior Congress Obligations have then been Paid in Full, to the Trustee or its designee), on behalf of all the Senior Creditors, for application on any of the Senior Obligations, due or not due, in the manner set forth in subsection (b) below until such Senior Obligations shall have first been Paid in Full and completely performed. (b) Upon the occurrence of any event set forth in subsection (a) above or a K-H Distribution (as defined in Section 7 below), then any payment or distribution of any kind or character therefrom, whether in cash, securities or other Property ("Distribution Payments"), shall be distributed to the Senior Creditors as follows: (i) any K-H Distribution, to the extent that it can be identified as proceeds of an advance made by Congress to Borrower pursuant to the Congress Loan Documents (a "Congress K-H Distribution") shall be distributed to Congress for application to the Senior Congress Obligations, (ii) Distribution Payments of, from, or related to Collateral, or any Proceeds thereof, that can be identified as Congress Primary Collateral or Other Collateral (both as defined in the Intercreditor Agreement) shall be distributed among the Senior Creditors in accordance with the terms of the Intercreditor Agreement and (as between Congress and K-H) the Subordination Agreement, and (iii) Distribution Payments ("Unidentified Distribution Payments") of, from or related to Collateral, or any Proceeds thereof, that cannot be identified as a Congress K-H Distribution, Congress Primary Collateral or Other Collateral (both as defined in the Intercreditor Agreement) shall, to the extent that the Permanent Reserve is then less than $7,500,000, be distributed to Congress until the Permanent Reserve equals $7,500,000, and thereafter, to Congress (or, if the Senior Congress Obligations have then been Paid in Full, to the Trustee or its designee) to be held in trust for the benefit of the Senior Creditors and to be promptly distributed to each Senior Creditor in an amount equal to, for each such Senior Creditor, the product of (x) the value of Unidentified Distribution Payments multiplied by (y) a fraction, the numerator of which is the Senior Obligations owing to such Senior Creditor on the date such funds are to be distributed (provided that with respect to any such distribution to be made while the Borrower is the subject of a proceeding under Chapter 11 of the Bankruptcy Code, such numerator for such Senior Creditor shall be equal to the amount of the claims of such Senior Creditor relating to such Senior Creditor's Senior Creditor Loan Documents which has been filed with and approved by the applicable bankruptcy court), and the denominator of which is the total amount of Senior Obligations outstanding on such date (provided that with respect to any such distribution to be made 15 while the Borrower is the subject of a proceeding under Chapter 11 of the Bankruptcy Code, such denominator shall be equal to the total amount of all the claims of all Senior Creditors relating to the Senior Creditor Loan Documents which have been filed with and approved by the applicable bankruptcy court). 6. Grant of Authority to Congress and the Senior Creditors. In the event of the occurrence of any event described in Section 5(a) above, and in order to enable the Senior Creditors to enforce Senior Creditors' rights hereunder in any of the aforesaid actions or proceedings until such time as the Senior Obligations are Paid in Full and completely satisfied: (a) Congress and the Trustee are hereby irrevocably authorized and empowered to jointly 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 such Senior Creditor may deem expedient or proper; provided however, in the event that, after consulting with each other in good faith, Congress and the Trustee cannot agree upon any such proofs or claims or other motions or pleadings to be jointly made and presented, then each such Senior Creditor may make and present such proofs of claims against Borrower and/or any Subsidiary on account of the Subordinated Debt or other motions or pleadings as each such Senior Creditor deems expedient or proper. (b) Congress is hereby irrevocably authorized and empowered, in Congress' discretion, to exercise the voting rights in respect of the Subordinated Debt in any such proceeding for and on behalf of K-H; provided however, that upon the written request of the Trustee, Congress shall exercise the voting rights in respect of the Subordinated Debt in the manner requested by the Trustee with respect to any plan of reorganization that provides for Payment in Full of, and complete satisfaction of, the Senior Congress Obligations on or before the effective date of such plan. (c) K-H irrevocably authorizes and empowers either Congress or, if Congress refuses to act within ten (10) business days after receiving written notice requesting Congress to act pursuant to this Section 6(c), the Trustee (the "Designated Creditor") to demand, sue for, collect and receive each of the aforesaid payments and distributions described in Section 5(a) above and give acquittance therefor and to file claims and take such other actions, in the Designated Creditor's own name or in the name of K-H or otherwise, as the Designated Creditor 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 the Designated Creditor to sell such Property to such buyers and on such terms as the Designated Creditor, in the Designated 16 Creditor's reasonable discretion, shall determine and apply the same towards the Senior Obligations in the manner set forth in Section 5(b) above. K-H will execute and deliver to the Designated Creditor such powers of attorney, assignments and other instruments or documents, including notes and stock certificates (together with such assignments or endorsements as the Designated Creditor shall deem necessary), as may be requested by the Designated Creditor in order to enable the Designated Creditor 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 the Senior Creditors' benefit in the manner set forth in Section 5(b) above. Following Payment in Full and complete performance of the Senior Obligations, the Designated Creditor 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 the Senior Creditors 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 ("K-H Distribution") 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 Senior Creditor Loan Documents with respect to the Senior Obligations, K-H shall receive and hold the same in trust, as trustee, for the benefit of the Senior Creditors, and shall forthwith deliver the same to Congress, or its designee, or the Trustee, or its designee, in accordance with Section 5(b) above, for distribution to the Senior Creditors in the manner set forth in Section 5(b) above, 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 the Senior Creditors. In the event of the failure of K-H to make any such endorsement or assignment to the Senior Creditors, or any of their officers or employees, are hereby irrevocably authorized to make the same. 8. Instrument Legend. Any instrument or other writing evidencing any of the Subordinated Debt (including, without limitation, the Subordinated Revolving 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 the Senior Creditors pursuant to the terms of this Agreement, and (i) a copy thereof will be delivered to each Senior Creditor on the date hereof, and (ii) the original of any such instrument will be immediately delivered, upon request therefor by any Senior Creditor, to Congress, or its 17 designee, (or, if the Senior Congress Obligations have then been Paid in Full, to the Trustee or its designee) to be held on behalf of the Senior Creditors after the occurrence of an Event of Default (under and as defined in any Senior Creditor Loan Document) to the extent reasonably necessary for any Senior Creditor to enforce its rights under this Agreement or to protect, enforce or perfect its interest in the K-H Subordinated Loan Documents or K-H's interest in the collateral. Any instrument or other writing 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 each Senior Creditor 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. 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 Senior Creditor 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 attorney's fees and expenses payable by Borrower in connection with the closing for the K-H Subordinated Loan Documents) from or on behalf of Borrower or any Subsidiary pursuant to or in connection with the K-H Subordinated Loan Documents and will not assign or transfer to others any claim K-H has or may have against Borrower or any Subsidiary pursuant to or in connection with the K-H Subordinated Loan Documents, unless such assignment or transfer is made expressly subject to this Agreement. 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 Senior Creditor 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 each Senior Creditor's 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, except to the extent (if any) restricted by the terms of any of the Senior Creditor Loan Documents, 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 18 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 the thirty day period after receipt of such notice or in accordance with the terms of any financing order entered by any bankruptcy court pursuant to either Sections 363 or 364 of the Bankruptcy Code. 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 written revocation of K-H or any officer thereof or any other subordinated party, pledgor, endorser, or guarantor, if any. 11. Additional Agreements Between Senior Creditors and Borrower. Except for K-H, any of the Senior Creditors, 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 such Senior Creditor may deem proper, extending the time of payment of or renewing or otherwise altering in any manner 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. 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 the Senior Creditors 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 Senior Creditors upon the subordination and other agreements as herein provided. K-H agrees that Senior Creditors have made no warranties or representations with respect to the due execution, legality, validity, completeness or enforceability of any of the Senior Creditor Loan Documents, or the collectability of the Senior Obligations, that Senior Creditors shall be entitled to manage and supervise their loans, extensions of credit or other financial accommodations to Borrower in accordance with applicable law and Senior Creditors' usual practices, modified from time to time as Senior Creditors deem appropriate, in their sole discretion, 19 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 Senior Creditors shall have no liability to K-H for, and K-H waives any claim which K-H may now or hereafter have against, Senior Creditors arising out of any and all actions which any Senior Creditor, 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 (as defined in any Senior Creditor Loan Document), 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 Senior Creditor 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 each Senior Creditor (other than K-H) 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 the Senior Creditors, in their capacity as holder of the Senior Creditor 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. 20 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 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 each Senior Creditor, (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 any Senior Creditor's claims in such bankruptcy case or otherwise take any position inconsistent with any Senior Creditor's 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 any Senior Creditor, 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 any such Senior Creditor, such Senior Creditor shall be entitled to have all of its 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 any Senior Creditor 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 the Senior Creditor. Nothing in this Section 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. Senior Creditors' Waivers. No waiver shall be deemed to be made by any Senior Creditor of its rights hereunder, unless the same shall be in writing signed on behalf of such Senior Creditor 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 such Senior Creditor or the obligations of K-H to such Senior Creditor in any other respect at any other time. 15. Modifications. K-H shall not, without the prior written consent of each of the Senior Creditors, amend or otherwise modify any of the K-H Subordinated Loan Documents; provided, however, that K-H may amend or modify the K-H Subordinated Loan Documents to increase the principal amount of loans thereunder. 21 16. Information Concerning Financial Condition of the Borrower. K-H hereby assumes responsibility for keeping itself informed of the financial condition of the 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 the Senior Creditors shall have no duty to advise K-H of information known to the Senior Creditors regarding such condition or any such circumstances. In the event any Senior Creditor, in such Senior Creditor's sole discretion, undertakes, at any time or from time to time, to provide any such information to K-H, such Senior Creditor and all other Senior Creditors shall be under no obligation to (i) provide any such information to K-H on any subsequent occasion, or (ii) undertake any investigation not a part of such Senior Creditors' regular business routine and shall be under no obligation to disclose any information which any Senior Creditor wishes to maintain confidential. K-H hereby (i) agrees that, subject to the terms of Section 5(b) above, all payments received by any Senior Creditor may be applied, reversed, and reapplied, in whole or in part to any of the Senior Obligations as such Senior Creditor deems appropriate and (ii) 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. 17. 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. 18. Appointment of Agent Each Senior Creditor hereby appoints each other as their respective agent (and K-H, in its capacity as holder of the Subordinated Debt, hereby appoints the Collateral Agent and Congress or its agents) for purposes of perfecting any of their respective Liens on the Collateral which may at any time come into their respective control or possession. 22 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, K-H, the Trustee or the Collateral Agent 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 IBJ Schroder Bank & Trust Company One State Street New York, New York 10004 Attention: Corporate Trust and Agency Administration with a copy to: Hughes Hubbard & Reed, LLP One Battery Park Plaza New York, New York 10004-1482 Attention: James J. Pastore 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. 23 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 the Senior Creditors, 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 Subordinated Loan Documents to any Person, and any attempted pledge in violation of this Section 23 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 Subordinated Loan Documents or in or to the Collateral or any other security for the Subordinated Debt to any other Person without prior written consent of each Senior Creditor which shall not be unreasonably withheld so long as such proposed assignee is reasonably acceptable to the Senior Creditors. (c) Without the consent of K-H, and subject to the provisions of the Intercreditor Agreement, each Senior Creditor may (i) 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) assign all or any portion of such Senior Creditors' interest in the Senior Obligations to any Person. (d) No assignment made by K-H or any Senior Creditor in violation of this Section 23 shall release K-H from its obligations and liabilities under this Agreement. (e) K-H will promptly and duly execute and deliver any and all such further instruments, endorsements and other documents, make such filings, give such notices and take such further action regarding the Subordinated Debt as the Senior Creditors may reasonably deem desirable to obtain the full benefits of 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 24 ANY DISPUTE ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN K-H AND THE SENIOR CREDITORS 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 THE SENIOR CREDITORS AGREE THAT ALL DISPUTES BETWEEN K-H AND ANY SENIOR CREDITOR ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT, AND 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 THE SENIOR CREDITORS ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF NEW YORK, NEW YORK. IN ALL DISPUTES K-H WAIVES 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 THE SENIOR CREDITORS 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 ANY SENIOR CREDITOR TO REALIZE ON SUCH PROPERTY, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF ANY SENIOR CREDITOR. K-H WAIVES ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT IN WHICH ANY SENIOR CREDITOR 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 THE SENIOR CREDITORS 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 EACH SENIOR CREDITOR 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 25 BINDING ON SUCH SPECIFIED SENIOR CREDITOR, (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 SUCH SPECIFIC SENIOR CREDITOR, 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 ANY SENIOR CREDITOR (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE), EXCEPT A CLAIM BASED UPON WILLFUL MISCONDUCT, GROSS NEGLIGENCE, BAD FAITH, OR KNOWING VIOLATIONS OF LAW BY SUCH SENIOR CREDITOR. 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, EACH SENIOR CREDITOR 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 EVENT OCCURRING IN CONNECTION THEREWITH, UNLESS IT IS DETERMINED BY A JUDGMENT OF A COURT THAT IS BINDING ON SUCH SPECIFIED SENIOR CREDITOR (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 SUCH SPECIFIED SENIOR CREDITOR, 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 as of the first date above written. K-H CORPORATION, as holder of the Subordinated Debt By:/s/ Keith L. Walker ---------------------- Title: Secretary ------------------ Acknowledged and accepted in New York, New York as of the first date above written. CONGRESS FINANCIAL CORPORATION (Central) By:/s/ Thomas C. Lannon ---------------------- Title: Vice President ------------------ IBJ SCHRODER BANK & TRUST COMPANY, as Trustee and Collateral Agent By:/s/ Barbara McCluskey ---------------------------- Title: Assistant Vice President ------------------------ K-H CORPORATION, as holder of the Term Notes By:/s/ Keith L. Walker ----------------------- Title: Secretary ------------------- 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 Multi-Party Subordination Agreement (the "Agreement") this 21st day of June, 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 Subordinated 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 and the Noteholder Documents. 3. Any Senior Creditor 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 Subordinated Loan Documents, and each of the undersigned shall be, jointly and severally, obligated to reimburse and indemnify such Senior Creditor, upon demand, for all payments made or other obligations incurred by such Senior Creditor in exercising any such cure rights, and all such reimbursement and indemnification obligations to such Senior Creditor shall constitute part of the obligations under such Senior Creditor's Senior Creditor Loan Documents and shall be secured by the Collateral subject to such Senior Creditor's Senior Creditor Loan Documents. 4. The terms of this Agreement shall not give any undersigned any substantive rights vis-a-vis the Senior Creditors and/or K-H. If any Senior Creditor 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 Senior Creditor Loan Documents or the K-H Subordinated 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. [signature page follows] S-3 FRUEHAUF TRAILER CORPORATION 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 FRUEHAUF CORPORATION By: /s/ Timothy J. Wiggins ----------------------- Name: Timothy J. Wiggins Title: Executive Vice President MARYLAND SHIPBUILDING AND DRYDOCK COMPANY By:/s/ Gary K. Lorenz ----------------------- Name: Gary K. Lorenz Title: 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 S-4 FRUEHAUF HOLDINGS CORP. By: /s/ Timothy J. Wiggins ----------------------- Name: Timothy J. Wiggins Title: Executive Vice President FRUEHAUF INTERNATIONAL LIMITED 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 E.L. DEVICES, INC. By: /s/ Gary K. Lorenz ----------------------- Name: Gary K. Lorenz Title: President EX-4.44 6 FRUEHAUF TRAILER EXHIBIT 4.44 FRUEHAUF TRAILER CORPORATION and IBJ SCHRODER BANK & TRUST COMPANY, as Trustee and Collateral Agent ---------------------------- FIRST SUPPLEMENTAL INDENTURE Dated as of June 21, 1996 ---------------------------- To The Indenture dated as of May 1, 1995 Between Fruehauf Trailer Corporation and IBJ Schroder Bank & Trust Company, as Trustee Relating to $74,117,000 Aggregate Principal Amount of 14.75% Senior Secured Notes Due 2002 and the Collateral Agency Agreement defined therein FIRST SUPPLEMENTAL INDENTURE THIS FIRST SUPPLEMENTAL INDENTURE (this "Supplemental Indenture"), dated as of June 21, 1996, between FRUEHAUF TRAILER CORPORATION, a corporation duly organized and existing under the laws of the State of Delaware (the "Issuer"), and IBJ SCHRODER BANK & TRUST COMPANY, a New York banking corporation, as Trustee (the "Trustee") and Collateral Agent: RECITALS OF THE ISSUER A. The Issuer and the Trustee heretofore executed and delivered an Indenture, dated as of May 1, 1995 (the "Indenture"; capitalized terms used herein and not defined herein shall have the respective meanings ascribed thereto in the Indenture). B. Pursuant to the Indenture, the Issuer issued and the Trustee authenticated and delivered $74,117,000 aggregate principal amount of the Issuer's 14.75% Senior Secured Notes Due 2002. C. Since the original issuance of the Securities on May 4, 1995, the Issuer has repurchased $11,543,000 in aggregate principal amount of Securities pursuant to fully subscribed Asset Sale Offers dated September 15 and October 2. D. K-H Corporation, a Delaware corporation ("KHC"), has agreed to lend $3.5 million, and may, in its sole discretion, agree to lend additional amounts, to the Issuer to be used by the Issuer to resolve certain trailing liabilities all in accordance with documentation to be executed by KHC and the Issuer. E. On April 21, 1996 the Issuer entered into a non-binding letter of intent for the sale of certain of the Issuer's assets to Private Equity Investors, Inc. Such letter of intent was amended on May 3, 1996. F. The Issuer did not make the interest payment on the Senior Notes due on May 1, 1996 within the grace period provided for in the Indenture. G. Section 8.2 of the Indenture provides, among other things, that with the consent of the Holders of not less than a majority in aggregate principal amount of the Securities at the time Outstanding (the "Requisite Consents"), the Issuer, when authorized by a resolution of its Board of Directors, and the Trustee, may, from time to time, enter into an indenture or indentures supplemental to the Indenture for the purpose of adding any provisions to or changing in any manner or eliminating certain provisions of the Indenture, subject to certain exceptions specified in Section 8.2 of the Indenture. H. The Issuer has furnished to the Holders a letter dated May 3, 1996 as amended and restated in its entirety by a letter dated June 14, 1996 (the "Consent Solicitation Statement"), pursuant to which the Issuer solicited consents from the Holders relating to the transactions set forth in recitals D and E, and certain other amendments to or clarifications of the Indenture and the Documents. As contemplated by the Consent Solicitation Statement, the Issuer has obtained the Requisite Consents to amend the Indenture as set forth herein. I. This Supplemental Indenture has been duly authorized by all necessary corporate action on the part of the Issuer. J. The Issuer has delivered, or caused to be delivered, to the Trustee, an Officers' Certificate and an Opinion of Counsel stating that this Supplemental Indenture complies with the requirements of the Indenture. 2 NOW, THEREFORE, each party agrees for the benefit of the other party and for the equal and ratable benefit of all Holders of the Securities, as follows: ARTICLE 1 AMENDMENTS TO CERTAIN PROVISIONS OF INDENTURE SECTION 1.01. Amendment to Add Definitions to the Indenture. (a) Section 1.1 of the Indenture is hereby amended to add the following definitions thereto in proper alphabetical order: "Asset Sale Account" means a segregated account with the Collateral Agent subject to a first priority perfected security interest created pursuant to the Security Documents for the benefit of the Secured Parties. "Consent Fee" means a fee equal to 0.25% of the outstanding principal amount of Securities, as calculated on April 22, 1996. "First Consent Solicitation Statement" means the letter, dated May 3, 1996 as amended and restated in its entirety by the letter dated June 14, 1996, from the Issuer to the Holders of the Securities, which solicits the consents of the Holders with respect to the matters set forth therein. "Foreign Assets" means: (i) the Issuer's current ownership interest in Societe Europeenne de Semi-Remorques, S.A., a French corporation; (ii) the stock or other ownership interests currently owned by Fruehauf International Limited ("FIL") in Henred Fruehauf (PTY) Limited, Henred Fruehauf Properties (PTY) Limited, Nippon Fruehauf Company Ltd. and F.L.A. Licensing L.L.C.; (iii) the Issuer's and FIL's current interests in certain trademark and technology license agreements currently operative outside North America, (including, without limitation, all of the Issuer'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); (iv) all of the Issuer's current interest in (a) the trademark, service mark, trade or corporate name "Fruehauf" and (b) patents and patent applications, in each case, outside North America; (v) certain idle trailer manufacturing equipment owned by the Issuer, located in Waverly, Ohio (the "Waverly Equipment"); (vi) the accounts receivable owed the Issuer and FIL by U.S. Partec Corporation and U.S. Partec Licensing, Inc. (the "Partec Receivable"); and (vii) the Issuer's indirect ownership interest in certain real property located in Germany (the "Sindorf Property"). "Foreign Proceeds" means any and all Net Cash Proceeds derived from the sale of the Foreign Assets. 3 "Interest Payment Account" means a segregated account with the Collateral Agent subject to a first priority perfected security interest created pursuant to the Security Documents for the benefit of the Secured Parties. "May 1 Payment" means the interest due and payable on the Securities on May 1, 1996 as provided in Section 3.1(a). "November 1 Payment" means the interest due and payable on the Securities on November 1, 1996 as provided in Section 3.1(a). SECTION 1.02. Amendment to Definition of Asset Sale. (a) Clause (f) of the definition of Asset Sale contained in Section 1.1 of the Indenture is hereby amended to delete the word "and" after the semicolon in such clause. (b) The definition of the term Asset Sale contained in Section 1.1 of the Indenture is hereby further amended by inserting after the phrase "accidental loss of property" in clause (g) thereof and prior to the period which follows such phrase, the following: ; (h) the sale by Jacksonville Shipyards, Inc. ("Jacksonville") of the JSI Promissory Note (as such term is defined in the First Consent Solicitation Statement) and the related mortgage interest or the foreclosure of any mortgage or security interest securing the JSI Promissory Note; and (i) the sale by Jacksonville of Jacksonville-Mayport (as defined in the First Consent Solicitation Statement) SECTION 1.03. Amendment to Definition of Net Cash Proceeds. The definition of the term "Net Cash Proceeds" contained in Section 1.1 of the Indenture is hereby amended by deleting clause (b) thereof in its entirety and replacing it with the following: (b) amounts deposited in escrow or on deposit as collateral, in respect of (i) environmental or other liabilities not assumed by the purchaser in connection with such Asset Sale or (ii) the sale of the Waverly Equipment and the Partec Receivable or (iii) up to $100,000 in connection with certain regulatory approvals required in order to transfer certain of the Foreign Assets, but, in each case, only so long as such amounts remain on deposit or in escrow, and SECTION 1.04. Amendment to Definition of Permitted Debt. (a) Clause (n) of the definition of Permitted Debt contained in Section 1.1 of the Indenture is hereby amended to delete the word "and" after the semicolon in such clause. (b) The definition of the term Permitted Debt contained in Section 1.1 of the Indenture is hereby further amended by inserting after the phrase "(as defined in any of the Security Documents)" in clause (o) thereof and prior to the period which follows such phrase, the following: ; and (p) Debt Incurred by the Issuer or any of its Subsidiaries to KHC (as defined in the First Consent Solicitation Statement) or any of its affiliates that is fully subordinated to the Indenture Obligations ("KHC Debt"), provided that such KHC Debt and the subordination thereof shall be pursuant to documentation acceptable in form and substance to the Trustee, the Collateral Agent and counsel to the Holders' Committee (as defined in the First Consent Solicitation Statement) 4 SECTION 1.05. Amendment to Definition of Permitted Liens. (a) Clause (o) of the definition of Permitted Liens contained in Section 1.1 of the Indenture is hereby amended to delete the word "and" after the semicolon in such clause. (b) The definition of the term Permitted Liens contained in Section 1.1 of the Indenture is hereby further amended by inserting after the phrase "not in excess of $500,000 at any time" in clause (p) thereof and prior to the period which follows such phrase, the following: ; (q) Liens securing KHC Debt; provided that such KHC Debt and the subordination thereof shall be pursuant to documentation acceptable in form and substance to the Trustee, the Collateral Agent and counsel to the Holders' Committee (as defined in the First Consent Solicitation Statement) (r) the put-call arrangement related to the Sindorf Property as described in the First Consent Solicitation Statement; and (s) Liens securing the Debt (to the extent that it would be Permitted Debt if it were unsecured) incurred by the Issuer or any Subsidiary in connection with the settlement of the lawsuit styled Rebenstock v. Fruehauf Trailer Corporation et al., Case No. 92 CV 77050 DT, United States District Court for the Eastern District of Michigan, Southern Division, that are fully subordinated to the Liens in favor of any of the Secured Parties; provided that the subordination of such Liens shall be pursuant to documentation acceptable in form and substance to the Trustee, the Collateral Agent and counsel to the Holders' Committee SECTION 1.06. Amendment to Section 2.4(d) of the Indenture. Section 2.4(d) of the Indenture is hereby amended by inserting the following sentence immediately preceding the last sentence of such Section: Notwithstanding the foregoing, the record date for the May 1 Payment and the payment thereof to the Holders shall be as set forth in the First Consent Solicitation Statement. SECTION 1.07. Amendment to Section 3.1 of the Indenture. Section 3.1(a) of the Indenture is hereby amended by inserting the following sentence immediately after the first sentence of such Section: The November 1 Payment will be made to the extent possible from the Interest Payment Account, and, notwithstanding any other provision of this Indenture or any Document, no Event of Default will result from this use of the Interest Payment Account. SECTION 1.08. Amendments to Section 3.15 of the Indenture. (a) The first sentence of Section 3.15 of the Indenture is hereby amended by inserting after the phrase "Change of Control Repurchase Date" and prior to the period which follows such phrase, the following: ; provided, however, and notwithstanding any provision of this Section 3.15 to the contrary, that if such Change of Control occurs at any time on or before March 31, 1997, such repurchase price will be 100% of the principal amount thereof, together with accrued and unpaid interest thereon to the Change of 5 Control Repurchase Date, and, as of the Change of Control Repurchase Date, the covenants of the Issuer contained in Sections 3.9, 3.10, 3.11, 3.12 and 3.13 will be automatically and without further action considered deleted from the Indenture and is of no further force or effect (b) The second sentence of Section 3.15 of the Indenture is hereby amended by replacing the phrase "forty-five (45) days" with the phrase "twenty-five (25) days." SECTION 1.09. Amendments to Section 3.16 of the Indenture. (a) The first sentence of Section 3.16(b) is hereby amended by inserting "and Sections 3.16(h) and 3.16(i)" after the phrase "of Non-Core Proceeds)" and prior to the comma which follows such phrase. (b) The first sentence of Section 3.16(c) is hereby amended by inserting "and Sections 3.16(h) and 3.16(i)" after the phrase "of Non-Core Proceeds)" and prior to the comma which follows such phrase. (c) The first sentence of Section 3.16(c) of the Indenture is hereby further amended by inserting after the phrase "general corporate purposes" last appearing therein and prior to the period which follows such phrase the following: ; provided further that, notwithstanding the foregoing, any Excess Class II Non-Core Proceeds resulting from the sale of the Foreign Assets shall be applied as provided in Section 3.16(h) hereof (d) Section 3.16(d) of the Indenture is hereby deleted in its entirety and replaced by the following: (d) Core Asset Proceeds. Subject to the provisions of the Intercreditor Agreement and Sections 3.16(h) and 3.16(i), upon an Asset Sale of any Core Asset, the Issuer shall, or shall cause its applicable Subsidiary to, directly deposit all Core Asset Proceeds from such Asset Sale with the Trustee to be held in trust for the benefit of the Holders and used to make an Asset Sale Offer as provided in Section 3.16(e). (e) The first two sentences of the second full paragraph of Section 3.16(e) of the Indenture are hereby deleted in their entirety and replaced by the following: Unless otherwise required by applicable law the Issuer shall provide (or cause to be provided) to the Holders (with a copy to the Trustee and the Collateral Agent) a notice of the Asset Sale Offer at least twenty-five (25) business days (as such term is defined in Rule 14d-1 promulgated under Regulation 14D of the Securities Exchange Act of 1934) prior to the applicable Advance Purchase Date at their last registered addresses by first class mail, postage prepaid. The Trustee will, upon written request from, and in the name and at the expense of, the Issuer, provide such notice to the Holders provided that the Trustee receives such request, together with all the information, instructions and materials required to be given to the Holders pursuant to this Section 3.16(e), not less than thirty (30) business days (as such term is defined in Rule 14d-1 promulgated under Regulation 14D of the Securities Exchange Act of 1934) prior to the applicable Advance Purchase Date. (f) Section 3.16 of the Indenture is hereby further amended by adding new Sections 3.16(h) and 3.16(i), which read in their entirety as follows: 6 (h) Sale of Foreign Assets. Subject to the provisions of the Intercreditor Agreement, upon the sale of the Foreign Assets, the Issuer shall, or shall cause its applicable Subsidiary to, apply the Foreign Proceeds as follows: FIRST directly deposit $4,614,832.50 with the Trustee to be held in trust for the benefit of the Holders to make the May 1 Payment in accordance with the terms of this Indenture; SECOND directly deposit $156,435 of the remaining Foreign Proceeds with the Trustee to be held in trust for the benefit of the Holders and used to pay the Consent Fee in accordance with the provisions of the First Consent Solicitation Statement; THIRD directly deposit 6,000,000 of the Foreign Proceeds with Congress, to be applied to the Working Capital Facility in accordance with the provisions of the Intercreditor Agreement; and FOURTH directly deposit the remaining Foreign Proceeds with the Trustee to be held in trust for the benefit of the Holders and used to make an Asset Sale Offer as provided in Section 3.16(e). (i) Asset Sale Account and Interest Payment Account. Subject to the provisions of the Intercreditor Agreement and notwithstanding anything to the contrary contained in Sections 3.16(b)-3.16(d), upon any Asset Sale (other than the sale of the Foreign Assets) prior to the time at which the amount set forth in clause (ii) below has been deposited in the Interest Payment Account, the Issuer shall, or shall cause its applicable Subsidiary to, directly deposit all Asset Sale proceeds from such Asset Sale to the Asset Sale Account or the Interest Payment Account (as the case may be) as follows to be held and applied as set forth in this Section 3.16(i): (i) until such time as an aggregate of $200,000 has been deposited in the Asset Sale Account, to the Asset Sale Account and (ii) after an aggregate of $200,000 has been deposited in the Asset Sale Account and until an aggregate of $4.5 million (or such lesser sum as the Issuer can certify in an Officers' Certificate delivered to the Trustee is sufficient to make the November 1 Payment) has been deposited in the Interest Payment Account, to the Interest Payment Account. The Asset Sale Account and the Interest Payment Account shall be deemed to be additional Collateral Accounts under (and as defined in) the Collateral Agency Agreement for all purposes under the Documents (including, but not limited to, Section 27 of the Collateral Agency Agreement). On any Business Day on or prior to the date one hundred and eighty (180) days after the receipt by the Collateral Agent of the applicable Asset Sale proceeds (a "Cut Off Date"), upon delivery to the Trustee and Collateral Agent of an Officers' Certificate stating that (i) no Event of Default has occurred and is continuing or will result from the release requested, (ii) the Issuer will, on the date the applicable Asset Sale proceeds (or the specified portion thereof) are released to it, use such Asset Sale proceeds (or, if applicable, the specified portion thereof) to repair, replace or acquire machinery or equipment, in each case substantially related to the design, manufacture or sale of truck trailers, components and related parts, and, if necessary, (iii) the Issuer and its Subsidiaries have taken all actions (other than the acquisition of the applicable property) and executed and delivered to the Collateral Agent all documents necessary to grant (subject to the provisions of the Intercreditor Agreement) a first priority perfected Lien in favor of the Collateral Agent on behalf of the Secured Parties in any such property and its proceeds or otherwise required pursuant to Section 12.8(b) hereof, then the Trustee shall direct the Collateral Agent to release to the Issuer or as the Issuer may direct in written instructions delivered to the Collateral Agent prior to such release all or the specified portion of the 7 applicable Asset Sale proceeds. Any Asset Sale proceeds with respect to which an Officers' Certificate is not received by the Trustee and the Collateral Agent as provided in this Section 3.16(i) on or prior to the applicable Cut Off Date ("Excess Core Proceeds") shall be transferred by the Collateral Agent to the Trustee to be held in trust for the benefit of the Holders and used to make an Asset Sale Offer as provided in Section 3.16(e). SECTION 1.10. Amendment to Section 5.1(a) of the Indenture. Clause (a) of Section 5.1 is hereby amended by replacing the phrase "thirty (30) days" with the phrase "ten (10) days" prior to the semicolon which follows such phrase. SECTION 1.11. Amendment to Section 12.4 of the Indenture. Section 12.4 is hereby amended to add a new subsection 12.4(c), which reads in its entirety as follows: (c) Notwithstanding anything to the contrary in this Indenture, the release of the Foreign Assets from the Lien of the Indenture and the Security Documents in connection with the sale of the Foreign Assets pursuant to Section 3.16 of this Indenture shall not be deemed to impair the security under this Indenture in contravention of the provisions hereof within the meaning of Section 314(d) of the Trust Indenture Act. ARTICLE 2 SUNDRY PROVISIONS SECTION 2.01. Effect of Supplemental Indenture. Upon the execution and delivery of this Supplemental Indenture by the Issuer and the Trustee, the Indenture and the Collateral Agency Agreement shall be supplemented in accordance herewith, and this Supplemental Indenture shall form a part of the Indenture and the Collateral Agency Agreement for all purposes, and every Holder of Securities heretofore or hereafter authenticated and delivered under the Indenture shall be bound thereby. SECTION 2.02. Indenture and Collateral Agency Agreement Remain in Full Force and Effect. Except as supplemented hereby, all provisions in the Indenture and the other Documents shall remain in full force and effect. SECTION 2.03. Indenture, Collateral Agency Agreement and Supplemental Indenture Construed Together. This Supplemental Indenture is an indenture supplemental to and in implementation of the Indenture and the Collateral Agency Agreement, and the Indenture, the Collateral Agency Agreement and this Supplemental Indenture shall henceforth be read and construed together. SECTION 2.04. Confirmation and Preservation of Indenture and Collateral Agency Agreement. The Indenture and the Collateral Agency Agreement as supplemented by this Supplemental Indenture are in all respects confirmed and preserved. SECTION 2.05. Conflict with Trust Indenture Act. If any provision of this Supplemental Indenture limits, qualifies or conflicts with any provision of the Trust Indenture Act that is required under such Act to be part of and govern any provision of this Supplemental Indenture, the provision of such Act shall control. If any provision of this Supplemental Indenture modifies or excludes any provision of the Trust Indenture Act that may be so modified or excluded, the provision of such Act shall be deemed to apply to the Indenture as so modified or to be excluded by this Supplemental Indenture, as the case may be. 8 SECTION 2.06. Separability Clause. In case any provision in this Supplemental Indenture shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 2.07. Effect of Headings. The Article and Section headings herein are for convenience only and shall not affect the construction hereof. SECTION 2.08. Benefits of Supplemental Indenture, etc. Nothing in this Supplemental Indenture, the Indenture or the Securities, express or implied, shall give to any Person, other than the parties hereto and thereto and their successors hereunder and thereunder, the Collateral Agent and the Holders of Securities, any benefit of any legal or equitable right, remedy or claim under the Indenture, this Supplemental Indenture or the Securities. SECTION 2.09. Successors and Assigns. All covenants and agreements in this Supplemental Indenture by the Issuer shall bind its successors and assigns, whether so expressed or not. SECTION 2.10. Trustee Not Responsible for Recitals, etc. The recitals contained herein shall be taken as the statements of the Issuer, and the Trustee assumes no responsibility whatsoever for their correctness nor for the validity or sufficiency of this Supplemental Indenture or for the due execution hereof by the Issuer. SECTION 2.11. Certain Duties and Responsibilities of the Trustee. In entering into this Supplemental Indenture, the Trustee and the Collateral Agent shall be entitled to the benefit of every provision of the Indenture and the Collateral Agency Agreement relating to the conduct or affecting the liability of or affording protection to the Trustee and/or the Collateral Agent, as the case may be, whether or not elsewhere herein so provided. SECTION 2.12. New York Law to Govern. THIS SUPPLEMENTAL INDENTURE SHALL BE DEEMED TO BE A CONTRACT UNDER THE LAWS OF THE STATE OF NEW YORK AND FOR ALL PURPOSES SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH SUCH LAWS OF SAID STATE, EXCEPT AS MAY OTHERWISE BE REQUIRED BY MANDATORY PROVISIONS OF LAW. SECTION 2.13. Counterparts. This Supplemental Indenture may be executed in any number of counterparts, each of which shall be an original; but such counterparts shall together constitute but one and the same instrument. [The balance of this page is left intentionally blank.] 9 IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed as of the date and year first above written. FRUEHAUF TRAILER CORPORATION By:/s/ Timothy J. Wiggins ------------------------- Title: Executive Vice President and Chief Financial Officer IBJ SCHRODER BANK & TRUST COMPANY, as Trustee and Collateral Agent By:/s/ Barbara McCluskey ------------------------- Title: Assistant Vice President EX-4.45 7 FRUEHAUF TRAILER EXHIBIT 4.45 PAYMENT OF THIS NOTE IS SUBORDINATED PURSUANT TO THE TERMS OF THE MULTI-PARTY SUBORDINATION AGREEMENT (AS DEFINED HEREIN) TO THE CLAIMS OF THE SENIOR CREDITORS (AS DEFINED IN THE MULTI-PARTY SUBORDINATION AGREEMENT) SUBORDINATED REVOLVING NOTE June 21, 1996 FOR VALUE RECEIVED, Fruehauf Trailer Corporation ("Borrower") promises to pay to the order of K-H Corporation (together with its successors and assigns, "Lender") the unpaid principal amount of Revolving Loans (as defined below) made by Lender to Borrower from time to time hereunder 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 Congress Financial Corporation (Central) ("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], 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 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, that certain Fourth Amendment to Accounts Financing Agreement [Security Agreement] entered into as of April 19, 1996 by and between Borrower and Congress and that certain Fifth Amendment to Accounts Financing Agreement [Security Agreement] entered into as of June 21, 1996 by and between Borrower and Congress (collectively, as amended, restated, supplemented or otherwise modified from time to time, the "Congress Loan Agreement"), and the other Loan Documents, as defined in the Congress Loan Agreement (all such Loan Documents, together with the Congress Loan Agreement, collectively, the "Congress Loan Documents"). B. Borrower and Congress are parties to those certain Working Capital Term Notes in the aggregate amount of $6.5 million, one dated as of April 19, 1996 and the other dated as of June 21, 1996, and the other Term Loan Financing Agreements, as defined in the Working Capital Term Notes (the Working Capital Term Notes and all such Term Loan Financing Agreements, collectively, the "Working Capital Term Note Documents"), all of which have been assigned to Lender. C. Borrower is a party to that certain Indenture (as amended to the date hereof and as it may be further amended, restated, supplemented or otherwise modified from time to time, the "Indenture") dated as of May 1, 1995 by and between Borrower and IBJ Schroder Bank & Trust Company ("IBJS"), as trustee, the Security Documents and the other Documents, as each such term is defined in the Indenture (all such Documents, together with the Indenture, as each is amended to the date hereof and as it may be further amended, restated, supplemented or otherwise modified from time to time, collectively, the "Bondholder Documents"). D. Lender is a party to that certain Multi-Party Subordination Agreement (as it may be amended, restated, supplemented or otherwise modified as permitted therein, the "Multi-Party Subordination Agreement") entered into as of even date herewith by and among Lender, Congress and IBJS, as Trustee (as defined in the Indenture) and Collateral Agent (as defined in the Indenture). E. Borrower has requested and Lender has agreed to make revolving loans on a subordinated basis (the "Revolving Loans") to Borrower from time to time to pay Trailing Liabilities (as defined herein) upon the terms and conditions set forth herein. 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 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 Note" and words of similar import when used in this Note shall refer to this Note as a whole and not any particular provision of this Note and as this 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 Note shall have the meaning customarily given to such term in accordance with GAAP. For purposes of this Note, the following terms shall have the respective meanings given to them below: 1.1 "Account" shall have the meaning set forth in Section 4 hereof. 1.2 "Additional Collateral" shall mean all property and assets of whatever kind or nature pledged pursuant to the Security Documents. 1.3 "Collateral" shall have the meaning set forth in Section 4 hereof. 1.4 "Equipment" shall have the meaning set forth in Section 4 hereof. 1.5 "Event of Default" shall mean the occurrence or existence of any event or condition described in Section 8.1 hereof. 1.6 "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. 1.7 "Guarantees" shall mean each guarantee executed and delivered by Borrower's subsidiaries as set forth on Annex A. 1.8 "Inventory" shall have the meaning set forth in Section 4 hereof. 1.9 "Loan Obligations" shall mean the Revolving Loans 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 Revolving Loan Documents, 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 renewal term of this 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. 1.10 "Maturity Date" shall mean December 1, 1999; provided that if the securities issued pursuant to the Indenture are outstanding on such date, such date shall be automatically extended to the date 15 business days after the securities issued pursuant to the Indenture are no longer outstanding. 1.11 "Obligor" shall mean any guarantor, endorser, acceptor, surety or other person liable on or with respect to the Loan Obligations or who is the owner of any property which is security for the Loan Obligations, other than Borrower. 1.12 "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. 1.13 "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. 1.14 "Records" shall have the meaning set forth in Section 4 hereof. 1.15 "Revolving Loan" shall have the meaning set forth in Recital F hereof. 1.16 "Revolving Loan Documents" shall mean, collectively, this Note, 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 Note. 1.17 "Security Documents" means each mortgage, pledge agreement, and general security document utilized to pledge, as Collateral for the Loan Obligations, any property or assets of whatever kind or nature. 1.18 "Trailing Liabilities" shall mean current and long term liabilities of Borrower and its subsidiaries for which Lender may be contingently liable. SECTION 2. CREDIT FACILITIES 2.1 Loan. Subject to and upon the terms and conditions contained herein, Lender agrees at any time and from time to time on or after the date hereof and prior to the Maturity Date, to make a Revolving Loan or Revolving Loans to Borrower, which loans shall be available as follows: (a) Borrower shall cooperate with Lender on an on- going basis in efforts to reduce Borrower's Trailing Liabilities and to utilize opportunities to settle or reduce the Trailing Liabilities at a discount. (b) Upon identifying opportunities to settle Trailing Liabilities at a discount or otherwise, Lender, in its sole discretion, shall advance funds hereunder for such identified Trailing Liabilities; provided that Lender shall have so advanced at least $1.75 million on or before September 1, 1996 and an additional $l.75 million on or before November 1, 1996 to pay Trailing Liabilities identified by Lender or, if none have been identified, to pay Trailing Liabilities selected by Borrower. Borrower will cooperate to discharge those identified liabilities funded by Lender. 2.2 Repayment of Revolving Loan. Borrower shall have the right to prepay Revolving Loans in whole or in part from time to time, without premium or penalty. Except as provided in Section 8.2 hereof, the then outstanding principal amount of the Revolving Loans shall be due and payable on the Maturity Date. 2.3 Interest. (a) Pre-Default Rate. Borrower shall pay to Lender interest on the outstanding principal amount of the Loan Obligations from the date of the borrowing thereof until repaid at the rate of two and one-half percent (2>%) per annum in excess of the Prime Rate. (b) Post-Default Rate. Notwithstanding Section 2.3(a), Borrower shall pay to Lender interest on the outstanding principal amount of the Loan Obligations, at Lender's option, at a rate equal to two percent (2%) per annum in excess of the pre-default rate set forth above 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 in good faith by Lender and Lender shall promptly give notice to Borrower upon exercising its right hereunder. 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 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 Revolving Loan Documents is in contravention of any such law or regulation, such part or provision shall be deemed amended to conform thereto. 2.4 Payments. Payments of principal and interest hereunder shall be made to Lender by wire transfer of immediately available funds to the account designated on the signature page hereto or such other account as Lender may designate in writing. Borrower shall make all payments to Lender on the 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 Loan Obligations, Lender is required to surrender or return such payment to any Person for any reason, then the Loan Obligations intended to be satisfied by such payment shall be reinstated and continue and this 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 2.4 shall remain effective notwithstanding any contrary action which may be taken by Lender in reliance upon such payment. This Section 2.4 shall survive the termination or non-renewal of this Note. 2.5 Instructions on Loan Disbursement and Use of Proceeds. (a) On the date on which Lender has determined, in its sole discretion (after $3.5 million of Revolving Loans has been loaned hereunder), to fund a Revolving Loan, the amount of such Revolving Loan shall be: (i) transferred to Borrower for immediate payment of the Trailing Liabilities to be paid with such borrowing, (ii) paid by Lender directly to the obligee of such identified Trailing Liability or (iii) as otherwise agreed by Borrower and Lender. (b) All the proceeds of all Revolving Loans shall be used by Borrower to pay Trailing Liabilities as identified by Lender or as identified by Borrower solely in accordance with Section 2.1(b). 2.6 Revolving Loans and Revolving Loan Documents Subject to Multi-Party Subordination Agreement. This Note, all Revolving Loans hereunder and all of the other Revolving Loan Documents are subject in all respects to the terms of the Multi-Party Subordination Agreement. SECTION 3. CONDITIONS PRECEDENT TO ALL REVOLVING LOANS___ The obligations of the Lender to make the Revolving Loans to Borrower hereunder are subject, at the time of the making of each such Loan, to the satisfaction of the following conditions: (A) Officer's Certificate. On the date hereof, Lender shall have received a certificate dated such date signed by an appropriate officer of the Borrower stating that all of the applicable conditions set forth in this Section 3 have been satisfied in all material respects. (B) Opinions of Counsel. On the date hereof, Lender shall have received an opinion or opinions addressed to it and dated the date hereof, in form and substance satisfactory to Lender, from Jones, Day, Reavis & Pogue, counsel to the Borrower, which opinion shall address the matters reasonably requested by Lender. (C) Corporate Proceedings. All corporate and legal proceedings and all instruments and agreements in connection with the transactions contemplated hereby shall be reasonably satisfactory in form and substance to Lender, and Lender shall have received all information and copies of all certificates, documents and papers, including records of corporate proceedings and governmental approvals, if any, which Lender reasonably may have requested from the Borrower in connection therewith, such documents and papers where appropriate to be certified by proper corporate or governmental authorities. Without limiting the foregoing, Lender shall have received (i) resolutions of the Board of Directors of the Borrower approving and authorizing such documents and actions as are contemplated hereby in form and substance reasonably satisfactory to Lender including without limitation the execution and delivery of all Revolving Loan Documents, certified by its corporate secretary or an assistant secretary as being in full force and effect without modification or amendment, and (ii) signature and incumbency certificates of officers of the Borrower executing instruments, documents or agreements required to be executed in connection with this Note. (D) Security Documents and Guarantees. The Security Documents and Guarantees shall have been duly executed and delivered by the respective parties thereto and there shall have been delivered to Lender (i) evidence that certificates representing all pledged securities under any of the Revolving Loan Documents, together with executed and undated stock powers and/or assignments in blank, have been delivered to Congress or the Trustee or the Collateral Agent, (ii) evidence of the filing and due execution of appropriate financing statements under the provisions of the UCC, applicable domestic or local laws, rules or regulations in each of the offices where such filing is necessary or appropriate to grant to Lender a perfected Lien in the Collateral and the Additional Collateral superior to and prior to the rights of all third persons other than Congress and the Trustee and/or the Collateral Agent and (iii) evidence that arrangements have been made for the prompt completion of all recordings and filings of each Security Document related to mortgaged real property and delivery to Lender of such other security and other documents as may be necessary or, in the reasonable opinion of Lender, desirable to perfect the liens created, or purported or intended to be created, by the Security Documents. (E) No Default; Representations and Warranties. At the time of the making of each Revolving Loan and also after giving effect thereto (i) there shall exist no Event of Default and (ii) all representations and warranties made by Borrower or its subsidiaries contained herein or in the other Revolving Loan Documents in effect at such time shall be true and correct in all material respects with the same effect as though such representations and warranties had been made on and as of the date of the making of such Revolving Loan, unless such representation and warranty expressly indicates that it is being made as of any other specific date in which case on and as of such other date. (F) Certain Fees. Borrower shall have paid or have caused to be paid the fees and expenses (including, without limitation, reasonable legal fees and expenses) contemplated hereby and/or in connection with the other Revolving Loan Documents. (G) Identification of Trailing Liabilities. Borrower and Lender shall have consulted each other in identifying Trailing Liabilities and Lender, in its sole discretion, shall have selected one or more specific Trailing Liabilities that it will fund with Revolving Loans hereunder, except as and to the extent otherwise provided in Section 2.1(b). The acceptance of the proceeds of each Revolving Loan shall constitute a representation and warranty by Borrower to Lender that all of the applicable conditions specified in Section 3 have been satisfied. SECTION 4. GRANT OF SECURITY INTEREST To secure payment and performance of all 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 Note), the following property and interests in property, whether now owned or hereafter acquired or existing, and whereever 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 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 documents, 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 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. 5.2 Account Provisions. (a) Each Account represents a valid and legally enforceable indebtedness based upon an actual and bona fide sale and delivery of goods or rendition of services in the ordinary course of Borrower's business; (b) all statements made and all unpaid balances appearing in the invoices, documents and instruments evidencing each Account are true and correct in all material respects and are in all material respects what they purport to be; and (c) none of the transactions underlying or giving rise to any Account shall violate any state or federal laws or regulations, and all documents relating to the Accounts shall be legally sufficient under such laws or regulations and shall be legally enforceable in accordance with their terms. 5.3 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 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. 5.4 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 Revolving Loan Documents 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 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. 5.5 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 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 5.5 shall be without prejudice to any right to assert an Event of Default hereunder and to proceed accordingly. 5.6 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 the Additional 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 and the Additional Collateral. SECTION 6. REPRESENTATIONS AND WARRANTIES Borrower hereby represents and warrants to Lender the following (which shall survive the execution and delivery of this Note), the truth and accuracy of which are a condition to the making of each Revolving 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 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 or the Additional Collateral. The execution, delivery and performance of this Note and the other Revolving Loan Documents 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 Bondholder Documents, the Congress Loan Documents, any indenture, agreement or undertaking to which Borrower is a party or by which Borrower or its property are bound. The Revolving Loan Documents constitute legal, valid and binding obligations of Borrower enforceable in accordance with their respective terms. 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 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 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 Congress 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 Congress Loan Documents, subject to the right of Borrower to establish new locations in accordance with Section 7.2 hereof. The Congress 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 Revolving Loan Documents constitute valid and, upon the filing of appropriate financing statements, mortgages and deeds of trusts, perfected liens and security interests in and upon the Collateral and the Additional Collateral subject only to the liens permitted under Section 7.8 hereof. 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 described in Borrower's annual or quarterly reports filed pursuant to the Securities Exchange Act of 1934, as disclosed to Lender in connection with the execution and assignment of the Working Capital Term Note Documents or as otherwise 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 or 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 Revolving Loan Documents, 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 Revolving Loan Documents to which it is a party, or of Lender to enforce this Note or any of the other Revolving Loan Documents or realize upon the Collateral or the Additional 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 material agreement, contract, instrument, lease or other commitment to which it is a party or by which it or any of its assets are bound, other than as disclosed to Lender in writing on the date hereof. 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 government 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 Note or any of the other Revolving Loan Documents 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. 6.8 Survival of Warranties; Cumulative. All representations and warranties contained in this Note and the other Revolving Loan Documents shall survive the execution and delivery of this Note and the other Revolving Loan Documents, and shall be conclusively presumed to have been relied on by Lender as of the date of this 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. To the extent Borrower has cash available beyond its reasonably prudent working capital needs, Borrower shall accept or otherwise utilize opportunities to settle or reduce Trailing Liabilities at a discount. Notwithstanding the foregoing sentence, Borrower retains the sole discretion to determine to accept or utilize such opportunities to settle or reduce Trailing Liabilities at a discount, except to the extent funded hereunder by Lender. 7.5 Insurance. Borrower shall, at all times, maintain with financially sound and reputable insurers insurance with respect to the Collateral and the Additional 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; provided that policies of insurance maintained pursuant to and in accordance with the Congress Loan Documents shall be satisfactory hereunder. 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 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 Borrower's obligations pursuant to the Revolving Loan Documents. 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 Additional 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 and statements of income), 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 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 the Additional Collateral or any other property which is security for the 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, the Additional 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. 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 in writing. 7.7 Sale of Assets, Consolidation, Merger. Borrower shall not, directly or indirectly, merge into or with or consolidate with any other Person or permit any other Person to merge into or with or consolidate with it, or sell, assign, lease or transfer to any other Person all or substantially all of its assets unless the Borrower is the continuing corporation in the case of a merger, or the resulting surviving or transferee person (if other than the Borrower) shall be a corporation organized under the laws of the United States of America, any State thereof or the District of Columbia and shall expressly assume the due and punctual payment of the principal of and interest on all the Loan Obligations according to their terms, and the due and punctual performance and observance of all of the covenants and conditions to be performed or observed by the Borrower hereunder or under the Revolving Loan Documents. 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 and the Additional Collateral, except as permitted by the Congress Loan Documents, the Bondholder Documents, the Working Capital Term Note Documents or any of the other Revolving Loan Documents; provided that Borrower may incur liens on its assets, including the Collateral and the Additional Collateral, in connection with the settlement with the Rebenstock litigation if such liens and the indebtedness secured thereby are fully subordinated to the Revolving Loans and the liens of the Revolving Loan Documents. 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 Congress 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 reasonable requirements of Borrower's business and upon 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, the Additional Collateral, this Note, the other Revolving 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 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 and the Additional Collateral; (d) costs and expenses paid or incurred in connection with obtaining payment of Borrower's obligations pursuant to the Revolving Loan Documents, enforcing the security interests and liens of Lender, selling or otherwise realizing upon the Collateral and the Additional Collateral, and otherwise enforcing the provisions of the Revolving Loan Documents 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 the Additional Collateral and to otherwise effectuate the provisions or purposes of the Revolving Loan Documents. 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 Note or any of the other Revolving Loan Documents. 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 principal of the Revolving Loans, (ii) fails to pay when due, and such default continues for 10 business days, any interest on the Revolving Loans, (iii) fails to pay when due, and such default continues for 15 days, any other amounts due and owing pursuant to the Revolving Loan Documents or (iv) breaches any of the terms, covenants, conditions or provisions contained in any of the Revolving Loan Documents and such breach is not cured within thirty (30) business days after notice of the occurrence of such breach is given to Borrower by Lender; (b) any representation, warranty or statement of fact made by Borrower to Lender in 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; (d) Borrower or any Obligor makes an assignment for the benefit of 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; or (g) the obligations of Borrower are accelerated (i) by Congress under the Congress Loan Documents, (ii) by IBJS or the security holders under the Indenture, or (iii) by the lender under the Working Capital Term Note 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 Revolving Loan Documents, (ii) the Uniform Commercial Code and (iii) any other applicable law, 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 Revolving Loan Documents, the Uniform Commercial Code or other applicable law, are cumulative, not exclusive and enforceable, in Lender's discretion, alternatively, successively, or concurrently 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 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 Revolving Loan Documents without prior recourse to the Collateral or the Additional 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 all Loan Obligations (provided that, upon the occurrence of any Event of Default described in Sections 8.1(e) and 8.1(f), all Loan Obligations shall automatically become immediately due and payable), (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 or the Additional Collateral may be located and take possession of the Collateral or the Additional Collateral or complete processing, manufacturing and repair of all or any portion of the Collateral or the Additional Collateral, (iii) require Borrower, at Borrower's expense, to assemble and make available to Lender any part or all of the Collateral or the Additional Collateral at any place and time designated by Lender, (iv) collect, foreclose, receive, appropriate, setoff and realize upon any and all Collateral and Additional Collateral, (v) remove any or all of the Collateral or the Additional 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 or Additional 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 or the Additional Collateral at any such public sale, all of the foregoing being free from any right or equity of redemption of Borrower or its subsidiaries, as the case may be, which right or equity of redemption is hereby expressly waived and released by Borrower for itself and its subsidiaries. If any of the Collateral or the Additional Collateral is sold or leased by Lender upon credit terms or for future delivery, the Loan Obligations shall not be reduced as a result thereof until payment therefor is finally collected by Lender. If notice of disposition of Collateral or Additional 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 or Additional Collateral is to be made, shall be deemed to be reasonable notice thereof and Borrower waives any other notice. Lender may purchase all or any part of the Collateral and the Additional Collateral at public or, if permitted by law, private sale and, in lieu of actual payment of such purchase price, may setoff the amount of such price against the Loan Obligations. In the event Lender institutes an action to recover any Collateral or Additional Collateral or seeks recovery of any Collateral or Additional Collateral by way of prejudgment remedy, Borrower waives the posting of any bond which might otherwise be required. (c) Lender may apply the cash proceeds of Collateral or Additional Collateral actually received by Lender from any sale, lease, foreclosure or other disposition of the Collateral or the Additional Collateral to payment of the 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 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 agreed that any dispute arising out of the relationship between any such persons or the conduct of any such persons in connection with this 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 or the Additional 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. (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 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 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 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 Revolving Loan Documents, 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 Revolving Loan Documents. 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 Revolving Loan Documents or the Collateral or the Additional Collateral, and any and all other demands and notices of any kind or nature whatsoever with respect to Borrower's obligations, the Collateral, the Additional Collateral and the Revolving Loan Documents, 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. 9.3 Amendments and Waivers. Neither this Note, any of the other Revolving Loan Documents 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 Counterclaim. Borrower waives all rights to interpose any claims, deductions, setoffs or counterclaims of any nature (other than compulsory counterclaims) in any action or proceeding with respect to this Note, any of the other Revolving Loan Documents, the Collateral, the Additional 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 Revolving Loan Documents 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 Loan Obligations and the termination of the Revolving Loan Documents. All of the foregoing costs and expenses shall be part of Borrower's obligations in connection with the Loan and secured by the Collateral and the Additional 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 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 Note or any of the other Revolving Loan Documents is held to be invalid or unenforceable, such invalidity or unenforceability shall not invalidate this Note or such other Revolving Loan Documents as a whole, but this Note or such other Revolving Loan Documents, 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 Revolving Loan Documents shall be binding upon and inure to the benefit of and be enforceable by Lender, Borrower and their respective successors and assigns, except that neither party hereto may assign its rights under any of the Revolving Loan Documents without the prior written consent of the other party. 10.4 Payment of Expenses. Borrower agrees to pay all reasonable out-of-pocket costs and expenses of Lender in connection with the negotiation, preparation, execution and delivery of the Revolving Loan Documents and the documents and instruments referred to therein and any amendment, waiver or consent relating thereto and in connection with the enforcement of the Revolving Loan Documents and the documents and instruments referred to thereto (including in each case, without limitation, the reasonable fees and disbursements of counsel). 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 and Chief Financial Officer CHIEF EXECUTIVE OFFICE: 111 Monument Circle Suite 3200 Indianapolis, Indiana 46204 Accepted and Agreed: K-H CORPORATION By:/s/ Fred J. Chapman --------------------- Title:Treasurer ------------------ Address: 672 Delaware Avenue Buffalo, New York 14209 WIRE TRANSFER INSTRUCTIONS: EXHIBIT A Additional Loan Agreements 1. Subordinated Revolving Note by Fruehauf and accepted by Lender 2. Multi-Party Subordination Agreement by and among Congress, the Trustee on behalf of the bondholders, the Collateral Agent and Lender and acknowledged by Fruehauf and its subsidiaries 3. Pledge Agreement executed by Fruehauf in favor of Lender, together with the following Schedules attached thereto: Schedule I -- Pledged Stock Schedule II -- Pledged Notes 4. Pledge Agreement executed by Maryland Shipbuilding & Drydock Company in favor of Lender, together with the following Schedules attached thereto: Schedule I -- Pledged Stock Schedule II -- Pledged Notes 5. Pledge Agreement executed by Jacksonville Shipyards, Inc. in favor of Lender, together with the following Schedules attached thereto: Schedule I -- Pledged Stock Schedule II -- Pledged Notes 6. Pledge Agreement executed by Fruehauf International Limited in favor of Lender, together with the following Schedules attached thereto: Schedule I -- Pledged Stock Schedule II -- Pledged Notes 7. Guarantee in favor of Lender 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. 8. Trademark Security Agreement executed by Fruehauf in favor of Lender 9. Patent Collateral Assignment executed by Fruehauf in favor of Lender 10. Copyright Security Agreement executed by Fruehauf in favor of Lender 11. Guarantor General Security Agreement executed by each of the Subsidiaries named below in favor of Lender 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. 12. Mortgages/Deeds of Trust by and between Fruehauf and Lender in favor of Lender for each of the properties at the locations listed on Annex 1 attached hereto 13. UCC-1 Financing Statements filed against Fruehauf in favor of Lender with the offices of the Secretaries of State and County Clerks (or equivalent) listed on Annex 2 attached hereto 14. UCC Fixture Filings filed against Fruehauf in favor of Lender with the offices of the County Clerks (or equivalent) listed on Annex 1 attached hereto Annex 1 Morgan County, Alabama Morgan County, Alabama Maricopa County, Arizona Pulaski County, Arkansas Fresno County, California San Bernardino County, 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. 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-4.46 8 FRUEHAUF TRAILER EXHIBIT 4.46 GUARANTOR GENERAL SECURITY AGREEMENT This Guarantor General Security Agreement (hereafter, as amended modified, replaced, consolidated and extended, this "Agreement") dated as of June 21, 1996 is made by FGR, Inc., f.k.a. Decatur Aluminum Company, Inc., a Michigan corporation, Fruehauf Corporation, a Delaware corporation, Maryland Shipbuilding & Drydock Company, a Maryland corporation, The Mercer Co., a Delaware corporation, Fruehauf International Limited, a Delaware corporation, Deutsche-Fruehauf Holding Corporation, a Delaware corporation, Jacksonville Shipyards, Inc., a Florida corporation, M.J. Holdings, Inc., an Ohio corporation, Fruehauf Holdings Corp., a Delaware corporation, E.L. Devices, Inc., a Florida corporation (each a "Guarantor" and collectively, "Guarantors") in favor of K-H Corporation, a Delaware corporation (together with its successors and assigns, "Guaranteed Party"). W I T N E S S E T H WHEREAS, Guaranteed Party has entered or is about to enter into certain financing arrangements with Fruehauf Trailer Corporation, a Delaware corporation ("Debtor"), pursuant to which Guaranteed Party may make loans and provide other financial accommodations to Debtor; and WHEREAS, Debtor, which owns the outstanding shares of stock of Guarantors, entered into that certain Subordinated Revolving Note (as defined herein), under which Debtor will borrow revolving loans and will be afforded certain other financial accommodations. As used herein, the term "Event of Default" shall have the meaning as set forth in the Subordinated Revolving Note; unless otherwise defined, all other capitalized terms are used in this Agreement as they are defined in the Subordinated Revolving Note; and WHEREAS, Debtor has requested that the Guaranteed Party agree to make loans pursuant to the Subordinated Revolving Note dated of even date herewith, by and between Debtor and the Guaranteed Party (the "Subordinated Revolving Note"), the proceeds of which will be used to pay Trailing Liabilities; and WHEREAS, each of the Guarantors has executed and delivered or is about to execute and deliver to Guaranteed Party that certain guarantee (the "Guarantee"), dated as of June 21, 1996, in favor of Guaranteed Party; and NOW, THEREFORE, in consideration of the mutual conditions and agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which is 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 Agreement. All references to the plural herein shall also mean the singular and to the singular shall also mean the plural. All references to Guarantor, Debtor and Guaranteed Party 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 Agreement" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not any particular provision of this Agreement and as this Agreement now exists or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. An Event of Default shall exist or continue or be continuing until such Event of Default is waived in accordance with Section 7.3. Any accounting term used herein unless otherwise defined in this Agreement shall have the meanings customarily given to such term in accordance with GAAP. For purposes of this Agreement, the following terms shall have the respective meanings given to them below: 1.1 "Accounts" shall mean, with respect to each Guarantor, all present and future rights of such Guarantor to payment for goods sold or leased or for services rendered, which are not evidenced by instruments or chattel paper, and whether or not earned by performance. 1.2 "Equipment" shall mean, with respect to each Guarantor, all of Guarantor's now owned and hereafter acquired equipment, machinery, computers and computer hardware and software (whether owned or licensed), vehicles, tools, furniture, fixtures, all attachments, accessions and property now or hereafter affixed thereto or used in connection therewith, and substitutions and replacements thereof, wherever located. 1.3 "Event of Default" shall have the meaning set forth in Section 6.1 hereof. 1.4 "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 consistently applied. 1.5 "Inventory" shall mean, with respect to each Guarantor, all of such Guarantor's now owned and hereafter existing or acquired raw materials, work in process, finished goods and all other inventory of whatsoever kind or nature, wherever located. 1.6 "Obligations" shall mean Guaranteed Obligations as defined in the Guarantee and all other obligations owing by any Guarantor under other Revolving Loan Documents. 1.7 "Obligor" shall mean any other guarantor, endorser, acceptor, surety or other person liable on or with respect to the Obligations or who is the owner of any property which is security for the Obligations, other than Debtor. 1.8 "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. 1.9 "Records" shall mean, with respect to each Guarantor, all of such Guarantor's present and future books of account of every kind or nature, purchase and sale agreements, invoices, ledger cards, bills of lading and other shipping evidence, statements, correspondence, memoranda, credit files and other data relating to the Collateral or any account debtor, together with the tapes, disks, diskettes and other data and software storage media and devices, file cabinets or containers in or on which the foregoing are stored (including any rights of such Guarantor with respect to the foregoing maintained with or by any other person). SECTION 2. GRANT OF SECURITY INTEREST To secure payment and performance of all Obligations, each Guarantor hereby grants to Guaranteed Party a continuing security interest in, a lien upon, and a right of set off against, and hereby assigns to Guaranteed Party as security, the following property and interests in property, whether now owned or hereafter acquired or existing, and wherever located (collectively, the "Collateral"): 2.1 Accounts; 2.2 all present and future contract rights, general intangibles (including, but not limited to, tax and duty refunds, registered and unregistered patents, trademarks, service marks, copyrights, trade names, applications for the foregoing, trade secrets, goodwill, processes, drawings, blueprints, customer lists, licenses, whether as licensor or licensee, choses in action and other claims and existing and future leasehold interests in equipment, real estate and fixtures), chattel paper, documents, instruments, letters of credit, bankers' acceptances and guaranties; 2.3 all present and future monies, securities, credit balances, deposits, deposit accounts and other property of such Guarantor now or hereafter held or received by or in transit to Guaranteed Party or its affiliates or at any other depository or other institution from or for the account of such Guarantor whether for safekeeping, pledge, custody, transmission, collection or otherwise, and all present and future liens, security interests, rights, remedies, title and interest in, to and in respect of Accounts and other Collateral, including, without limitation, (a) rights and remedies under or relating to guaranties, contracts of suretyship, letters of credit and credit and other insurance related to the Collateral, (b) rights of stoppage in transit, replevin, repossession, reclamation and other rights and remedies of an unpaid vendor, lienor or secured party, (c) goods described in invoices, documents, contracts or instruments with respect to, or otherwise representing or evidencing, Accounts or other Collateral, including, without limitation, returned, repossessed and reclaimed goods, and (d) deposits by and property of account debtors or other persons securing the obligations of account debtors; 2.4 Inventory; 2.5 Equipment; 2.6 Records; and 2.7 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. This Agreement and the security interest created hereby are subject to (i) the Multi-Party Subordination Agreement dated as of the date hereof among Congress, IBJS and Lender and (ii) the liens created by and granted pursuant to the Bondholder Documents, the Congress Loan Documents and the Working Capital Term Note Documents (the "Existing Liens"). SECTION 3. COLLATERAL COVENANTS 3.1 Accounts Covenants. (a) Guaranteed Party shall have the right at any time or times, in Guaranteed Party's name or in the name of a nominee of Guaranteed Party, to verify the validity, amount or any other matter relating to any Account or other Collateral, by mail, telephone, facsimile transmission or otherwise. (b) Each Guarantor shall deliver or cause to be delivered to Guaranteed Party, with appropriate endorsement and assignment, with full recourse to such Guarantor, all chattel paper and instruments which such Guarantor now owns or may at any time acquire immediately upon such Guarantor's receipt thereof, except as Guaranteed Party may otherwise agree. (c) Guaranteed Party may, at any time or times that an Event of Default exists or has occurred and is continuing, (i) notify any or all account debtors that the Accounts have been assigned to Guaranteed Party and that Guaranteed Party has a security interest therein and Guaranteed Party may direct any or all accounts debtors to make payment of Accounts directly to Guaranteed Party, (ii) extend the time of payment of, compromise, settle or adjust for cash, credit, return of merchandise or otherwise, and upon any terms or conditions, any and all Accounts or other obligations included in the Collateral and thereby discharge or release the account debtor or any other party or parties in any way liable for payment thereof without affecting any of the Obligations, (iii) demand, collect or enforce payment of any Accounts or such other obligations, but without any duty to do so, and Guaranteed Party shall not be liable for its failure to collect or enforce the payment thereof nor for the negligence of its agents or attorneys with respect thereto and (iv) take whatever other action Guaranteed Party may deem necessary or desirable for the protection of its interests. At any time that an Event of Default exists or has occurred and is continuing, at Guaranteed Party's request, all invoices and statements sent to any account debtor shall state that the Accounts and such other obligations have been assigned to Guaranteed Party and are payable directly and only to Guaranteed Party and each Guarantor shall deliver to Guaranteed Party such originals of documents evidencing the sale and delivery of goods or the performance of services giving rise to any Accounts as Guaranteed Party may require. 3.2 Inventory Covenants. With respect to the Inventory: (a) each Guarantor shall at all times maintain inventory records reasonably satisfactory to Guaranteed Party, keeping correct and accurate records itemizing and describing the kind, type, quality and quantity of Inventory, such Guarantor's cost therefor and daily withdrawals therefrom and additions thereto; (b) during each calendar year for which a Guarantor has Inventory with a fair market value in excess of $5,000 at any time, each such Guarantor shall conduct a physical count of the Inventory at least once during such year, but at any time or times as Guaranteed Party may request on or after an Event of Default, and promptly following such physical inventory shall supply Guaranteed Party with a report in the form and with such specificity as may be reasonably satisfactory to Guaranteed Party concerning such physical count; (c) each Guarantor shall not remove any Inventory from the locations set forth or permitted herein, without the prior written consent of Guaranteed Party, except for sales of Inventory in the ordinary course of Guarantor's business and except to move Inventory directly from one location set forth or permitted herein to another such location; (d) upon Guaranteed Party's request, each Guarantor shall, at its expense, no more than once in any twelve (12) month period, but at any time or times as Guaranteed Party may request on or after an Event of Default, deliver or cause to be delivered to Guaranteed Party written reports or appraisals as to the Inventory in form, scope and methodology acceptable to Guaranteed Party and by an appraiser acceptable to Guaranteed Party, addressed to Guaranteed Party or upon which Guaranteed Party is expressly permitted to rely; (e) each Guarantor 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); (f) each Guarantor assumes all responsibility and liability arising from or relating to the production, use, sale or other disposition of the Inventory; (g) each Guarantor shall keep the Inventory in good and marketable condition; and (h) each Guarantor shall not, without prior written notice to Guaranteed Party, acquire or accept any Inventory on consignment or approval. 3.3 Equipment Covenants. With respect to the Equipment: (a) upon Guaranteed Party's request, each Guarantor shall, at its expense, at any time or times as Guaranteed Party may request on or after an Event of Default, deliver or cause to be delivered to Guaranteed Party written reports or appraisals as to the Equipment in form, scope and methodology acceptable to Guaranteed Party and by appraiser acceptable to Guaranteed Party; (b) each Guarantor shall keep the Equipment in good order, repair, running and marketable condition (ordinary wear and tear excepted); (c) each Guarantor shall use the Equipment with 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 each Guarantor's business and not for personal, family, household or farming use; (e) each Guarantor shall not remove any Equipment from the locations set forth or permitted herein, except to the extent necessary to have any Equipment repaired or maintained in the ordinary course of the business of such Guarantor or to move Equipment directly from one location set forth or permitted herein to another such location and except for the movement of motor vehicles used by or for the benefit of Debtor in the ordinary course of business; (f) the Equipment is now and shall remain personal property and each Guarantor shall not permit any of the Equipment to be or become a part of or affixed to real property; and (g) each Guarantor assumes all responsibility and liability arising from the use of the Equipment. 3.4 Power of Attorney. Each Guarantor hereby irrevocably designates and appoints Guaranteed Party (and all persons designated by Guaranteed Party) as each such Guarantor's true and lawful attorney-in-fact, and authorizes Guaranteed Party, in each such Guarantor's or Guaranteed Party's name, to: (a) at any time an Event of Default exists or has occurred and is continuing (i) demand payment on Accounts or other proceeds of Inventory or other Collateral, (ii) enforce payment of Accounts by legal proceedings or otherwise, (iii) exercise all of each such Guarantor's rights and remedies to collect any Account or other Collateral, (iv) sell or assign any Account upon such terms, for such amount and at such time or times as the Guaranteed Party deems advisable, (v) settle, adjust, compromise, extend or renew an Account, (vi) discharge and release any Account, (vii) prepare, file and sign each such Guarantor'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 each such Guarantor's mail to an address designated by Guaranteed Party, and open and dispose of all mail addressed to each such Guarantor, and (ix) do all acts and things which are necessary, in Guaranteed Party's determination, to fulfill each such Guarantor's obligations under this Agreement and the other Revolving Loan Documents and (b) at any time to (i) take control in any manner of any item of payment or proceeds thereof, (ii) have access to any lockbox or postal box into which each such Guarantor's mail is deposited, (iii) endorse each such Guarantor's name upon any items of payment or proceeds thereof and deposit the same in the Guaranteed Party's account for application to the Obligations, (iv) endorse each such Guarantor'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, and (v) sign each such Guarantor's name on any verification of Accounts and notices thereof to account debtors and (vi) execute in each such Guarantor's name and file any UCC financing statements or amendments thereto. Each Guarantor hereby releases Guaranteed Party 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 Guaranteed Party's own gross negligence or wilful misconduct as determined pursuant to a final non-appealable order of a court of competent jurisdiction. 3.5 Right to Cure. Guaranteed Party may, at its option, (a) cure any default by each Guarantor under any agreement with a third party or pay or bond on appeal any judgment entered against such Guarantor, (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 Guaranteed Party's judgment, is necessary or appropriate to preserve, protect, insure or maintain the Collateral and the rights of Guaranteed Party with respect thereto. Guaranteed Party may add any amounts so expended to the Obligations and charge each Guarantor's account therefor, such amounts to be repayable by each such Guarantor on demand. Guaranteed Party 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 each such Guarantor. Any payment made or other action taken by Guaranteed Party under this Section shall be without prejudice to any right to assert an Event of Default hereunder and to proceed accordingly. 3.6 Access to Premises. From time to time as requested by Guaranteed Party, at the cost and expense of each Guarantor, (a) Guaranteed Party or its designee shall have complete access to all of each such Guarantor's premises during normal business hours and after notice to each such Guarantor, or at any time and without notice to any Guarantor if an Event of Default exists or has occurred and is continuing, for the purposes of inspecting, verifying and auditing the Collateral and all of each such Guarantor's books and records, including, without limitation, the Records, and (b) each Guarantor shall promptly furnish to Guaranteed Party such copies of such books and records or extracts therefrom as Guaranteed Party may request, and (c) use during normal business hours such of each Guarantor's personnel, equipment, supplies and premises as may be reasonably necessary for the foregoing and if an Event of Default exists or has occurred and is continuing for the collection of Accounts and realization of other Collateral. SECTION 4. REPRESENTATIONS AND WARRANTIES Each Guarantor hereby represents and warrants to Guaranteed Party the following (which shall survive the execution and delivery of this Agreement): 4.1 Corporate Existence, Power and Authority; Subsidiaries. Each Guarantor 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 makes such qualification necessary, except for those jurisdictions in which the failure to so qualify would not have a material adverse effect on such Guarantor's financial condition, results of operation or business or the rights of Guaranteed Party in or to any of the Collateral. The execution, delivery and performance of this Agreement, the other Revolving Loan Documents and the transactions contemplated hereunder and thereunder are all within each Guarantor's corporate powers, have been duly authorized and are not in contravention of law or the terms of such Guarantor's certificate of incorporation, by-laws, or other organizational documentation, or any indenture, agreement or undertaking to which such Guarantor is a party or by which such Guarantor or its property are bound. This Agreement and the other Revolving Loan Documents constitute legal, valid and binding obligations of each Guarantor enforceable in accordance with their respective terms. Each Guarantor does not have any subsidiaries except as set forth on Schedule 4.1 hereto. 4.2 Financial Statements; No Material Adverse Change. All financial statements relating to each Guarantor which have been or may hereafter be delivered by such Guarantor to Guaranteed Party have been prepared in accordance with GAAP and fairly present the financial condition and the results of operation of such Guarantor as at the dates and for the periods set forth therein. Except as disclosed in any interim financial statements furnished by each Guarantor to Guaranteed Party prior to the date hereof, there has been no material adverse change in the assets, liabilities, properties and condition, financial or otherwise, of each Guarantor, since the date of the most recent financial statements furnished by each Guarantor to Guaranteed Party prior to the date hereof. 4.3 Chief Executive Office; Collateral Locations. The chief executive office of each Guarantor and each such Guarantor's Records concerning Accounts are located only at the address set forth below and its only other places of business and the only other locations of Collateral, if any, are the addresses set forth in Schedule 4.3 hereto, subject to the right of each such Guarantor to establish new locations in accordance with Section 5.2 below. Schedule 4.3 hereto correctly identifies any of such locations which are not owned by each such Guarantor and sets forth the owners and/or operators thereof, and to the best of each such Guarantor's knowledge, the holders of any mortgages on such locations. 4.4 Priority of Liens; Title to Properties. The security interests and liens granted to Guaranteed Party under this Agreement and the other Revolving Loan Documents upon the filing of financing statements, mortgages or deeds of trust which have been executed by Guarantors as of the date hereof constitute valid and perfected liens and security interests in and upon the Collateral subject only to the liens indicated on Schedule 4.4 hereto and the other liens permitted under Section 5.8 hereof. Each Guarantor has good and marketable title to all of its properties and assets subject to no liens, mortgages, pledges, security interests, encumbrances or charges of any kind, except those granted to Guaranteed Party and such others as are specifically listed on Schedule 4.4 hereto or permitted under Section 5.8 hereof. 4.5 Tax Returns. Each Guarantor has filed, or caused to be filed, in a timely manner all tax returns, reports and declarations which are required to be filed by it (without requests for extension except as previously disclosed in writing to Guaranteed Party). All information in such tax returns, reports and declarations is complete and accurate in all material respects. Each Guarantor has paid or caused to be paid all taxes due and payable or claimed due and payable in any assessment received by it, except taxes the validity of which are being contested in good faith by appropriate proceedings diligently pursued and available to each Guarantor and with respect to which adequate reserves have been set aside on its books. Adequate provision has been made for the payment of all accrued and unpaid federal, state, county, local, foreign and other taxes whether or not yet due and payable and whether or not disputed. 4.6 Litigation. Except as set forth on Schedule 4.6 hereto, there is no present investigation by any governmental agency pending, or to the best of each Guarantor's knowledge threatened, against or affecting such Guarantor, its assets or business and there is no action, suit, proceeding or claim by any Person pending, or to the best of each Guarantor's knowledge threatened, against such Guarantor or its assets or goodwill, or against or affecting any transactions contemplated by this Agreement, which if adversely determined against such Guarantor would result in any material adverse change in the assets, business or prospects of such Guarantor or which would impair the ability of such Guarantor to perform its obligations hereunder or under any of the other Revolving Loan Documents to which it is a party or of Guaranteed Party to enforce the Obligations or realize upon any Collateral. 4.7 Compliance with Other Agreements and Applicable Laws. Each Guarantor is not in default in any material respect under, or in violation in any material respect 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 and each Guarantor 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. 4.8 Asset Values. FGR, Inc., f.k.a. Decatur Aluminum Company Inc., Fruehauf Corporation, Maryland Shipbuilding & Drydock Company, The Mercer Co., CEMCO International Limited, Fruehauf Holdings Corp., Fruehauf Trailer (Australasia) Pty., E.L. Devices, Inc., f.k.a. Electro Lube Devices, Inc., Bellinger Operations, Inc. and Key Houston Operations, Inc. do not collectively own assets (excluding a note payable from Debtor to Maryland Shipbuilding & Drydock Company) having a fair market value in excess of $50,000. The real property owned by Jacksonville Shipyards, Inc. does not have a fair market value in the aggregate in excess of $350,000. 4.9 Accuracy and Completeness of Information. All information furnished by or on behalf of each Guarantor in writing to Guaranteed Party in connection with this Agreement or any of the other Revolving Loan Documents or any transaction contemplated hereby or thereby, including, without limitation, all information on any of the Schedules hereto is true and correct in all material respects on the date as of which such information is dated or certified and does 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 each Guarantor, which has not been fully and accurately disclosed to Guaranteed Party in writing. 4.10 Survival of Warranties; Cumulative. All representations and warranties contained in this Agreement or any of the other Revolving Loan Documents shall survive the execution and delivery of this Agreement and shall be conclusively presumed to have been relied on by Guaranteed Party regardless of any investigation made or information possessed by Guaranteed Party. The representations and warranties set forth herein shall be cumulative and in addition to any other representations or warranties which any Guarantor shall now or hereafter give, or cause to be given, to Guaranteed Party. SECTION 5. AFFIRMATIVE AND NEGATIVE COVENANTS 5.1 Maintenance of Existence. Each Guarantor 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. Each Guarantor shall give Guaranteed Party thirty (30) days prior written notice of any proposed change in its corporate name, which notice shall set forth the new name and such Guarantor shall deliver to Guaranteed Party a copy of the amendment to the Certificate of Incorporation of such Guarantor providing for the name change certified by the Secretary of State of the jurisdiction of incorporation of such Guarantor as soon as it is available. 5.2 New Collateral Locations. Each Guarantor may open any new location within the continental United States provided such Guarantor (a) gives Guaranteed Party 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 Guaranteed Party such agreements, documents, and instruments as Guaranteed Party may deem reasonably necessary or desirable to protect its interests in the Collateral at such location, including, without limitation, UCC financing statements. 5.3 Compliance with Laws, Regulations, Etc. Each Guarantor shall, at all times, comply in all material respects with all laws, rules, regulations, licenses, permits, approvals and orders of any federal, state or local governmental authority applicable to it. 5.4 Payment of Taxes and Claims. Each Guarantor shall duly pay and discharge all taxes, assessments, contributions and governmental charges upon or against it or its properties or assets, except for (i) taxes the validity of which are being contested in good faith by appropriate proceedings diligently pursued and available to such Guarantor and with respect to which adequate reserves have been set aside on its books (ii) and obligations of Jacksonville Shipyards Inc. in an amount not in excess of $2,000,000, pursuant to Section 8(f) of the Harborworkers and Longshoremen Act and with respect to which Jacksonville Shipyards, Inc. has set aside adequate reserves on its books. Each Guarantor shall be liable for any tax or penalties imposed on Guaranteed Party as a result of the financing arrangements provided for herein and each Guarantor agrees to indemnify and hold Guaranteed Party harmless with respect to the foregoing, and to repay to Guaranteed Party on demand the amount thereof, and until paid by each Guarantor such amount shall be added and deemed part of the Obligations, provided, that, nothing contained herein shall be construed to require such Guarantor to pay any income or franchise taxes attributable to the income of Guaranteed Party from any amounts charged or paid hereunder to Guaranteed Party. The foregoing indemnity shall survive the payment of the Obligations, the termination of this Agreement and the termination of the Revolving Loan Documents. 5.5 Insurance. Each Guarantor 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 Guaranteed Party as to form, amount and insurer. Each Guarantor shall furnish certificates, policies or endorsements to Guaranteed Party as Guaranteed Party shall require as proof of such insurance, and, if such Guarantor fails to do so, Guaranteed Party is authorized, but not required, to obtain such insurance at the expense of such Guarantor. All policies shall provide for at least thirty (30) days prior written notice to Guaranteed Party of any cancellation or reduction of coverage and that Guaranteed Party may act as attorney for each Guarantor in obtaining, and at any time an Event of Default exists or has occurred and is continuing, adjusting, settling, amending and canceling such insurance. Each Guarantor shall cause Guaranteed Party to be named as a loss payee and an additional insured (but without any liability for any premiums) under such insurance policies and each Guarantor shall obtain non-contributory lender's loss payable endorsements to all insurance policies in form and substance satisfactory to Guaranteed Party. Such lender's loss payable endorsements shall specify that the proceeds of such insurance shall be payable to Guaranteed Party as its interests may appear and further specify that Guaranteed Party shall be paid regardless of any act or omission by each Guarantor or any of its affiliates. At its option, Guaranteed Party may apply any insurance proceeds received by Guaranteed Party at any time to the cost of repairs or replacement of Collateral and/or to payment of the Obligations, whether or not then due, in any order and in such manner as Guaranteed Party may determine or hold such proceeds as cash collateral for the Obligations. 5.6 Provision of Information. (a) Each Guarantor shall promptly notify Guaranteed Party 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 Obligations or which would result in any material adverse change in such Guarantor'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. (b) Each Guarantor shall promptly after the sending or filing thereof furnish or cause to be furnished to Guaranteed Party copies of all reports which each Guarantor sends to its stockholders generally and copies of all reports and registration statements which each Guarantor files with the Securities and Exchange Commission, any national securities exchange or the National Association of Securities Dealers, Inc. (c) Each Guarantor shall furnish or cause to be furnished to Guaranteed Party such budgets, forecasts, projections and other information respecting the Collateral and the business of such Guarantor, as Guaranteed Party may, from time to time, reasonably request. Guaranteed Party is hereby authorized to deliver a copy of any financial statement or any other information relating to the business of each Guarantor to any court or other government agency or to any participant or assignee or prospective participant or assignee. Each Guarantor hereby irrevocably authorizes and directs all accountants or auditors to deliver to Guaranteed Party, at such Guarantor's expense, copies of the financial statements of such Guarantor and any reports or management letters prepared by such accountants or auditors on behalf of such Guarantor and to disclose to Guaranteed Party such information as they may have regarding the business of such Guarantor. Any documents, schedules, invoices or other papers delivered to Guaranteed Party may be destroyed or otherwise disposed of by Guaranteed Party one (1) year after the same are delivered to Guaranteed Party, except as otherwise designated by Guarantor to Guaranteed Party in writing. 5.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc. Each Guarantor 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 (other than a merger into Debtor or another Guarantor), or (b) sell, assign, lease, transfer, abandon or otherwise dispose of any stock or indebtedness to any other Person or any of its assets to any other Person (except for sales or other dispositions of assets which Debtor is permitted to allow such subsidiary to consummate under the terms of the Working Capital Term Note), or (c) form or acquire any subsidiaries, or (d) wind up, liquidate or dissolve or (e) agree to do any of the foregoing. 5.8 Encumbrances. Each Guarantor shall not create, incur, assume or suffer to exist any security interest, mortgage, pledge, lien, charge or other encumbrance of any nature whatsoever on any of its assets or properties, including, without limitation, the Collateral, except: (a) liens and security interests granted pursuant to the Congress Loan Documents, the Bondholder Documents, the Working Capital Term Loan Documents and the Revolving Loan Documents; (b) liens securing the payment of taxes, either not yet overdue or the validity of which are being contested in good faith by appropriate proceedings diligently pursued and available to such Guarantor and with respect to which adequate reserves have been set aside on its books; (c) non-consensual statutory liens (other than liens securing the payment of taxes) arising in the ordinary course of such Guarantor's business to the extent: (i) such liens secure indebtedness which is not overdue or (ii) such liens secure indebtedness relating to claims or liabilities which are fully insured and being defended at the sole cost and expense and at the sole risk of the insurer or being contested in good faith by appropriate proceedings diligently pursued and available to such Guarantor, in each case prior to the commencement of foreclosure or other similar proceedings and with respect to which adequate reserves have been set aside on its books; (d) zoning restrictions, easements, licenses, covenants and other restrictions affecting the use of real property which do not interfere in any material respect with the use of such real property or ordinary conduct of the business of such Guarantor as presently conducted thereon or materially impair the value of the real property which may be subject thereto; and (e) the security interests and liens set forth on Schedule 4.4 hereto. 5.9 Indebtedness. Each Guarantor shall not incur, create, assume, become or be liable in any manner with respect to, or permit to exist, any obligations or indebtedness, except (a) the Obligations; (b) trade obligations and normal accruals in the ordinary course of business not yet due and payable, or with respect to which each such Guarantor is contesting in good faith the amount or validity thereof by appropriate proceedings diligently pursued and available to each such Guarantor, and with respect to which adequate reserves have been set aside on its books; and (c) obligations or indebtedness set forth on Schedule 5.9 hereto; provided, that, (i) each Guarantor may only make regularly scheduled payments of principal and interest in respect of such indebtedness in accordance with the terms of the agreement or instrument evidencing or giving rise to such indebtedness as in effect on the date hereof, (ii) each Guarantor shall not, directly or indirectly, (A) amend, modify, alter or change the terms of such indebtedness or any agreement, document or instrument related thereto, or (B) redeem, retire, defease, purchase or otherwise acquire such indebtedness, or set aside or otherwise deposit or invest any sums for such purpose, and (iii) each Guarantor shall furnish to Guaranteed Party all notices or demands in connection with such indebtedness either received by such Guarantor or on its behalf, promptly after the receipt thereof, or sent by such Guarantor or on its behalf, concurrently with the sending thereof, as the case may be. 5.10 Loans, Investments, Guarantees, Etc. Each Guarantor shall not, directly or indirectly, make any loans or advance money or property to any person, or invest in (by capital contribution, dividend or otherwise) or purchase or repurchase the stock or indebtedness or all or a substantial part of the assets or property of any person, or guarantee, assume, endorse, or otherwise become responsible for (directly or indirectly) the indebtedness, performance, obligations or dividends of any Person or agree to do any of the foregoing, except: (a) the endorsement of instruments for collection or deposit in the ordinary course of business; (b) investments in: (i) short-term direct obligations of the United States Government, and (ii) negotiable certificates of deposit issued by any bank satisfactory to Guaranteed Party, payable to the order of such Guarantor or to bearer and delivered to Guaranteed Party, and (c) the guarantees set forth in Schedule 5.10. 5.11 Dividends and Redemptions. Each Guarantor shall not, directly or indirectly, declare or pay any dividends on account of any of its shares of class of capital stock 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 other than a cash dividend to Debtor. 5.12 Transactions with Affiliates. Each Guarantor 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 each such Guarantor's business and upon fair and reasonable terms no less favorable to each such Guarantor than such Guarantor would obtain in a comparable arm's length transaction with an unaffiliated person. 5.13 Costs and Expenses. Each Guarantor shall pay to Guaranteed Party 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 the Obligations, Guaranteed Party's rights in the Collateral, this Agreement, the other Revolving 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) all title insurance and other insurance premiums, appraisal fees and search fees; ( costs and expenses of preserving and protecting the Collateral; (d) costs and expenses paid or incurred in connection with obtaining payment of the Obligations, enforcing the security interests and liens of Guaranteed Party, selling or otherwise realizing upon the Collateral, and otherwise enforcing the provisions of this Agreement and the other Revolving Loan Documents or defending any claims made or threatened against Guaranteed Party arising out of the transactions contemplated hereby and thereby (including, without limitation, preparations for and consultations concerning any such matters); and (e) the fees and disbursements of counsel (including legal assistants) to Guaranteed Party in connection with any of the foregoing. 5.14 Further Assurances. At the request of Guaranteed Party at any time and from time to time, each Guarantor shall, at its expense, at any time or times 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 this Agreement or any of the other Revolving Loan Documents. Where permitted by law, each Guarantor hereby authorizes Guaranteed Party to execute and file one or more UCC financing statements signed only by Guaranteed Party. SECTION 6. EVENTS OF DEFAULT AND REMEDIES 6.1 Events of Default. The occurrence or existence of any Event of Default under the Subordinated Revolving Note is referred to herein individually as an "Event of Default", and collectively as "Events of Default". Remedies. (a) At any time an Event of Default exists or has occurred and is continuing, Guaranteed Party shall have all rights and remedies provided in this Agreement, the other Revolving Loan Documents, the Uniform Commercial Code and other applicable law, all of which rights and remedies may be exercised without notice to or consent by any Guarantor or any other party, except as such notice or consent is expressly provided for hereunder or required by applicable law. All rights, remedies and powers granted to Guaranteed Party hereunder, under any of the other Revolving Loan Documents, the Uniform Commercial Code or other applicable law, are cumulative, not exclusive and enforceable, in Guaranteed Party's discretion, alternatively, successively, or concurrently 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 any Guarantor of this Agreement or any of the other Revolving Loan Documents. Guaranteed Party may, at any time or times, proceed directly against any Guarantor or any other party to collect any Obligations when due 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, Guaranteed Party may, in its discretion and without limitation, (i) accelerate the payment of all Obligations and demand immediate payment thereof to Guaranteed Party, (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 each Guarantor, at such Guarantor's expense, to assemble and make available to Guaranteed Party any part or all of the Collateral at any place and time designated by Guaranteed Party, (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 Guaranteed Party or elsewhere) at such prices or terms as Guaranteed Party may deem reasonable, for cash, upon credit or for future delivery, with the Guaranteed Party 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 Guarantors, which right or equity of redemption is hereby expressly waived and released by Guarantors. If any of the Collateral is sold or leased by Guaranteed Party upon credit terms or for future delivery, the Obligations shall not be reduced as a result thereof until payment therefor is finally collected by Guaranteed Party. If notice of disposition of Collateral is required by law, five (5) days prior notice by Guaranteed Party to each Guarantor 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 Guarantors waive any other notice. In the event Guaranteed Party institutes an action to recover any Collateral or seeks recovery of any Collateral by way of prejudgment remedy, Guarantors waive the posting of any bond which might otherwise be required. Guaranteed Party may apply the cash proceeds of Collateral actually received by Guaranteed Party from any sale, lease, foreclosure or other disposition of the Collateral to payment of the Obligations, in whole or in part and in such order as Guaranteed Party may elect, whether or not then due. Each Guarantor shall remain liable to Guaranteed Party for the payment of any deficiency with interest at the highest rate provided for in the Subordinated Revolving Note and all costs and expenses of collection or enforcement, including attorneys' fees and legal expenses. SECTION 7. JURY TRIAL WAIVER; OTHER WAIVERS AND CONSENTS; GOVERNING LAW 7.1 Governing Law; Choice of Forum; Service of Process; Jury Trial Waiver. (a) The validity, interpretation and enforcement of this Agreement and the other Revolving Loan Documents 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 of the State of New York (without giving effect to principles of conflicts of law). (b) Each Guarantor irrevocably consents and submits to the non-exclusive jurisdiction of the courts of the State of New York and the United States District Court for the Southern District of New York and waives any objection based on venue or forum non conveniens with respect to any action instituted therein arising under this Agreement or any of the other Revolving Loan Documents or in any way connected or related or incidental to the dealings of any Guarantor and Guaranteed Party in respect of this Agreement or the other Revolving Loan Documents or the transactions related hereto or thereto, in each case whether now existing or hereafter arising, and whether in contract, tort, equity or otherwise, and agrees that any dispute with respect to any such matters shall be heard only in the courts described above (except that Guaranteed Party shall have the right to bring any action or proceeding against any Guarantor or its property in the courts of any other jurisdiction which Guaranteed Party deems necessary or appropriate in order to realize on the Collateral or to otherwise enforce its rights against such Guarantor or its property). (c) Each Guarantor hereby waives personal service of any and all process upon it and consents that all such service of process may be made by certified 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 Guaranteed Party's option, by service upon such Guarantor in any other manner provided under the rules of any such courts. Within thirty (30) days after such service, such Guarantor shall appear in answer to such process, failing which such Guarantor shall be deemed in default and judgment may be entered by Guaranteed Party against such Guarantor for the amount of the claim and other relief requested. (d) EACH GUARANTOR HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (i) ARISING UNDER THIS AGREEMENT OR ANY OF THE OTHER REVOLVING LOAN DOCUMENTS OR (ii) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF ANY GUARANTOR AND GUARANTEED PARTY IN RESPECT OF THIS AGREEMENT OR ANY OF THE OTHER REVOLVING LOAN DOCUMENTS OR THE TRANSACTIONS RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. EACH GUARANTOR 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 SUCH GUARANTOR OR GUARANTEED PARTY MAY FILE AN ORIGINAL COUNTERPART OF A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF SUCH GUARANTOR AND GUARANTEED PARTY TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. (e) Guaranteed Party shall not have any liability to any Guarantor (whether in tort, contract, equity or otherwise) for losses suffered by any Guarantor in connection with, arising out of, or in any way related to the transactions or relationships contemplated by this Agreement, or any act, omission or event occurring in connection herewith, unless it is determined by a final and non-appealable judgment or court order binding on Guaranteed Party that the losses were the result of acts or omissions constituting gross negligence or willful misconduct. In any such litigation, Guaranteed Party 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 this Agreement and the other Revolving Loan Documents. 7.2 Waiver of Notices. Each Guarantor 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 or the Collateral, and any and all other demands and notices of any kind or nature whatsoever with respect to the Obligations, the Collateral and this Agreement, except such as are expressly provided for herein. No notice to or demand on each Guarantor which Guaranteed Party may elect to give shall entitle such Guarantor to any other or further notice or demand in the same, similar or other circumstances. 7.3 Amendments and Waivers. Neither this Agreement nor any provision hereof 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 Guaranteed Party. Guaranteed Party 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 Guaranteed Party. Any such waiver shall be enforceable only to the extent specifically set forth therein. A waiver by Guaranteed Party 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 Guaranteed Party would otherwise have on any future occasion, whether similar in kind or otherwise. 7.4 Waiver of Counterclaims. Each Guarantor 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 Agreement, the Obligations, the Collateral or any matter arising therefrom or relating hereto or thereto. 7.5 Indemnification. Each Guarantor shall indemnify and hold Guaranteed Party, and its directors, agents, employees and counsel, harmless from and against any and all losses, claims, damages, liabilities, costs 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 this Agreement, any other Revolving Loan Documents, or any undertaking or proceeding related to any of the transactions contemplated hereby or any act, omission, 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, each Guarantor shall pay the maximum portion which it is permitted to pay under applicable law to Guaranteed Party in satisfaction of indemnified matters under this Section. The foregoing indemnity shall survive the payment of the Obligations, the termination of this Agreement and the termination or non-renewal of the Subordinated Revolving Note. All of the foregoing costs and expenses shall be part of the Obligations and secured by the Collateral. SECTION 8. MISCELLANEOUS 8.1 Notices. All notices, requests and demands hereunder shall be in writing and (a) made to Guaranteed Party at 672 Delaware Avenue, Buffalo, New York 14209, Attn: Frederick J. Chapman and to each applicable Guarantor at its chief executive office set forth below, or to such other address as either party may designate by written notice to the other in 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. 8.2 Partial Invalidity. If any provision of this Agreement is held to be invalid or unenforceable, such invalidity or unenforceability shall not invalidate this Agreement as a whole, but this Agreement 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. 8.3 Successors. This Agreement, the other Revolving Loan Documents and any other document referred to herein or therein shall be binding upon each Guarantor and its respective successors and assigns and inure to the benefit of and be enforceable by Guaranteed Party and its successors and assigns, except that each Guarantor may not assign its rights under this Agreement, the other Revolving Loan Documents and any other document referred to herein or therein without the prior written consent of Guaranteed Party. IN WITNESS WHEREOF, each Guarantor has caused these presents to be duly executed as of the day and year first above written. GUARANTOR FGR, Inc., f.k.a. Decatur Aluminum Company, Inc. By:/s/ Timothy J. Wiggins ---------------------- Title: Executive Vice President and Chief Financial Officer CHIEF EXECUTIVE OFFICE: 111 Monument Circle, Suite 3200 Indianapolis, Indiana 46204 GUARANTOR Fruehauf Corporation By:/s/ Timothy J. Wiggins ----------------------------- Title: Executive Vice President -------------------------- CHIEF EXECUTIVE OFFICE: 1105 North Market Street, Suite 1300 P.O. Box 8985 Wilmington, Delaware 19899 GUARANTOR Maryland Shipbuilding & Drydock Company By:/s/ Gary K. Lorenz -------------------------- Title: President ----------------------- CHIEF EXECUTIVE OFFICE: 111 Monument Circle, Suite 3200 Indianapolis, Indiana 46204 GUARANTOR The Mercer Co. By:/s/ Timothy J. Wiggins ---------------------------- Title: Executive Vice President ------------------------- CHIEF EXECUTIVE OFFICE: 111 Monument Circle, Suite 3200 Indianapolis, Indiana 46204 GUARANTOR Fruehauf International Limited By: /s/ Timothy J. Wiggins ---------------------------- Title: Executive Vice President ------------------------ CHIEF EXECUTIVE OFFICE: 111 Monument Circle, Suite 3200 Indianapolis, Indiana 46204 GUARANTOR Deutsche-Fruehauf Holding Corporation By:/s/ Timothy J. Wiggins ---------------------------- Title: Executive Vice President ------------------------ CHIEF EXECUTIVE OFFICE: 111 Monument Circle, Suite 3200 Indianapolis, Indiana 46204 GUARANTOR Jacksonville Shipyards, Inc. By:/s/ Gary K. Lorenz ------------------------ Title: President -------------------- CHIEF EXECUTIVE OFFICE: 111 Monument Circle, Suite 3200 Indianapolis, Indiana 46204 GUARANTOR M.J. Holdings, Inc. By:/s/ Timothy J. Wiggins ---------------------------- Title: Executive Vice President ------------------------ CHIEF EXECUTIVE OFFICE: 111 Monument Circle, Suite 3200 Indianapolis, Indiana 46204 GUARANTOR Fruehauf Holdings Corp. By:/s/ Timothy J. Wiggins ---------------------------- Title: Executive Vice President ------------------------ CHIEF EXECUTIVE OFFICE: 111 Monument Circle, Suite 3200 Indianapolis, Indiana 46204 GUARANTOR E.L. Devices, Inc. By:/s/ Timothy J. Wiggins ---------------------------- Title: Executive Vice President ------------------------ CHIEF EXECUTIVE OFFICE: 111 Monument Circle, Suite 3200 Indianapolis, Indiana 46204 ACCEPTED BY: K-H Corporation By:/s/ Fred J. Chapman ---------------------------- Title: Treasurer ------------------------ Schedule 4.1 [To be provided by Debtor] Schedule 4.4 Priority of Liens; Title to Property [To be provided by Debtor] Schedule 4.6 Litigation [To be provided by Debtor] Schedule 5.9 Indebtedness [To be provided by Debtor] Schedule 5.10 Loans, Investments, Guarantees, Etc. [To be provided by Debtor] EX-4.47 9 FRUEHAUF TRAILER EXHIBIT 4.47 GUARANTEE As of June 21, 1996 K-H Corporation 672 Delaware Avenue Buffalo, New York 14209 Re: Fruehauf Trailer Corporation, a Delaware corporation ("Debtor") Gentlemen: K-H Corporation (together with its successors and assigns, the "Guaranteed Party") and Debtor have entered into certain financing arrangements pursuant to which Guaranteed Party has made a term loan to Debtor as set forth in that certain Subordinated Revolving Note dated as of June 21, 1996, by and between Debtor and Guaranteed Party (the "Subordinated Revolving Note"), and other agreements, documents and instruments referred to therein or at any time executed and/or delivered in connection therewith or related thereto, including, but not limited to, this Guarantee (all of the foregoing, together with the Subordinated Revolving Note, as the same have been and may from time to time be amended, modified, supplemented, extended, renewed, restated or replaced, being collectively referred to herein as the "Revolving Loan Documents"). Unless otherwise defined, all capitalized terms are used in this Guarantee as they are defined in the Subordinated Revolving Note. Due to the close business and financial relationships between Debtor and each and all of the undersigned (individually and collectively, "Guarantors"), in consideration of the benefits which will accrue to Guarantors and as an inducement for and in consideration of Guaranteed Party entering into the Subordinated Revolving Note, each of Guarantors hereby jointly and severally agrees in favor of Guaranteed Party as follows: 1. Guarantee. (a) Each of Guarantors absolutely and unconditionally, jointly and severally, guarantees and agrees to be liable for the full and indefeasible payment and performance when due of the following (all of which are collectively referred to herein as the "Guaranteed Obligations"): (A) all obligations, liabilities and indebtedness of any kind, nature and description of Debtor to Guaranteed Party and/or its affiliates, including principal, interest, charges, fees, costs and expenses, however evidenced, whether as principal, surety, endorser, guarantor or otherwise, arising under the Revolving Loan Documents, whether arising before, during or after the term of the Subordinated Revolving Note or after the commencement of any case with respect to Debtor under Title 11 of the United States Bankruptcy Code, as amended from time to time, and any successor statute (the "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 and including loans, interest, fees, charges and expenses related thereto and all other obligations of Debtor or its successors to Guaranteed Party arising after the commencement of such case in connection with the Subordinated Revolving Note and the other Revolving Loan Documents), 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 Guaranteed Party and (B) all expenses (including, without limitation, attorneys' fees and legal expenses) incurred by Guaranteed Party in connection with the preparation, execution, delivery, recording, administration, collection, liquidation, enforcement and defense of Debtor's obligations, liabilities and indebtedness arising under the Revolving Loan Documents, the rights of Guaranteed Party in any collateral or under this Guarantee and all other Revolving Loan Documents, whether such expenses are incurred before, during or after the term of the Subordinated Revolving Note or after the commencement of any case with respect to Debtor or any of Guarantors under the Bankruptcy Code or any similar statute. (b) This Guarantee is a guaranty of payment and not of collection. Each of Guarantors agrees that Guaranteed Party need not attempt to collect any Guaranteed Obligations from Debtor, any one of Guarantors or any other Obligor (as hereinafter defined) or to realize upon any collateral, but may require any one of Guarantors to make immediate payment of all of the Guaranteed Obligations to Guaranteed Party when due, whether by maturity, acceleration or otherwise, or at any time thereafter. Guaranteed Party may apply any amounts received in respect of the Guaranteed Obligations to any of the Guaranteed Obligations, in whole or in part (including attorneys' fees and legal expenses incurred by Guaranteed Party with respect thereto or otherwise chargeable to Debtor or Guarantors) and in such order as Guaranteed Party may elect. (c) Payment by Guarantors shall be made to Guaranteed Party at the office of Guaranteed Party from time to time on demand as Guaranteed Obligations become due. Guarantors shall make all payments to Guaranteed Party on the Guaranteed 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. One or more successive or concurrent actions may be brought hereon against any of Guarantors either in the same action in which Debtor or any of the other Guarantors or any other Obligor is sued or in separate actions. In the event any claim or action, or action on any judgment, based on this Guarantee is brought against any of Guarantors, each of Guarantors agrees not to deduct, set-off, or seek any counterclaim for or recoup any amounts which are or may be owed by Guaranteed Party to any of Guarantors. 2. Waivers and Consents. (a) Notice of acceptance of this Guarantee, the making of loans and advances and providing other financial accommodations to Debtor and presentment, demand, protest, notice of protest, notice of nonpayment or default and all other notices to which Debtor or any of Guarantors are entitled are hereby waived by each of Guarantors. Each of Guarantors also waives notice of and hereby consents to, (i) any amendment, modification, supplement, extension, renewal, or restatement of the Subordinated Revolving Note and any of the other Revolving Loan Documents, including, without limitation, extensions of time of payment of or increase or decrease in the amount of any of the Guaranteed Obligations or any collateral, and the guarantee made herein shall apply to the Subordinated Revolving Note and the other Revolving Loan Documents and the Guaranteed Obligations as so amended, modified, supplemented, renewed, restated or extended, increased or decreased, (ii) the taking, exchange, surrender and releasing of collateral or guarantees now or at any time held by or available to Guaranteed Party for the obligations of Debtor or any other party at any time liable on or in respect of the Guaranteed Obligations or who is the owner of any property which is security for the Guaranteed Obligations (individually, an "Obligor" and collectively, the "Obligors"), including, without limitation, the surrender or release by Guaranteed Party of any one of Guarantors hereunder, (A) the exercise of, or refraining from the exercise of any rights against Debtor, any of Guarantors or any other Obligor or any collateral, (B) the settlement, compromise or release of, or the waiver of any default with respect to, any of the Guaranteed Obligations and (C) any financing by Guaranteed Party of Debtor under Section 364 of the Bankruptcy Code or consent to the use of cash collateral by Guaranteed Party under Section 363 of the Bankruptcy Code. Each of Guarantors agrees that the amount of the Guaranteed Obligations shall not be diminished and the liability of Guarantors hereunder shall not be otherwise impaired or affected by any of the foregoing. (b) No invalidity, irregularity or unenforceability of all or any part of the Guaranteed Obligations shall affect, impair or be a defense to this Guarantee, nor shall any other circumstance which might otherwise constitute a defense available to or legal or equitable discharge of Debtor in respect of any of the Guaranteed Obligations, or any one of Guarantors in respect of this Guarantee, affect, impair or be a defense to this Guarantee. Without limitation of the foregoing, the liability of Guarantors hereunder shall not be discharged or impaired in any respect by reason of any failure by Guaranteed Party to perfect or continue perfection of any lien or security interest in any collateral or any delay by Guaranteed Party in perfecting any such lien or security interest. As to interest, fees and expenses, whether arising before or after the commencement of any case with respect to Debtor under the Bankruptcy Code or any similar statute, Guarantors shall be liable therefor, even if Debtor's liability for such amounts does not, or ceases to, exist by operation of law. (c) Each of Guarantors hereby irrevocably and unconditionally waives and relinquishes all statutory, contractual, common law, equitable and all other claims against Debtor, any collateral for the Guaranteed Obligations or other assets of Debtor or any other Obligor, for subrogation, reimbursement, exoneration, contribution, indemnification, setoff or other recourse in respect to sums paid or payable to Guaranteed Party by each of Guarantors hereunder and each of Guarantors hereby further irrevocably and unconditionally waives and relinquishes any and all other benefits which Guarantors might otherwise directly or indirectly receive or be entitled to receive by reason of any amounts paid by or collected or due from Guarantors, Debtor or any other Obligor upon the Guaranteed Obligations or realized from their property. 3. Subordination. The rights of any Guaranteed Party under this Guarantee are and shall at all times be subordinated in accordance with the terms of any subordination agreement executed in connection with the Subordinated Revolving Note. In addition, payment of all amounts now or hereafter owed to any or all Guarantors by Debtor or any other Obligor is hereby subordinated in right of payment to the indefeasible payment in full to Guaranteed Party of the Guaranteed Obligations and all such amounts and any security and guarantees therefor are hereby assigned to Guaranteed Party as security for the Guaranteed Obligations. 4. Acceleration. Notwithstanding anything to the contrary contained herein or any of the terms of any of the other Revolving Loan Documents, the liability of Guarantors for the entire Guaranteed Obligations shall mature and become immediately due and payable, even if the liability of Debtor or any other Obligor therefor does not, upon the occurrence of any act, condition or event which constitutes an Event of Default as such term is defined in the Subordinated Revolving Note. 5. Account Stated. The books and records of Guaranteed Party showing the account between Guaranteed Party and Debtor shall be admissible in evidence in any action or proceeding against or involving Guarantors as prima facie proof of the items therein set forth. 6. Termination. This Guarantee is continuing, unlimited, absolute and unconditional. All Guaranteed Obligations shall be conclusively presumed to have been created in reliance on this Guarantee. Each of Guarantors shall continue to be liable hereunder until one of Guaranteed Party's officers actually receives a written termination notice from a Guarantor sent to Guaranteed Party at is address set forth above by certified mail, return receipt requested and thereafter as set forth below. Such notice received by Guaranteed Party from any one of Guarantors shall not constitute a revocation or termination of this Guarantee as to any of the other Guarantors. Revocation or termination hereof by any of Guarantors shall not affect, in any manner, the rights of Guaranteed Party or any obligations or duties of any of Guarantors (including the Guarantor which may have sent such notice) under this Guarantee with respect to (i) Guaranteed Obligations which have been created, contracted, assumed or incurred prior to the receipt by Guaranteed Party of such written notice of revocation or termination as provided herein, including, without limitation, (A) all amendments, extensions, renewals and modifications of such Guaranteed Obligations (whether or not evidenced by new or additional agreements, documents or instruments executed on or after such notice of revocation or termination), (B) all interest, fees and similar charges accruing or due on and after revocation or termination, and (iii) all attorneys' fees and legal expenses, costs and other expenses paid or incurred on or after such notice of revocation or termination in attempting to collect or enforce any of the Guaranteed Obligations against Debtor, Guarantors or any other Obligor (whether or not suit be brought), or (ii) Guaranteed Obligations which have been created, contracted, assumed or incurred after the receipt by Guaranteed Party of such written notice of revocation or termination as provided herein pursuant to any contract entered into by Guaranteed Party prior to receipt of such notice. The sole effect of such revocation or termination by any of Guarantors shall be to exclude from this Guarantee the liability of such Guarantor for those Guaranteed Obligations arising after the date of receipt by Guaranteed Party of such written notice which are unrelated to Guaranteed Obligations arising or transactions entered into prior to such date. Without limiting the foregoing, this Guarantee may not be terminated and shall continue so long as the Revolving Loan Documents shall be in effect (whether during its original term or any renewal, substitution or extension thereof). 7. Reinstatement. If after receipt of any payment of, or proceeds of collateral applied to the payment of, any of the Guaranteed Obligations, Guaranteed Party is required to surrender or return such payment or proceeds to any Person for any reason, then the Guaranteed Obligations intended to be satisfied by such payment or proceeds shall be reinstated and continue and this Guarantee shall continue in full force and effect as if such payment or proceeds had not been received by Guaranteed Party. Each of Guarantors shall be liable to pay to Guaranteed Party, and does indemnify and hold Guaranteed Party harmless for the amount of any payments or proceeds surrendered or returned. This Section 7 shall remain effective notwithstanding any contrary action which may be taken by Guaranteed Party in reliance upon such payment or proceeds. This Section 7 shall survive the termination or revocation of this Guarantee. 8. Amendments and Waivers. Neither this Guarantee nor any provision hereof 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 Guaranteed Party. Guaranteed Party 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 in writing and signed by an authorized officer of Guaranteed Party. Any such waiver shall be enforceable only to the extent specifically set forth therein. A waiver by Guaranteed Party 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 Guaranteed Party would otherwise have on any future occasion, whether similar in kind or otherwise. 9. Corporate Existence, Power and Authority. Each Guarantor represents and warrants that it is a corporation duly organized and in good standing under the laws of its state or other jurisdiction 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 makes such qualification necessary, except for those jurisdictions in which the failure to so qualify would not have a material adverse effect on the financial condition, results of operation or businesses of any of Guarantors or the rights of Guaranteed Party hereunder or under any of the other Revolving Loan Documents. Each Guarantor represents and warrants that the execution, delivery and performance of this Guarantee is within the corporate powers of each of Guarantors, have been duly authorized and is not in contravention of law or the terms of the certificates of incorporation, by-laws, or other organizational documentation of each of Guarantors, or any indenture, agreement or undertaking to which any of Guarantors is a party or by which any of Guarantors or its property are bound. Each Guarantor represents and warrants that this Guarantee constitutes the legal, valid and binding obligation of each of Guarantors enforceable in accordance with its terms. Each Guarantor signing this Guarantee shall be bound hereby whether or not any of the other Guarantors or any other person signs this Guarantee at any time. 10. Governing Law; Choice of Forum; Service of Process; Jury Trial Waiver; Certain Waivers; Release. (a) The validity, interpretation and enforcement of this Guarantee and any dispute arising out of the relationship between any of Guarantors and Guaranteed Party, whether in contract, tort, equity or otherwise, shall be governed by the internal laws of the State of New York. (b) Each of Guarantors hereby irrevocably consents and submits to the non-exclusive jurisdiction of the courts of the State of New York and the United States District Court for the Southern District of New York and waives any objection based on venue or forum non conveniens with respect to any action instituted therein arising under this Guarantee or any of the other Revolving Loan Documents or in any way connected with or related or incidental to the dealings of any of Guarantors and Guaranteed Party in respect of this Guarantee or any of the other Revolving Loan Documents or the transactions related hereto or thereto, in each case whether now existing or hereafter arising and whether in contract, tort, equity or otherwise, and agrees that any dispute arising out of the relationship between any of Guarantors or Debtor and Guaranteed Party or the conduct of any such persons in connection with this Guarantee, the other Revolving Loan Documents or otherwise shall be heard only in the courts described above (except that Guaranteed Party shall have the right to bring any action or proceeding against any of Guarantors or its property in the courts of any other jurisdiction which Guaranteed Party deems necessary or appropriate in order to realize on collateral at any time granted by Debtor or any of Guarantors to Guaranteed Party or to otherwise enforce its rights against any of Guarantors or its property). (c) Each of Guarantors hereby waives personal service of any and all process upon it and consents that all such service of process may be made by certified 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 Guaranteed Party's option, by service upon any of Guarantors in any other manner provided under the rules of any such courts. Within thirty (30) days after such service, any of Guarantors so served shall appear in answer to such process, failing which such Guarantors shall be deemed in default and judgment may be entered by Guaranteed Party against Guarantors for the amount of the claim and other relief requested. (d) EACH OF GUARANTORS HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (A) ARISING UNDER THIS GUARANTEE OR ANY OF THE OTHER REVOLVING LOAN DOCUMENTS OR (B) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF ANY OF GUARANTORS AND GUARANTEED PARTY IN RESPECT OF THIS GUARANTEE OR ANY OF THE OTHER REVOLVING LOAN DOCUMENTS OR THE TRANSACTIONS RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. EACH OF GUARANTORS 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 GUARANTORS OR GUARANTEED PARTY MAY FILE AN ORIGINAL COUNTERPART OF A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF GUARANTORS AND GUARANTEED PARTY TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. (e) Guaranteed Party shall not have any liability to Guarantors (whether in tort, contract, equity or otherwise) for losses suffered by Guarantors in connection with, arising out of, or in any way related to the transactions or relationships contemplated by this Guarantee, or any act, omission or event occurring in connection herewith, unless it is determined by a final and non-appealable judgment or court order binding on Guaranteed Party that the losses were the result of acts or omissions constituting gross negligence or willful misconduct. In any such litigation, Guaranteed Party 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 Subordinated Revolving Note and the other Revolving Loan Documents. (f) Each Guarantor 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 Guaranteed Party from exercising such remedies as it may deem appropriate under the Revolving Loan Documents in respect of the Collateral (as defined in the Subordinated Revolving Note), (b) oppose any motion or application brought by Guaranteed Party 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 Loan Obligations (as defined in the Subordinated Revolving Note). (g) Although the Guarantors do not believe that they have any claims against Guaranteed Party, they are willing to provide Guaranteed Party with a general and total release of all such claims in consideration of the extensions and other benefits which Debtor and the Guarantors will receive pursuant to the Subordinated Revolving Note and the other Revolving Loan Documents. Accordingly, each Guarantor, for itself, each of its subsidiaries and any successor (including any trustee or debtor in possession in a case under the Code) of such Guarantor or such subsidiary, hereby knowingly, voluntarily, intentionally and irrevocably releases and discharges Guaranteed Party and 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 such 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 Guarantee. 11. Notices. All notices, requests and demands hereunder shall be in writing and (a) made to Guaranteed Party at its address set forth above and to each of Guarantors at its chief executive office set forth below, or to such other address as either party may designate by written notice to the other in 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. 12. Partial Invalidity. If any provision of this Guarantee is held to be invalid or unenforceable, such invalidity or unenforceability shall not invalidate this Guarantee as a whole, but this Guarantee 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. 13. Successors and Assigns. This Guarantee shall be binding upon Guarantors and their respective successors and assigns and shall inure to the benefit of Guaranteed Party and its successors, endorsees, transferees and assigns and the successors and assigns of any party holding any interest in the Subordinated Revolving Note. The liquidation, dissolution or termination of any of Guarantors shall not terminate this Guarantee as to such entity or as to any of the other Guarantors. 14. Construction. All references to the term "Guarantors" wherever used herein shall mean each and all of Guarantors and their respective successors and assigns, individually and collectively, jointly and severally (including, without limitation, any receiver, trustee or custodian for any of Guarantors or any of their respective assets or any of Guarantors in its capacity as debtor or debtor-in-possession under the Bankruptcy Code). All references to the term "Guaranteed Party" wherever used herein shall mean Guaranteed Party and its successors and assigns and all references to the term "Debtor" wherever used herein shall mean Debtor and its successors and assigns (including, without limitation, any receiver, trustee or custodian for Debtor or any of its assets or Debtor in its capacity as debtor or debtor-in-possession under the Bankruptcy Code). All references to the term "Person" or "person" wherever used herein 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 of political subdivision thereof. All references to the plural shall also mean the singular and to the singular shall also mean the plural. [Next page is signature page.] IN WITNESS WHEREOF, each of Guarantors has executed and delivered this Guarantee as of the day and year first above written. FGR, Inc., f.k.a. Decatur FGR, Inc., f.k.a. Decatur Aluminum Company, Inc. By:/s/ Timothy J. Wiggins ---------------------- Title: Executive Vice President and Chief Financial Officer CHIEF EXECUTIVE OFFICE: 111 Monument Circle, Suite 3200 Indianapolis, Indiana 46204 GUARANTOR Fruehauf Corporation By:/s/ Timothy J. Wiggins ----------------------------- Title: Executive Vice President -------------------------- CHIEF EXECUTIVE OFFICE: 1105 North Market Street, Suite 1300 P.O. Box 8985 Wilmington, Delaware 19899 GUARANTOR Maryland Shipbuilding & Drydock Company By:/s/ Gary K. Lorenz -------------------------- Title: President ----------------------- CHIEF EXECUTIVE OFFICE: 111 Monument Circle, Suite 3200 Indianapolis, Indiana 46204 GUARANTOR The Mercer Co. By:/s/ Timothy J. Wiggins ---------------------------- Title: Executive Vice President ------------------------- CHIEF EXECUTIVE OFFICE: 111 Monument Circle, Suite 3200 Indianapolis, Indiana 46204 GUARANTOR Fruehauf International Limited By: /s/ Timothy J. Wiggins ---------------------------- Title: Executive Vice President ------------------------ CHIEF EXECUTIVE OFFICE: 111 Monument Circle, Suite 3200 Indianapolis, Indiana 46204 GUARANTOR Deutsche-Fruehauf Holding Corporation By:/s/ Timothy J. Wiggins ---------------------------- Title: Executive Vice President ------------------------ CHIEF EXECUTIVE OFFICE: 111 Monument Circle, Suite 3200 Indianapolis, Indiana 46204 GUARANTOR Jacksonville Shipyards, Inc. By:/s/ Gary K. Lorenz ------------------------ Title: President -------------------- CHIEF EXECUTIVE OFFICE: 111 Monument Circle, Suite 3200 Indianapolis, Indiana 46204 GUARANTOR M.J. Holdings, Inc. By:/s/ Timothy J. Wiggins ---------------------------- Title: Executive Vice President ------------------------ CHIEF EXECUTIVE OFFICE: 111 Monument Circle, Suite 3200 Indianapolis, Indiana 46204 GUARANTOR Fruehauf Holdings Corp. By:/s/ Timothy J. Wiggins ---------------------------- Title: Executive Vice President ------------------------ CHIEF EXECUTIVE OFFICE: 111 Monument Circle, Suite 3200 Indianapolis, Indiana 46204 GUARANTOR E.L. Devices, Inc. By:/s/ Timothy J. Wiggins ---------------------------- Title: Executive Vice President ------------------------ CHIEF EXECUTIVE OFFICE: 111 Monument Circle, Suite 3200 Indianapolis, Indiana 46204 EX-11 10 FRUEHAUF TRAILER EXHIBIT 11 EXHIBIT 11
FRUEHAUF TRAILER CORPORATION AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE (in thousands, except per share amounts) Three Months Ended Six Months Ended June 30, June 30, ------------------ ---------------- 1996 1995 1996 1995 ------ ------ ------ ------ PRIMARY: Average shares outstanding. . . 39,212 35,924 39,212 33,343 Net effect of dilutive stock options and warrants based on the treasury stock method using average market price . . -- (1) 1,131 -- (1) 907 ------ ------ ------ ------ Totals . . . . . . . . . . 39,212 37,055 39,212 34,250 ====== ====== ====== ====== Net income . . . . . . . . . . $ 5,738 $ 2,689 $ 1,431 $ 2,948 ======= ======= ======= ======= Primary earnings per share. . . $ .15 $ .07 $ .04 $ .09 ===== ===== ===== ===== FULLY DILUTED: Average shares outstanding. . . 39,212 35,924 39,212 33,343 Net effect of dilutive stock options and warrants based on the treasury stock method using average market price . . -- (1) 1,131 -- (1) 907 ------ ------ ------ ------ Totals . . . . . . . . . . 39,212 37,055 39,212 34,250 ====== ====== ====== ====== Net income . . . . . . . . . . $ 5,738 $ 2,689 $ 1,431 $ 2,948 ======= ======= ======= ======= Fully diluted earnings per share $ .15 $ .07 $ .04 $ .09 ===== ===== ===== ===== Not applicable as inclusion is anti-dilutive.
EX-27 11 FTC FINANCIAL DATA SCHEDULE
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FRUEHUAF TRAILER CORPORATION'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1996 JUN-30-1996 2,574 0 25,837 0 32,130 62,198 31,521 12,320 121,864 152,901 58,835 0 0 392 (99,774) 121,864 157,764 157,764 140,766 160,549 (13,783) 2,143 7,211 1,644 213 1,431 0 0 0 1,431 .04 .04 Amount includes: Accumulated Deficit of ($238,804), Additional paid-in capital of $130,244, Common stock purchase warrants of $9,102 and Foreign currency translation adjustment of ($316). Amount includes: Gain on sale of excess assets of ($14,051) and other expense of $268.
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