THIRD AMENDMENT TO AMENDED AND RESTATED LOAN AGREEMENT

 

    THIS THIRD AMENDMENT TO AMENDED AND RESTATED LOAN AGREEMENT

(this "Amendment"), made and entered into as of August 13, 2001, by and between
FAIRFIELD MANUFACTURING COMPANY, INC., a Delaware corporation ("Borrower"), and
GENERAL ELECTRIC CAPITAL CORPORATION, [a Delaware corporation, as successor by
merger to General Electric Capital Corporation,] a New York corporation ("GE
Capital"), as sole "Lender" under the "Loan Agreement" hereinafter referred to
and as agent for itself and the other "Lenders" who may hereafter become parties
to the Loan Agreement (GE Capital, in such capacity, the "Agent").  

RECITALS

:

    A.    Borrower and GE Capital, as a Lender and as Agent, are parties to a
certain Amended and Restated Loan Agreement, dated as of December 30, 1999 (as
amended to date, the "Loan Agreement"; capitalized terms used herein and not
defined herein shall have the meanings assigned to them in the Loan Agreement),
pursuant to which GE Capital, as sole Lender thereunder, makes certain financial
accommodations to Borrower.

 

    B.    An Event of Default has occurred and is continuing as a result of
Borrower's failure to comply with the provisions of Section 6.22 of the Loan
Agreement for the Fiscal Quarter ending June 30, 2001 ("Existing Event of
Default").

 

    C.    Borrower has requested that Lenders waive the Existing Event of
Default and agree to amend the financial covenants and certain other provisions
of the Loan Agreement in the manner hereinafter set forth.

 

    D.    Subject to the terms and conditions set forth herein, Lenders are
willing to do so.

 

    In consideration of the premises and the mutual covenants and agreements
herein contained, the parties hereto covenant and agree as follows:

 

    1.    Waiver of Existing Event of Default. Subject to the terms and
conditions hereof, Lenders hereby waive the Existing Event of Default; provided,
however, that such waiver is limited to the Existing Event of Default and shall
not be deemed to be a waiver of any other Event of Default whether presently
existing or hereafter arising.

 

    2.    Amendments to Section 1.1 of the Loan Agreement.

 

    (a)    Section 1.1 of the Loan Agreement is hereby amended by adding the
following clause (f) to the definition of "Consolidated EBITDA" included
therein:

 

minus

(plus) (f) to the extent otherwise included in the calculation of Consolidated
EBITDA, the portion of the earnings (loss) before interest, taxes, depreciation
and amortization of any Subsidiary of Borrower which is attributable to the
minority interest therein.  

    (b)    Section 1.1 of the Loan Agreement is hereby further amended by
deleting clause (d) of the definition of Consolidated Fixed Charges in its
entirety and substituting in lieu thereof a revised clause (d) to read as
follows:

 

plus

(d) all cash payments made by Borrower to purchase Exchangeable Preferred Stock
or Senior Subordinated Notes during such period, other than payments made from
the proceeds of cash capital contributions not made under or with respect to the
Tax Sharing Agreement,  

    (c)    Section 1.1 of the Loan Agreement is hereby further amended by
deleting the definition of "Fixed Rate" set forth therein in its entirety and
substituting in lieu thereof the following revised definition of "Fixed Rate":

 

    "Fixed Rate" means the LIBOR Rate plus the "Applicable LIBOR Margin":

 

    The "Applicable LIBOR Margin" shall mean, as to the Revolving Credit Loan,
one and three-fourths percent (1-3/4%) per annum, and, as to the Term Loan and
all other Obligations (other than Obligations under the Revolving Credit Loan),
two percent (2%) per annum.

 

    3.    Amendment to Section 6.3 of the Loan Agreement. Section 6.3 of the
Loan Agreement is hereby amended by deleting clause (l) thereof in its entirety
and substituting in lieu thereof the following revised clause (l):

 

    (l)     purchases by Borrower or any Subsidiary of Borrower of the
Exchangeable Preferred Stock or Senior Subordinated Notes so long as (i) the
total amount expended for such purchases does not exceed $15,000,000 in the
aggregate in any Fiscal Year, (ii) after giving effect to any such purchase,
Borrower has (A) a ratio of Consolidated Cash Flow to Consolidated Fixed Charges
of at least 1.00:1.00 and (B) a ratio of Consolidated EBITDA to Consolidated Net
Interest Expense of at least 1.50:1.00, in each case determined on a pro forma
basis as of the last Fiscal Quarter for which financial statements have been
provided hereunder and (iii) at the time of the making of any such purchase, no
Default or Event of Default shall have occurred and be continuing or will result
from the making of such purchase.

 

    4.    Amendment to Section 6.21 of the Loan Agreement. Section 6.21 of the
Loan Agreement is hereby amended by inserting the following sentence at the end
of the such Section:

 

Notwithstanding the foregoing, Borrower's failure to comply with the provisions
of this Section 6.21 during the period commencing on September 30, 2001 (and
including the Fiscal Quarter ending September 30, 2001) and ending on September
30, 2002 (and including the Fiscal Quarter ending September 30, 2002) shall not
constitute an Event of Default so long as Borrower complies with the reporting
requirements of Section 7.1(f) relative to the reporting of its compliance (or
lack thereof) with such covenant.

 

    5.     Amendment to Section 6.22 of the Loan Agreement. Section 6.22 of the
Loan Agreement is hereby deleted in its entirety and the following revised
Section 6.22 is hereby substituted in lieu thereof:

 

    6.22    Interest Coverage Ratio. Borrower shall not permit the ratio of
(a) Consolidated EBITDA for any Fiscal Quarter to (b) Consolidated Net Interest
Expense for such Fiscal Quarter to be less than the ratio set forth below next
to the applicable Fiscal Quarter set forth below:

 

            FISCAL QUARTER

RATIO

            September 30, 2001

1.05:1.00

            December 31, 2001

.85:1.00

            March 31, 2002

.60:1.00

            June 30, 2002

.70:1.00

            September 30, 2002

.70:1.00

            December 31, 2002

.80:1.00

            March 31, 2003

1.00:1.00

            June 30, 2003

1.00:1.00

            September 30, 2003

1.25:1.00

            December 31, 2003 and each

1.50:1.00

               Fiscal Quarter thereafter

   

    For purposes of this Section 6.22, Consolidated EBITDA and Consolidated Net
Interest Expense shall be calculated based upon the period of four Fiscal
Quarters ending on the date of calculation.

 

    6.     Addition of New Section 6.23 to the Loan Agreement. The Loan
Agreement is hereby further amended by adding thereto a new Section 6.23 to read
as follows:

 

    6.23     Minimum Excess Availability. Borrower shall maintain at all times
"Excess Availability" of at least Seven Million Dollars ($7,000,000). For
purposes hereof, "Excess Availability" shall mean, at any time, an amount equal
to (a) the Borrowing Base minus (b) the sum of all outstanding Advances plus the
aggregate face amount of all outstanding Letters of Credit.

 

    7.    Amendment Fee. In consideration of the waiver and amendments set forth
herein, Borrower shall pay to Lenders an amendment fee in the amount of $44,750
upon the execution hereof by the Lenders.

 

    8.     Other Agreements

 

    (a) Within sixty (60) days after the date hereof or such longer period
agreed upon by the Agent, Borrower will execute and deliver to the Agent such
amendments to the Loan Agreement and the other Loan Documents as the Agent may
reasonably request to conform the applicable provisions of the Loan Agreement
and the other Loan Documents to the provisions of Revised Article 9.

 

    (b) Except as set forth expressly herein and above, all terms of the Loan
Agreement and the other Loan Documents shall be and remain in full force and
effect and shall constitute the legal, valid, binding and enforceable
obligations of Borrower to the Agent and Lenders. In furtherance of the
foregoing, Borrower acknowledges that from and after the date hereof, it shall
continue to be bound by all provisions of the Loan Agreement as amended hereby,
including, without limitation, its reimbursement obligations in respect of the
India Guaranty, as the amount thereof has been increased as described herein. To
the extent any terms and conditions in any of the other Loan Documents shall
contradict or be in conflict with any terms or conditions of the Loan Agreement,
after giving effect to this Amendment, such terms and conditions are hereby
deemed modified and amended accordingly to reflect the terms and conditions of
the Loan Agreement as modified and amended hereby.

 

    (c) Borrower agrees to pay on demand the reasonable fees and out-of-pocket
expenses of counsel to GE Capital incurred in connection with the preparation,
execution, delivery and enforcement of this Amendment, the closing hereof, and
any other transactions contemplated hereby.

 

    (d) To induce the Agent and Lenders to enter into this Amendment, Borrower
hereby acknowledges and agrees that, as of the date hereof, there exists no
right of offset, defense or counterclaim in favor of Borrower as against the
Agent or Lenders with respect to the Obligations.

 

    (e) This Amendment shall be governed by, and construed in accordance with
the laws of the State of New York applicable to contracts made and performed in
such State and all applicable laws of the United States of America.

 

    (f) This Amendment may be executed in two or more counterparts, all of which
shall constitute one and the same agreement.

 

IN WITNESS WHEREOF

, the parties hereto have caused this Amendment to be executed by their
respective officers thereunto duly authorized, as of the date first above
written.  

FAIRFIELD MANUFACTURING COMPANY, INC.

By:__________________________
    Richard A. Bush
    Vice President - Chief Financial Officer

 

General ELECTRIC CAPITAL CORPORATION , as Agent

By:__________________________
    Name:____________________
    Title:_____________________

 

General ELECTRIC CAPITAL CORPORATION , as Lender

By:__________________________
    Name:____________________
    Title:_____________________

ACKNOWLEDGMENT OF GUARANTOR

The undersigned, T-H Licensing, Inc., hereby (a) acknowledges its receipt of a
copy of and consents to the within and foregoing amendment, (b) agrees to be
bound by the provisions thereof and (c) acknowledges and agrees that the
Subsidiary Guaranty, the Subsidiary Security Agreement and all other Loan
Documents to which the undersigned is a party shall continue in full force and
effect from and after the execution and delivery of the within and foregoing
Amendment without diminution or impairment.

IN WITNESS WHEREOF

, the undersigned has set its hand as of the 13th day of August, 2001.

T-H LICENSING, INC.

By:__________________________
    Name:____________________
    Title:_____________________

 

ACKNOWLEDGMENT OF LANCER

 

The undersigned, Lancer Industries Inc., hereby (a) acknowledges its receipt of
a copy of and consents to the within and foregoing amendment, (b) agrees to be
bound by the provisions thereof and (c) acknowledges and agrees that the Lancer
Pledge Agreement shall continue in full force and effect from and after the
execution and delivery of the within and foregoing Amendment without diminution
or impairment.

IN WITNESS WHEREOF

, the undersigned has set its hand as of the 13th day of August, 2001.  

LANCER INDUSTRIES INC.

By:__________________________
    Name:____________________
    Title:_____________________