Opinion ID: 3022346
Heading Depth: 3
Heading Rank: 1

Heading: Fruehauf’s Financial Problems

Text: Fruehauf Trailer Corporation (“Fruehauf” or the “Company”), a Delaware corporation, operated facilities throughout the United States that designed, manufactured, sold, distributed, and serviced truck trailers and related parts. Fruehauf expanded its business rapidly in the 1980s, leading to 3 overextension of capital and related cash flow problems. By the early 1990s Fruehauf’s long-term liabilities (such as employee health care and pensions) exceeded revenues, and by 1996 Fruehauf had a negative net worth of approximately $120 million. The Company sought to address this problem by reducing its work force to approximately 2,000 employees (about half of them union members), closing facilities, and selling assets. It also froze the calculation of retirement benefits for all employees at 1991 salary levels. In the early 1990s the Fruehauf Board of Directors (the “Board”) began exploring a possible sale of the Company, in whole or in part. In 1995 Fruehauf entered into contracts with several of its top executives that would pay them significant benefits if the Company or its assets were sold. These contracts sought to ensure that top executives would remain with the Company until the sale, as the benefits would not accrue to the beneficiaries unless they were still employed by Fruehauf at that time. In 1996, Fruehauf also instituted a Key Employee Retention Program (“KERP”) under which it agreed to pay bonuses totaling $1.3 million to forty key employees if they agreed to remain until the sale or March 31, 1997, whichever came first.