As filed with the Securities and Exchange Commission on [ ], 1998
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Form S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Foamex L.P.
Foamex Capital Corporation
General Felt Industries, Inc.
Foamex Fibers, Inc.
Foamex LLC
(Exact name of registrant as specified in its charter)
Delaware 3086 05-0475617
Delaware 9999 22-3182164
Delaware 2273 13-3476119
Delaware 2297 13-3819884
Delaware 2515 23-2939109
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation Industrial Classification Identification No.)
of organization) Code Number)
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1000 Columbia Avenue, Linwood, Pennsylvania 19061, (610) 859-3000
(Address, including zip code, and telephone number, including area code,
of registrants' principal executive offices)
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Philip N. Smith, Jr., Esq.
Foamex L.P.
1000 Columbia Avenue
Linwood, Pennsylvania 19061
(610) 859-3000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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with a copy to:
Maurice M. Lefkort, Esq.
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, New York 10022
(212) 821-8000
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Approximate date of commencement of proposed sale of the securities to the
public: As soon as practicable after this Registration Statement becomes
effective.
If any of the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following bax and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
Calculation of Registration Fee
<TABLE>
<CAPTION>
Proposed
maximum Proposed maximum
Title of each class Amount to be offering price aggregate offering Amount of
of securities to be registered registered per unit(1) price registration fee
- - ------------------------------------------ ------------- -------------- ------------------ ----------------
<S> <C> <C> <C> <C>
13-1/2% Senior Subordinated Notes due 2005 $98,000,000 100% $98,000,000 $ 29,696.97
- - ------------------------------------------ ----------- ---- ----------- -----------
Guarantees(2) (3) (3) (3) (3)
- - ------------------------------------------ ----------- ---- ----------- -----------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) General Felt Industries, Inc., Foamex Fibers, Inc. and Foamex LLC are each
registering Guarantees of the payment of the principal of, premium, if any,
and interest on the Notes being registered hereby. Pursuant to Rule 457(n)
under the Securities Act of 1933, as amended, no registration fee is
required with respect to the Guarantees.
(3) Not applicable.
The Registrants hereby amend this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrants
shall file a further amendment that specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933, as amended, or until this
Registration Statement shall become effective on such date as the
Commission, acting pursuant to said Section 8(a), may determine.
================================================================================
<PAGE>
Offer for all Outstanding 13-1/2% Senior Subordinated Notes Due 2005
in Exchange for up to $98,000,000 principal amount of
13-1/2% Senior Subordinated Notes Due 2005
of
Foamex L.P.
Foamex Capital Corporation
- - --------------------------------------------------------------------------------
The Exchange Offer
will expire at Midnight, New York City time on , 1998, unless
extended
- - --------------------------------------------------------------------------------
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Foamex L.P., a Delaware limited partnership ("Foamex") and Foamex Capital
Corporation, a Delaware corporation ("FCC" and together with Foamex, the
"Issuers"), hereby offer upon the terms and subject to the conditions set forth
in this Prospectus and the accompanying Letter of Transmittal (which together
constitute the "Exchange Offer") to exchange $1,000 principal amount of the
Issuers' 13-1/2% Senior Subordinated Notes due 2005 (the "New Notes") for each
$1,000 principal amount of their issued and outstanding 13-1/2% Senior
Subordinated Notes due 2005 (the "Old Notes" and, together with the New Notes,
the "Notes") from the holders (the "Holders") thereof. The terms of the New
Notes are identical in all material respects to the terms of the Old Notes,
except that the New Notes have been registered under the Securities Act of 1933,
as amended (the "Securities Act"), and, therefore, will not bear legends
restricting their transfer and will not contain certain terms providing for an
increase in the interest rate on the Old Notes under certain circumstances
described in the Registration Rights Agreement (as defined). The New Notes
evidence the same debt as the Old Notes and will be issued pursuant to, and
entitled to the same benefits under, the Indenture (as defined) governing the
Old Notes.
Interest on the Notes is payable semi-annually in cash on February 15 and
August 15 of each year, commencing February 15, 1998. The Notes are redeemable
at the option of the Issuers, in whole or in part, at any time on or after
August 15, 2000 in cash at the redemption prices set forth herein, plus accrued
and unpaid interest and Liquidated Damages (as defined), if any, thereon to the
date of redemption. See "Description of Notes--Optional Redemption." In
addition, upon the occurrence of a Change of Control (as defined), each holder
of Notes will have the right to require the Issuers to repurchase all or any
part of such holder's Notes at an offer price in cash equal to 101% of the
aggregate principal amount thereof, plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the date of purchase. See "Description of
Notes--Repurchase at the Option of Holders--Change of Control." There can be no
assurance that, in the event of a Change of Control, the Issuers would have
sufficient funds to purchase all Notes tendered. See "Risk Factors--Limitations
on Ability to Make Change of Control Payment."
The Notes are general unsecured obligations of the Issuers, rank
subordinate in right of payment to all Senior Debt (as defined), rank pari passu
in right of payment to all Pari Passu Debt (as defined) and rank senior in right
of payment to all existing and future subordinated indebtedness of the Issuers.
The Notes are unconditionally guaranteed (the "Note Guarantees") on a senior
subordinated basis by the Subsidiary Guarantors (as defined). The Note
Guarantees are general unsecured obligations of the Subsidiary Guarantors, rank
subordinate in right of payment to all Senior Debt of the Subsidiary Guarantors,
rank pari passu in right of payment to all Pari Passu Debt of the Subsidiary
Guarantors and rank senior in right of payment to all existing and future
subordinated indebtedness of the Subsidiary Guarantors. As of September 28,
1997, on a pro forma basis, after giving effect to the Crain Acquisition (as
defined) and the Related Transactions (as defined), the Notes would have been
subordinated to approximately $479.8 million of Senior Debt and pari passu with
approximately $177.4 million of Pari Passu Debt.
The New Notes will bear interest from and including their respective dates
of issuance. Holders whose Old Notes are accepted for exchange will receive
accrued interest thereon to, but not including, the date of issuance of the New
Notes, such interest to be payable with the first interest payment on the New
Notes, but will not receive any payment in respect of interest on the Old Notes
accrued after the issuance of the New Notes.
The Old Notes were originally issued on December 23, 1997 in a transaction
not registered under the Securities Act, in reliance upon the exemption
provided in Section 4(2) of the Securities Act (the "Initial Offering"). The
Issuers are making the Exchange Offer in reliance on the position of the staff
of the Securities and Exchange Commission (the "Commission") as set forth in
certain no-action letters addressed to other parties in other transactions.
However, the Issuers have not sought their own no-action letter and there can
be no assurance that the staff of the Commission would make a similar
determination with respect to the Exchange Offer as in such other
circumstances.
---------------
See "Risk Factors" beginning on page 11 for a discussion of certain factors
that holders of the Old Notes should consider in connection with the Exchange
Offer and that prospective investors in the New Notes should consider in
connection with such investment.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
(Cover continued on next page)
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The date of this Prospectus is [ ], 1998
<PAGE>
(Cover continued from previous page)
Each Holder desiring to participate in the Exchange Offer will be required
to represent, among other things, that (i) it is not an "affiliate" (as defined
in Rule 405 of the Securities Act) of the Issuers, (ii) it is not engaged in,
and does not intend to engage in, and has no arrangement or understanding with
any person to participate in, a distribution of the New Notes, and (iii) it is
acquiring the New Notes in the ordinary course of its business (a holder unable
to make the foregoing representations is referred to as a "Restricted Holder").
A Restricted Holder will not be able to participate in the Exchange Offer and
may only sell its Old Notes pursuant to a registration statement containing the
selling securityholder information required by Item 507 of Regulation S-K of the
Securities Act, or pursuant to an exemption from the registration requirement of
the Securities Act.
Each broker-dealer (other than a Restricted Holder) that receives New Notes
for its own account pursuant to the Exchange Offer (a "Participating
Broker-Dealer") is required to acknowledge in the Letter of Transmittal that it
acquired the Old Notes as a result of market-making activities or other trading
activities and that it will deliver a prospectus in connection with the resale
of such New Notes. Based upon interpretations by the staff of the Commission,
the Issuers believe that New Notes issued pursuant to the Exchange Offer to
Participating Broker-Dealers may be offered for resale, resold, and otherwise
transferred by a Participating Broker-Dealer (other than a Restricted Holder)
upon compliance with the prospectus delivery requirements, but without
compliance with the registration requirements, of the Securities Act. The
Issuers have agreed that for a period of 120 days following consummation of the
Exchange Offer they will make this Prospectus available to Participating
Broker-Dealers for use in connection with any such resale. During such period of
time, delivery of this Prospectus, as it may be amended or supplemented, will
satisfy the prospectus delivery requirements of a Participating Broker-Dealer
engaged in market making or other trading activities. See "Exchange Offer" and
"Plan of Distribution."
Based upon interpretations by the staff of the Commission, the Issuers
believe that New Notes issued pursuant to the Exchange Offer may be offered for
resale, resold, and otherwise transferred by a Holder thereof (other than a
Restricted Holder or a Participating Broker-Dealer) without compliance with the
registration and prospectus delivery requirements of the Securities Act.
The New Notes are new securities for which there is currently no market.
The Issuers presently do not intend to apply for listing of the New Notes on any
securities exchange or for quotation through the National Association of
Securities Dealers Automated Quotation System ("NASDAQ"). There can be no
assurance that an active public market for the New Notes will develop.
Any Old Notes not tendered and accepted in the Exchange Offer will remain
outstanding and will be entitled to all the rights and preferences and will be
subject to the limitations applicable thereto under the Indenture. Following
consummation of the Exchange Offer, the holders of Old Notes will continue to be
subject to the existing restrictions upon transfer thereof. To the extent that
Old Notes are tendered and accepted in the Exchange Offer, a Holder's ability to
sell untendered Old Notes could be adversely affected. It is not expected that
an active market for the Old Notes will develop while they are subject to
restrictions on transfer.
The Issuers will accept for exchange any and all Old Notes that are validly
tendered and not withdrawn on or prior to Midnight, New York City time, on the
date the Exchange Offer expires, which will be , 1998 (the "Expiration Date"),
unless the Exchange Offer is extended by the Issuers in their sole discretion,
in which case the term "Expiration Date" shall mean the latest date and time to
which the Exchange Offer is extended. Tenders of Old Notes may be withdrawn at
any time prior to 5:00 p.m., New York City time, on the Expiration Date. The
Exchange Offer is not conditioned upon any minimum principal amount of Old Notes
being tendered for exchange. However, the Exchange Offer is subject to certain
conditions which may be waived by the Issuers in their reasonable discretion and
to the terms and provisions of the Registration Rights Agreement (as defined).
Old Notes may be tendered only in denominations of $1,000 and integral multiples
thereof. The Issuers have agreed to pay all of the expenses incurred by them in
connection with the Exchange Offer. See "The Exchange Offer--Fees and Expenses."
This Prospectus, together with the Letter of Transmittal, is being sent to
all registered holders of Old Notes as of , 1998.
The Issuers will not receive any proceeds from this Exchange Offer. No
dealer-manager is being used in connection with this Exchange Offer. See "Use
of Proceeds" and "Plan of Distribution."
ii
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by Foamex and FCC with the Commission under
file numbers 1-11432 and 1-11436, respectively, are incorporated herein by
reference:
1. The Issuers' Annual Reports on Form 10-K for the fiscal year ended
December 29, 1996 (other than the financial information of Foamex International
Inc.), filed pursuant to Section 13(a) of the Securities Exchange Act of 1934
(the "Exchange Act").
2. All other reports filed by Foamex pursuant to Section 13(a) or 15(d) of
the Exchange Act since December 29, 1996, consisting of the Issuers' Quarterly
Reports on Form 10-Q for the fiscal quarters ended March 30, 1997 and June 29,
1997 and the Issuers' Current Reports on Form 8-K dated May 28, 1997,
June 12, 1997 and August 29, 1997.
All documents filed by Foamex pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to
termination of this Exchange Offer shall be deemed to be incorporated by
reference into the Prospectus and to be a part hereof from the dates of filing
of such documents.
These documents are available upon request from Foamex, 1000 Columbia
Avenue, Linwood, Pennsylvania 19061 and its telephone number is (610) 859-3000.
AVAILABLE INFORMATION
The Issuers and the Subsidiary Guarantors have filed with the Commission a
Registration Statement on Form S-4 (the "Registration Statement," which term
shall include all amendments, exhibits, annexes and schedules thereto) pursuant
to the Securities Act, and the rules and regulations promulgated thereunder,
covering the New Notes being offered hereby. This Prospectus does not contain
all the information set forth in the Registration Statement, certain parts of
which are omitted in accordance with the rules and regulations of the
Commission. Statements made in this Prospectus as to the contents of any
contract, agreement or other document referred to in the Registration Statement
are not necessarily complete. With respect to each such contract, agreement or
other document filed as an exhibit to the Registration Statement, reference is
made to the exhibit for a more complete description of the matter involved, and
each such statement shall be deemed qualified in its entirety by such reference.
Foamex and FCC are subject to the informational reporting requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file reports and other information with the Commission.
Reports, proxy statements and other information concerning the Issuers can be
inspected without charge at the Public Reference Room maintained by the
Commission at 450 Fifth Street, N.W., Room 1024, Washington D.C. 20549. In
addition, upon request, such reports, proxy statements and other information
will be made available for inspection and copying at the regional offices of the
Commission located at Seven World Trade Center, 13th Floor, New York, New York
10048, and Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such material can be obtained upon request
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and its public reference facilities in New York, New
York and Chicago, Illinois, at the prescribed rates. Such material may also be
accessed electronically at the Commission's site on the World Wide Web located
at http://www.sec.gov.
In the event that the Issuers cease to be subject to the informational
reporting requirements of the Exchange Act, the Issuers have agreed that,
whether or not they are required to do so by the rules and regulations of the
Commission, for so long as any of the Notes remain outstanding, they will
furnish to the holders of the Notes and file with the Commission (unless the
Commission will not accept such a filing) (i) all quarterly and annual financial
information that would be required to be contained in such a filing with the
Commission on Forms 10-Q and 10-K as if the Issuers were required to file such
forms, including a "Management's Discussion and Analysis of Results of
Operations and Financial Condition" and, with respect to the annual information
only, a report thereon by the Issuers' independent accountants and (ii) all
reports that would be required to be filed with the Commission on Form 8-K as if
the Issuers were required to file such reports. In addition, for so long as any
of the Old Notes remain outstanding, the Issuers have agreed to make available
to any beneficial owner of the Old Notes in connection with any sale thereof,
the information required by Rule 144A(d)(4) under the Securities Act.
iii
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements,
including the notes thereto, appearing elsewhere in this Prospectus. Unless the
context requires otherwise, the term "Foamex" refers to Foamex L.P. and its
subsidiaries, "FCC" refers to Foamex Capital Corporation, the "Issuers" refers
to Foamex and FCC and "Crain" refers to Crain Industries, Inc. and its
subsidiaries. Foamex is an indirect-majority owned subsidiary of Foamex
International Inc. ("Foamex International"). FCC is a wholly owned special
purpose subsidiary of Foamex whose sole business is to act as co-issuer of
certain indebtedness of Foamex.
The Company
Foamex is the largest manufacturer and marketer of flexible polyurethane
and advanced polymer foam products in North America. Foamex's products are
utilized primarily in six end-markets: (i) carpet cushion and other carpet
products, (ii) cushioning foams, including bedding products, (iii) furniture
products for furniture manufacturers and packaging, (iv) automotive
applications, including trim and accessories, (v) specialty and technical
applications, including those for filtration, gasketing and sealing and (vi)
consumer products. Foamex is the largest North American producer of foams used
for carpet cushion, automotive applications and specialty and technical products
and is a leading North American producer of cushioning foams. The Company has
recently refocused its business on the flexible polyurethane and advanced
polymer foam business by acquiring Crain in December 1997 and previously
divesting of non-foam business segments. Management believes that a focus in the
foam business will allow Foamex to concentrate management, financial and
operational resources and will position Foamex to pursue its growth strategy of
developing new products, improving profitability and expanding internationally.
Foamex distributes carpet cushion to major floor covering retailers such as
Sears, New York Carpet World and Carpetland USA. Foamex supplies cushioning
foams to major bedding and furniture manufacturers such as Sealy, Simmons and
Ethan Allen. Foamex's packaging foams are supplied to distributors and
manufacturers of computers and other electronic devices, including Seagate
Technology and CompUSA. Foamex distributes its automotive foam products to
original equipment manufacturers ("OEMs"), including Ford, General Motors and
Chrysler, and major tier one suppliers such as Lear Corporation, Johnson
Controls and Delphi Automotive Systems. Foamex's specialty and technical foams
consist of reticulated foams and other customized polyester and polyether foams
used for filtration, reservoiring and consumer products which are utilized
worldwide in a wide variety of applications by companies such as Hewlett-Packard
and Briggs & Stratton. Foamex distributes consumer products to retailers such as
Wal-Mart. Foamex and its predecessors have been developing, manufacturing and
marketing polyurethane foam for more than 40 years.
For the latest twelve months ended September 28, 1997 (the "LTM Period"),
after giving pro forma effect to the acquisition (the "Crain Acquisition") by an
affiliate of the Company of all outstanding capital stock of Crain Holdings
Corp., a Delaware corporation and holder of all outstanding capital stock of
Crain ("Crain Holdings") and the Related Transactions (as defined), Foamex would
have had net sales and EBDAIT (as defined) of $1,261.0 million and $152.5
million, respectively. During the same period, the percentage of pro forma net
sales generated by carpet cushion and other carpet products, cushioning foams,
automotive foams, specialty and technical foams, and consumer products was
approximately 28%, 43%, 18%, 6% and 5%, respectively. Prior to the second
quarter of 1997, the cushioning foams and furniture product markets were treated
as a single product group; therefore, all historical data in this Prospectus
reflects cushioning foam and furniture products as the single product group
"cushioning foam."
Recent Developments
On December 23, 1997, Foamex International acquired Crain pursuant to a
merger transaction with Crain Holdings for an aggregate consideration of
approximately $213.7 million, including the assumption of debt, and all of the
assets of Crain subject to all of its liabilities were contributed to Foamex.
Management believes that based on net sales, Crain was the third largest
domestic producer of flexible polyurethane foam and foam products in the United
States. See "The Crain Acquisition." The Crain Acquisition provided a fully
integrated manufacturer, fabricator and distributor of a broad range of flexible
polyurethane foam and foam products which are sold to a diverse customer base,
principally in the furniture, bedding and carpet cushion markets. Management
believes that
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Foamex's acquisition of Crain (i) strengthens Foamex's market position as the
leading North American producer of foam products, (ii) offers increased
penetration in the Company's existing product lines and adds complementary
products lines such as consumer products, (iii) strengthens the Company's
operations geographically, (iv) provides several proprietary foam-producing
processes which serve to lower overall production costs and are environmentally
friendly, and (v) offers opportunities for significant overhead cost reductions
and purchasing and freight cost efficiencies.
In order to facilitate the Crain Acquisition, the Issuers offered (the
"Private Exchange Offer") to a limited number of holders of Crain 13 1/2% Senior
Subordinated Notes due 2005 (the "Crain Notes") with whom the Issuers have
previously negotiated the terms of the Private Exchange Offer (the "Qualified
Holders") to exchange such Qualified Holders' $98.0 million principal amount of
Crain Notes for $80.00 in cash and $1,000 principal amount of Old Notes for each
$1,000 principal amount of Crain Notes. Such $98.0 million in aggregate
principal amount of Crain Notes were retired and cancelled by the trustee of the
Crain Notes and the remaining $2.0 million in aggregate principal amount of
Crain Notes were redeemed by Crain, all in accordance with the indenture under
which the Crain Notes were issued.
On October 6, 1997, Foamex sold its needlepunch carpeting, tufted carpeting
and artificial grass products business, located in Dalton, Georgia to Bretlin,
Inc., a subsidiary of The Dixie Group, Inc. The sales price was approximately
$41.0 million, net of post-closing adjustments which were finalized in December
1997. Foamex used the net proceeds of the sale to reduce long-term debt.
Competitive Strengths
Foamex believes that it possesses a number of competitive strengths that
have allowed it to become the largest manufacturer and marketer of flexible
polyurethane and advanced polymer foam products in North America, including:
Emphasis on New Product Development. Foamex believes it has one of the
leading research and development capabilities in the industry and, as a result,
has been awarded more than 100 foam-related patents worldwide. These
capabilities provide Foamex with a stream of new products, new applications for
existing products, and new processes for foam manufacturing. An example of this
capability is variable pressure foaming (VPF[TM]), an innovative manufacturing
process currently used in North America only by Foamex, which has been used to
create new products such as Reflex[TM]. Reflex[TM] is designed to replace
fiberfill in certain cushioning products. Foamex has also recently introduced
Plushlife[TM] for the carpet cushion market and Powerthane[TM] for automotive
applications. Another technology developed by Foamex is Surface Modification
Technology (SMT[TM]), which allows for high volume precision contouring of foam
surfaces, thereby improving Foamex's existing products and creating new products
such as sculpted bed mattresses.
Alignment with Key Customers. Foamex has historically maintained a steady
revenue base by aligning itself with key customers, many of which have been
Foamex's customers for many years. These customer relationships are supported by
Foamex's extensive North American network of 58 strategically located
facilities, which allows Foamex to deliver products cost effectively on a
just-in-time basis. As a result of these relationships, Foamex is able to work
with customers during the design phase for new products and new applications,
thereby favorably positioning Foamex to be the principal supplier for these
products.
High Quality Products. Foamex is a pioneer in manufacturing and
distributing high quality flexible polyurethane and advanced polymer foam
products to satisfy the specific needs of customers. During 1996, Foamex
completed QS-9000 and ISO-9001 certification for its eight domestic facilities
that supply the automotive industry and is pursuing the appropriate
certifications for the remainder of its manufacturing facilities. Foamex was one
of the first flexible polyurethane foam manufacturers to be QS-9000 certified,
demonstrating its commitment to producing the highest quality products and
meeting the needs of its customers.
Low Cost Manufacturing Position. Foamex strives to maintain
state-of-the-art manufacturing facilities which utilize recent manufacturing
improvements such as the proprietary VPF[TM] and patented SMT[TM] technologies,
as well as the latest carbon dioxide converting process. These technologies are
designed to, among other things, maximize the conversion efficiency of raw
materials into finished goods and to minimize labor costs. Furthermore,
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Foamex has implemented a company-wide Continuous Improvement Process program
designed to continually increase productivity, reduce costs and improve product
quality. In addition, as the largest manufacturer of flexible polyurethane and
advanced polymer foam products in North America, management believes that Foamex
is able to realize economies of scale in its raw materials procurement, which
represent more than two-thirds of Foamex's manufacturing costs, and recover
costs from the use of substantially all of its internally generated trim foam,
which is the principal raw material in the production of bonded carpet cushion.
Growth Strategy
Foamex's strategy focuses on (i) developing new proprietary foam products,
(ii) introducing new uses for advanced foam products, (iii) expanding in
international markets and (iv) reducing costs through continued emphasis on
manufacturing improvements.
New Proprietary Foam Products. Foamex plans to continue to utilize its
significant research and development capability to develop new products. In
recent years, Foamex has developed new proprietary technologies, such as VPF[TM]
and SMT[TM], which have been used to create higher margin, value-added products
designed to replace existing flexible polyurethane foam products. SMT[TM] has
allowed Foamex to develop sculpted mattress toppers, mattress pads and bed
pillows which are replacing traditional polyurethane foam products due to their
superior comfort, quality and value. In certain cases, such as Plushlife[TM], a
proprietary carpet cushion designed to replace traditional bonded and prime
carpet cushion, Foamex brands these products to create product recognition and
to generate higher margins.
New Uses for Foam. Foamex is actively developing new applications for its
advanced foam products to replace other materials. In the automotive industry,
the number of foam applications has increased from eight per vehicle in 1984 to
20 per vehicle in 1997. For example, Foamex has introduced products such as foam
headliners which are replacing fiberglass headliners (the rigid material between
the fabric and the metal roof of a car). Reflex[TM] foams, which include cushion
wraps and cushion cores and are created using VPF[TM], are advanced polymer
cushioning products designed to improve comfort, quality and durability in
upholstered furniture and to replace standard fiberfill. Foamex's fastest
growing business, specialty and technical foams, focuses on developing
customized foam applications for high-growth product markets such as inkjet
printer cartridges, nickel-metal hydride batteries and oxygenators for
cardio-pulmonary surgery.
International Expansion. Foamex has positioned itself to take advantage of
global opportunities. In Mexico, Foamex has built a new state-of-the-art
manufacturing facility, which is expected to meet increasing demand and to allow
Foamex to increase market penetration. In Asia, which management believes offers
attractive growth opportunities, Foamex entered into a joint venture agreement
in 1997 to build and operate fabrication facilities in Singapore and Thailand.
These facilities were completed in 1997. Additionally, Foamex has created an
alliance with Recticel s.a. ("Recticel"), Europe's largest flexible polyurethane
foam manufacturer, which will allow Foamex to better meet the increasing global
needs of its automotive customers.
Additional Operating Cost Savings. Foamex is continuing to build on the
1995 Operational Reorganization which was designed to reduce operating costs and
improve productivity. Foamex achieved additional operating cost savings in 1997
that resulted from (i) improved productivity, through-put and material yields in
the manufacturing process, (ii) the full year benefit of facilities closed
during 1996, (iii) the closure of two additional facilities during 1997 and (iv)
the expansion of the Continuous Improvement Process. Foamex expects to take
charges in the range of $21.0 million to $26.0 million in the fourth quarter of
1997 related to the restructuring/consolidation of Foamex's operations in
connection with the Crain Acquisition and the Related Transactions. In addition,
Foamex expects to take fourth quarter special charges and write-offs for fixed
asset impairments, charges associated with start-up operations and reserves
relating to inventory and accounts receivable in the range of $14.0 million to
$17.0 million.
----------------
The principal executive offices of Foamex are located at 1000 Columbia
Avenue, Linwood, Pennsylvania 19061 and its telephone number is (610) 859-3000.
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The Exchange Offer
The Exchange Offer..................... The Issuers are offering to exchange
(the "Exchange Offer") up to
$98,000,000 aggregate principal amount
of 13 1/2% Senior Subordinated Notes
due 2005 (the "New Notes") for up to
$98,000,000 aggregate principal amount
of their outstanding 13 1/2% Senior
Subordinated Notes due 2005 (the "Old
Notes"). Upon consummation of the
Exchange Offer, the terms of the New
Notes will be identical in all
material respects (including principal
amount, interest rate, maturity and
ranking) to the terms of the Old Notes
for which they may be exchanged
pursuant to the Exchange Offer, except
that the New Notes have been
registered under the Securities Act,
and, therefore, will not bear legends
restricting their transfer and will
not contain certain terms providing
for an increase in the interest rate
on the Old Notes under certain
circumstances described in the
Registration Rights Agreement (as
defined).
Minimum Condition...................... The Exchange Offer is not
conditioned upon any minimum aggregate
principal amount of Old Notes being
tendered for exchange.
Expiration Date........................ The Exchange Offer will expire at
Midnight, New York City time, on ,
1998, unless extended (the "Expiration
Date").
Exchange Date.......................... The date of acceptance for exchange
for the Old Notes will be the first
business day following the Expiration
Date.
Conditions to the Exchange Offer....... The obligation of the Issuers to
consummate the Exchange Offer is
subject to certain conditions. See
"The Exchange Offer--Conditions." The
Issuers reserve the right to terminate
or amend the Exchange Offer at any
time prior to the Expiration Date upon
the occurrence of any such condition.
Withdrawal Rights...................... Tenders may be withdrawn at any time
prior to 5:00 p.m. on the Expiration
Date. Any Old Notes not accepted for
any reason will be returned without
expense to the tendering holders
thereof as promptly as practicable
after the expiration or termination of
the Exchange Offer.
Procedures for Tendering Old Notes..... See "The Exchange Offer--Procedures
for Tendering."
Federal Income Tax Consequences........ The exchange of Old Notes for New
Notes by Holders should not be a
taxable exchange for federal income
tax purposes.
4
<PAGE>
Certain Representations................ Each Holder desiring to participate
in the Exchange Offer will be required
to represent, among other things, that
(i) it is not an "affiliate" (as
defined in Rule 405 of the Securities
Act) of the Issuers, (ii) it is not
engaged in, and does not intend to
engage in, and has no arrangement or
understanding with any person to
participate in, a distribution of the
New Notes, and (iii) it is acquiring
the New Notes in the ordinary course
of its business (a holder unable to
make the foregoing representations is
referred to as a "Restricted Holder").
Transfer Restrictions on New Notes..... Based upon interpretations by the
staff of the Commission, the Issuers
believe that New Notes issued pursuant
to the Exchange Offer to Participating
Broker-Dealers may be offered for
resale, resold, and otherwise
transferred by a Participating
Broker-Dealer (other than a Restricted
Holder) upon compliance with the
prospectus delivery requirements, but
without compliance with the
registration requirements, of the
Securities Act. The Issuers have
agreed that for a period of 120 days
following consummation of the Exchange
Offer they will make this Prospectus
available to Participating
Broker-Dealers for use in connection
with any such resale. During such
period of time, delivery of this
Prospectus, as it may be amended or
supplemented, will satisfy the
prospectus delivery requirements of a
Participating Broker-Dealer engaged in
market making or other trading
activities. See "Exchange Offer" and
"Plan of Distribution." Based upon
interpretations by the staff of the
Commission, the Issuers believe that
New Notes issued pursuant to the
Exchange Offer may be offered for
resale, resold, and otherwise
transferred by a Holder thereof (other
than a Restricted Holder or a
Participating Broker-Dealer) without
compliance with the registration and
prospectus delivery requirements of
the Securities Act.
5
<PAGE>
Effect on Holders of Old Notes......... As a result of the making of this
Exchange Offer, and upon acceptance
for exchange of all validly tendered
Old Notes pursuant to the terms of
this Exchange Offer, the Issuers will
have fulfilled a covenant contained in
the Registration Rights Agreement (the
"Registration Rights Agreement") dated
as of December 23, 1997 by and among
the Issuers, General Felt Industries,
Inc. ("General Felt"), Foamex Fibers,
Inc. ("Foamex Fibers") and Foamex LLC
("FLLC"). Holders of the Old Notes who
do not tender their Old Notes in the
Exchange Offer will continue to hold
such Old Notes and will be entitled to
all the rights and limitations
applicable thereto under the Indenture
dated as of December 23, 1997, among
the Issuers, General Felt, Foamex
Fibers, FLLC, Crain Holdings Corp.
("Crain Holdings") and The Bank of New
York, as trustee (the "Trustee"),
relating to the Old Notes and the New
Notes (the "Indenture"). All
untendered, and tendered but
unaccepted, Old Notes will continue to
be subject to the restrictions on
transfer provided for in the Old Notes
and the Indenture. To the extent that
Old Notes are tendered and accepted in
the Exchange Offer, the trading
market, if any, for the Old Notes
could be adversely affected. See "Risk
Factors--Consequences of Failure to
Exchange."
6
<PAGE>
The New Notes
Issuers................................ Foamex L.P., a Delaware limited
partnership and Foamex Capital
Corporation, a Delaware corporation.
Maturity Date.......................... August 15, 2005.
Interest Payment Dates................. The New Notes bear interest at the
rate of 13 1/2% per annum, payable
semi-annually in cash on February 15
and August 15 of each year, commencing
August 15, 1998.
Ranking................................ The New Notes are general unsecured
obligations of the Issuers, rank
subordinate in right of payment to all
Senior Debt, rank pari passu in right
of payment to all Pari Passu Debt and
rank senior in right of payment to all
existing and future subordinated
indebtedness of the Issuers. The Note
Guarantees are general unsecured
obligations of the Subsidiary
Guarantors, rank subordinate in right
of payment to all Senior Debt of the
Subsidiary Guarantors, rank pari passu
in right of payment to all Pari Passu
Debt of the Subsidiary Guarantors and
rank senior in right of payment to all
existing and future subordinated
indebtedness of the Subsidiary
Guarantors. As of September 28, 1997,
on a pro forma basis after giving
effect to the Crain Acquisition and
the Related Transactions, the New
Notes would have been subordinated to
approximately $479.8 million of Senior
Debt and pari passu with approximately
$177.4 million of Pari Passu Debt. See
"Description of Notes--Subordination."
Optional Redemption.................... The New Notes are redeemable at the
option of the Issuers, in whole or in
part, at any time on or after August
15, 2000 in cash at the redemption
prices set forth herein, plus accrued
and unpaid interest and Liquidated
Damages, if any, thereon to the date
of redemption. See "Description of
Notes--Optional Redemption."
Change of Control...................... Upon the occurrence of a Change of
Control, each holder of New Notes will
have the right to require the Issuers
to repurchase all or any part of such
holder's New Notes at an offer price
in cash equal to 101% of the aggregate
principal amount thereof, plus accrued
and unpaid interest and Liquidated
Damages, if any, thereon to the date
of purchase. See "Description of
Notes--Repurchase at the Option of
Holders--Change of Control." See
"Risk Factors--Limitations on Ability
to Make Change of Control Payment."
7
<PAGE>
Note Guarantees........................ The New Notes are jointly and
severally fully and unconditionally
guaranteed on a senior subordinated
basis by each of General Felt, Foamex
Fibers and FLLC. The New Notes will
also be guaranteed by all those
Restricted Subsidiaries (as defined)
of the Issuers required in the future
to execute a Note Guarantee pursuant
to the provisions of the Indenture
described under "Description of the
Notes--Additional Guarantees" and any
other Subsidiary that executes a Note
Guarantee (together, the "Subsidiary
Guarantors"). The obligations of any
Subsidiary Guarantor under its Note
Guarantee is limited to an amount that
would cause such Note Guarantee not to
constitute a fraudulent conveyance
under applicable law. See "Risk
Factors--Certain Creditors'
Rights Considerations."
Certain Covenants...................... The Indenture contains certain
covenants that limit, among other
things, the ability of the Issuers to:
(i) pay dividends, redeem capital
stock or make certain other restricted
payments or investments, (ii) incur
additional indebtedness or issue
preferred equity interests, (iii)
merge, consolidate or sell all or
substantially all of its assets, (iv)
create liens on assets and (v) enter
into certain transactions with
affiliates or related persons. See
"Description of Notes--Certain
Covenants."
For a discussion of certain factors that should be considered by
prospective participants in connection with the Exchange Offer and the Notes,
see "Risk Factors."
8
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following table presents summary historical consolidated financial
information of Foamex, for the fiscal years ended January 1, 1995, December 31,
1995 and December 29, 1996, which have been derived from the audited
consolidated financial statements of Foamex, and for the nine months ended
September 29, 1996 and September 28, 1997, which have been derived from the
unaudited condensed consolidated financial statements of Foamex. The summary pro
forma data give effect to the Merger (as defined) and the Related Transactions.
The summary financial information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated and the condensed consolidated financial
statements and related notes thereto of Foamex included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
Nine Months ended
Fiscal Year (1)(2) September
---------------------------------------------------- -----------------------------------------
Pro Forma Pro Forma
1994(3) 1995(4) 1996 1996 1996 1997 1997
(In thousands, except ratios)
<S> <C> <C> <C> <C> <C> <C> <C>
Statements of Operations Data:
Net sales ......................... $833,660 $862,834 $926,351 $1,271,315 $696,344 $ 702,441 $946,927
Gross profit ...................... 142,395 100,749 153,232 203,197 114,158 125,616 166,018
Selling, general and
administrative expenses .......... 57,059 63,466 56,778 91,872 42,184 46,893 74,573
Restructuring and other
charges (credits) ................ -- 39,249 (6,415) (6,415) -- -- --
Operating income (loss) ........... 85,336 (1,966) 102,869 117,740 71,974 78,723 91,445
Income (loss) from
continuing operations ............ 38,011 (48,126) 53,661 45,881 34,611 42,153 37,995
Other Data:
EBDAIT(5) ......................... $107,444 $ 77,593 $117,586 $ 143,437 $ 87,919 $ 94,293 $116,043
Gross profit margin ............... 17.1% 11.7% 16.5% 16.0% 16.4% 17.9% 17.5%
EBDAIT margin(6) .................. 12.9 9.0 12.7 11.3 12.6 13.4 12.3
Capital expenditures .............. $ 21,201 $ 19,726 $ 23,509 $ 35,874 $ 14,536 $ 25,444 $ 29,769
Pro Forma Data:
Cash interest expense ............. -- -- -- 64,075 -- -- 49,288
Ratio of EBDAIT to cash
interest expense ................. -- -- -- 2.24x -- -- 2.35x
Ratio of net debt to LTM
Period EBDAIT (7) ................ -- -- -- -- -- -- 5.06x
Cash Flow Data:
Cash flow from operating
activities ....................... 50,285 27,336 36,180 -- 34,043 31,730 --
Cash flow from investing
activities ....................... (64,478) (30,554) 22,750 -- (1,434) (125,060) --
Cash flow from financing
activities ....................... 30,234 (16,163) (38,600) -- (18,908) 73,440 --
</TABLE>
As of
September 28, 1997
---------------------
Balance Sheet Data (at period end): Actual Pro Forma
Cash and cash equivalents ......... $ 1,078 $ 3,473
Total assets ...................... 600,999 891,007
Long-term debt .................... 519,668 759,051
(footnotes on following page)
9
<PAGE>
Notes to Summary Historical and Pro Forma Consolidated Financial Information
(1) Foamex has a 52-53 week fiscal year ending on the Sunday closest to the end
of the calendar year. Each fiscal year presented was 52 weeks.
(2) Fiscal years 1994 and 1995 have been restated for discontinued operations
resulting from the sale of certain non-foam operations. In addition, fiscal
years 1994 and 1995 and the nine months ended September 30, 1996 have been
restated to reflect the contribution of Foamex Latin America, Inc. and its
subsidiaries ("Foamex Mexico") to Foamex from Foamex International because
the contribution was accounted for in a manner similar to a pooling of
interests because the entities were under common control.
(3) Includes the operations of Foamex Mexico from its date of acquisition of
March 31, 1994, and thus may not be comparable to other periods. See Note
2 above.
(4) Includes results of operations of Foamex Fibers from its date of acquisition
of April 13, 1995, and thus may not be comparable to other periods.
(5) EBDAIT consists of earnings before depreciation, amortization, interest,
income taxes and other non-cash or non-recurring items. EBDAIT is not
intended to represent cash flow from operations as defined by generally
accepted accounting principles ("GAAP") and should not be considered as an
alternative to net income as an indicator of operating performance or to
cash flows as a measure of liquidity. In fiscal years 1995 and 1996, there
were additional non-cash or non-recurring items of approximately $56.7
million and $(6.4) million, respectively. The Company believes that EBDAIT
is a standard measure commonly reported and widely used by analysts,
investors and other interested parties and further believes that trends in
EBDAIT are similar to trends in operating income, excluding restructuring
charges. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations." Accordingly, this information has been disclosed
herein to permit a more complete comparative analysis of the Company's
operating performance relative to other companies in the industry. However,
not all companies calculate EBDAIT using the same methods; therefore, the
EBDAIT figures set forth above may not be comparable to EBDAIT reported by
other companies. Certain covenants contained in the Credit Facility are
based upon measures similar to EBDAIT.
(6) EBDAIT Margin is calculated by dividing EBDAIT by net sales. The Company
believes that EBDAIT Margin is a standard measure commonly reported and
widely used by analysts, investors and other interested parties.
Accordingly, this information has been disclosed herein to permit a more
complete comparative analysis of the Company's operating performance
relative to other companies in the industry. However, see Note 5 above.
(7) Net debt is defined as total long-term debt (including current maturities)
less cash and cash equivalents. LTM Period EBDAIT is defined as EBDAIT for
the prior four full fiscal quarters. The Company believes that the ratio of
net debt to LTM period EBDAIT is a standard measure commonly reported and
widely used by analysts, investors and other interested parties.
Accordingly, this information has been disclosed herein to permit a more
complete comparative analysis of the Company's operating performance
relative to other companies in the industry. However, see Note 5 above.
10
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus,
investors should consider carefully the following factors, which may be
generally applicable to the Old Notes as well as the New Notes.
Consequences of Failure to Exchange
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon as a
consequence of the issuance of the Old Notes pursuant to exemptions from, or in
transactions not subject to, the registration requirements of the Securities Act
and applicable state securities laws. In general, the Old Notes may not be
offered or sold, unless registered under the Securities Act and applicable state
securities laws, or pursuant to an exemption therefrom. Except under certain
limited circumstances, the Issuers do not intend to register the Old Notes under
the Securities Act. To the extent Old Notes are tendered and accepted in the
Exchange Offer, the trading market, if any, for the Old Notes not tendered or
not accepted for exchange and the price at which they may be sold, could be
adversely affected. See "The Exchange Offer."
Substantial Leverage
As a result of the Crain Acquisition and the Related Transactions, on a pro
forma basis, Foamex would have had long-term debt of $759.1 million, and
partners' equity (deficit) of ($103.6) million as of September 28, 1997. For
1996, Foamex's ratio of earnings to fixed charges was 2.31 to 1 and, on a pro
forma basis after giving effect to the Crain Acquisition and the Related
Transactions, Foamex's ratio of earnings to fixed charges would have been 1.74
to 1. For the nine months ended September 28, 1997, Foamex's ratio of earnings
to fixed charges was 2.29 to 1 and, on a pro forma basis after giving effect to
the Crain Acquisition and the Related Transactions, Foamex's ratio of earnings
to fixed charges would have been 1.77 to 1.
The Issuers will require substantial amounts of cash to fund scheduled
payments of principal and interest on their outstanding indebtedness as well as
future capital expenditures and any increased working capital requirements. The
Issuers' obligation to make principal payments on their debt, after giving pro
forma effect to the Crain Acquisition and the Related Transactions, for each of
the next five calendar years is approximately $13.0 million, $22.0 million,
$32.4 million, $32.4 million and $33.8 million, respectively. Such principal
payment obligation may be accelerated in whole or in part in connection with
certain asset sales, upon certain transactions constituting a "change of
control" as defined under the applicable debt instrument, upon certain debt or
equity offerings, as a result of certain excess cash flows and upon the
occurrence of an "event of default" as defined under the applicable debt
instrument. See "Description of Certain Debt Instruments--Credit Facility." FCC
conducts no activity other than being co-obligor on certain indebtedness issued
by Foamex. Foamex's ability to generate sufficient cash flow to fund its
scheduled payments in the future will depend on its financial and operating
performance, which, in turn, is subject to prevailing economic conditions and to
financial, business and other factors beyond its control. Also, the Indenture,
the indenture relating to $150,000,000 original principal amount of 9 7/8%
Senior Subordinated Notes due 2007 (the "9 7/8% Note Indenture") issued by the
Issuers and the Credit Facility restrict, among other things, the Issuers'
ability to incur additional indebtedness and grant liens on its properties. The
restrictions imposed by the Indenture, the 9 7/8% Note Indenture and the Credit
Facility, together with Foamex's leverage, could limit Foamex's ability to
respond to changing market and economic conditions, provide for capital
expenditures and take advantage of business opportunities. Foamex believes that
it will have sufficient cash flow from operations and available borrowings to
meet its debt service requirements. However, if Foamex's cash flow and capital
resources are insufficient to fund its debt service obligations, Foamex may be
forced to refinance all or a portion of its indebtedness or sell assets. There
can be no assurance that Foamex would be able to refinance its existing
indebtedness or sell assets on terms that are commercially reasonable or at all.
Integration of Crain Acquisition
The Crain Acquisition has expanded the size and scope of Foamex's
operations. Acquisitions, such as the Crain Acquisition, may expose Foamex to
particular risks, including, without limitation, diversion of management's
attention, the inability to integrate acquired companies into Foamex's
operations, assumption of liabilities and amortization of goodwill and other
acquired intangible assets, some or all of which could have a material adverse
effect on the financial condition or results of operations of Foamex. There can
be no assurance that Foamex will be successful in integrating Crain's business
into Foamex's operations. In addition, the Crain Acquisition has
11
<PAGE>
resulted in Foamex expanding into new product areas, including distributing
consumer products. The integration and operation of this new business may place
significant demands on Foamex's management and other resources and may expose
Foamex to additional liabilities. There can be no assurance that there will be
any operating efficiencies between these new businesses and Foamex's existing
business or that such businesses can be operated profitably or that Foamex will
realize anticipated synergies and operating efficiencies from the combination of
the assets of Foamex and Crain. In addition, as a result of the Asset
Contribution (as defined), Crain was required to obtain the consent of third
parties to the assignment of substantially all of its contracts. Crain did not
obtain all of such consents and there can be no assurances that Crain will not
lose any valuable contract rights. Moreover, the Crain Acquisition may adversely
affect the Company's liquidity. See "The Crain Acquisition."
Partners' Deficit and Charge to Earnings
As of September 28, 1997, on a pro forma basis, after giving effect to the
Crain Acquisition and the Related Transactions, Foamex had a partners' deficit
of approximately $103.6 million. There can be no assurance as to when or if such
deficit will be eliminated. Foamex believes that such deficit will not have a
material adverse effect on its liquidity and financial condition. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
Price and Availability of Raw Materials
In 1996, raw materials accounted for more than two-thirds of the
manufacturing costs of Foamex. The two principal chemicals used in the
manufacture of flexible polyurethane foam are toluene diisocyanate ("TDI") and
polyol. ARCO Chemical Company, BASF Corporation and The Dow Chemical Company are
among Foamex's largest suppliers of raw materials. Foamex generally has
alternative chemical suppliers for each major raw material and Foamex believes
that it could find alternative sources of supply should it cease doing business
with any of its major suppliers. The price of TDI and polyol is influenced by
demand, manufacturing capacity and oil and natural gas prices.
Historically, the price of raw materials has been cyclical and volatile,
and Foamex's principal suppliers of raw materials used in the manufacture of
flexible polyurethane foam have increased the price of raw materials several
times since September 1994. Significant increases in raw material prices could
have a material adverse effect on the financial condition or results of
operations of Foamex. Foamex attempts to offset raw material cost increases
through selling price increases; however, there can be no assurance that Foamex
will be successful in implementing selling price increases or that competitive
pricing pressure will not require Foamex to adjust selling prices. Results of
operations have been and could be adversely affected by delays in implementing,
or the inability of Foamex to implement, selling price increases to offset raw
material cost increases. For example, Foamex estimates that in 1995 the amount
of net unrecovered raw material cost increases was approximately $25.0 million.
The principal suppliers to the foam industry announced raw material price
increases effective April 1997. The impact of the raw material cost increases
were not significant during the second quarter of 1997. However, Foamex
estimates the raw material cost increases, net of sale price increases to
customers, had an unfavorable impact of approximately $2.0 million during the
third quarter of 1997. There can be no assurance that chemical or other
suppliers will not increase raw material costs in the future or that Foamex will
be able to implement selling price increases to offset any such raw material
cost increases.
Subordination; Rights of Senior Lenders
The Notes will be subordinated to all Senior Debt including the
indebtedness under the Credit Facility. The Notes will also be structurally
subordinated to creditors (including trade creditors) of Foamex's subsidiaries
that are not guarantors of the Notes, including Foamex Canada Inc. and its
subsidiaries ("Foamex Canada"), Foamex Mexico and Foamex Asia, Inc. and its
subsidiaries ("Foamex Asia"). The incurrence of additional indebtedness by
Foamex's Restricted Subsidiaries (as defined) is restricted by the 9 7/8% Note
Indenture and the Indenture. See "Description of Notes--Certain
Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock." By
reason of the subordination of the Notes, in the event of insolvency,
bankruptcy, liquidation, reorganization, dissolution or other winding-up of the
Issuers or upon certain defaults with respect to Senior Debt, creditors who are
holders of Senior Debt must be paid in full before the holders of the Notes may
be paid. As of September 28, 1997, on a pro forma basis, after giving effect to
the Crain Acquisition and the Related Transactions, Foamex had approximately
$479.8 million of Senior Debt.
12
<PAGE>
The assets of the Issuers may be insufficient to pay the amount due on the
Notes in the event of any insolvency, bankruptcy, or similar event of default.
Interest Rate Fluctuations
Variable rate debt comprises a significant percentage of the Company's
overall indebtedness and, as a result, future fluctuation in interest rates will
have a greater impact on the Company's interest expense than in the past. In
addition, as a result of an interest rate swap, the business of Foamex will be
significantly more sensitive to prevailing interest rates than under the terms
of its fixed rate indebtedness. There can be no assurance that the variable
interest payments by Foamex will not increase significantly in the future. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
Certain Creditor's Rights Considerations
The Exchange Offer may be subject to review under relevant federal and
state fraudulent conveyance laws if a bankruptcy, reorganization or
rehabilitation case or a lawsuit (including in circumstances where bankruptcy is
not involved) were ever commenced by or on behalf of unpaid creditors of the
Issuers or the Subsidiary Guarantors, as the case may be, at some future date.
These laws vary among the various jurisdictions. In general, under these laws,
if a court were to find that, at the time an obligation (such as the Notes) was
incurred or a security interest was granted, either (a) such obligation was
incurred or security interest granted with the intent of hindering, delaying or
defrauding creditors or (b) the entity incurring the obligation or granting such
security interest received less than reasonably equivalent or fair value or
consideration in exchange for the incurrence of such obligation or the granting
of such security interest and (i) was insolvent or was rendered insolvent by
reason thereof, (ii) was engaged in a business or transaction for which its
remaining assets constituted unreasonably small capital, (iii) intended to
incur, or believed, or reasonably should have believed, that it would incur,
debts beyond its ability to pay such debts as they matured (as all of the
foregoing terms are defined in or interpreted under the fraudulent conveyance
statutes) or (iv) such entity was a defendant in an action for money damages, or
had a judgment for money damages docketed against it (if, in either case, after
final judgment, the judgment is unsatisfied) (a "Fraudulent Conveyance"), such
court could impose legal and equitable remedies, including (x) subordination of
the obligation to presently existing and future indebtedness of the entity, (y)
avoidance of the issuance of the obligation or granting of the security
interest, and direction of the repayment of any amounts paid from the proceeds
thereof to a fund for the benefit of the entity's creditors or (z) taking of
other action detrimental to the holders of the Notes.
The measures of insolvency for purposes of determining whether a Fraudulent
Conveyance occurred would vary depending upon the laws of the relevant
jurisdiction and upon the valuation assumptions and methodology applied by the
court. Generally, however, a company would be considered insolvent for purposes
of the foregoing if the sum of the company's debts, including contingent
unliquidated and unmatured liabilities, is greater than all the company's
property at a fair valuation, or if the present fair salable value of the
company's assets is less than the amount that would be required to pay the
probable liability on its existing debts as they become absolute and matured.
Pursuant to the terms of the Indenture, the obligations of any Subsidiary
Guarantor under its Note Guarantee is limited to an amount that would cause such
Note Guarantee not to constitute a fraudulent conveyance under applicable law.
Although the Issuers and the Subsidiary Guarantors are unable to predict how a
court would value a Subsidiary Guarantor on the date of issuance of the Notes,
the Issuers and the Subsidiary Guarantors view it as likely that a court would
limit the amount of the Note Guarantee of Foamex Fibers and FLLC to an amount
that is substantially less than the outstanding principal amount of the Notes,
and could limit the amount of the Note Guarantee of General Felt.
The Issuers believe that they will receive reasonably fair and equivalent
value at the time the Notes are issued, by virtue of the surrender of a like
principal amount of Crain Notes. It is possible, however, that a court could
conclude differently. Notwithstanding such possibility, however, Foamex believes
that at the time of, or as a result of, the issuance of the Notes, Foamex (i)
will not be insolvent or rendered insolvent under the foregoing standards, (ii)
will not be engaged in a business or transaction for which its remaining assets
constitute unreasonably small capital, (iii) does not intend to incur, and does
not believe that it will or would incur, debts beyond its ability to pay such
debts as they mature and (iv) will have sufficient assets to satisfy any
probable money judgment against it in any pending actions. Consequently, Foamex
believes that even if one or more elements of the transaction were
13
<PAGE>
deemed to involve the incurrence of an obligation or the grant of a security
interest for less than reasonably equivalent or fair value, a Fraudulent
Conveyance would not occur. Foamex's beliefs with regard to the solvency of
Foamex are based in part on Foamex's operating history and analysis of internal
cash flow projections, estimated values of assets and liabilities of Foamex at
the time of the Exchange Offer. There can be no assurance, however, that a court
passing on these issues would adopt the same methodology or assumption or arrive
at the same conclusions.
Control of Foamex by Trace Holdings
FMXI, Inc. ("FMXI"), the managing general partner of Foamex and a wholly
owned subsidiary of Foamex International, controls the management and operations
of Foamex. Trace International Holdings, Inc. ("Trace Holdings"), directly and
indirectly through a wholly owned subsidiary, owns in excess of 40% of the
outstanding common stock of Foamex International. In addition, Trace Foam
Company, Inc. ("Trace Foam"), a wholly owned subsidiary of Trace Holdings, owns
a 1% non-managing general partnership interest in Foamex. Marshall S. Cogan,
Vice Chairman of the Board of Foamex, Foamex International, FMXI and Chairman of
Foamex International's Executive Committee, owns or has voting control over a
majority of the capital stock of Trace Holdings. Foamex and Trace Foam have
entered into a management services agreement pursuant to which Trace Foam
provides Foamex with certain administrative and advisory services. As a result,
Trace Holdings is expected to have the ability to direct the activities of
Foamex. See "Management," "Security Ownership of Certain Beneficial Owners,"
"Certain Relationships and Related Transactions" and "Description of the
Partnership Agreement."
Reliance on Major Customers
Foamex's five largest customers together accounted for approximately 24.3%
of Foamex's net sales in fiscal year 1996. For the first nine months ended
September 28, 1997, Foamex's five largest customer together accounted for
approximately 17.4% of Foamex's net sales, on a pro forma basis after giving
effect to the Crain Acquisition and the Related Transactions. Foamex anticipates
that in connection with the Crain Acquisition and the Related Transactions, it
will lose certain current Foamex customers as a result of the acquisition of
businesses that compete with such customers, and that certain customers of both
Crain and Foamex will reduce their purchases from the post-Crain Acquisition
entity in order to avoid a concentration of suppliers. The loss, or a
substantial decrease in the amount, of purchases by any of Foamex's major
customers could adversely affect Foamex's financial position and results of
operations. See "Business--Customers."
Environmental Liabilities and Regulations
The past and present business operations of Foamex and the past and present
ownership and operation of real property by Foamex are subject to extensive and
changing federal, state, local and foreign environmental laws and regulations,
including those relating to the use, handling, storage, discharge and disposal
of hazardous substances and the remediation of environmental contamination. As a
result, Foamex is involved from time to time in administrative and judicial
proceedings and inquiries relating to environmental matters. Foamex is currently
remediating soil and groundwater contamination in excess of state standards at
several of its current and former facilities, and is either removing or
conducting permanent in place closure of its underground storage tanks ("USTs")
pursuant to federal law. Further, Foamex has been designated a Potentially
Responsible Party by the United States Environmental Protection Agency with
respect to 13 sites. Based on information available at this time with respect to
potential liability involving these facilities and sites, and in view of
indemnification by Trace Holdings and Recticel Foam Corporation ("RFC")
associated with the partnership formation of Foamex, Foamex believes that any
such liability would not have a material adverse effect on its financial
position or results of operations. If management's assessment of Foamex's
liability with respect to these facilities and sites is incorrect, such
liabilities could have a material adverse effect on Foamex.
In addition, as a result of the Crain Acquisition, Foamex has become
responsible for environmental liabilities associated with the pre-acquisition
operations of Crain. Based on information available at this time with respect to
potential liability involving these facilities and sites, Foamex believes that
any such liability would not have a material adverse effect on its financial
position or results of operations. If management's assessment of Foamex's
14
<PAGE>
liability with respect to the Crain facilities and sites is incorrect, such
liabilities could have a material adverse effect on Foamex.
Foamex cannot predict what environmental legislation or regulations will be
enacted in the future, how existing or future laws or regulations will be
administered or interpreted or what environmental conditions may be found to
exist on its properties. Compliance with more stringent laws or regulations, as
well as more vigorous enforcement policies of the regulatory agencies or
stricter interpretation of existing laws, and discovery of new conditions may
require additional expenditures by Foamex, some of which may be material. See
"Business--Environmental Matters" and "Business--Legal Proceedings."
Litigation
As of November 3, 1997, Foamex and Trace Holdings were two of multiple
defendants in actions filed on behalf of approximately 5,500 recipients of
breast implants in various United States federal and state courts and one
Canadian provincial court. Some of these actions allege substantial damages, but
most of these actions allege unspecified damages for personal injuries of
various types. Three of these cases seek to allege claims on behalf of all
breast implant recipients or other allegedly affected parties, but no class has
been approved or certified by the court. In addition, three cases have been
filed alleging claims on behalf of approximately 700 residents of Australia, New
Zealand, England and Ireland. Foamex believes that the number of suits and
claimants may increase. During 1995, Foamex and Trace Holdings were granted
summary judgments and dismissed as defendants from all such cases in the federal
courts of the United States and the state courts of California. Appeals for
these decisions were withdrawn and the decisions are final.
Although breast implants do not contain foam, certain silicone gel implants
were produced using a polyurethane foam covering fabricated by independent
distributors or fabricators from bulk foam purchased from Foamex or Trace
Holdings. Neither Foamex nor Trace Holdings recommended, authorized, or approved
the use of its foam for these purposes. Foamex is indemnified by Trace Holdings
for any such liabilities relating to foam manufactured prior to October 1990.
Although Trace Holdings has paid Foamex's litigation expenses to date pursuant
to such indemnification and Foamex believes Trace Holdings likely will be in a
position to continue to pay such expenses, there can be no absolute assurance
that Trace Holdings will be able to provide such indemnification. While it is
not feasible to predict or determine the outcome of these actions, based on
Foamex's present assessment of the merits of pending claims, after consultation
with the general counsel of Trace Holdings, and without taking into account the
indemnification provided by Trace Holdings, the coverage provided by Trace
Holdings' and Foamex's liability insurance and the potential indemnity from the
manufacturers of polyurethane foam covered breast implants, Foamex believes that
the disposition of matters that are pending or that may reasonably be
anticipated to be asserted should not have a material adverse effect on either
Foamex's or Trace Holdings' consolidated financial position or results of
operations. If Foamex's assessment of liability with respect to these actions is
incorrect, such actions could have a material adverse effect on Foamex.
Foamex and its subsidiaries are involved in a number of litigation matters
which have arisen in the ordinary course of business. Foamex believes that the
outcome of these legal proceedings will not have a material adverse effect on
Foamex's financial condition or results of operations. See "Business--Legal
Proceedings."
Limitations on Ability to Make Change of Control Payment
The Indenture requires the Issuers, in the event of a Change of Control, to
make an offer to repurchase the Notes at 101% of the principal amount thereof,
plus accrued and unpaid interest and Liquidated Damages, if any, to the date of
repurchase. Certain events involving a Change of Control may give rise to a
similar repurchase obligation or constitute an event of default under the 9 7/8%
Notes Indenture, the Credit Facility or other indebtedness of the Issuers that
may be incurred in the future. Moreover, the exercise by the holders of the
Notes of their right to require the Issuers to repurchase the Notes may cause a
default under the 9 7/8% Notes Indenture, the Credit Facility or such other
indebtedness even if the Change of Control does not constitute an event of
default. Additionally, there can be no assurance that the Issuers will have the
financial resources necessary to repurchase the Notes upon a Change of Control.
In addition, the obligation to make an offer to repurchase upon the occurrence
of a Change of Control may be waived by the holders of a majority of the
outstanding principal amount of the Notes. See "Description of Notes--Repurchase
at the Option of Holders--Change of Control."
15
<PAGE>
Competition
The flexible polyurethane foam market in which Foamex operates is highly
competitive. Some of Foamex's competitors are larger than Foamex and may have
greater financial and other resources available to them and there can be no
assurance that Foamex can compete successfully with such other companies. See
"Business--Competition."
Absence of Public Market for the New Notes
There is no public market for the New Notes, and the New Notes will not be
listed on a securities exchange and they may trade at a discount from their
principal amount, depending upon a number of factors, including the market for
similar securities, prevailing interest rates and the financial condition of the
Issuers. Accordingly, no assurance can be given that a holder of New Notes will
be able to sell such New Notes in the future or that any such sale will be at a
price equal to or higher than the price paid by Holders of such New Notes.
See "Plan of Distribution."
The liquidity of, and trading market for, the Notes also may be adversely
affected by general declines in the market for similar securities. Such a
decline may adversely affect such liquidity and trading markets independent of
financial performance of, and prospects for, the Issuers.
Dependence on Certain Industries
A substantial portion of Foamex's foam products are principally used in the
automotive, furniture, bedding and carpet industries. Accordingly, a downturn in
such industries could adversely affect Foamex. Furthermore, an overall downturn
in the economy could adversely affect the markets which Foamex serves.
16
<PAGE>
THE CRAIN ACQUISITION
Pursuant to definitive agreements entered into as of December 8, 1997,
among Crain Holdings Corp., a Delaware corporation ("Crain Holdings"), certain
stockholders of Crain Holdings, Foamex International and Merger Acquisition
Corp. ("Acquisition Corp."), a wholly owned subsidiary of Foamex International,
Foamex International acquired Crain Holdings on December 23, 1997 through the
Merger of Acquisition Corp. with and into Crain Holdings (the "Merger"). The
aggregate purchase price for the Crain Acquisition was approximately $213.7
million, including the assumption of certain outstanding debt and the issuance
of the Notes.
Prior to the Crain Acquisition, Crain was a fully integrated manufacturer,
fabricator and distributor of a broad range of flexible polyurethane foam and
foam products which are sold to a diverse customer base, principally in the
furniture, bedding and carpeting markets. Management believes that Foamex's
acquisition of Crain (i) strengthens Foamex's market position as the leading
North American producer of foam products, (ii) offers increased penetration in
the Company's existing product lines and adds complementary products lines such
as consumer products, (iii) strengthens the Company's operations geographically,
(iv) provides several proprietary foam-producing processes which serve to lower
overall production costs and are environmentally friendly, and (v) offers
opportunities for significant overhead cost reductions and purchasing and
freight cost efficiencies.
The purchase price for the Crain Acquisition and related fees and expenses
was funded from: (i) the proceeds of $118.0 million of borrowings by
Acquisition Corp. (the "Bridge Loan") and (ii) the issuance by Foamex of the
Notes.
Immediately following consummation of the Merger: (i) Crain was merged with
Crain Holdings, (ii) Crain contributed its retail business to FLLC, (iii) Crain
contributed its interests in FLLC and all of its other assets, subject to all of
its liabilities, to Foamex (the transactions described in clauses (i) through
(iii) are referred to herein as the "Asset Contribution")), and (iv) Foamex
refunded the Bridge Loan through additional borrowings under the Credit
Agreement (the "Bridge Loan Refunding") (collectively, the "Related
Transactions").
For a more complete description of the foregoing, see "Capitalization,"
"Description of Certain Debt Instruments" and "Pro forma Condensed Combined
Financial Information" included elsewhere in this Prospectus.
USE OF PROCEEDS
Foamex will not receive any cash proceeds from the issuance of the New
Notes offered hereby. In consideration for issuing the New Notes as described in
this Prospectus, Foamex will receive in exchange Old Notes in like principal
amount. The Old Notes surrendered in exchange for the New Notes will be retired
and cancelled and cannot be reissued. Accordingly, the issuance of the New Notes
will not result in any change in the indebtedness of Foamex.
17
<PAGE>
CAPITALIZATION
The following table sets forth the cash and cash equivalents and the
capitalization of Foamex as of September 28, 1997, and as adjusted to give pro
forma effect to the Crain Acquisition and the Related Transactions. This table
should be read in conjunction with the consolidated and the condensed
consolidated financial statements and related notes thereto of Foamex included
elsewhere in this Prospectus.
As of September 28, 1997
------------------------
Historical Pro forma
(In thousands)
Cash and cash equivalents ........................ $ 1,078 $ 3,473
========= =========
Short-term borrowings and current portion
of long-term debt ............................... $ 13,535 $ 14,630
--------- ---------
Long-term debt
13 1/2% Senior Subordinated Notes due 2005(1) .... -- 112,700
9 1/2% Senior Secured Notes ...................... 4,523 4,523
11 1/4% Senior Notes(2) .......................... 5,825 5,825
11 7/8% Senior Subordinated Debentures(2)(3) ..... 20,227 20,227
11 7/8% Series B Debentures(2) ................... 45 45
Credit Facility ................................. 320,900 447,122
9 7/8% Senior Subordinated Notes ................. 150,000 150,000
Other(4) ........................................ 18,148 18,609
--------- ---------
Total Long-term debt ......................... 519,668 759,051
Partners' equity (deficit) ....................... (103,596) (103,596)
--------- ---------
Total capitalization ......................... $ 429,607 $ 670,085
========= =========
- - ----------
(1) The Notes have been reflected at their estimated fair market value of $112.7
million with a face value of $98.0 million.
(2) Subsequently redeemed on October 1, 1997.
(3) Net of unamortized debt discount of approximately $0.1 million.
(4) Net of unamortized debt discount of approximately $1.0 million.
18
<PAGE>
PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following pro forma condensed combined financial statements for the
year ended December 29, 1996 and the nine months ended September 28, 1997, give
effect to the Crain Acquisition and the Related Transactions, Crain's
acquisition of the Comfort Clinic Division of Bioclinic Corporation in August
1996 and Crain's acquisition of SIMCO Corporation in May 1997 as though each
such transaction had occurred at the beginning of the earliest period presented.
The Pro forma Condensed Combined Balance Sheet as of September 28, 1997 has been
prepared to give effect to the Crain Acquisition and the Related Transactions as
though such transactions occurred as of September 28, 1997. The pro forma
adjustments are based upon available information and certain assumptions that
Foamex believes are reasonable.
The Crain Acquisition was accounted for using the purchase method of
accounting. Allocations of the purchase price for the Crain Acquisition have
been determined based upon preliminary estimates of fair value and are subject
to change. Differences between the amounts included herein and the final
allocations are not expected to have a material effect on the pro forma
financial information.
Upon consummation of the Crain Acquisition, Foamex initiated a
restructuring/consolidation plan for the two entities. The related costs and
estimated savings associated with this restructuring/consolidation plan have not
been included in the pro forma condensed combined financial statements.
The pro forma condensed combined financial statements should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," and the financial statements and related noted
thereto included elsewhere in this Prospectus. These pro forma financial
statements are presented for illustrative purposes only, and therefore are not
necessarily indicative of the operating results that might have been achieved
had such events occurred as of an earlier date, nor are they indicative of the
operating results which may occur in the future.
19
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
For the year ended December 29, 1996
(dollars in thousands)
<TABLE>
<CAPTION>
Comfort Pro forma
Crain(1) Simco(1) Clinic(1) Adjustments(2)
--------- ------- -------- -------------
<S> <C> <C> <C> <C>
Net Sales ........................... $ 306,093 $16,805 $ 32,938 $ (10,872)(3)
Cost of Goods Sold .................. 243,745 14,380 30,376 (10,872)(3)
--------- ------- -------- ----------
Gross Profit ........................ 62,348 2,425 2,562 --
Selling, General &
Administrative Expenses ............. 35,299 2,025 4,704
Depreciation & Amortization ......... 9,295 5,677 (4,704)(4)
Restructuring and Other
Charges (Credits) .................. --------- ------- -------- ----------
Income (Loss) From
Operations ......................... 17,754 400 (7,819) 4,704
Interest and Debt Issuance
Expense ............................ 16,459 251 913 1,395(5)
Other Income (Expense), Net ......... (304) 11
--------- ------- -------- ----------
Income (Loss) from
Continuing Operations
Before Provision for
Income Taxes ....................... 991 160 (8,732) 3,309
Provision for Income Taxes .......... 395 11 (2,115)(6)
--------- ------- -------- ----------
Income (Loss) from
Continuing Operations .............. $ 596 $ 149 $ (8,732) $ 5,424
========= ======= ======== ==========
<CAPTION>
Pro forma Pro forma
Crain Foamex L.P. Adjustments(2) Combined
-------- ---------- ------------- ----------
<S> <C> <C> <C> <C>
Net Sales ........................... $344,964 $926,351 $1,271,315
Cost of Goods Sold .................. 277,629 773,119 $ 17,370 (7) 1,068,118
-------- -------- ----------- ----------
Gross Profit ........................ 67,335 153,232 (17,370) 203,197
Selling, General &
Administrative Expenses ............. 42,028 56,778 (6,934)(8) 91,872
Depreciation & Amortization ......... 10,268 (10,268)(9) --
Restructuring and Other
Charges (Credits) .................. (6,415) (6,415)
-------- -------- ----------- ----------
Income (Loss) From
Operations ......................... 15,039 102,869 (168) 117,740
Interest and Debt Issuance
Expense ............................ 19,018 43,211 3,340 (10) 65,569
Other Income (Expense), Net ......... (293) 1,705 1,412
-------- -------- ----------- ----------
Income (Loss) from
Continuing Operations
Before Provision for
Income Taxes ....................... (4,272) 61,363 (3,508) 53,583
Provision for Income Taxes .......... (1,709) 7,702 1,709 (11) 7,702
-------- -------- ----------- ----------
Income (Loss) from
Continuing Operations .............. $ (2,563) $ 53,661 $ (5,217) $ 45,881
======== ======== =========== ==========
</TABLE>
See notes to pro forma financial statements.
20
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
For the nine months ended September 28, 1997
(dollars in thousands)
<TABLE>
<CAPTION>
Pro forma Pro forma Pro forma
Crain Simco(1) Adjustments(2) Crain Foamex L.P. Adjustments(2) Combined
----------- ---------- ---------------- ----------- ------------- ------------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Sales $237,890 $6,596 $244,486 $702,441 $946,927
Cost of Goods Sold 186,663 5,301 191,964 576,825 $ 14,732(14) 783,521
-------- ------ -------- -------- -------- ---------- --------
Gross Profit 51,227 1,295 52,522 125,616 (14,732) 163,406
Selling, General &
Administrative Expenses 30,207 565 30,772 46,893 (5,704)(15) 71,961
Depreciation & Amortization 8,661 180 $ 61(12) 8,902 (8,902)(16)
-------- ------ -------- -------- -------- ---------- --------
Income (Loss) From
Operations 12,359 550 (61) 12,848 78,723 (126) 91,445
Interest and Debt Issuance
Expense 13,063 132 462(13) 13,657 33,355 3,111(17) 50,123
Other Income (Expense), Net (120) 8 (112) 1,403 1,291
-------- ------ -------- -------- -------- ---------- --------
Income (Loss) from
Continuing Operations
Before Provision for
Income Taxes (824) 426 (523) (921) 46,771 (3,237) 42,613
Provision for Income Taxes (313) (55)(6) (368) 4,618 368(11) 4,618
-------- ------ -------- -------- -------- ---------- --------
Income (Loss) from
Continuing Operations $ (511) $ 426 $ (468) $ (553) $ 42,153 $ (3,605) $ 37,995
======== ====== ======== ======== ======== ========== ========
</TABLE>
See notes to pro forma financial statements.
21
<PAGE>
PRO FORMA CONDENSED COMBINED BALANCE SHEETS
As of September 28, 1997
(dollars in thousands)
<TABLE>
<CAPTION>
Pro forma
Foamex L.P. Crain Adjustments Combined
---------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Cash & Cash Equivalents ........................ $ 1,078 $ 2,395 $ 3,473
Accounts Receivable, Net ....................... 141,609 49,589 191,198
Inventories .................................... 94,301 37,468 131,769
Other Current Assets ........................... 48,584 3,237 51,821
--------- -------- -------- ---------
Total Current Assets ......................... 285,572 92,689 378,261
Property, Plant & Equipment, Net ............... 195,178 52,184 $ (1,549)(18) 245,813
Cost in Excess of Assets Acquired, Net ......... 82,114 62,527 78,736 (19) 223,377
Debt Issuance Costs, Net ....................... 17,771 10,303 (6,703)(20) 21,371
Other Assets ................................... 20,364 1,821 22,185
--------- -------- -------- ---------
TOTAL ASSETS ................................. $ 600,999 $219,524 $ 70,484 $ 891,007
========= ======== ======== =========
Short-term Borrowings .......................... $ 4,871 $ 4,871
Current Portion of Long-term Debt .............. 8,664 $ 245 $ 850 (21) 9,759
Accounts Payable ............................... 71,952 29,768 101,720
Accounts Payable to Related Parties ............ 16,556 16,556
Accrued Interest ............................... 7,220 1,747 8,967
Other Accrued Liabilities ...................... 48,590 15,534 64,124
--------- -------- -------- ---------
Total Current Liabilities .................... 157,853 47,294 850 205,997
Long-term Debt ................................. 519,668 127,833 111,550 (22) 759,051
Other Liabilities .............................. 27,074 5,092 (2,611)(23) 29,555
Partners' Equity ............................... (103,596) (103,596)
Stockholder's Equity ........................... 39,305 (39,305)(24)
--------- -------- -------- ---------
TOTAL LIABILITIES & EQUITY ................... $ 600,999 $219,524 $ 70,484 $ 891,007
========= ======== ======== =========
</TABLE>
See notes to pro forma financial statements.
22
<PAGE>
FOOTNOTES TO PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS
(dollars in thousands)
(1) Crain's statement of operations includes the results of Comfort Clinic and
SIMCO from their respective acquisition dates of August 1996 and May 1997.
The statement of operations for Comfort Clinic and SIMCO include their
respective pre-acquisition results.
(2) Pro forma adjustments for "Pro forma Crain" represent adjustments relating
to Crain's acquisitions and related financings of Comfort Clinic and SIMCO.
Pro forma adjustments for "Pro forma Combined" represent the adjustments for
the Crain Acquisition and the Related Transactions.
(3) Reflects the elimination of intercompany sales and cost of sales pertaining
to purchases of mattress pads and pillows, as well as foam bun purchases by
Comfort Clinic in the amount of $10,872.
(4) Reflects the following:
(a) Reduction of Comfort Clinic's amortization expense for the goodwill as
if the acquisition had been consummated as of the beginning of the
period in the amount of $4,737.
(b) Estimated pro forma increase for the amortization of goodwill associated
with the SIMCO acquisition of $184.
(c) Adjustment of Comfort Clinic's depreciation expense reflecting a
decrease in historical depreciation expense compared to the step-up in
basis associated with the Comfort Clinic acquisition during the period
in the amount of $151.
(5) Represents the net impact on interest and debt issuance expenses associated
with financing the Comfort Clinic acquisition ($10) and the SIMCO
acquisition ($1,385).
(6) Reflects the effect of the pro forma adjustments and assumes an effective
income tax rate of 40%.
<TABLE>
<S> <C>
(7) Reclassification of depreciation expense to cost of goods sold ....................... $ 7,615
Reclassification of transportation costs from selling, general and administrative
expenses ........................................................................... 11,555
Estimated pro forma reduction in depreciation expense ................................ (1,800)
---------
$ 17,370
=========
(8) Reclassification of amortization and depreciation expense to selling, general, and
administrative expenses ............................................................ $ 2,653
Reclassification of transportation costs to cost of goods sold ....................... (11,555)
Estimated pro forma increase in goodwill amortization ................................ 1,968
---------
$ (6,934)
=========
(9) Reclassification to cost of goods sold ............................................... $ (7,615)
Reclassification to selling, general and administrative expenses ..................... (2,653)
---------
(10,268)
=========
(10) Elimination of historical Crain interest and debt issuance expenses ................... $ (19,018)
Interest and debt issuance costs on related financings ................................ 22,358
---------
$ 3,340
=========
</TABLE>
23
<PAGE>
<TABLE>
<S> <C>
(11) Elimination of pro forma Crain tax benefit since as a result of the Asset
Contribution, Crain's operations will be conducted through a partnership
and not subject to federal and certain state income taxes.
(12) Estimated pro forma increase for the amortization of goodwill associated
with the SIMCO acquisition of $61.
(13) Estimated pro forma increase in interest and debt issuance expensesassociated with
the SIMCO acquisition of $462.
(14) Reclassification of depreciation expense to cost of goods sold ...................... $ 6,532
Reclassification of transportation costs from selling, general and
administrative expenses ........................................................... 9,550
Estimated pro forma reduction in depreciation expense ............................... (1,350)
---------
$ 14,732
=========
(15) Reclassification of amortization and depreciation expense to selling, general, and
administrative expenses ........................................................... $ 2,370
Reclassification of transportation costs to cost of goods sold ...................... (9,550)
Estimated pro forma increase in goodwill amortization ............................... 1,476
---------
$ (5,704)
=========
(16) Reclassification to cost of goods sold .............................................. $ (6,532)
Reclassification to selling, general and administrative expenses .................... (2,370)
---------
$ (8,902)
=========
(17) Elimination of historical Crain interest and debt issuance expenses ................. $ (13,657)
Interest and debt issuance costs on related financings ............................ 16,768
---------
$ 3,111
=========
(18) Reflects an adjustment for equipment excluded from the Crain Acquisition.
For the remaining property, plant and equipment Foamex estimates that the
current book value approximates estimated fair market value.
(19) Elimination of Crain existing cost in excess of assets acquired. .................... $ (61,798)
Estimated excess purchase price of the Crain Acquisition over the estimated fair
value of the net assets acquired in the Crain Acquisition ......................... 140,534
---------
$ 78,736
=========
(20) Elimination of Crain existing deferred financing costs .............................. $ (10,303)
Capitalization of deferred financing fees associated with the Crain Acquisition ..... 3,600
---------
$ (6,703)
=========
(21) Represents current portion of borrowings used to financing the Crain Acquisition.
(22) Repayment of existing Crain revolving credit facility ............................... $ (27,100)
---------
Repayment of unexchanged notes ...................................................... (2,000)
Repayment of other existing indebtedness ............................................ (480)
Reflects borrowings used to finance the Crain Acquisition. .......................... 126,430
Adjustment to reflect the fair market value of Crain's senior subordinated notes .... 14,700
---------
$ 111,550
=========
(23) Elimination of payable to Hicks & Muse.
(24) Elimination of Crain's stockholder's equity.
</TABLE>
24
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION OF FOAMEX
The following table presents selected historical consolidated financial
information of Foamex, for the fiscal years ended January 3, 1993, January 2,
1994, January 1, 1995, December 31, 1995 and December 29, 1996, which have been
derived from the audited consolidated financial statements of Foamex, and for
the nine months ended September 29, 1996 and September 28, 1997, which have been
derived from the unaudited condensed consolidated financial statements of
Foamex. The selected historical consolidated financial information should be
read in conjunction with the consolidated and the condensed consolidated
financial statements and related notes thereto of Foamex included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
Nine Months ended
Fiscal Year (1)(2) September
----------------------------------------------------------------- ----------------------
1992 1993(3) 1994(4) 1995(5) 1996 1996 1997
(In thousands, except ratios)
<S> <C> <C> <C> <C> <C> <C> <C>
Statements of Operations Data:
Net sales ............................. $501,751 $684,310 $833,660 $862,834 $926,351 $696,344 $ 702,441
Gross profit .......................... 69,887 93,704 142,395 100,749 153,232 114,158 125,616
Selling, general and administrative
expenses ............................. 29,931 48,403 57,059 63,466 56,778 42,184 46,893
Restructuring and other charges
(credits)............................. -- 7,400 -- 39,249 (6,415) -- --
-------- -------- -------- -------- -------- -------- ---------
Operating income (loss) ............... 39,956 37,901 85,336 (1,966) 102,869 71,974 78,723
Interest and debt issuance
expense .............................. 18,178 47,375 41,532 44,550 43,211 31,855 33,355
Other income (expense), net ........... 397 1,809 732 (205) 1,705 1,076 1,403
-------- -------- -------- -------- -------- -------- ---------
Income (loss) from continuing
operations before provision for
income taxes ......................... 22,175 (7,665) 44,536 (46,721) 61,363 41,195 46,771
Provision for income taxes(6) ......... 164 261 6,525 1,405 7,702 6,584 4,618
-------- -------- -------- -------- -------- -------- ---------
Income (loss) from continuing
operations ........................... 22,011 (7,926) 38,011 (48,126) 53,661 34,611 42,153
Income (loss) from discontinued
operations, net ...................... -- 194 1,230 (5,117) (42,050) (41,516) --
Extraordinary loss .................... -- (9,921) -- -- (1,912) (672) (45,538)
-------- -------- -------- -------- -------- -------- ---------
Net income (loss) ..................... $ 22,011 $(17,653) $ 39,241 $(53,243) $ 9,699 $ (7,577) $ (3,385)
======== ======== ======== ======== ======== ======== =========
Other Data:
Capital expenditures .................. $ 15,243 $ 21,270 $ 21,201 $ 19,726 $ 23,509 $ 14,536 $ 25,444
Ratio of earnings to fixed
charges(7) ........................... 2.12x --(8) 1.94x --(8) 2.31x 2.18x 2.29x
Balance Sheet Data (at period end):
Cash and cash
equivalents .......................... $ 21,483 $ 3,978 $ 20,019 $ 638 $ 20,968 $ 14,339 $ 1,078
Total assets .......................... 340,900 575,528 654,176 605,892 586,157 592,921 600,999
Long-term debt ........................ 285,762 414,445 441,757 433,956 392,617 409,006 519,668
Partners' equity (deficit) ............ (39,061) 49,386 52,548 (12,604) 12,832 (24,043) (103,596)
</TABLE>
(footnotes on following page)
25
<PAGE>
Notes to Selected Historical Consolidated Financial Information of Foamex
(1) Foamex has a 52-53 week fiscal year ending on the Sunday closest to the end
of the calendar year. Each fiscal year presented was 52 weeks with the
exception of 1992, which was 53 weeks.
(2) Fiscal years 1993 through 1995 have been restated for discontinued
operations resulting from the sale of Perfect Fit Industries, Inc. ("Perfect
Fit"). In addition, fiscal years 1994 and 1995 and the nine months ended
September 30, 1996 have been restated to reflect the contribution of Foamex
Mexico to Foamex from Foamex International because the contribution was
accounted for in a manner similar to a pooling of interests because the
entities were under common control.
(3) Includes the results of operations of General Felt and Great Western from
their respective dates of acquisition of March 23, 1993 and May 1, 1993, and
thus may not be comparable to other periods. Great Western was subsequently
merged into Foamex.
(4) Includes the operations of Foamex Mexico from its date of acquisition of
March 31, 1994, and thus may not be comparable to other periods. See Note
2 above.
(5) Includes results of operations of Foamex Fibers from its date of acquisition
of April 13, 1995, and thus may not be comparable to other periods.
(6) Foamex, as a partnership, is not subject to federal and certain state income
taxes. Provision for income taxes for all periods presented relates to
Canadian income tax and certain state income taxes of Foamex and
additionally subsequent to (i) 1992, the federal and state income taxes of
General Felt, (ii) 1993, Mexican income taxes and (iii) 1994, the state
income taxes of Foamex Fibers which files a consolidated federal tax return
with General Felt.
(7) For purposes of computing this ratio, earnings consist of income (loss)
before income taxes and extraordinary items and fixed charges, adjusted to
exclude capitalized interest. Fixed charges consist of interest expense,
including amounts capitalized, and the portion of operating lease rental
expense that is representative of the interest factor (deemed to be
one-third of operating lease rental expense).
(8) Earnings were insufficient to cover fixed charges by approximately $8.0
million in fiscal year 1993 and approximately $47.0 million in fiscal year
1995. Earnings before fixed charges for the 1993 and 1995 fiscal years were
reduced by non-cash expenses consisting principally of depreciation and
amortization of approximately $21.7 million and $22.9 million, respectively.
26
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION OF GENERAL FELT
The following table presents selected historical consolidated financial
information of General Felt, for the fiscal year ended January 3, 1993, and the
period from January 4, 1993 to March 22, 1993 ("Predecessor Company"), the
period from March 23, 1993 to January 2, 1994 and the fiscal years ended January
1, 1995, December 31, 1995 and December 29, 1996, which have been derived from
the audited consolidated financial statements of the Predecessor Company and
General Felt, and for the nine months ended September 29, 1996 and September 28,
1997, which have been derived from the unaudited condensed consolidated
financial statements of General Felt. The selected historical consolidated
financial information should be read in conjunction with the consolidated and
the condensed consolidated financial statements and related notes thereto of
General Felt included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Predecessor Company
-----------------------------
January 4, March 23,
Fiscal 1993 to 1993 to
Year March 22, January 2,
-------------- -------------- --------------
1992(1) 1993 1994(2)(3)
(In thousands, except ratios)
<S> <C> <C> <C>
Statements of Operations
Data:
Net sales ........................ $190,841 $37,777 $182,240
Gross profit ..................... 22,988 3,460 19,765
Selling, general and
administrative expenses ......... 16,474 3,374 16,217
Restructuring and other
charges (credits) ............... -- -- 1,750
-------- ------- --------
Operating income (loss) .......... 6,514 86 1,798
Interest and debt issuance
expense ......................... 7,686 1,559 4,509
Other income, net ................ 86 19 32
-------- ------- --------
Income (loss) from continuing
operations before provision
for income taxes ................ (1,086) (1,454) (2,679)
Provision for income taxes ....... 338 -- 125
-------- ------- --------
Income (loss) from continuing
operations ...................... (1,424) (1,454) (2,804)
Income (loss) from
discontinued operations, net -- -- 72
-------- ------- --------
Net income (loss) ................ $(1,424) $(1,454) $(2,732)
======== ======= ========
Other Data:
Capital expenditures ............. $ 1,501 $ 296 $ 1,805
Ratio of earnings to fixed
charges(5) ...................... --(6) --(6) --(6)
Balance Sheet Data (at period end):
Cash and cash equivalents ........ $ 68 $ 68 $ 85
Total assets(7) .................. 98,406 97,704 173,506
Long-term debt(8) ................ 60,583 63,576 60,310
Stockholder's equity(7) .......... 9,365 7,910 64,304
<CAPTION>
Fiscal Fiscal Fiscal Nine Months ended
Year Year Year September
----------- -------------- ---------- -----------------------
1994(1)(2) 1995(1)(2)(4) 1996(1)(2) 1996 1997
<S> <C> <C> <C> <C> <C>
(In thousands, except ratios)
Statements of Operations
Data:
Net sales ........................ $290,577 $279,123 $ 302,648 $ 225,836 $ 223,648
Gross profit ..................... 39,457 26,532 39,332 31,919 22,540
Selling, general and
administrative expenses ......... 24,392 22,312 18,819 13,703 14,111
Restructuring and other
charges (credits) ............... -- 14,156 (5,460) -- --
-------- -------- --------- --------- ---------
Operating income (loss) .......... 15,065 (9,936) 25,973 18,216 8,429
Interest and debt issuance
expense ......................... 1,178 1,164 2,179 1,474 765
Other income, net ................ 90 52 1,015 527 147
-------- -------- --------- --------- ---------
Income (loss) from continuing
operations before provision
for income taxes ................ 13,977 (11,048) 24,809 17,269 7,811
Provision for income taxes ....... 5,587 962 6,344 6,693 3,099
-------- -------- --------- --------- ---------
Income (loss) from continuing
operations ...................... 8,390 (12,010) 18,465 10,576 4,712
Income (loss) from
discontinued operations, net (2,293) (11,040) (45,726) (45,192) --
-------- -------- --------- --------- ---------
Net income (loss) ................ $ 6,097 $(23,050) $ (27,261) $ (34,616) $ 4,712
======== ======== ========= ========= =========
Other Data:
Capital expenditures ............. $ 3,391 $ 1,604 $ 2,442 $ 1,799 $ 1,287
Ratio of earnings to fixed
charges(5) ...................... 6.94x --(6) 9.60x 9.97x 7.72x
Balance Sheet Data (at period end):
Cash and cash equivalents ........ $ 72 $ 538 $ 336 $ 668 $ 209
Total assets(7) .................. 175,131 155,497 177,681 189,560 156,805
Long-term debt(8) ................ 50,877 59,556 21,403 39,194 2,227
Stockholder's equity(7) .......... 70,401 49,509 97,019 90,311 101,731
</TABLE>
(footnotes on following page)
27
<PAGE>
Notes to Selected Historical Consolidated Financial Information of General Felt
(1) General Felt has a 52-53 week fiscal year ending on the Sunday closest to
the end of the calendar year. Each fiscal year presented was 52 weeks with
the exception of 1992, which was 53 weeks.
(2) The period from March 23, 1993 to January 2, 1994 and the fiscal years 1994
through 1996 have been restated for discontinued operations resulting from
the sale of Perfect Fit.
(3) On March 23, 1993, Foamex acquired the outstanding common stock of General
Felt for approximately $96.0 million. The acquisition was accounted for
using the purchase method of accounting. Accordingly, the purchase price was
allocated to the assets acquired and liabilities assumed based on their
estimated fair values at the date of acquisition.
(4) Includes results of operations of Foamex Fibers from its date of acquisition
of April 13, 1995, and thus may not be comparable to other periods.
(5) For purposes of computing this ratio, earnings consists of income (loss)
before income taxes and extraordinary items and fixed charges, adjusted to
exclude capitalized interest. Fixed charges consist of interest expense,
including amounts capitalized, and the portion of operating lease rental
expense that is representative of the interest factor (deemed to be
one-third of operating lease rental expense).
(6) Earnings were insufficient to cover fixed charges by approximately $1.1
million in fiscal year 1992, approximately $1.5 million in the period
January 4, 1993 to March 22, 1993, approximately $2.7 million in the period
March 23, 1993 to January 2, 1994 and by approximately $11.0 million in
fiscal year 1995. Earnings before fixed charges for the fiscal year 1992,
the period from January 4, 1993 to March 22, 1993, the period from March 23,
1993 to January 2, 1994 and for fiscal year 1995 were reduced by non-cash
expenses consisting principally of depreciation and amortization of
approximately $7.5 million, $1.6 million, $5.6 million and $4.5 million,
respectively.
(7) On March 23, 1993, Foamex contributed approximately $46.3 million to General
Felt in connection with the acquisition of General Felt by Foamex. During
1996, Foamex contributed intercompany notes of approximately $74.7 million
to General Felt in connection with the sale of Perfect Fit.
(8) During fiscal years 1996 and 1997, General Felt used approximately $31.5
million and $12.1 million, respectively, of the net proceeds from sale of
Perfect Fit to reduce the long-term debt.
28
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION OF FOAMEX FIBERS
The following table presents selected historical consolidated financial
information of: (i) Foamex Fibers (successor to GS Industries, Inc. and Pontotoc
Fibers, Inc.) for the period from April 13, 1995 to December 31, 1995 and for
the fiscal year ended December 29, 1996, which were derived from the audited
financial statements of Foamex Fibers, (ii) the combined historical financial
information of GS Industries, Inc. and Pontotoc Fibers, Inc. (collectively, the
"Predecessor Company") for the year ended December 31, 1994 and for the period
from January 1, 1995 to April 12, 1995, which have been derived from the audited
financial statements of Foamex Fibers, and (iii) the historical financial
information of Foamex Fibers for the nine months ended September 29, 1996 and
September 28, 1997, which have been derived from the unaudited condensed
financial statements of Foamex Fibers. The following table also presents the
selected combined historical financial information of the Predecessor Company
for the years ended December 31, 1992 and 1993, which have been derived from the
unaudited combined financial statements of the Predecessor Company. The selected
historical financial information should be read in conjunction with the
financial statements and the condensed financial statements and related notes
thereto of Foamex Fibers included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Predecessor Company
--------------------------------------------
January 1, April 13,
1995 to 1995 to
April December Fiscal Nine Months ended
Fiscal Year 12, 31, Year September
------------------------------ --------- --------- ------- ------------------
1992 1993(1) 1994(1) 1995 1995(2) 1996(1) 1996 1997
- - ---------------------------------------------------------------------------------------------------------------------------
(In thousands, except ratios)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statements of Operations Data:
Net sales .......................... $14,397 $17,827 $16,778 $5,577 $14,112 $21,410 $16,034 $17,627
Gross profit ....................... 1,267 2,118 3,213 997 2,164 4,567 3,431 3,793
Selling, general and
administrative expenses ........... 907 1,282 1,497 336 980 1,257 858 937
------- ------- ------- ------ ------- ------- ------- -------
Operating income ................... 360 836 1,716 661 1,184 3,310 2,573 2,856
Other expense, net ................. 112 163 29 6 12 7 8 2
------- ------- ------- ------ ------- ------- ------- -------
Income from continuing
operations before provision
for income taxes .................. 248 673 1,687 655 1,172 3,303 2,565 2,854
Provision for income taxes(3) ...... -- -- -- -- 469 1,232 948 1,053
------- ------- ------- ------ ------- ------- ------- -------
Net Income ......................... $ 248 $ 673 $ 1,687 $ 655 $ 703 $ 2,071 $ 1,617 $ 1,801
======= ======= ======= ====== ======= ======= ======= =======
Other Data:
Capital expenditures ............... $ 428 $ 525 $ 491 $ 587 $ 191 $ 669 $ 402 $ 699
Balance Sheet Data (at period end):
Cash and cash equivalents(4) ....... $ 225 $ 462 $ 1,021 $1,622 $ 469 $ 156 $ 279 $ 192
Total assets ....................... 4,605 4,747 5,945 7,113 9,894 13,314 12,655 16,398
Long-term debt(4) .................. 4,430 4,470 4,198 938 -- -- -- --
Stockholder's equity (deficit) ..... (592) (261) 964 1,468 7,975 10,046 9,592 11,847
</TABLE>
(footnotes on following page)
29
<PAGE>
Notes to Selected Historical Financial Information of Foamex Fibers
(1) Foamex Fibers has a 52-53 week fiscal year ending on the Sunday closest to
the end of the calendar year. The Predecessor Company's year ended on
December 31.
(2) On April 13, 1995, Foamex Fibers acquired certain assets and assumed certain
liabilities of the Predecessor for aggregate consideration of approximately
$8.0 million, including related fees and expenses. The acquisition was
accounted for using the purchase method of accounting.
(3) The stockholders of the Predecessor Company had elected S Corporation status
under the provisions of the Internal Revenue Code. Accordingly, the
Predecessor Company was not subject to federal income taxes.
(4) The stockholders of the Predecessor Company retained the cash and long-term
debt of the Predecessor Company in connection with the acquisition by Foamex
Fibers.
30
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION OF CRAIN
The following table presents selected historical consolidated financial
information of Crain, for the fiscal years ended August 28, 1992, August 27,
1993, August 26, 1994 and August 25, 1995, the four months ended December 31,
1995 and the year ended December 31, 1996, which have been derived from the
audited consolidated financial statements of Crain and the Predecessor (as
defined), and for the nine months ended September 30, 1996 and September 30,
1997, which have been derived from the unaudited consolidated financial
statements of Crain. The selected historical consolidated financial information
should be read in conjunction with the consolidated financial statements and
related notes thereto of Crain included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Predecessor Company
-------------------------------------------------
Fiscal Year
-------------------------------------------------
1992(1) 1993(1) 1994(1) 1995(1)
--------- -------- --------- ---------
(in thousands, except ratios)
<S> <C> <C> <C> <C>
Statements of Operations Data:
Net sales .............................. $ 166,163 $180,769 $ 232,826 $ 258,895
Cost of Sales .......................... 124,221 142,104 180,575 210,459
Selling, general and
administrative expenses ............... 25,893 27,007 28,404 32,673
Depreciation and amortization .......... 4,060 4,290 4,962 5,286
--------- -------- --------- ---------
Operating income (loss) ................ 11,989 7,368 18,885 10,477
Interest expense ....................... 1,939 2,016 2,564 3,431
Amortization of deferred
financing costs ....................... -- -- -- --
Other income (expense), net(2) ......... 13 (332) 223 2,510
--------- -------- --------- ---------
Income (loss) before provision
for income taxes ...................... 10,063 5,020 16,544 9,556
Provision (benefit) for
income taxes .......................... -- -- -- --
--------- -------- --------- ---------
Net income (loss) ...................... $ 10,063 $ 5,020 $ 16,544 $ 9,556
========= ======== ========= =========
Other Data:
Capital expenditures ................... $ 2,898 $ 11,246 $ 6,505 $ 11,754
Ratio of earnings to
fixed charges(3) ...................... 3.7x 2.3x 4.4x 2.6x
Balance Sheet Data
(at period end):
Cash and cash equivalents .............. $ 1,812 $ 2,170 $ 2,859 $ 4,057
Total assets ........................... 68,107 86,470 105,985 121,835
Long-term debt ......................... 18,008 28,634 35,908 42,263
Stockholder's equity (deficit) ......... 32,351 34,685 42,371 46,265
<CAPTION>
Four
months
ended Year Nine Months ended
December 31, Ended September
------------ -------- -----------------------
1995(1) 1996 1996 1997
------------ -------- --------- --------
(in thousands, except ratios)
<S> <C> <C> <C> <C>
Statements of Operations Data:
Net sales .............................. $96,463 $306,093 $ 226,191 $237,890
Cost of Sales .......................... 77,855 243,745 180,111 186,663
Selling, general and
administrative expenses ............... 10,438 35,299 25,206 30,207
Depreciation and amortization .......... 2,439 9,295 6,567 8,661
-------- -------- --------- --------
Operating income (loss) ................ 5,701 17,754 14,307 12,359
Interest expense ....................... 5,156 14,618 10,851 11,567
Amortization of deferred
financing costs ....................... 597 1,841 1,268 1,496
Other income (expense), net(2) ......... (103) (304) 24 (120)
-------- -------- --------- --------
Income (loss) before provision
for income taxes ...................... (155) 991 2,212 (824)
Provision (benefit) for
income taxes .......................... 91 395 938 (313)
-------- -------- --------- --------
Net income (loss) ...................... $ (246) $ 596 $ 1,274 $ (511)
======== ======== ========= ========
Other Data:
Capital expenditures ................... $ 2,141 $ 11,030 $ 8,887 $ 4,325
Ratio of earnings to
fixed charges(3) ...................... --(4) 1.05x 1.15x --(4)
Balance Sheet Data
(at period end):
Cash and cash equivalents .............. $ 1,983 $ 6,102 $ 1,822 $ 2,395
Total assets ........................... 183,858 198,876 182,825 219,524
Long-term debt ......................... 116,337 118,318 110,240 128,078
Stockholder's equity (deficit) ......... 24,282 29,842 25,456 39,305
</TABLE>
(footnotes on following page)
31
<PAGE>
Notes to Selected Historical Consolidated Financial Information of Crain
(1) Crain changed its year end from a fiscal year ending on the last Friday in
August to a calendar year end effective December 31, 1995.
(2) During 1995, the predecessor of Crain (the "Predecessor") recognized a gain
of $2,434 on an insurance settlement related to a fire at one of its
facilities.
(3) For purposes of computing this ratio, earnings consists of income (loss)
before income taxes, extraordinary items and fixed charges, adjusted to
exclude capitalized interest. Fixed charges consist of interest expense,
including amounts capitalized and the amortization of deferred financing
costs, and the portion of operating lease rental expense that is
representative of the interest factor (deemed to be one-third of operating
lease rental expense).
(4) Earnings were insufficient to cover fixed charges by approximately $0.2
million in the four months ended December 31, 1995 and $0.8 million for the
nine months ended September 30, 1997. Earnings before fixed charges for the
four months ended December 31, 1995 and for the nine months ended September
30, 1997 were reduced by non-cash expenses consisting principally of
depreciation and amortization or approximately $2.4 million and $8.7
million, respectively.
32
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
Foamex is the largest manufacturer and marketer of flexible polyurethane
and advanced polymer foam products in North America. Foamex's products are
utilized primarily in six end-markets: (i) carpet cushion and other carpet
products, (ii) cushioning foams, including bedding products, (iii) furniture
products for furniture manufacturers and packaging, (iv) automotive
applications, including trim and accessories, (v) specialty and technical
applications, including those for filtration, gasketing and sealing and (vi)
consumer products. Foamex is the largest North American producer of foams used
for carpet cushion, automotive applications and specialty and technical products
and is a leading North American producer of cushioning foams. The Company has
recently refocused its business on the flexible polyurethane and advanced
polymer foam business by acquiring Crain in December 1997 and previously
divesting non-foam business segments. Management believes that a focus in the
foam business will allow Foamex to concentrate management, financial and
operational resources and will position Foamex to pursue its growth strategy of
developing new products, improving profitability and expanding internationally.
Prior to the second quarter of 1997, the cushioning foams and furniture
product markets were treated as a single product group; therefore, all
historical data in this Prospectus reflects cushioning foam and furniture
products as the single product group "cushioning foam."
Operating results for 1998 are expected to be influenced by various
internal and external factors. These factors include, among other things, (i)
consolidation of the Crain business, (ii) continued implementation of the
continuous improvement program to improve Foamex's profitability, (iii)
additional raw material cost increases, if any, by Foamex's chemical suppliers,
(iv) Foamex's success in passing on to its customers selling price increases to
recover such raw material cost increases and (v) fluctuations in interest rates.
On December 23, 1997, Foamex acquired Crain pursuant to a merger
transaction with Crain Holdings for an aggregate consideration of approximately
$213.7 million, including the assumption of debt. Management believes that based
on net sales, Crain was the third largest domestic producer of flexible
polyurethane foam and foam products in the United States. The Crain Acquisition
provided a fully integrated manufacturer, fabricator and distributor of a broad
range of flexible polyurethane foam and foam products which are sold to a
diverse customer base, principally in the furniture, bedding and carpet cushion
markets. Management believes that Foamex's acquisition of Crain (i) strengthens
Foamex's market position as the leading North American producer of foam
products, (ii) offers increased penetration in the Company's existing product
lines and adds complementary products lines such as consumer products, (iii)
strengthens the Company's operations geographically, (iv) provides several
proprietary foam-producing processes which serve to lower overall production
costs and are environmentally friendly, and (v) offers opportunities for
significant overhead cost reductions and purchasing and freight cost
efficiencies.
Following consummation of the Crain Acquisition, Foamex initiated a
restructuring/consolidation plan for the two entities. The related costs and
estimated savings associated with this restructuring/consolidation plan have not
been included in the pro forma condensed combined financial statements. See "Pro
forma Condensed Combined Financial Information." Foamex expects to take charges
in the range of $21.0 million to $26.0 million in the fourth quarter of 1997
related to the restructuring/consolidation of Foamex's operations in connection
with the Crain Acquisition and the Related Transactions. In addition, Foamex
expects to take fourth quarter special charges and write-offs for fixed asset
impairments, charges associated with start-up operations and reserves relating
to inventory and accounts receivable in the range of $14.0 million to $17.0
million.
Refinancing Plan
On June 12, 1997, Foamex's parent, Foamex International, completed a
refinancing plan (the "Refinancing Plan") which included (i) a tender offer
pursuant to which Foamex purchased (a) $99.8 million of the $104.3 million
outstanding principal amount of the Senior Secured Notes, (b) $130.1 million of
the $135.9 million outstanding principal amount of the Senior Notes, (c) $105.5
million of the $125.8 million outstanding principal amount of the Senior
Subordinated Debentures, (d) substantially all of the $7.0 million outstanding
principal amount of the Series B Debentures and (e) all $116.7 million
outstanding principal amount of the Foamex-JPS Automotive L.P. ("FJPS") Discount
Debentures; (ii) the repayment of $5.2 million of borrowings under its then
existing credit facility (the "Existing Credit Facility"); and (iii) the payment
of fees and expenses. In addition, the indentures pursuant
33
<PAGE>
to which the Senior Secured Notes, Senior Notes, Senior Subordinated Debentures
and Series B Debentures were issued were amended to remove substantially all of
the restrictive covenants. Foamex incurred an extraordinary loss on the early
extinguishment of debt associated with the Refinancing Plan of approximately
$44.5 million. The Refinancing Plan was funded by $347.0 million of borrowings
under the Credit Facility and the net proceeds from the issuance of $150.0
million principal amount of 9 7/8% Notes.
The Refinancing Plan was designed to reduce Foamex International's interest
expense and increase its operating and financial flexibility. After giving
effect to the Refinancing Plan, Foamex International reduced total debt net of
cash from $726.2 million at December 31, 1995 to $553.1 million at June 29,
1997. Also, after giving effect to the Refinancing Plan, Foamex International's
pro forma interest expense for the 52 weeks ended June 29, 1997 would have
decreased $5.6 million and, after the retirement of long-term debt with the net
proceeds of the divestitures in 1996, Foamex International's pro forma interest
expense for the same period would have decreased an additional $1.3 million. In
addition, the Refinancing Plan eliminated the FJPS Discount Debentures thereby
eliminating approximately $2.3 million of additional interest expense that would
have been incurred by Foamex International over the next 12 months as compared
to the previous 12 months.
As a result of the Refinancing Plan, Foamex's total long-term debt
increased by $150.1 million to $546.3 million, and variable rate debt comprises
a larger percentage of Foamex's overall indebtedness than in the past, and as a
result, future fluctuations in interest rates will have a greater impact on
Foamex's interest expense than in the past. Foamex expects the Refinancing Plan
to result in increased interest expense of approximately $2.5 million in the
second half of 1997 as compared to the first half of 1997, and annualized
increased interest expense of approximately $5.0 million, as compared to the
debt structure prior to the Refinancing Plan, assuming no material changes in
interest rates, and without giving effect to the indebtedness incurred in the
Crain Acquisition. Foamex's future interest expense will vary based on a variety
of factors, including fluctuations in interest rates in general.
Foamex redeemed on October 1, 1997 approximately $26.0 million of the
approximately $30.0 million of Foamex's outstanding public debt that was not
tendered as part of the Refinancing Plan. The redemption was funded with
borrowings under the Credit Facility. In connection with this redemption, Foamex
is expected to incur an extraordinary loss on the early extinguishment of debt
of approximately $2.6 million in the fourth quarter of 1997.
During July 1997, Foamex International announced the creation of a new
senior management operating committee to simplify Foamex's management and
reporting structure and to position Foamex to achieve its strategic goals which
include: (i) to focus on its core flexible polyurethane operations in the
automotive, carpet cushion, technical, cushioning and furniture markets
(furniture sales were previously combined with cushioning sales), (ii) to
maximize revenue growth by increasing market share in existing markets,
introducing new and enhanced foam products with higher margins and pursuing
international opportunities and (iii) to continue to lower its cost structure.
On October 6, 1997, Foamex sold its needlepunch carpeting, tufted carpeting
and artificial grass products business, located in Dalton, Georgia to Bretlin,
Inc., a subsidiary of The Dixie Group, Inc. The sales price was approximately
$41.0 million, net of post-closing adjustments which were finalized in December
1997. Foamex used the net proceeds of the sale to reduce long-term debt.
1995 Operational Reorganization
In November 1995, Foamex's parent, Foamex International, announced the 1995
Operational Reorganization to focus on its core flexible polyurethane and
advanced polymer foam business, enhance shareholder value and maximize future
profitability through a series of operational improvements, asset sales and the
reduction of long-term debt. In connection with the 1995 Operational
Reorganization, Foamex International sold JPS Automotive, a manufacturer of
automotive fabric and carpet, and Foamex sold Perfect Fit, a manufacturer of
fabric-based home comfort products. These divestitures have resulted in a
decrease of total debt for Foamex International by approximately $248.4 million.
In addition, on October 6, 1997, Foamex sold its Dalton, Georgia needlepunch
carpeting, tufted carpeting and artificial grass products business. Foamex used
the net sale proceeds to reduce total debt by $38.8 million during October 1997.
As part of the 1995 Operational Reorganization, Foamex implemented a plan
to improve its profitability through (i) the realignment of management to
correspond with product groups, (ii) the consolidation of foam production,
fabrication or branch locations resulting in the elimination of 12 facilities, a
reduction of approximately 300 employees representing approximately 7% of the
work force, and an improved utilization of its remaining
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production capacity, (iii) the implementation of additional procedures to reduce
manufacturing costs, including process redesign to eliminate non-value added
operations, (iv) the reduction of selling, general and administrative expenses
through cost containment and (v) the reduction of inventory levels through
improved forecasting and the elimination of inventories associated with closed
facilities. As an example of the improved utilization of the remaining
facilities, Foamex increased the average output per pouring plant by 19% from
1995 to 1996, and by approximately 7.4% for the first nine months of 1997 as
compared to the first nine months of 1996.
Price and Availability of Raw Materials
Historically, the price of raw materials has been cyclical and volatile,
and Foamex's principal suppliers of raw materials used in the manufacture of
flexible polyurethane foam have increased the price of raw materials several
times since September 1994. Significant increases in raw material prices could
have a material adverse effect on the financial condition or results of
operations of Foamex. Foamex attempts to offset raw material cost increases
through selling price increases; however, there can be no assurance that Foamex
will be successful in implementing selling price increases or that competitive
pricing pressure will not require Foamex to adjust selling prices. Results of
operations have been and could be adversely affected by delays in implementing,
or the inability of Foamex to implement, selling price increases to offset raw
material cost increases. For example, Foamex estimates that in 1995 the amount
of net unrecovered raw material cost increases was approximately $25.0 million.
See "Risk Factors--Price and Availability of Raw Materials."
The principal suppliers to the foam industry announced raw material price
increases effective April 1997. The impact of the raw material cost increases
were not significant during the second quarter of 1997. However, Foamex
estimates the raw material cost increases, net of sale price increases to
customers, had an unfavorable impact of approximately $2.0 million during the
third quarter of 1997. Foamex believes that due to expected increases in
capacity during the next two years for TDI and polyol, it will be more difficult
for Foamex's suppliers to raise raw material prices in the future. There can be
no assurance that chemical suppliers will not increase raw material costs in the
future or that Foamex will be able to implement selling price increases to
offset any such raw material cost increases.
Results of Operations
Nine Months Ended September 28, 1997 Compared to Nine Months Ended September
29, 1996
Foamex
Net sales for the nine months ended September 28, 1997 were $702.4 million
as compared to $696.3 million in the nine months ended September 29, 1996, an
increase of $6.1 million or 0.9%. Carpet cushion products net sales for the nine
months ended September 28, 1997 decreased 1.0% to $214.9 million from $217.2
million in the nine months ended September 29, 1996 primarily due to a change in
product mix and competitive pricing pressure resulting from an excess supply of
foam trim, the primary component of rebond carpet cushion. Cushioning products
net sales for the nine months ended September 28, 1997 increased 4.4% to $167.6
million from $160.5 million in the nine months ended September 29, 1996
primarily due to an increase in net sales from both new and existing customers
of bedding related products. Furniture products net sales for the nine months
ended September 28, 1997 of $92.1 million were consistent as compared to net
sales of $91.5 million for the nine months ended September 29, 1996. Automotive
products net sales for the nine months ended September 28, 1997 decreased 2.2%
to $171.4 million from $175.2 million for the nine months ended September 29,
1996 primarily due to increased selling prices implemented during the first
quarter of 1996 offset by reduced net sales volume in 1997 as compared to 1996
resulting from reduced car and light truck builds due to temporary production
shut-downs at several Chrysler and Ford facilities, slower than expected
start-up of several new platforms and labor strikes at both Chrysler and General
Motors plants during the second quarter of 1997. Technical products net sales
for the nine months ended September 28, 1997 increased 8.8% to $56.4 million
from $51.9 million in the nine months ended September 29, 1996 primarily due to
increased net sales volume.
Gross profit as a percentage of net sales increased to 17.9% for the nine
months ended September 28, 1997 from 16.4% in the nine months ended September
29, 1996 primarily due to selling price increases, improved material and
production efficiencies and manufacturing cost containment which include (i) the
impact during 1997 of the selling prices initiated in 1996 to offset previous
raw material cost increases, (ii) favorable raw material efficiencies
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and (iii) an increased favorable impact of the 1995 restructuring and
operational plan in 1997 as compared to 1996. These increases were offset by
approximately $2.0 million of unrecovered raw material costs during the third
quarter of 1997.
Income from operations increased to $78.7 million for the nine months ended
September 28, 1997 from $72.0 million in the nine months ended September 29,
1996 primarily due to improved gross profit margins as discussed above, offset
by a $4.7 million increase in selling, general and administrative expenses
during 1997 as compared to the comparable period for 1996. The increase in
selling, general and administrative expenses is primarily due to increases in
employee compensation and incentives, research and development costs, and travel
and promotion costs associated with the launching of new products and
international expansion.
Income from continuing operations increased to $42.2 million for the nine
months ended September 28, 1997 as compared to $34.6 million in the nine months
ended September 29, 1996. The increase is primarily due to the reasons cited
above offset by an increase in interest and debt issuance expense of $1.5
million. The increase in interest and debt issuance expense is primarily due to
a decrease in the favorable impact from the interest rate swap agreements in the
third quarter of 1997 as compared to the third quarter of 1996 and is also due
to the higher level of outstanding indebtedness in 1997 as compared to 1996 as a
result of the Refinancing Plan. Loss from discontinued operations for 1996
represents the loss on disposal and the operating loss of Perfect Fit which was
sold during 1996. See Note 2 to the condensed consolidated financial statements
for further discussion. The decrease in the effective income tax rate for
continuing operations for 1997 as compared to 1996 is primarily due to a
decrease in pre-tax earnings and the related tax provision of a subsidiary that
files federal income tax returns.
The extraordinary loss on early extinguishment of debt of approximately
$45.5 million during 1997 relates to premium and consent fee payments, the
write-off of debt issuance costs and other charges associated with the early
extinguishment of approximately $359.3 million of aggregate principal amount of
debt in connection with the Refinancing Plan and other debt extinguishment
during 1997. See Note 4 to the condensed consolidated financial statements for
further discussion. The extraordinary loss on early extinguishment of debt of
approximately $0.7 million during 1996 primarily relates to the write-off of
debt issuance costs associated with the early extinguishment of $12.0 million of
bank term loan borrowings.
Foamex Capital Corporation
FCC is solely a co-issuer of certain indebtedness of Foamex and has no
other material operations.
General Felt
Net sales for the nine months ended September 28, 1997 were $223.6 million
as compared to $225.8 million for the nine months ended September 29, 1996, a
decrease of $2.2 million, or 1.0%. The decrease is primarily due to a change in
product mix and competitive pricing pressure resulting from an excess supply of
foam trim, the primary component of rebond carpet cushion.
Gross profit as a percentage of net sales decreased to 10.1% for the nine
months ended September 28, 1997 from 14.1% in the nine months ended September
29, 1996 primarily due to increased shipments of lower margin carpet cushion
products and competitive pricing pressure.
Operating income decreased to $8.4 million for the nine months ended
September 28, 1997 as compared to $18.2 million for the nine months ended
September 29, 1996 primarily due to the reasons discussed above. Selling,
general and administrative expenses of $14.1 million for the nine months ended
September 28, 1997 were fairly consistent as compared to $13.7 million for the
nine months ended September 29, 1996.
The effective income tax rate remained fairly consistent at 40% for 1997 as
compared to 39% for 1996.
The loss from discontinued operations for 1996 relates to the loss on
disposal and the operating loss of Perfect Fit which was sold during 1996.
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Foamex Fibers
Net sales for the nine months ended September 28, 1997 were $17.6 million
as compared to $16.0 million for the nine months ended September 29, 1996, an
increase of $1.6 million or 9.9%. The increase is primarily due to increased net
sales volume of certain products during 1997 and the effect of increased selling
prices that were initiated during 1996.
Gross profit as a percentage of net sales remained fairly consistent at
21.5% for the nine months ended September 28, 1997 as compared to 21.4% in the
nine months ended September 29, 1996.
Income from operations increased to $2.9 million for the nine months ended
September 28, 1997 as compared to $2.6 million for the nine months ended
September 29, 1996 primarily due to the reasons discussed above. Selling,
general and administrative expenses of $0.9 million for the nine months ended
September 28, 1997 were consistent as compared to the nine months ended
September 29, 1996.
The effective tax rate remained constant at 37% for 1997 as compared to
1996.
Nine Months Ended September 30, 1997 Compared to the Nine Months Ended
September 30, 1996
Crain
Net sales for the nine months ended September 30, 1997 were $237.9 million
compared to $226.2 million for the same period in 1996, which represented an
increase of $11.7 million or 5.2%. This increase in net sales was primarily due
to the incremental sales associated with the acquisitions of the Comfort Clinic
Division of Bio Clinic Corporation ("Comfort Clinic") (October 18, 1996) and
SIMCO Corporation ("Simco") (May 5, 1997) (the "Acquisitions"), combined with an
increase in carpet cushion sales volume. This performance was partially offset
by pricing pressures experienced during the year, certain softness within the
furniture industry and a decline in carpet cushion prices resulting from
decreasing scrap foam prices.
Cost of goods sold as a percent of sales improved to 78.5% for the nine
months ended September 30, 1997 from 79.6% for the nine months ended September
30, 1996. The change was primarily due to cost improvement activities
implemented during the year and cost reductions achieved from plant
consolidations made in 1996, partially offset by certain raw material price
increases experienced during the third quarter of 1997.
Selling, general and administrative expenses were $30.2 million for the
nine months ended September 30, 1997 as compared to $25.2 million for the same
period of 1996. This increase of $5.0 million primarily reflected the
incremental costs associated with the Acquisitions.
Year Ended December 29, 1996 Compared to Year Ended December 31, 1995
Foamex
Net sales for 1996 were $926.4 million as compared to $862.8 million in
1995, an increase of $63.6 million or 7.4%. Carpet cushion net sales for 1996
increased 7.5% to $291.3 million from $271.0 million in 1995 primarily due to
increased selling prices initiated during the second quarter of 1996 as well as
increased volume of shipments due to improved carpet sales. Cushioning foam net
sales for 1996 increased 7.4% to $332.9 million from $310.0 million in 1995
primarily due to increased net sales volume from both new and existing customers
of bedding related products, increased selling prices initiated at the beginning
of 1996 and a full year of results for a company acquired in April 1995 which
manufactures cushioning products. Automotive foam net sales for 1996 increased
5.5% to $231.9 million from $219.8 million in 1995 primarily due to a continued
increase in net sales of tri-laminates and composite headliners and increased
selling prices initiated at the beginning of 1996. Specialty and technical foam
net sales for 1996 increased 13.4% to $70.3 million from $62.0 million in 1995
primarily due to increased selling prices and increased net sales volume.
Gross profit as a percentage of net sales increased to 16.5% for 1996 from
11.7% in 1995 primarily due to selling price increases and improved material and
production efficiencies, which include (i) selling price increases during 1996
to offset the adverse affect of the 1995 and 1994 raw material cost increases,
(ii) reductions in customer deductions for pricing disputes, promotional
programs and other matters and (iii) reductions in salaries and other overhead
costs associated with the implementation of the 1995 Operational Reorganization.
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Operating income was $102.9 million for 1996 as compared to a loss from
operations of $2.0 million in 1995. The increase was primarily due to an
increase in gross profit margin as discussed above, a decrease in restructuring
and other charges (credits) of $45.7 million and a decrease in selling, general
and administrative expenses of $6.7 million for 1996 as compared to 1995. The
decrease in restructuring and other charges (credits) is comprised of the $39.2
million charge for restructuring and other charges in 1995 plus the net
restructuring credit of $6.4 million in 1996. The 1996 net restructuring credit
is comprised of an $11.3 million credit due to Foamex's decision not to close a
facility which was part of the 1995 Operational Reorganization and $1.7 million
of credits relating primarily to the favorable termination of lease agreements
and other matters relating to the 1995 Operational Reorganization, offset by
$6.6 million of restructuring charges relating to the planned closure of two
facilities during 1997. The decrease in selling, general and administrative
expenses is the result of reductions in the provision for uncollectible accounts
of approximately $3.9 million, salaries and employee costs of approximately $3.7
million and a reduction of approximately $2.0 million in environmental accruals
offset by increases in selling expenses associated with the increased net sales
volume and management realignment in connection with the 1995 Operational
Reorganization.
Income from continuing operations before provision for income taxes was
$61.4 million for 1996 as compared to a loss from continuing operations before
provision for income taxes of $46.7 million in 1995. The increase is primarily
due to the reasons cited above and a decrease in interest and debt issuance
expense of $1.3 million. The decrease in interest and debt issuance expense is
primarily due to a $2.3 million increased benefit from interest rate swap
agreements offset by the amount of interest allocated to discontinued operations
in 1996 as compared to 1995. See Note 3 to the consolidated financial statements
for further discussion.
Foamex, as a limited partnership, is not subject to federal and certain
state income taxes. However, the consolidated financial statements include a
provision for income taxes which primarily relates to the federal and state
income taxes of corporate subsidiaries and subsidiaries located in foreign
jurisdictions that file separate income tax returns. See Note 10 to the
consolidated financial statements for further discussion.
The loss from discontinued operations of $42.1 million (net of $2.6 million
income tax benefit) in 1996 relates to the net loss on the sale of the home
comfort products business segment which consisted primarily of the net assets of
Perfect Fit and the operating loss of Perfect Fit through the closing date. See
Note 3 to the consolidated financial statements for further discussion.
The extraordinary loss on early extinguishment of debt of $1.9 million
primarily relates to the write-off of debt issuance costs and redemption
premiums associated with the early extinguishment of $30.6 million of long-term
debt. See Note 11 to the consolidated financial statements for further
discussion.
General Felt
Net sales for 1996 were $302.6 million as compared to $279.1 million in
1995, an increase of $23.5 million or 8.4%. The increase is primarily due to
increased selling prices for carpet cushion initiated during the second quarter
of 1996, increased volume of shipments of carpet cushion and a full year of
results for Foamex Fibers.
Gross profit as a percentage of net sales increased to 13.0% for 1996 from
9.5% in 1995 primarily due to (i) selling price increases, (ii) reductions in
customer deductions for pricing disputes, promotional programs and other matters
and (iii) reductions in salaries and other overhead costs associated with the
implementation of the 1995 Operational Reorganization.
Income from operations was $26.0 million for 1996 as compared to a loss
from operations of $9.9 million in 1995. The increase was primarily due to an
increase in gross profit margins as discussed above, a decrease in restructuring
and other charges (credits) of $19.6 million and a decrease in selling, general
and administrative expenses of $3.5 million for 1996 as compared to 1995. The
decrease in restructuring and other charges (credits) is comprised of the $14.2
million charge for restructuring and other charges in 1995 plus the net
restructuring credit of $5.4 million in 1996. The 1996 net restructuring credit
is comprised of a $11.3 million credit due to General Felt's decision not to
close a facility which was part of the 1995 Operational Reorganization offset by
$5.9 million of restructuring charges relating to the closure of a facility
during 1997. The decrease in selling, general and administrative expenses is the
result of reductions in the provision for uncollectible accounts of
approximately $2.0 million, salaries and employee costs of approximately $2.0
million offset by increases in selling expenses associated
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with the increased net sales volume and management realignment in connection
with the 1995 Operational Reorganization.
Income from continuing operations before provision for income taxes was
$24.8 million for 1996 as compared to a loss from continuing operations before
provision for income taxes of $11.0 million in 1995. The increase is primarily
due to the reasons cited above and an increase in other income of $1.0 million,
offset by an increase in interest expense of $1.0 million. The increase in
interest expense is due to increased borrowings during 1996 under the revolving
promissory notes with Foamex, offset by a decrease in term borrowings under the
Existing Credit Facility. The increase in other income is primarily due to
interest income associated with the net proceeds from the sale of Perfect Fit.
The increase in the tax provision during 1996 is due to the limitation on
the utilization of certain tax benefits.
The loss from discontinued operations of $45.7 million (net of $1.4 million
income tax benefit) in 1996 relates to the net loss on the sale of the home
comfort products business segment which consisted of the net assets of Perfect
Fit and the operating loss of Perfect Fit through the closing date.
Foamex Fibers
Foamex Fibers was formed on March 29, 1995 for the purpose of acquiring
certain assets and assuming certain liabilities of GS Industries, Inc. and
Pontotoc Fibers, Inc. manufacturers of various nonwoven textile fiber products
used primarily for carpet padding and in the furniture industry (collectively,
the "Predecessor Company"). On April 13, 1995, Foamex Fibers acquired such
assets and assumed such liabilities for an aggregate price of approximately $8.0
million.
Foamex Fibers has presented management's discussion and analysis of the
year ended December 29, 1996 against the combined period from January 1, 1995 to
April 12, 1995 of the Predecessor Company and the period from April 13, 1995 to
December 31, 1995 of Foamex Fibers (collectively, "Combined 1995"), as Foamex
Fibers believes that, except for the provision for income taxes, the data is
comparable since the pro forma adjustments had an insignificant effect on all
line items presented in the results of operations for the period from January 1,
1995 to April 12, 1995 of Predecessor Company. Management of Foamex Fibers
believes that there are no factors which are not discussed in this Prospectus
which would materially affect the comparability of the year ended December 29,
1996 and the Combined 1995 period.
Net sales for 1996 were $21.4 million as compared to net sales of $19.7
million in Combined 1995, an increase of $1.7 million or 8.7%. The increase is
primarily due to selling price increases initiated during 1996 and increased net
sales volume in 1996 as compared to Combined 1995.
Gross profit as a percentage of net sales increased to 21.3% for 1996 from
16.1% for Combined 1995 primarily due to selling price increases and production
efficiencies resulting from the increased net sales volume.
Income from operations was $3.3 million for 1996 as compared to $1.8
million for Combined 1995. The increase was primarily due to the reasons
discussed above.
The effective income tax rate decreased to 37.3% for 1996 as compared to
40.0% for the period from April 13, 1995 to December 31, 1995 due to a decrease
in the state effective income tax rate. The Predecessor Company was not subject
to corporate income taxes.
Year Ended December 31, 1996 Compared to Twelve Months Ended December 31, 1995
Crain
Net sales for the year ended December 31, 1996 were $306.1 million,
representing a $37.1 million or 13.8% increase over the twelve months ended
December 31, 1995. This increase in net sales was primarily attributable to
growth in Crain's carpet cushion and consumer products accounts. The increase in
carpet cushion sales was primarily due to market share gains and the
pass-through of rising scrap material prices to customers. The increase in
consumer product sales was bolstered by new product introductions, a strong
back-to-school season and the fourth quarter acquisition of Comfort Clinic.
Cost of goods sold as a percentage of sales improved from 81.3% for the
twelve months ended December 31, 1995 to 79.6% for the year ended December 31,
1996. This change was primarily due to cost reduction activities
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put in place during the year, including the consolidation of five facilities.
The decrease in cost of goods sold as a percentage of sales was also
attributable to the benefits received from the utilization of internally
produced scrap foam during the period of increasing scrap prices.
Selling, general and administrative expenses were $35.3 million for the
year ended December 31, 1996, as compared to $32.8 million for the twelve months
ended December 31, 1995, representing an increase of $2.5 million or 7.6%.
Expressed as a percentage of sales, selling, general and administrative expenses
decreased to 11.5% for the year ended December 31, 1996 from 12.2% for the
twelve months ended December 31, 1995. The decrease as a percentage of sales was
primarily due to plant consolidation activities which included the elimination
of certain administrative costs.
Year Ended December 31, 1995 Compared to Year Ended January 1, 1995
Foamex
Net sales for 1995 were $862.8 million as compared to $833.7 million in
1994, an increase of $29.1 million or 3.5%. Carpet cushion net sales for 1995
decreased 7.4% to $271.0 million from $292.5 million in 1994 primarily due to
reduced net sales volume of certain carpet cushion products resulting from weak
carpet sales and a change in product mix to carpet cushion with lower selling
prices. In addition, carpet cushion selling prices were under pressure from an
excess supply of low priced scrap foam, the primary component of rebond carpet
cushion. Cushioning foam net sales for 1995 increased 7.2% to $310.0 million
from $289.2 million in 1994 primarily due to the April 1995 acquisition of a
company which manufactures cushioning products and increased selling prices
offset by a reduction in net sales volume due to competitive pricing pressures
and reduced demand for certain cushioning foam products. Automotive foam net
sales for 1995 increased 11.0% to $219.8 million from $198.0 million in 1994
primarily due to increased net sales volume of tri-laminates and composite
headliner products offset by a reduction in net sales volume of other automotive
foam products. Specialty and technical foam net sales for 1995 increased 14.8%
to $62.0 million from $54.0 million in 1994 primarily due to increased selling
prices and increased net sales volume.
Gross profit as a percentage of net sales decreased to 11.7% for 1995 from
17.1% for 1994. This unfavorable relationship was primarily due to net
unrecovered raw material cost increases of approximately $25.0 million during
1995. In addition, the decrease in gross profit margin for 1995 as compared to
1994 was also associated with (i) approximately $7.7 million of increased
customer deductions for pricing disputes, promotion programs and other matters,
(ii) approximately $3.5 million of increased employee benefits accruals
associated with insurance and pension plans and other accruals, (iii)
approximately $1.5 million of inventory write-offs associated with scrap foam
inventory and discontinued or slow moving product lines, (iv) an increase in net
sales of automotive tri-laminates, which have a lower-margin than other foam
products, (v) under-utilization of manufacturing capacities due to reduced net
sales volume of certain product lines and (vi) carpet cushion selling prices
remaining under pressure from an excess supply of low-priced scrap foam, the
primary component of rebond carpet cushion.
A loss from operations of $2.0 million was incurred for 1995 as compared to
operating income of $85.3 million for 1994. The decrease in operating income was
primarily due to (i) the reduction in gross profit margin as a percentage of net
sales as discussed above, (ii) an increase in selling, general and
administrative expenses of $6.4 million for 1995 as compared to 1994 including
an increase of $3.7 million in the provision for uncollectible accounts and
(iii) restructuring and other charges of $39.2 million (as discussed below).
In 1995, Foamex approved the 1995 Operational Reorganization to consolidate
13 foam production, fabrication or branch locations to concentrate resources as
a result of industry conditions and better position itself to achieve its
strategic growth objectives. Foamex recorded restructuring and other charges of
$39.2 million which were comprised of charges of $35.6 million associated with
the consolidation of the foam production, fabrication or branch locations, $2.2
million associated with the completion of the 1993 restructuring plan and $1.4
million associated with merger and acquisition activities of Foamex. The
components of the $35.6 million restructuring charge include: $16.7 million for
fixed asset writedowns, $15.1 million for plant closure and operating lease
obligations and $3.8 million for personnel reductions. The $3.8 million cost for
personnel reductions primarily represents severance and employee benefit costs
associated with the elimination of manufacturing and administrative personnel.
See Note 4 to the consolidated financial statements for further discussion.
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A net loss of $53.2 million was incurred for 1995 as compared to net income
of $39.2 million for 1994. The decrease is primarily due to (i) the reasons
cited above and (ii) an increase in interest and debt issuance expense of $3.0
million. The increase in interest and debt issuance expense was primarily
associated with (i) a decrease of $1.6 million in the benefit received from
interest rate swap agreements in 1995 as compared to 1994 and (ii) an increase
in term loan interest expense due to a full year of borrowings in 1995 as
compared to 1994.
Foamex, as a limited partnership, is not subject to federal and certain
state income taxes. However, the consolidated financial statements include a
provision for income taxes which primarily relates to the federal and state
income taxes of corporate subsidiaries and subsidiaries located in foreign
jurisdictions that file separate income tax returns. See Note 10 to the
consolidated financial statements for further discussion.
General Felt
Net sales for 1995 were $279.1 million as compared to $290.6 million in
1994, a decrease of $11.5 million or 3.9%. The decrease is primarily due to
reduced net sales volume of certain carpet cushion products offset by the April
1995 acquisition of the Predecessor Company. The reduced net sales volume of
carpet cushion resulted from weak carpet sales and a change in product mix to
carpet cushion with lower selling prices. In addition, carpet cushion selling
prices were under pressure from an excess supply of low priced scrap foam, the
primary component of rebond carpet cushion.
Gross profit as a percentage of net sales decreased to 9.5% for 1995 from
13.6% for 1994. This unfavorable relationship was primarily due to the change in
product mix to carpet cushion with lower selling prices. In addition, the
decrease in gross profit margins for 1995 as compared to 1994 was also
associated with (i) approximately $2.2 million of increased customer deductions
for pricing disputes, promotion programs and other matters, (ii) approximately
$0.3 million of inventory write-offs associated with scrap foam inventory and
discontinued or slow moving product lines, (iii) under-utilization of
manufacturing capacities due to reduced net sales volume of carpet cushion and
(iv) carpet cushion selling prices remaining under pressure from an excess
supply of low priced scrap foam, the primary component of rebond carpet cushion.
A loss from operations of $9.9 million was incurred for 1995 as compared to
income of $15.1 million for 1994. The decrease in income from operations was
primarily due to the reduction in gross profit margins as a percentage of net
sales as discussed above and restructuring and other charges of $14.2 million
(as discussed below), offset by a decrease in selling, general and
administrative expenses of $2.1 million for 1995 as compared to 1994. The
decrease in selling, general and administrative expenses is primarily due to
decreased promotion expense of $4.2 million during 1995 as compared to 1994 and
decreased employee costs of $0.5 million during 1995 as compared to 1994 offset
by an increase in the provision for uncollectible accounts of $2.4 million
during 1995 as compared to 1994.
In 1995, General Felt approved its portion of the 1995 Operational
Reorganization to consolidate two foam production, fabrication or branch
locations to concentrate resources as a result of industry conditions and better
position itself to achieve its strategic growth objectives. General Felt
recorded restructuring and other charges of $14.2 million which were comprised
of charges of $13.1 million associated with the consolidation of the foam
production, fabrication or branch locations and a $1.1 million charge associated
with the completion of the 1993 restructuring plan. The components of the $13.1
million restructuring charge include: $8.5 million for fixed asset writedowns
(net of estimated proceeds), $3.8 million for plant closure and operating lease
obligations and $0.8 million for personnel reductions. The $0.8 million cost for
personnel reductions primarily represents severance and employee benefit costs
associated with the elimination of manufacturing and administrative personnel.
A loss from continuing operations of $12.0 million was incurred for 1995 as
compared to income from continuing operations of $8.4 million for 1994. The
decrease is primarily due to the reasons cited above offset by a decrease in the
provision for income taxes. The decrease in the provision for income taxes is
primarily due to reduced pretax earnings as discussed above, offset by a
limitation on the utilization of certain tax benefits.
The loss from discontinued operations for 1995 and 1994 relate to the
operating loss of Perfect Fit.
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Foamex Fibers
Foamex Fibers has presented management's discussion and analysis of the
Combined 1995 period against the 1994 period of the Predecessor Company, as
Foamex Fibers believes that, except for the provision for income taxes, the data
is comparable since the pro forma adjustments had an insignificant effect on all
line items presented in the results of operations for the period from January 1,
1995 to April 12, 1995 and the year ended December 31, 1994 of Predecessor
Company. Management of Foamex Fibers believes that there are no factors which
are not discussed in this Prospectus which would materially affect the
comparability of the Combined 1995 period and the 1994 period of the Predecessor
Company.
Net sales for Combined 1995 were $19.7 million as compared to net sales by
the Predecessor Company of $16.8 million for 1994, an increase of $2.9 million,
or 17.4%. The increase is primarily due to increased net sales volume in
Combined 1995 as compared to 1994.
Gross profit as a percentage of net sales decreased to 16.1% for Combined
1995 from 19.2% for 1994 primarily due to increased shipments of certain
products with lower margins in Combined 1995.
Income from operations was $1.8 million for Combined 1995 as compared to
$1.7 million for 1994. The increase is primarily due to the reasons discussed
above, offset by decreased selling, general and administrative expenses of $0.2
million.
The Predecessor Company was not subject to corporate income taxes.
Liquidity and Capital Resources
Foamex's primary capital requirements consist principally of working
capital requirements, scheduled payments of principal and interest on
outstanding indebtedness and capital expenditures. Foamex believes that cash
flow from operating activities, cash on hand and periodic borrowings under the
Credit Facility, if necessary, will be adequate to meet these capital
requirements. The ability to meet the operating cash requirements could be
impaired if Foamex fails to comply with any of the covenants contained in the
Credit Facility and such noncompliance is not cured by Foamex or waived by the
lenders. Foamex was in compliance with the covenants in the Credit Facility as
of September 28, 1997, and expects to be in compliance with the covenants in the
Credit Facility for the foreseeable future.
Cash and cash equivalents decreased $19.9 million during 1997 to $1.1
million at September 28, 1997 from $21.0 million at December 29, 1996. The
decrease in cash and cash equivalents was primarily due to (i) $25.4 million of
cash used for capital expenditures, (ii) $15.3 million of cash used for
distributions and a loan to partners, (iii) $9.9 million of cash used for
financing activities after considering the decrease in restricted cash and the
purchase of the Discount Debentures offset by (iv) $31.7 million of cash
provided from operating activities. The $9.9 million of cash used for financing
activities reflects the: (a) $363.4 million repayment of long-term debt, (b)
$105.8 million of cash used for the purchase of the Discount Debentures, (c)
$15.6 million of cash used for debt issuance costs, (d) $22.9 million of cash
used for premium and consent fee payments and other cash charges associated with
the Refinancing Plan and other debt extinguishment offset by (e) $485.7 million
of cash proceeds from long-term debt, revolving loans and short-term borrowings
and (f) the decrease of restricted cash of $12.1 million. Cash flow from
continuing operations decreased $2.8 million to $31.7 million for 1997 as
compared to $34.5 million for 1996. Cash flow from continuing operations
decreased for 1997 as compared to 1996 primarily due to an increase in the use
of cash for operating assets offset by an increase in income from continuing
operations. Cash flow from continuing operations was $36.7 million, $36.5
million and $50.6 million in 1996, 1995 and 1994, respectively. Cash flow from
continuing operations remained consistent for 1996 as compared to 1995 primarily
as a result of improved operating results from continuing operations offset by
an increased use of cash by the operating assets and liabilities. Cash flow from
continuing operations decreased in 1995 as compared to 1994 primarily as a
result of the reduction in operating results from continuing operations.
Working capital decreased $9.4 million for 1997 to $127.7 million at
September 28, 1997 from $137.1 million at December 29, 1996. The decrease in
working capital is primarily due to the $19.9 million decrease in cash, as
previously discussed, offset by a $3.4 million increase in net operating assets
and liabilities, as discussed below, a $3.3 million net increase in other
current assets, and a $3.9 million decrease in short-term borrowings and current
portion of long-term debt. The net operating assets and liabilities (comprised
of accounts receivable, inventories and accounts payable) increased $3.4 million
to $147.4 million at September 28, 1997 from $144.0 million at
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December 29, 1996 primarily due to an increase in accounts receivable offset by
an increase in accounts payable and a decrease in inventories. The increase in
accounts receivable is primarily due to an increase in net sales for September
1997 as compared to December 1996. The increase in accounts payable is primarily
due to the timing of payments. The decrease in inventories is due to reduced
levels of major chemicals and foam trim inventories offset by increased
work-in-process inventories which is the result of increased production in
September 1997 as compared to December 1996.
During the first nine months of 1997, Foamex spent approximately $25.4
million on capital expenditures and expects to maintain or reduce spending for
capital expenditures for the foreseeable future since significant capital
projects, such as the new Mexico City facility, were completed during 1997.
Future capital expenditures are expected to focus primarily on the maintenance
of existing equipment and on the installation of the VPF[TM] manufacturing
process. From the beginning of 1994 through 1996, Foamex spent approximately
$63.9 million on capital improvements. The expenditures included: (i)
installation of new VPF[TM] technology in the Verona, Mississippi and Orange,
California facilities; (ii) construction of a facility in Mexico City, Mexico to
improve manufacturing efficiencies and to meet the growing demand for flexible
polyurethane foam products; and (iii) installation of more efficient flexible
polyurethane foam production line systems and fabricating equipment in a number
of manufacturing facilities.
On October 6, 1997, Foamex sold its needlepunch carpeting, tufted carpeting
and artificial grass products business, located in Dalton, Georgia to Bretlin,
Inc., a subsidiary of The Dixie Group, Inc. The sales price was approximately
$41.0 million, net of post-closing adjustments which were finalized in December
1997. Foamex used the net proceeds of the sale to reduce long-term debt.
Foamex redeemed on October 1, 1997 approximately $26.0 million of the
approximately $30.0 million of Foamex L.P.'s outstanding public debt that was
not tendered as part of the Refinancing Plan. The redemption was funded with
borrowings under the Credit Facility. In connection with this redemption, Foamex
L.P. is expected to incur an extraordinary loss on the early extinguishment of
debt of approximately $2.6 million in the fourth quarter of 1997.
As of September 28, 1997, there was approximately $31.0 million of
outstanding revolving credit borrowings under the Credit Facility with unused
availability of approximately $102.6 million. Borrowings by Foamex Canada Inc.
as of September 28, 1997 were approximately $2.9 million under a revolving
credit agreement with unused availability of approximately $1.4 million.
Borrowings by Foamex Latin America, Inc. as of September 28, 1997 were
approximately $2.0 million under a revolving credit agreement with no
availability.
In May 1997, Foamex Mexico entered into a loan agreement which provides for
(i) a $5.0 million term loan and (ii) a $2.0 million line of credit. Borrowings
under such loan agreement bear interest at a rate of LIBOR plus 4.5% and are
collateralized by certain assets of Foamex Mexico. The $5.0 million term loan is
amortized in equal quarterly payments after the first year and will mature in
2002. The $2.0 million line of credit will be used for working capital purposes
and is renewable annually. Foamex Mexico plans to use the proceeds of the term
loan for expenditures associated with the construction of a new manufacturing
facility and to repay $2.0 million of borrowings under three promissory notes.
During 1996, Foamex received net sale proceeds of approximately $42.7
million in connection with the sale of Perfect Fit. The net sale proceeds were
used to repurchase long-term debt of approximately $30.6 million during 1996 and
for the payment of certain retained liabilities, with the remainder held as
restricted cash as of December 29, 1996 for the repurchase of additional
long-term debt during 1997. During 1997, Foamex repurchased approximately $8.0
million of long-term debt and repaid $3.8 million of term borrowings under the
Existing Credit Facility with the remaining net sale proceeds.
On June 28, 1994, Foamex purchased an $87.9 million principal amount note
due 2006 from its 98% limited partner FJPS for $35.3 million (the "FJPS Note").
During December 1996, Foamex received a partial repayment of the FJPS Note in
the amount of $18.4 million. The FJPS Note was canceled as part of the
Refinancing Plan. See Note 13 to the consolidated financial statements.
In March 1994, Foamex International acquired Transformacion De Espumas Y
Fieltros, S.A. de C.V. ("TEFSA") for an aggregate purchase price of $4.5
million, including related fees and expenses of approximately $0.4 million, to
be paid over a three-year period with an initial cash payment of $1.7 million.
In April 1995, Foamex
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acquired certain assets and assumed certain liabilities of manufacturers of
synthetic fabrics for the carpet and furniture industries for an aggregate
consideration of approximately $8.0 million, including related fees and expenses
of approximately $0.3 million, with an initial cash payment of $7.2 million.
During 1996, Foamex International contributed its interest in Foamex Mexico to
Foamex. Also, during 1996 Foamex made a scheduled cash payment of approximately
$0.8 million in accordance with the purchase agreement. The final payment of
approximately $0.9 million was made in April 1997.
Foamex made cash distributions to its partners, pursuant to the Tax Sharing
Agreement (as defined), of approximately $8.8 million, $3.5 million, $2.4
million and $3.3 million in the nine months ended September 28, 1997 and in the
years ended 1996, 1995 and 1994, respectively.
Interest Rate Swap Agreements. Foamex enters into interest rate swaps to
lower funding costs and/or to manage interest costs and exposure to changing
interest rates. Foamex does not hold or issue financial instruments for trading
purposes.
In connection with the Refinancing Plan, Foamex's existing interest rate
swap agreements with a notional amount of $300.0 million were considered to be
effectively terminated since the underlying debt was extinguished. These
interest rate swap agreements had an estimated fair value liability of $8.2
million at the date of the Refinancing Plan which is included in the
extraordinary loss on the early extinguishment of debt. In lieu of a cash
payment for the estimated fair value of the existing interest rate swap
agreements, Foamex entered into an amendment of the existing interest rate swap
agreements resulting in one interest rate swap agreement with a notional amount
of $150.0 million through June 2007. Accordingly, the $8.2 million fair value
liability has been recorded as a deferred credit which will be amortized as a
reduction in interest and debt issuance expense on a straight-line basis over
the life of the amended interest rate swap agreement. Under the amended interest
rate swap agreement, Foamex is obligated to make fixed payments of 5.75% per
annum through December 1997 and variable payments based on the higher of LIBOR
at the beginning of the period or the end of the period for the remainder of the
agreement, in exchange for fixed payments by the swap partner at 6.44% per annum
for the life of the agreement, payable semi-annually in arrears. The amended
interest rate swap agreement can be terminated by either party in June 2002, and
annually thereafter, for a cash settlement based on the fair market value of the
amended interest rate swap agreement. Interest and debt issuance expense is
subject to fluctuations in LIBOR during the term of the swap agreement except
during 1997. Foamex is exposed to credit loss in the event of nonperformance by
the swap partner; however, the occurrence of this event is not anticipated. The
effect of the interest rate swaps described above was a favorable adjustment to
interest and debt issuance expense of $2.2 million and $2.8 million for the nine
months ended September 28, 1997 and September 29, 1996, respectively.
Effects of the Refinancing Plan. On June 12, 1997, Foamex's parent, Foamex
International, completed the Refinancing Plan, which included (i) a tender offer
pursuant to which Foamex purchased (a) $99.8 million of the $104.3 million
outstanding principal amount of the Senior Secured Notes, (b) $130.1 million of
the $135.9 million outstanding principal amount of the Senior Notes, (c) $105.5
million of the $125.8 million outstanding principal amount of the Senior
Subordinated Debentures, (d) substantially all of the $7.0 million outstanding
principal amount of the Series B Debentures, and (e) all $116.7 million
outstanding principal amount of the FJPS Discount Debentures; (ii) the repayment
of $5.2 million of borrowings under the Existing Credit Facility; and (iii) the
payment of fees and expenses. In addition, the indentures pursuant to which the
Senior Secured Notes, Senior Notes, Senior Subordinated Debentures and Series B
Debentures were issued were amended to remove substantially all of the
restrictive covenants. Foamex incurred an extraordinary loss on the early
extinguishment of debt associated with the Refinancing Plan of approximately
$44.5 million. The Refinancing Plan was funded by $347.0 million of borrowings
under the Credit Facility and the net proceeds from the issuance of $150.0
million principal amount of 97/8% Notes. See "Risk Factors--Substantial
Leverage" and "--Partners' Deficit and Charge to Earnings."
As a result of the Refinancing Plan, Foamex's long-term debt increased by
$150.1 million to $546.3 million, and variable rate debt comprises a larger
percentage of Foamex's overall indebtedness than in the past, and as a result,
future fluctuations in interest rates will have a greater impact on Foamex's
interest expense than in the past. Foamex expects the Refinancing Plan to result
in increased interest expense of approximately $2.5 million in the second half
of 1997 as compared to the first half of 1997, and annualized increased interest
expense of approximately $5.0 million, as compared to the debt structure prior
to the Refinancing Plan, assuming no material changes in interest rates and
without giving effect to additional indebtedness incurred in connection with the
Crain Acquisition. Foamex's future interest expense will vary based on a variety
of factors, including fluctuations in interest rates in general.
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In connection with the consummation of the Refinancing Plan, Foamex
distributed (i) to FJPS and FMXI, all FJPS Discount Debentures purchased in the
cash tender offer pursuant to Foamex's consent solicitation statement dated May
12, 1997, as amended (the "Tender Offer"), the FJPS Note and the promissory note
of Foamex International payable to Foamex, and (ii) to Trace Foam, an amount in
cash equal to 1/99th of the distribution to FJPS and FMXI. As part of the
Refinancing Plan (a) FMXI dividended its distribution to Foamex International,
(b) each of the FJPS Discount Debentures distributed to FJPS, the Foamex
International promissory note, and the FJPS Note were canceled and (c) FJPS and
its general partner, FJGP Inc., were merged into Foamex International.
On July 7, 1996, Trace Holdings issued to Foamex a promissory note for
approximately $4.4 million plus accrued interest of approximately $0.4 million,
which is an extension of an earlier note. As part of the Refinancing Plan, the
Note was amended and restated, with accrued interest being added to principal,
the maturity was extended to July 7, 2001, and the interest rate was changed to
the sum of 2 3/8% plus Three Month LIBOR. In connection with the Refinancing
Plan, Foamex agreed to permit up to an additional $5.0 million of borrowings by
Trace International (which was borrowed on July 1, 1997) on terms and conditions
substantially similar to the existing promissory note, and the tax distribution
advance agreement was amended to increase the permitted advances to Foamex
International from $17.0 million to $25.0 million.
The Crain Acquisition
As a result of the consummation of the Crain Acquisition and the Related
Transactions, all of the assets of Crain, subject to all of its liabilities were
contributed to Foamex on December 23, 1997. Such indebtedness included an
approximately $118.0 million bridge loan, and $98.0 million principal amount of
the Old Notes. In connection with the such contribution, Foamex refinanced the
bridge loan with $8.0 million of revolving credit borrowing and $110.0 million
of term borrowing under its Credit Agreement.
Foamex expects to take charges in the range of $21.0 million to $26.0
million in the fourth quarter of 1997 related to the restructuring and
consolidation of Foamex's operations in connection with the Crain Acquisition
and the Related Transactions, and expects to take fourth quarter special charges
and write-offs for fixed asset impairments, charges associated with start-up
operations and reserves relating to inventory and accounts receivable in the
range of $14.0 million to $17.0 million.
On December 26, 1997, Foamex purchased a $2.5 million promissory note from
Foamex International, and on December 29, 1997 Foamex purchased a $2.49 million
promissory note from Foamex International.
Inflation and Other Matters
There was no significant impact on Foamex's operations as a result of
inflation during the prior three year period. Effective in January 1997,
Foamex's operations in Mexico became subject to highly inflationary accounting
for financial reporting purposes. Translation adjustments resulting from
fluctuations in the exchange rate between the Mexican peso and the U.S. dollar
will be included in Foamex's consolidated statement of operations as compared to
partners' equity (deficit). Large fluctuations in the Mexican peso exchange rate
could have an adverse impact on Foamex's results of operations. The effect of
the translation adjustments on the 1997 results of operations have been
insignificant. In some circumstances, market conditions or customer expectations
may prevent Foamex from increasing the price of its products to offset the
inflationary pressures that may increase its costs in the future. See "--Results
of Operations--Year Ended December 31, 1995 Compared to Year Ended January 1,
1995" and "Risk Factors--Price and Availability of Raw Materials" for a
discussion of the impact of raw material price increases.
Business Cycle and Seasonality
Foamex's automotive foam customers are predominantly automotive OEMs or
other automotive suppliers. As such, the sales of these product lines are
directly related to the overall level of passenger car and light truck
production in North America. Also, Foamex's sales are sensitive to sales of new
and existing homes, changes in personal disposable income and seasonality.
Foamex typically experiences two seasonally slow periods during each year, in
early July and in late December, due to scheduled plant shutdowns and holidays.
Environmental Matters
Foamex is subject to extensive and changing environmental laws and
regulations. Expenditures to date in connection with Foamex's compliance with
such laws and regulations have not had a material adverse effect on its
operations, financial position, capital expenditures or competitive position.
The amount of liabilities recorded by Foamex in connection with environmental
matters as of September 28, 1997 was approximately $3.8 million.
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In addition, as of September 28, 1997, Foamex has net receivables of
approximately $1.0 million for indemnification of environmental liabilities from
former owners, net of a $1.0 million allowance relating to potential
disagreements regarding the scope of the indemnification. Although it is
possible that new information or future developments could require Foamex to
reassess its potential exposure to all pending environmental matters, including
those described in the footnotes to Foamex's condensed consolidated financial
statements, Foamex believes that, based upon all currently available
information, the resolution of all such pending environmental matters will not
have a material adverse effect on Foamex's operations, financial position,
capital expenditures or competitive position. See "Risk Factors--Environmental
Liabilities and Regulations."
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BUSINESS
Foamex's operations are conducted together with its wholly owned
subsidiaries, General Felt, Foamex Fibers, FLLC, Foamex Canada, Foamex Mexico
and Foamex Asia, and their respective operations. FCC is a wholly owned special
purpose subsidiary of Foamex whose sole business is to act as a co-issuer of
certain indebtedness of Foamex.
Business Overview
Foamex is the largest manufacturer and marketer of flexible polyurethane
and advanced polymer foam products in North America. Foamex's products are
utilized primarily in six end-markets: (i) carpet cushion and other carpet
products, (ii) cushioning foams, including bedding products, (iii) furniture
products for furniture manufacturers and packaging, (iv) automotive
applications, including trim and accessories, (v) specialty and technical
applications, including those for filtration, gasketing and sealing and (vi)
consumer products. Foamex is the largest North American producer of foams used
for carpet cushion, automotive applications and specialty and technical products
and is a leading North American producer of cushioning foams. The Company has
recently refocused its business on the flexible polyurethane and advanced
polymer foam business by acquiring Crain in December 1997 and previously
divesting non-foam business segments. Management believes that a focus in the
foam business will allow Foamex to concentrate management, financial and
operational resources and will position Foamex to pursue its growth strategy of
developing new products, improving profitability and expanding internationally.
Foamex distributes carpet cushion to major floor covering retailers such as
Sears, New York Carpet World and Carpetland USA. Foamex supplies cushioning
foams to major bedding and furniture manufacturers such as Sealy, Simmons and
Ethan Allen. Foamex's packaging foams are supplied to distributors and
manufacturers of computers and other electronic devices, including Seagate
Technology and CompUSA. Foamex distributes its automotive foam products to OEMs,
including Ford, General Motors and Chrysler, and major tier one suppliers such
as Lear Corporation, Johnson Controls and Delphi Automotive Systems. Foamex's
specialty and technical foams consist of reticulated foams and other customized
polyester and polyether foams used for filtration, reservoiring and consumer
products which are utilized worldwide in a wide variety of applications by
companies such as Hewlett-Packard and Briggs & Stratton. Foamex distributes its
consumer products to retailers such as Wal-Mart. Foamex and its predecessors
have been developing, manufacturing and marketing polyurethane foam for more
than 40 years.
For the LTM Period, after giving pro forma effect to the Crain Acquisition
and the Related Transactions, Foamex had net sales and EBDAIT (as defined) of
$1,261.0 million and $152.5 million, respectively. During the same period, the
percentage of pro forma net sales generated by carpet cushion and other carpet
products, cushioning foams, automotive foams, specialty and technical foams, and
consumer products was approximately 28%, 43%, 18%, 6% and 5%, respectively.
Prior to the second quarter of 1997, the cushioning foams and furniture product
markets were treated as a single product group; therefore, all historical data
in this Prospectus reflects cushioning foam and furniture products as the single
product group "cushioning foam."
On December 23, 1997, Foamex acquired Crain pursuant to a merger
transaction with Crain Holdings for an aggregate consideration of approximately
$213.7 million, including the assumption of debt. Management believes that based
on net sales, Crain was the third largest domestic producer of flexible
polyurethane foam and foam products in the United States. The Crain Acquisition
provided a fully integrated manufacturer, fabricator and distributor of a broad
range of flexible polyurethane foam and foam products which are sold to a
diverse customer base, principally in the furniture, bedding and carpet cushion
markets. Management believes that Foamex's acquisition of Crain (i) strengthens
Foamex's market position as the leading North American producer of foam
products, (ii) offers increased penetration in the Company's existing product
lines and adds complementary products lines such as consumer products, (iii)
strengthens the Company's operations geographically, (iv) provides several
proprietary foam-producing processes which serve to lower overall production
costs and are environmentally friendly, and (v) offers opportunities for
significant overhead cost reductions and purchasing and freight cost
efficiencies.
In order to facilitate the Crain Acquisition, the Issuers offered the
Qualified Holders to exchange such Qualified Holders' $98.0 million principal
amount of Crain Notes for $80.00 in cash and $1,000 principal amount of Old
Notes for each $1,000 principal amount of Crain Notes. Such $98.0 million in
aggregate principal amount of Crain Notes were retired and cancelled by the
trustee of the Crain Notes and the remaining $2.0 million in aggregate principal
amount of Crain Notes were redeemed by Crain, all in accordance with the
indenture under which the Crain Notes were issued.
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On October 6, 1997, Foamex sold its needlepunch carpeting, tufted carpeting
and artificial grass products business, located in Dalton, Georgia to Bretlin,
Inc., a subsidiary of The Dixie Group, Inc. The sales price was approximately
$41.0 million, net of post-closing adjustments which were finalized in December
1997. Foamex used the net proceeds of the sale to reduce long-term debt.
Competitive Strengths
Foamex believes that it possesses a number of competitive strengths that
have allowed it to become the largest manufacturer and marketer of flexible
polyurethane and advanced polymer foam products in North America, including:
Emphasis on New Product Development. Foamex believes it has one of the
leading research and development capabilities in the industry and, as a result,
has been awarded more than 100 foam-related patents worldwide. These
capabilities provide Foamex with a stream of new products, new applications for
existing products, and new processes for foam manufacturing. An example of this
capability is variable pressure foaming (VPF[TM]), an innovative manufacturing
process currently used in North America only by Foamex, which has been used to
create new products such as Reflex[TM]. Reflex[TM] is designed to replace
fiberfill in certain cushioning products. Foamex has also recently introduced
Plushlife[TM] for the carpet cushion market and Powerthane[TM] for automotive
applications. Another technology developed by Foamex is Surface Modification
Technology (SMT[TM]), which allows for high volume precision contouring of foam
surfaces, thereby improving Foamex's existing products and creating new products
such as sculpted bed mattresses.
Alignment with Key Customers. Foamex has historically maintained a steady
revenue base by aligning itself with key customers, many of which have been
Foamex's customers for many years. These customer relationships are supported by
Foamex's extensive North American network of 58 strategically located
facilities, which allows Foamex to deliver products cost effectively on a
just-in-time basis. As a result of these relationships, Foamex is able to work
with customers during the design phase for new products and new applications,
thereby favorably positioning Foamex to be the principal supplier for these
products.
High Quality Products. Foamex is a pioneer in manufacturing and
distributing high quality flexible polyurethane and advanced polymer foam
products to satisfy the specific needs of customers. During 1996, Foamex
completed QS-9000 and ISO-9001 certification for its eight domestic facilities
that supply the automotive industry and is pursuing the appropriate
certifications for the remainder of its manufacturing facilities. Foamex was one
of the first flexible polyurethane foam manufacturers to be QS-9000 certified,
demonstrating its commitment to producing the highest quality products and
meeting the needs of its customers.
Low Cost Manufacturing Position. Foamex strives to maintain
state-of-the-art manufacturing facilities which utilize recent manufacturing
improvements such as the proprietary VPF[TM] and patented SMT[TM] technologies,
as well as the latest carbon dioxide converting process. These technologies are
designed to, among other things, maximize the conversion efficiency of raw
materials into finished goods and to minimize labor costs. Furthermore, Foamex
has implemented a company-wide Continuous Improvement Process program designed
to continually increase productivity, reduce costs and improve product quality.
In addition, as the largest manufacturer of flexible polyurethane and advanced
polymer foam products in North America, management believes that Foamex is able
to realize economies of scale in its raw materials procurement, which represent
more than two-thirds of Foamex's manufacturing costs, and recover costs from the
use of substantially all of its internally generated trim foam, which is the
principal raw material in the production of bonded carpet cushion.
Growth Strategy
Foamex's strategy focuses on (i) developing new proprietary foam products,
(ii) introducing new uses for advanced foam products, (iii) expanding in
international markets and (iv) reducing costs through continued emphasis on
manufacturing improvements.
New Proprietary Foam Products. Foamex plans to continue to utilize its
significant research and development capability to develop new products. In
recent years, Foamex has developed new proprietary technologies, such as VPF[TM]
and SMT[TM], which have been used to create higher margin, value-added products
designed to replace existing flexible polyurethane foam products. SMT[TM] has
allowed Foamex to develop sculpted mattress toppers, mattress pads and bed
pillows which are replacing traditional polyurethane foam products due
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to their superior comfort, quality and value. In certain cases, such as
Plushlife[TM], a proprietary carpet cushion designed to replace traditional
bonded and prime carpet cushion, Foamex brands these products to create product
recognition and to generate higher margins.
New Uses for Foam. Foamex is actively developing new applications for its
advanced foam products to replace other materials. In the automotive industry,
the number of foam applications has increased from 8 per vehicle in 1984 to 20
per vehicle in 1997. For example, Foamex has introduced products such as foam
headliners which are replacing fiberglass headliners (the rigid material between
the fabric and the metal roof of a car). Reflex[TM] foams, which include cushion
wraps and cushion cores and are created using VPF[TM], are advanced polymer
cushioning products designed to improve comfort, quality and durability in
upholstered furniture and to replace standard fiberfill. Foamex's fastest
growing business, specialty and technical foams, focuses on developing
customized foam applications for high-growth product markets such as inkjet
printer cartridges, nickel-metal hydride batteries and oxygenators for
cardio-pulmonary surgery.
International Expansion. Foamex has positioned itself to take advantage of
global opportunities. In Mexico, Foamex has built a new state-of-the-art
manufacturing facility, which is expected to meet increasing demand and to allow
Foamex to increase market penetration. In Asia, which management believes offers
attractive growth opportunities. Foamex entered into a joint venture agreement
in 1997 to build and operate fabrication facilities in Singapore and Thailand.
These facilities were completed in 1997. Additionally, Foamex has created an
alliance with Recticel, Europe's largest flexible polyurethane foam
manufacturer, which will allow Foamex to better meet the increasing global needs
of its automotive customers.
Additional Operating Cost Savings. Foamex is continuing to build on the
1995 Operational Reorganization which was designed to reduce operating costs and
improve productivity. Foamex achieved additional operating cost savings in 1997
that resulted from (i) improved productivity, through-put and material yields in
the manufacturing process, (ii) the full year benefit of facilities closed
during 1996, (iii) the closure of two additional facilities during 1997 and (iv)
the expansion of the Continuous Improvement Process. Foamex expects to take
charges in the range of $21.0 million to $26.0 million in the fourth quarter of
1997 related to the restructuring/consolidation of Foamex's operations in
connection with the Crain Acquisition and the Related Transactions. In addition,
Foamex expects to take fourth quarter special charges and write-offs for fixed
asset impairments, charges associated with start-up operations and reserves
relating to inventory and accounts receivable in the range of $14.0 million to
$17.0 million.
Products
Foamex is a manufacturer and distributor of quality flexible polyurethane
and advanced polymer foam products designed to satisfy the specific needs of
customers. Foamex's 46 foam manufacturing and 12 distribution facilities enable
it to source production efficiently and meet the needs of its customers
throughout North America. Such facilities are also important for satisfying all
of the foam requirements of large national customers in a timely and cost
effective manner.
Foamex is the largest manufacturer and marketer of flexible polyurethane
and advanced polymer foam products in North America. Foamex's products are
utilized primarily in six end-markets: (i) carpet cushion and other carpet
products, (ii) cushioning foams, including bedding products, (iii) furniture
products for furniture manufacturers and packaging, (iv) automotive
applications, including trim and accessories, (v) specialty and technical
applications, including those for filtration, gasketing and sealing and (vi)
consumer products. Prior to the second quarter of 1997, the cushioning foams and
furniture product markets were treated as a single product group; therefore, all
historical data in this Prospectus reflects cushioning foam and furniture
products as the single product group "cushioning foam." The consumer products
group was acquired in the Crain Acquisition and the Related Transactions and
historical data for the consumer products category is not available. The table
below sets forth net sales of Foamex by product category for the periods
indicated:
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<TABLE>
<CAPTION>
Fiscal Year Three Quarters
-------------------------------------------------------------------- ------------------------------------------
1994 1995 1996 1996 1997
---------------------- ---------------------- ---------------------- ---------------------- -------------------
$ % $ % $ % $ % $ %
(In millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Carpet cushion .... $ 292.5 35.1% $ 271.0 31.4% $ 291.3 31.5% $ 217.2 31.2% $ 214.9 30.6%
Cushioning
foams ............ 289.2 34.7 310.0 35.9 332.9 35.9 252.0 36.2 259.7 37.0
Automotive
foams ............ 198.0 23.7 219.8 25.5 231.9 25.0 175.2 25.2 171.4 24.4
Specialty and
technical
foams ............ 54.0 6.5 62.0 7.2 70.3 7.6 51.9 7.4 56.4 8.0
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Total ............ $ 833.7 100.0% $ 862.8 100.0% $ 926.4 100.0% $ 696.3 100.0% $ 702.4 100.0%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
Carpet Cushion. Foamex is one of the largest manufacturers and distributors
of prime, bonded, sponge rubber and felt carpet cushion in North America. Foamex
has also developed Plushlife[TM], a proprietary bonded carpet cushion product,
introduced in February 1997, which Foamex believes to be one of the most
significant improvements in bonded carpet cushion products in many years.
Plushlife[TM] combines two cushions into a single structure one to absorb the
energy of foot traffic and the other to enhance comfort.
Foamex developed ComfortWear[RegTM], a quality prime carpet cushion, which
was introduced in February 1994 in conjunction with significant consumer and
trade promotions. ComfortWear[RegTM] currently is sold in retail outlets
throughout the United States. ComfortWear[RegTM] is marketed through floor
covering retailers in the United States such as Sears, New York Carpet World and
Carpetland USA.
Cushioning Foams. Foamex is one of the largest manufacturers of cushioning
foams in North America. Foamex manufactures and sells flexible polyurethane foam
and polyester fiber to bedding manufacturers both directly and indirectly
through independent fabrication operations. These foams are used by the bedding
industry in quilts, toppers, cores and border rolls for mattresses and by the
furniture industry for seating products. Cushioning foams are generally sold in
large volumes on a regional basis because of high shipping costs. Due to its
size and the strategic location of its production facilities, Foamex believes it
will continue to have an advantage over small regional producers in supplying
large national accounts with all of their foam requirements.
The development and introduction of value added products continues to be a
priority of Foamex and has included (i) Reflex[TM] discussed below, (ii)
viscoelastic or "memory" foams for the bedding industry, which maintain their
resiliency better than other foams and materials and (iii) Latex Plus[TM], a
urethane-based replacement for latex, a material used in bedding products. One
of Foamex's most recent product introductions is Reflex[TM] for the cushioning
industry which was created using the VPF[TM] manufacturing process. Reflex[TM]
materials, which include cushion wraps and cushion cores, are advanced polymer
cushioning products designed to improve comfort, quality and durability in
upholstered furniture.
Foamex's cushioning foams for bedding products are sold to mattress
customers, such as Sealy, Simmons, Serta, and Spring Air Company, both directly
and through independent fabrication operators located across the United States.
Also, Foamex supplies cut-to-size seat cushions, backs and other pieces to the
furniture industry, including to Berkline, Action and Schnadig. Foamex also
sells cushioning foam for use in a number of other markets. The uses of
cushioning foam include packaging materials for such things as computer and
electronic components and cushioning applications in certain sporting good
products and in recreational vehicles.
Automotive Foams. Foamex is one of the largest suppliers of the trim foam
requirements of the North American operations of American OEMs. Depending on the
automotive manufacturer and/or the application, foam is supplied by Foamex
either directly to the manufacturer or indirectly through subsuppliers.
Automotive foams are used for trim pads, door panel parts, headliners,
acoustical purposes, flame and adhesive laminates and rolls for tri-lamination.
Tri-laminated foam is applied to automotive fabrics to form a foam/fabric
composite that results in cost savings and aesthetic value for the automotive
manufacturer.
The domestic automotive manufacturers have narrowed their supply base
during recent years, increasing the percentage and dollar amount of components
that they purchase from outside suppliers. As a result, a smaller number
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of companies are supplying an increasing percentage of these manufacturers'
needs. Foamex believes it has benefited from this trend, which favors suppliers
with quality facilities and products, cost efficient plants, long-standing
relationships, strong design, technical and product development support and
broad product lines. Foamex believes this outsourcing trend will continue,
particularly for components such as foam, trim and accessories that represent a
small portion of the overall cost of a vehicle. Automotive suppliers are
increasingly offering integrated systems which lower overall cost and improve
quality relative to previous sourcing methods in which individually sourced
components were assembled and installed by the OEMs.
During 1996, Foamex entered into a strategic alliance with Recticel to
design, manufacture and market polyurethane products for the automotive industry
in order to meet the worldwide requirements of the OEMs and the major tier one
suppliers such as Lear Corporation, Johnson Controls, Inc., and Delphi
Automotive Systems. Under this alliance, both companies will jointly supply the
automotive suppliers, with products manufactured in North America by Foamex and
in Europe by Recticel.
Foamex believes that the automotive manufacturers' just-in-time inventory
requirements will provide Foamex with a competitive advantage due to the quality
of Foamex's foam products, its flexible manufacturing capacity and its 46
strategically located manufacturing facilities and 12 distribution facilities
that enable Foamex to minimize shipping time and costs. In addition, Foamex
expects foam usage per vehicle to continue to increase because manufacturers
have generally increased their investment in upgrading automobile and light
truck interiors to improve comfort, attractiveness, safety and noise absorption
capabilities. Foamex is well suited to meet these requirements.
Foamex's new product development and flexible manufacturing capabilities
allow it to produce quality products to satisfy changing specifications.
Examples of Foamex's ability to react to changing industry requirements include
thermoformable headliners, tri-laminates, advanced cutting technology and energy
absorbing foams. For example, Foamex is one of the first suppliers to introduce
a thermoformable headliner, Customfit[TM], made from rigid polyurethane foam.
The use of foam headliners is expected to continue to grow due to concerns for
automotive workers' safety caused by fiberglass processing. Foamex intends to
continue manufacturing and supplying foam and fabric components, such as
tri-laminated material for automotive seating. The use of tri-laminates has
become increasingly prevalent due to significant cost savings for manufacturers
and improved aesthetics for consumers.
Automotive manufacturers are increasingly requiring the production
facilities of their suppliers to meet certain high quality standards. Foamex has
achieved the highest quality ratings awarded to foam suppliers by automotive
manufacturers. For instance, the Ford Motor Company has announced that it will
buy components only from plants which have achieved or are currently being
evaluated for the Ford Q-1 status. All Foamex plants which supply parts to the
Ford Motor Company are currently rated Q-1. In addition, Foamex's facilities
that supply the automotive industry have been highly rated by the General Motors
Corporation's "Target for Excellence" program, and a majority of such facilities
that supply the Chrysler Corporation have received Chrysler's "Quality
Excellence" award. Eventually, all tier one and tier two automotive supplier
facilities worldwide will be required to meet the QS-9000 quality manufacturing
standards set by United States automotive manufacturers. In 1996, Foamex
completed QS-9000 and ISO-9001 certification for its eight domestic facilities
which supply the automotive industry. Foamex was one of the first polyurethane
manufacturers to be QS-9000 certified which demonstrates its commitment to
producing the highest quality products and meeting the needs of its customers.
Specialty and Technical Foams. Foamex believes that it is one of the foam
industry's prime innovators and producers of industrial, specialty, consumer and
safety foams (collectively, "specialty and technical foams"). Specialty and
technical foams consist of reticulated foams and other custom polyester and
polyether foams, which are sometimes combined with other materials to yield
specific properties. Reticulation is the thermal or chemical process used to
remove the membranes from the interconnecting cells within foam. This leaves a
porous, skeletal structure allowing for the free flow of gases and/or liquids.
Reticulated foams are well suited for filtration, reservoiring, sound
absorption and sound transmission. Industrial applications include carburetors,
computer cabinets, ink pad reservoirs, high speed inkjet printers and speaker
grills. Medical applications include oxygenators for cardiopulmonary surgery,
instrument holders for sterilization, pre-op scrubbers impregnated with
anti-microbial agents and EKG pads containing conductive gels. Other specialty
and technical foams have unique characteristics such as flame retardancy and
fluid absorption. In addition, felting and lamination with other foams or
materials give these composites specific properties. Additional
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products sold within this group include foams for refrigerated supermarket
produce counters, mop heads, paint brushes, diapers and cosmetic applications.
Foamex utilizes advertising in trade journals and related media in order to
attract customers and, more generally, to create an awareness of its
capabilities for specialty and technical foams. In addition, due to the highly
specialized nature of most specialty and technical foams, Foamex's research
staff works with customers to design, develop and manufacture each product to
specification.
Consumer Products. Foamex sells flexible polyurethane foam and polyester
fiber for use in therapeutic sleep products such as mattress pads and bed
pillows, which are manufactured for the health care and consumer markets. Foamex
also manufactures and markets a broad line of home furnishing products to
retailers throughout the United States. Foamex's home furnishing products
include a broad range of products such as leisure furniture, futon sofas, bean
bag chairs, floor pillows and pet beds.
Marketing and Sales
Prior to the Crain Acquisition and the Related Transactions, Foamex had a
marketing and sales force of approximately 175 employees. As a result of the
Crain Acquisition and the Related Transactions, Foamex has a marketing and sales
force of approximately 235 employees. Product business managers direct sales
efforts toward each of the end-user markets (i.e., carpet cushion, cushioning
foams, furniture products, automotive foams, specialty and technical foams and
consumer products).
Foamex's carpet cushion marketing program includes the broad distribution
of products to both the retail and wholesale levels. Furthermore, promotions,
marketing and advertising expenditures are important in positioning Foamex's
carpet cushions as premium, trade branded products.
Bedding and furniture products are sold directly by Foamex to customers and
also through third party independent fabricators. The key strategic elements
supporting growth in these areas are a focus on marketing and sales efforts,
high quality, cost-competitive products and low freight costs through optimal
plant location. Plant locations are critical in this regionalized line of
business where the transportation cost typically comprises a significant portion
of product cost.
Foamex has been a leading supplier of automotive foam products to the
automotive industry for more than 30 years. Foamex is the primary supplier of
automotive foam products to certain tier one suppliers, including Lear
Corporation, Johnson Controls, Inc. and Delphi Automotive Systems. For its other
customers, Foamex competes for new business both at the beginning of the
development of new models and upon the redesign of existing models. Once a foam
producer has been designated to supply parts for a new program, the foam
producer usually produces parts for the life of the program. Competitive factors
in the market include product quality and reliability, cost and timely service,
technical expertise and development capability, new product innovation and
customer service.
Foamex markets most of its specialty and technical foams through a network
of independent fabrication and distribution companies in North America, the
United Kingdom and South Korea. Such fabricators or distributors often further
process or finish these products to meet the specific needs of the end user.
Foamex's specialty and technical foams service unique end user requirements and
are generally sold at relatively high margins. This line of business is
characterized by a diversity and complexity of both customers and applications.
Foamex's consumer products sales efforts are primarily regionally based
with each salesperson selling to local accounts. Foamex sells its consumer
products to retailers including Wal-Mart.
International and Domestic Operations and Export Sales
International ventures initiated in 1996 illustrate Foamex's long-term
commitment to expanding outside North America. These international ventures
include Foamex's expansion of its international capabilities in Mexico and the
exploration of opportunities in Asia. The first international venture was
Foamex's expansion in Mexico to meet the steady growth in demand there over the
past year. Foamex has a total of three facilities in Mexico serving the
automotive and cushioning industries. Two such facilities are located within
Mexican free trade zones close to the U.S. border and primarily service
automotive customers. The new state-of-the-art Mexico City facility services
both automotive and cushioning customers.
Foamex has created an alliance with Recticel, Europe's largest flexible
polyurethane foam manufacturer, which will allow Foamex to meet the global needs
of its automotive customers. In addition, the alliance will allow Foamex
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<PAGE>
and Recticel to jointly design, manufacture and market products for U.S. and
European automotive customers. The alliance facilitates supplying automotive
customers with polyurethane foam products in both North America and Europe.
Foamex has in the past exchanged technical information and expertise relating to
foam manufacturing with Recticel.
Foamex has been servicing the Asian market with technical products for
several years primarily through third party distributors. Foamex believes Asia
offers attractive growth opportunities. Foamex entered into a joint venture
agreement in 1997 to build and operate fabrication facilities in Singapore and
Thailand. These facilities were completed in 1997.
Foamex's net sales to customers in foreign markets in 1996, 1995 and 1994
were $76.0 million (8.2% of net sales), $73.3 million (8.5% of net sales) and
$66.6 million (8.0% of net sales), respectively.
Customers
During the past three fiscal years, no one customer accounted for more than
10.0% of Foamex's net sales. However, during the nine months ended September 28,
1997 net sales to the five largest customers comprised $225.4 million or 24.3%
of Foamex's net sales. During the same period, on a pro forma basis after giving
effect to the Crain Acquisition and the Related Transactions, net sales to the
five largest customers accounted for approximately 17.4% of pro forma net sales.
See "Risk Factors--Reliance on Major Customers."
Manufacturing and Raw Materials
Prior to the Crain Acquisition and the Related Transactions, Foamex
produced bulk and fabricated flexible polyurethane foam at 46 manufacturing
facilities in North America with a total of approximately 6.9 million square
feet of floor space. As a result of the Crain Acquisition and the Related
Transactions, Foamex acquired an additional 30 manufacturing facilities in the
United States with a total of approximately 3.5 million square feet of floor
space. Foamex believes that its manufacturing facilities and the manufacturing
facilities acquired as part of the Crain Acquisition and the Related
Transactions are well suited for their intended purposes and are in good
condition. See "--Properties." The manufacturing facilities are strategically
located to service their major customers because high freight cost in relation
to the cost of the foam product generally results in distribution being most
cost effective within 200 to 300 miles from each facility.
Foamex's fabrication process involves cutting foam buns into various shapes
and sizes to meet customer specifications. Fabricated foam is sold to customers
and is utilized by Foamex to produce its home furnishing products. Scrap foam,
generated in connection with the fabrication of foam products, is used by Foamex
to produce bonded carpet cushion.
In 1996, raw materials accounted for more than two-thirds of the
manufacturing costs of Foamex. The two principal chemicals used in the
manufacture of flexible polyurethane foam are TDI and polyol. ARCO Chemical
Company, BASF Corporation and The Dow Chemical Company are among Foamex's
largest suppliers of raw materials. Foamex generally has alternative chemical
suppliers for each major raw material and Foamex believes that it could find
alternative sources of supply should it cease doing business with any of its
major suppliers. The price of TDI and polyol is influenced by demand,
manufacturing capacity and oil and natural gas prices.
Foamex's principal suppliers of raw materials used in the manufacture of
flexible polyurethane foam have increased the price of raw materials several
times since September 1994. In response, Foamex increased selling prices, where
possible, for cushioning, automotive and specialty and technical foam products.
Results of operations have been and could be adversely affected by delays in
implementing, or the inability of Foamex to implement, selling price increases
to offset raw material cost increases. For example, Foamex estimates that in
1995 the amount of net unrecovered raw material cost increases was approximately
$25.0 million. Foamex's principal suppliers of raw materials unsuccessfully
attempted to implement price increases in October 1996 and these suppliers have
again announced price increases effective April 1997. Foamex believes that if
any price increases are sustained in the industry, Foamex will also be impacted
by such increases to the extent any such price increases are not offset through
a selling price increase. The impact of raw material cost increases was not
significant during the second quarter of 1997. However, Foamex estimates the raw
material cost increases, net of sale price increases to customers, had an
unfavorable impact of approximately $2.0 million during the third quarter of
1997. Significant increases in raw material costs could have a material adverse
effect on Foamex's financial condition or results of operations. There
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can be no assurance that chemical suppliers will not increase raw material
costs in the future or that Foamex will be able to implement selling price
increases to offset any such raw material cost increases. See "Risk
Factors--Price and Availability of Raw Materials."
Employees
As of September 28, 1997, Foamex employed approximately 4,425 persons, with
3,935 of such employees involved in manufacturing, 315 in administration and 175
involved in sales and marketing. Approximately 925 of these employees are
located outside the United States. Also, approximately 1,425 of these employees
are covered by collective bargaining agreements with labor unions, which
agreements expire on various dates from 1997 through 2001. Foamex considers
relations with its employees to be good.
As a result of the Crain Acquisition and the Related Transactions, Crain's
approximately 1,950 full-time employees were transferred to Foamex. Of those
1,950 full-time employees, 18 (all located at Crain's plant in West Memphis,
Arkansas) were represented by a labor union. The contract covering Crain's
unionized work force expires in December 1998. Crain has informed Foamex that it
believes that it had a good relationship with its employees.
Competition
The flexible polyurethane foam industry is highly competitive. With
respect to flexible polyurethane foam, competition is based primarily on price,
quality of products and service. Foamex's larger competitors in the
polyurethane foam industry include E. R. Carpenter Company, Hickory Springs
Manufacturing Company, Vitafoam, Inc., General Foam Corporation, Flexible Foam
Products, Inc. and Crest Foam Industries, Inc. None of such competitors
competes in all of the product categories in which Foamex does business. See
"Risk Factors--Competition."
Patents and Trademarks
Foamex owns various United States and foreign patents relating to the
manufacture and processing of foam. Patented technologies developed by Foamex
have included SMT[TM], reticulation and felting. Trademarks and servicemarks
include Foamex[RegTM], General Felt Industries[RegTM], ComfortWear[RegTM],
Plushlife[TM], SMT[TM], Reflex[TM], Chamber TechnologySM and Berber-Mate[TM].
The registered processes and products were developed through ongoing research
and development activities to improve quality, reduce costs and expand markets
through the development of new applications for flexible polyurethane foam
products. Foamex uses several additional trademarks and tradenames for product
identification, the majority of which are used in the carpet cushion and
specialty and technical foams product lines. See "--Research and Development"
below for a discussion of the VPF[TM] technology. As a result of the Crain
Acquisition and Related Transactions, Foamex acquired various patents and
trademarks registered domestically and in numerous foreign countries. The
registered processes and products were developed through Crain's ongoing
research and development activities to improve quality, reduce costs and expand
markets through the development of new applications for flexible polyurethane
foam products. Crain used several trademarks and trade names for product
identification including Vertifoam[RegTM], Enviro-Cure[RegTM] and Egg
Crate[RegTM]. Foamex believes its business is not dependent upon any individual
patent, trademark, servicemark or tradename.
Research and Development
Foamex believes it has a significant research and development capability.
This capability gives Foamex a significant advantage in the ongoing development
of new products and new applications for existing products. As of September 28,
1997, Foamex has research and development facilities located in Hayward,
California and Eddystone, Pennsylvania employing approximately 24 full-time
employees. Expenditures for research and development amounted to $2.7 million,
$3.2 million and $2.5 million for 1994, 1995 and 1996, respectively. Research
and development facilities located in Fort Smith, Arkansas, which employ ten
full-time employees were acquired as part of the Crain Acquisition and the
Related Transactions.
Foamex and Recticel have exchanged know-how, trade secrets, engineering and
other data, designs, specifications, chemical formulations, technical
information, market information and drawings which are necessary or useful for
the manufacture, use or sale of foam products and it is anticipated that they
will continue to do so in the future. Foamex, Recticel and Beamech Group
Limited, an unaffiliated third party ("Beamech"), have an interest in a Swiss
corporation that develops new manufacturing technology for the production of
polyurethane foam including the VPF[TM] manufacturing process. VPF[TM] is a
manufacturing process that contains no
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chlorofluorocarbons and eliminates volatile auxiliary blowing agents. Moreover,
VPF[TM] produces polymers with a wide range of properties, including previously
unavailable low density, ultrasoft products. Foamex believes that the VPF[TM]
process will expand applications for urethane-based products. Foamex, Recticel,
and their affiliates have a royalty-free license to use technology developed by
the Swiss corporation. The Swiss corporation, subject to certain limitations, is
free to license the VPF[TM] technology to third parties. Foamex currently
operates the only two VPF[TM] units in North America.
Foamex recently developed SMT[TM] which allows for high volume precision
contouring of foam surfaces, including the pattern, the size of the pattern and
the depth of the cut, thereby improving Foamex's existing products and creating
new products such as sculpted bed mattresses that provide enhanced comfort.
Properties
As of September 28, 1997, Foamex conducted its operations through 46
manufacturing and 12 distribution facilities. As a result of the Crain
Acquisition and the Related Transactions, Foamex acquired an additional 30
manufacturing facilities. Of these 88 facilities, 21 are owned and 67 are
leased. Total floor space in use at the owned manufacturing and distribution
facilities is approximately 4.1 million square feet and total floor space in use
at the leased manufacturing and distribution facilities is approximately 6.7
million square feet. Eighty of these facilities are located in 49 cities in the
United States, five facilities are located in two cities in Canada and three
facilities are located in three cities in Mexico. The 1997 annual base rental
with respect to such leased facilities is approximately $14.6 million under
leases expiring from 1997 to 2005. Foamex does not anticipate any problem in
renewing or replacing any of such leases expiring in 1997. Foamex subleases to
third parties approximately 0.1 million square feet of space in San Leandro,
California and approximately 0.1 million square feet of space in Fort Smith,
Arkansas. In addition, Foamex has approximately 1.1 million square feet of idle
space of which approximately 0.5 million is leased.
Foamex maintains administrative and sales offices in Linwood,
Pennsylvania; St. Louis, Missouri; Ft. Smith, Arkansas, Hayward, California;
Chicago, Illinois; Southfield, Michigan; and New York, New York.
Environmental Matters
Foamex is subject to extensive and changing federal, state, local and
foreign environmental laws and regulations, including those relating to the use,
handling, storage, discharge and disposal of hazardous substances and the
remediation of environmental contamination, and as a result, is from time to
time involved in administrative and judicial proceedings and inquiries relating
to environmental matters. During 1997, expenditures in connection with Foamex's
compliance with federal, state, local and foreign environmental laws and
regulations did not have a material adverse effect on its operations, financial
position, capital expenditures or competitive position. As of September 28,
1997, Foamex had accruals of approximately $3.8 million for environmental
matters.
The Clean Air Act Amendments of 1990 (the "1990 CAA Amendments") provide
for the establishment of federal emission standards for hazardous air pollutants
including methylene chloride, propylene oxide and TDI, materials used in the
manufacturing of foam. On December 27, 1996, the United States Environmental
Protection Agency (the "EPA") proposed regulations under the 1990 CAA Amendments
that will require manufacturers of slab stock polyurethane foam and foam
fabrication plants to reduce emissions of methylene chloride. Because these
regulations are subject to change prior to finalization, Foamex cannot
accurately predict the actual cost of their implementation. Foamex does not
believe implementation of the regulations will require it to make material
expenditures, due to Foamex's use of alternative technologies which do not
utilize methylene chloride and its ability to shift current production to the
facilities which use these alternative technologies, however, material
expenditures may be required at the facilities formerly operated by Crain. The
1990 CAA Amendments also may result in the imposition of additional standards
regulating air emissions from polyurethane foam manufacturers, but these
standards have not yet been proposed or promulgated.
In addition to general regulatory requirements, state laws have resulted or
will result in more stringent regulations regarding the use and emission of
methylene chloride. Several former Crain facilities have been required to meet
greater state restrictions regarding emission limits and/or quantities used of
this chemical. For example, in California, methylene chloride usage was phased
out at the end of 1995, while in Kent, Washington, and Easton, Pennsylvania, the
former Crain facilities, pursuant to consent decrees as well as applicable laws,
must over a period of time phase out methylene chloride usage. Specifically,
through the development of the Enviro-Cure[RegTM] process,
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which uses ambient or refrigerated air to remove the heat of reaction during the
foam curing process, methylene chloride usage can be reduced by up to 90 percent
and, when used in conjunction with the Vertifoam[RegTM] process, completely.
Crain had installed the Enviro-Cure[RegTM] process at its manufacturing
facilities in Ft. Smith, Arkansas; Compton, California; San Leandro, California;
Elkhart, Indiana; Tupelo, Mississippi; and Conover, North Carolina. Where
regulations require the elimination of methyl-chloroform and methylene chloride.
Crain has installed a CARDIO[RegTM] system, which eliminates the use of
methyl-chloroform. During 1996, Crain installed the CARDIO[RegTM] system at its
Compton, California; Easton, Pennsylvania; and Kent, Washington plants. However,
see "Legal Proceedings" below.
Foamex has reported to appropriate state authorities that it has found soil
contamination in excess of state standards at facilities in Orlando, Florida; La
Porte, Indiana; Conover, North Carolina; Cornelius, North Carolina; Fort Wayne,
Indiana; Philadelphia, Pennsylvania; and at a former facility in Dallas, Texas
and groundwater contamination in excess of state standards at the Orlando,
Conover, Philadelphia, and Cornelius facilities. Foamex has begun remediation
and is conducting further investigations into the extent of the contamination at
these facilities and, accordingly, the extent of the remediation that may
ultimately be required. The actual cost and the timetable of any such
remediation cannot be predicted with any degree of certainty at this time.
Foamex, based on engineering estimates of the remaining potential remediation
costs for these facilities, has accruals of $3.0 million for the estimated cost
of completing remediation and established a net receivable of $1.0 million on
the basis of indemnifications by Trace Holdings and RFC associated with the
partnership formation of Foamex. Foamex has completed remediation of soil
contamination at a former Trenton, New Jersey manufacturing facility closed in
October 1993 and is awaiting final closure approvals from the New Jersey
Department of Environmental Protection regarding the remediation of soil
contamination and monitoring of groundwater at the former Trenton facility.
Foamex is in the process of completing a remediation at its Mesquite, Texas
facility and expects a certificate of completion under the Texas Voluntary Clean
Up program when such remediation is complete.
Federal regulations require that by the end of 1998 all USTs be removed or
upgraded in all states to meet applicable standards. Foamex has six USTs that
will require removal or permanent in-place closure by the end of 1998. Due to
the age of all of these tanks, leakage may have occurred resulting in soil and
possibly groundwater contamination. Foamex has accrued approximately $0.3
million for the estimated removal and remediation costs, if any, associated with
USTs. However, the full extent of contamination, and accordingly, the actual
cost of such remediation, including at the former Crain facilities, cannot be
predicted with any degree of certainty at this time. Foamex believes that its
USTs do not pose a significant risk of environmental liability because of its
monitoring practices for USTs and conditional approval for the permanent
in-place closure for certain USTs. However, there can be no assurance that such
USTs will not result in significant environmental liability in the future.
On April 10, 1997, the Occupational Health and Safety Administration
promulgated new standards governing employee exposure to methylene chloride,
which is used as a blowing agent in some of Foamex's manufacturing processes.
Foamex does not believe that it will be required to make any material
expenditures to comply with these new standards due to its use of alternative
technologies which do not use methylene chloride and its ability to shift
production to facilities which use these technologies, however, material
expenditures may be required at the facilities formerly operated by Crain.
Foamex has been designated as a Potentially Responsible Party ("PRP") by
the EPA with respect to 13 sites with an estimated total liability to Foamex for
the 13 sites of less than approximately $0.5 million. Estimates of total cleanup
costs and fractional allocations of liability are generally provided by the EPA
or the committee of PRPs with respect to the specified site. In each case, the
participation of Foamex is considered to be immaterial.
On May 5, 1997, there was an accidental chemical spill at one of Foamex's
manufacturing facilities. The spill was contained on site and cleaned-up for an
approximate cost of $0.6 million. Although it is possible that new information
or future developments could require Foamex to reassess its potential exposure
relating to all pending environmental matters, including those described herein,
Foamex believes that, based upon all currently available information, the
resolution of such environmental matters will not have a material adverse effect
on Foamex's operations, financial position, capital expenditures or competitive
position. The possibility exists, however, that new environmental legislation
and/or environmental regulations may be adopted, or other environmental
conditions may be found to exist, that may require expenditures not currently
anticipated and that may be material. See "Risk Factors--Environmental
Liabilities and Regulations."
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Legal Proceedings
As of November 3, 1997, Foamex and Trace Holdings were two of multiple
defendants in actions filed on behalf of approximately 5,500 recipients of
breast implants in various United States federal and state courts and one
Canadian provincial court. Some of these actions allege substantial damages, but
most of these actions allege unspecified damages for personal injuries of
various types. Three of these cases seek to allege claims on behalf of all
breast implant recipients or other allegedly affected parties, but no class has
been approved or certified by the court. In addition, three cases have been
filed alleging claims on behalf of approximately 700 residents of Australia, New
Zealand, England, and Ireland. Foamex believes that the number of suits and
claimants may increase. During 1995, Foamex and Trace Holdings were granted
summary judgments and dismissed as defendants from all cases in the federal
courts of the United States and the state courts of California. Appeals for
these decisions were withdrawn and the decisions are final.
Although breast implants do not contain foam, certain silicone gel implants
were produced using a polyurethane foam covering fabricated by independent
distributors or fabricators from bulk foam purchased from Foamex or Trace
Holdings. Neither Foamex nor Trace Holdings recommended, authorized, or approved
the use of its foam for these purposes. Foamex is indemnified by Trace Holdings
for any such liabilities relating to foam manufactured prior to October 1990.
Although Trace Holdings has paid Foamex's litigation expenses to date pursuant
to such indemnification and Foamex believes Trace Holdings likely will be in a
position to continue to pay such expenses, there can be no absolute assurance
that Trace Holdings will be able to provide such indemnification. While it is
not feasible to predict or determine the outcome of these actions, based on
Foamex's present assessment of the merits of pending claims, after consultation
with the general counsel of Trace Holdings, and without taking into account the
indemnification provided by Trace Holdings, the coverage provided by Trace
Holdings' and Foamex's liability insurance, and the potential indemnity from the
manufacturers of polyurethane covered breast implants, Foamex believes that the
disposition of matters that are pending or that may reasonably be anticipated to
be asserted should not have a material adverse effect on either Foamex's or
Trace Holdings' consolidated financial position or results of operations. If
Foamex's assessment of liability with respect to these actions is incorrect,
such actions could have a material adverse effect on Foamex.
Foamex is party to various other lawsuits, both as defendant and plaintiff,
arising in the normal course of business. It is the opinion of Foamex that the
disposition of these lawsuits will not, individually or in the aggregate, have a
material adverse effect on the financial position or results of operations of
Foamex. If Foamex's assessment of Foamex's liability with respect to these
actions is incorrect, such actions could have a material adverse effect on
Foamex's consolidated financial position. See "Risk Factors--Litigation."
In November 1997, a complaint was filed in the United States District Court
for the Southern District of Texas alleging that various defendants, including
Crain through the use of the Cardio process licensed from a third party,
infringed on a patent held by plaintiff. Foamex is negotiating with the licensor
of the process for the assumption of the defense of the action by the licensor;
however, the action is in the preliminary stages, and there can be no assurance
as to the ultimate outcome of the action.
Crain was a party to various legal proceedings and administrative actions,
all of which were of an ordinary or routine nature incidental to the operations
of Crain. Foamex has been informed in the opinion of Crain's management, such
proceedings and actions should not, individually or in the aggregate, have a
material adverse effect on Crain's financial condition or results of operations.
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THE EXCHANGE OFFER
Purpose and Effect of the Exchange Offer
The Old Notes were issued by the Issuers on December 23, 1997 as part of
the Crain Acquisition and the Related Transactions. In connection therewith, the
Issuers and the Subsidiary Guarantors entered into the Registration Rights
Agreement, pursuant to which the Issuers and the Subsidiary Guarantors agreed,
for the benefit of the Holders of the Old Notes, that the Issuers and the
Subsidiary Guarantors would, at their sole cost, (i) within 45 days following
the original issuance of the Old Notes, file with the Commission the Exchange
Offer Registration Statement (of which this Prospectus is a part) under the
Securities Act with respect to an issue of a series of new notes of the Issuers
identical in all material respects to the series of Old Notes and (ii) use their
reasonable best efforts to cause such Exchange Offer Registration Statement to
become effective under the Securities Act at the earliest possible time, but in
no event later than 150 days following the original issuance of the Old Notes.
Upon the effectiveness of the Exchange Offer Registration Statement (of which
this Prospectus is a part), the Issuers will offer to the Holders of the Old
Notes the opportunity to exchange their Old Notes for a like principal amount of
New Notes, to be issued without a restrictive legend and which may, subject to
certain exceptions described below, be reoffered and resold by the Holder
without restrictions or limitations under the Securities Act. The term "Holder"
with respect to any Note means any person in whose name such Note is registered
on the books of Foamex.
Each Holder desiring to participate in the Exchange Offer will be required
to represent, among other things, that (i) it is not an "affiliate" (as defined
in Rule 405 of the Securities Act) of the Issuers, (ii) it is not engaged in,
and does not intend to engage in, and has no arrangement or understanding with
any person to participate in, a distribution of the New Notes, and (iii) it is
acquiring the New Notes in the ordinary course of its business (a holder unable
to make the foregoing representations is referred to herein as a "Restricted
Holder"). A Restricted Holder will not be able to participate in the Exchange
Offer, and may only sell its Old Notes pursuant to a registration statement
containing the selling securityholder information required by Item 507 of
Regulation S-K of the Securities Act, or pursuant to an exemption from the
registration requirement of the Securities Act.
Each Participating Broker-Dealer is required to acknowledge in the Letter
of Transmittal that it acquired the Old Notes as a result of market-making
activities or other trading activities and that it will deliver a prospectus in
connection with the resale of New Notes. Based upon interpretations by the staff
of the Commission, the Issuers believe that New Notes issued pursuant to the
Exchange Offer to Participating Broker-Dealers may be offered for resale,
resold, and otherwise transferred by a Participating Broker-Dealer (other than a
Restricted Holder) upon compliance with the prospectus delivery requirements,
but without compliance with the registration requirements, of the Securities
Act. The Issuers have agreed that for a period of 120 days following
consummation of the Exchange Offer they will make this Prospectus available to
Participating Broker-Dealers for use in connection with any such resale. During
such period of time, delivery of this Prospectus, as it may be amended or
supplemented, will satisfy the prospectus delivery requirements of a
Participating Broker-Dealer engaged in market making or other trading
activities. See "Plan of Distribution."
Based upon interpretations by the staff of the Commission, the Issuers
believe that New Notes issued pursuant to the Exchange Offer may be offered for
resale, resold and otherwise transferred by a Holder thereof (other than a
Restricted Holder or a Participating Broker-Dealer) without compliance with the
registration and prospectus delivery requirements of the Securities Act.
If (i) the Issuers are not required to file the Exchange Offer Registration
Statement or permitted to consummate the Exchange Offer because the Exchange
Offer is not permitted by applicable law or Commission policy or (ii) any Holder
of Transfer Restricted Securities (as defined) notifies the Issuers 20 business
days following the consummation of the Exchange Offer that (A) such Holder is
prohibited by law or Commission policy from participating in the Exchange Offer
or (B) such Holder may not resell the New Notes acquired by it in the Exchange
Offer to the public without delivering a prospectus and this Prospectus is not
appropriate or available for such resales or (C) such Holder is a broker-dealer
and owns Old Notes acquired directly from the Issuers or an affiliate of the
Issuers, then the Issuers are required under the Registration Rights Agreement
to file with the Commission a shelf registration statement (the "Shelf
Registration Statement") to cover resales of Transfer Restricted Securities by
the Holder thereof who satisfies certain conditions relating to the provision of
information in connection with the Shelf Registration Statement. The Issuers are
required under the Registration Rights Agreement to use their reasonable best
efforts to cause the Shelf Registration Statement to be declared effective at
the earliest possible time but in
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no event later than 120 days after the date on which the Issuers become
obligated to file such Shelf Registration Statement and, except under certain
circumstances, keep effective such Shelf Registration Statement until two years
after its effective date. For purposes of the foregoing, "Transfer Restricted
Securities" means each Note until the earliest to occur of (i) the date on which
such Old Note has been exchanged by a person other than a Participating
Broker-Dealer for a New Note in the Exchange Offer, (ii) following the exchange
by a Participating Broker-Dealer in the Exchange Offer of an Old Note for a New
Note, the date on which such New Note is sold to a purchaser who receives from
such Participating Broker-Dealer on or prior to the date of such sale a copy of
the prospectus contained in the Exchange Offer Registration Statement, (iii) the
date on which such Note has been effectively registered under the Securities Act
and disposed of in accordance with the Shelf Registration Statement or (iv) the
date on which such Note is distributed to the public pursuant to Rule 144 under
the Securities Act. The Issuers will, in the event of the filing of the Shelf
Registration Statement, provide to each Holder of Transfer Restricted Securities
covered by the Shelf Registration Statement copies of any Shelf Registration
Statement or any prospectus which is a part of the Shelf Registration Statement,
notify each such Holder when the Shelf Registration Statement has become
effective and take certain other actions as are required to permit unrestricted
resales of Transfer Restricted Securities. A Holder of Transfer Restricted
Securities that sells such Transfer Restricted Securities pursuant to the Shelf
Registration Statement generally will be required to be named as a selling
security holder in the related prospectus and to deliver a prospectus to the
purchaser, will be subject to certain of the civil liability provisions under
the Securities Act in connection with such sales and will be bound by the
provisions of the Registration Rights Agreement which are applicable to such
Holder (including certain indemnification obligations). In addition, Holders of
Transfer Restricted Securities will be required to deliver information to be
used in connection with the Shelf Registration Statement and to provide comments
on the Shelf Registration Statement within the time periods set forth in the
Registration Rights Agreement in order to have their Transfer Restricted
Securities included in the Shelf Registration Statement and benefit from the
provisions regarding Liquidated Damages, if any, set forth in the following
paragraph.
If (i) any Registration Statement required by the Registration Rights
Agreement is not filed with the Commission on or prior to the date specified for
such filing in the Registration Rights Agreement, (ii) any such Registration
Statement has not been declared effective by the Commission on or prior to the
date specified for such effectiveness in the Registration Rights Agreement (the
"Effectiveness Target Date"), (iii) the Exchange Offer has not been consummated
within 30 business days after the Effectiveness Target Date with respect to the
Exchange Offer Registration Statement or (iv) any Registration Statement
required by the Registration Rights Agreement is filed and declared effective
but thereafter cease to be effective or fail to be usable for its intended
purpose without being succeeded immediately by a post-effective amendment to
such Registration Statement that cures such failure and that is itself
immediately declared effective (each such event referred to in clauses (i)
through (iv), a "Registration Default"), the Issuers have agreed to pay to each
Holder of Transfer Restricted Securities, for the first 90-day period
immediately following the occurrence of such Registration Default, liquidated
damages ("Liquidated Damages") in an amount equal to $.05 per week per $1,000
principal amount of Notes constituting Transfer Restricted Securities held by
such Holder for each week or portion thereof that the Registration Default
continues. The amount of the Liquidated Damages payable to each Holder will
increase by an additional $.05 per week per $1,000 in principal amount of
Transfer Restricted Securities with respect to each subsequent 90-day period
until all Registration Defaults have been cured, up to a maximum amount of
Liquidated Damages of $.50 per week per $1,000 principal amount of Transfer
Restricted Securities held by such Holder. Following the cure of all
Registration Defaults, the accrual of Liquidated Damages, if any, shall cease.
Payment of Liquidated Damages is the sole remedy available to the Holders
of Transfer Restricted Securities in the event that the Issuers do not comply
with the deadlines set forth in the Registration Rights Agreement with respect
to the registration of Transfer Restricted Securities for resale under the
Registration Statement.
Terms of the Exchange Offer
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Issuers will accept any and all Old Notes
validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on
the Expiration Date. The Issuers will issue $1,000 principal amount of New Notes
in exchange for each $1,000 principal amount of outstanding Old Notes accepted
in the Exchange Offer. Holders may tender some or all of their Old Notes
pursuant to the Exchange Offer. However, Old Notes may be tendered only in
integral multiples of $1,000.
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The form and terms of the New Notes will be identical in all material
respects (including principal amount, interest rate, maturity and ranking) to
terms of the Old Notes for which they may be exchanged pursuant to the Exchange
Offer except that the New Notes have been registered under the Securities Act
and, therefore, will not bear legends restricting their transfer and will not
contain certain terms providing for an increase in the interest rate on the Old
Notes under certain circumstances described in the Registration Rights
Agreement. The New Notes will evidence the same debt as the Old Notes and will
be entitled to the benefits of the Indenture under which the Old Notes were, and
the New Notes will be, issued.
As of the date of this Prospectus, $98.0 million aggregate principal amount
of the Old Notes is outstanding. The Issuers have fixed the close of business on
, 1998 as the record date for the Exchange Offer for purposes of
determining the persons to whom this Prospectus, together with the Letter of
Transmittal, will initially be sent. As of such date, there was one registered
Holder of the Old Notes.
Holders of the Old Notes do not have any appraisal or dissenters' rights
under law or the Indenture in connection with the Exchange Offer. The Issuers
intend to conduct the Exchange Offer in accordance with the applicable
requirements of the Exchange Act and the rules and regulations of the Commission
thereunder.
Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commission or fees or, subject to the instructions in the Letter
of Transmittal, transfer taxes with respect to the exchange of Old Notes
pursuant to the Exchange Offer. The Issuers will pay all charges and expenses,
other than certain applicable taxes, in connection with the Exchange Offer. See
"--Fees and Expenses."
Expiration Date; Extensions; Amendments
The term "Expiration Date" shall mean Midnight, New York City time, on
, 1998, unless the Issuers, in their reasonable discretion, extend the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Issuers will notify the Exchange
Agent (as defined) of any extension by oral or written notice and will make a
public announcement thereof prior to 9:00 a.m., New York City time, on the next
business day after each previously scheduled Expiration Date, unless otherwise
required by applicable law or regulation.
The Issuers reserve the right, in their reasonable discretion, (i) to delay
accepting any Old Notes, to extend the Exchange Offer or, if in their reasonable
judgment any of the conditions set forth below under the caption "--Conditions"
shall not have been satisfied, to terminate the Exchange Offer, by giving oral
or written notice of such delay, extension or termination to the Exchange Agent,
or (ii) to amend the terms of the Exchange Offer in any manner. Any such delay
in acceptance, extension, termination or amendment will be followed as promptly
as practicable by a public announcement thereof. If the Exchange Offer is
amended in a manner determined by the Issuers to constitute a material change,
the Issuers will promptly disclose such amendment by means of a prospectus
supplement that will be distributed to the registered Holders, and the Issuers
will extend the Exchange Offer for a period of five to ten business days,
depending upon the significance of the amendment and the manner of disclosure to
the registered Holders, if the Exchange Offer would otherwise expire during such
five to ten business day period.
Without limiting the manner in which the Issuers may choose to make a
public announcement of any delay, extension, termination or amendment of the
Exchange Offer, the Issuers shall have no obligation to publish, advertise or
otherwise communicate any such public announcement, other than by making a
timely release to the Dow Jones News Service.
Procedures for Tendering
Only a Holder of Old Notes may tender such Old Notes in the Exchange Offer.
A Holder who wishes to tender Old Notes for exchange pursuant to the Exchange
Offer must transmit a properly completed and duly executed Letter of
Transmittal, or a facsimile thereof, together with any required signature
guarantees, or, in the case of a book-entry transfer, Agent's Message (as
defined), and any other required documents, to the Exchange Agent prior to
Midnight, New York City time, on the Expiration Date. In addition, either (i)
certificates for such Old Notes must be received by the Exchange Agent prior to
the Expiration Date along with the Letter of Transmittal, (ii) a timely
confirmation of a book-entry transfer (a "Book-Entry Confirmation") of such Old
Notes into the Exchange Agent's account at The Depository Trust Company ("DTC"
or the "Book-Entry Transfer Facility") pursuant to the
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procedure for book-entry transfer described below, must be received by the
Exchange Agent prior to the Expiration Date or (iii) the Holder must comply with
the guaranteed delivery procedures described below. To be tendered effectively,
the Old Notes, or Book-Entry Confirmation, as the case may be, the Letter of
Transmittal and other required documents must be received by the Exchange Agent
at the address set forth below under "--Exchange Agent" prior to Midnight, New
York City time, on the Expiration Date. DELIVERY OF DOCUMENTS TO THE BOOK ENTRY
TRANSFER FACILITY IN ACCORDANCE WITH ITS PROCEDURE DOES NOT CONSTITUTE DELIVERY
TO THE EXCHANGE AGENT.
DTC has authorized DTC participants that hold Old Notes on behalf of
beneficial owners of Old Notes through DTC to tender their Old Notes as if they
were Holders. To effect a tender of Old Notes, DTC participants should either
(i) complete and sign the Letter of Transmittal (or a manually signed facsimile
thereof), have the signature thereon guaranteed if required by the Instructions
to the Letter of Transmittal, and mail or deliver the Letter of Transmittal (or
such manually signed facsimile) to the Exchange Agent pursuant to the procedure
set forth in "Procedures for Tendering" or (ii) transmit their acceptance to DTC
through the DTC Automated Tender Offer Program ("ATOP") for which the
transaction will be eligible and follow the procedure for book-entry transfer
set forth in "--Book-Entry Transfer."
The tender by a Holder will constitute an agreement between such Holder and
the Issuers in accordance with the terms and subject to the conditions set forth
herein and in the Letter of Transmittal.
The method of delivery of the Old Notes and the Letter of Transmittal and
all other required documents to the Exchange Agent is at the election and risk
of the Holder. Instead of delivery by mail, it is recommended that Holders use
an overnight or hand delivery service. In all cases, sufficient time should be
allowed to assure delivery to the Exchange Agent before the Expiration Date. No
Letter of Transmittal or Old Notes, or Book-Entry Confirmation, as the case may
be, should be sent to the Issuers.
Any beneficial owner whose Old Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered Holder promptly and instruct such
registered Holder to tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on such beneficial owner's own behalf, such
owner must, prior to completing and executing the Letter of Transmittal and
delivering such beneficial owner's Old Notes, either make appropriate
arrangement to register ownership of the Old Notes in such owner's name or
obtain a properly completed bond power from the registered Holder. The transfer
of registered ownership may take considerable time.
If the Letter of Transmittal is signed by a person other than the
registered Holder of any Old Notes listed therein, such Old Notes must be
endorsed or accompanied by a properly completed bond power and signed by such
registered Holder as such registered Holder's name appears on such Old Notes.
If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by the Issuers,
evidence satisfactory to the Issuers of their authority to so act must be
submitted with the Letter of Transmittal.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined below)
unless the Old Notes tendered pursuant thereto are tendered (i) by a registered
Holder who has not completed the box entitled "Special Issuance Instructions" or
"Special Delivery Instructions" on the Letter of Transmittal or (ii) for the
account of an Eligible Institution. In the event that signatures on a Letter of
Transmittal or a notice of withdrawal, as the case may be, are required to be
guaranteed, such guarantee must be by a member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
a commercial bank or trust company having an office or correspondent in the
United States or an "eligible guarantor institution" within the meaning of Rule
17Ad-15 under the Exchange Act (an "Eligible Institution").
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Old Notes will be determined by
the Issuers in their sole discretion, which determination shall be final and
binding. The Issuers reserve the absolute right to reject any and all Old Notes
not properly tendered or any Old Notes the Issuers' acceptance of which would,
in the opinion of counsel for the Issuers, be unlawful. The Issuers also reserve
the right to waive any defects, irregularities or conditions of tender as to
particular Old Notes. The
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Issuers' interpretation of the terms and conditions of the Exchange Offer
(including the instructions in the Letter of Transmittal) shall be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Old Notes must be cured within such time as the
Issuers shall determine. Neither the Issuers, the Exchange Agent nor any other
person shall incur any liability for failure to give notice of any defect or
irregularity with respect to any tender of Old Notes. Tenders of Old Notes will
not be deemed to have been made until such defects or irregularities have been
cured or waived. Any Old Notes received by the Exchange Agent that are not
properly tendered and as to which the defects or irregularities have not been
cured or waived will not be deemed to have been properly tendered. Any Old Notes
received by the Exchange Agent that are not properly tendered and as to which
the defects or irregularities have not been cured or waived will be returned by
the Exchange Agent to the tendering Holders, unless otherwise provided in the
Letter of Transmittal, as soon as practicable following the Expiration Date.
By tendering, each Holder will represent to the Issuers, among other
things, that such Holder is not a Restricted Holder. Each Participating
Broker-Dealer must acknowledge that it will deliver a prospectus in connection
with any resale of such New Notes. See "Plan of Distribution."
Acceptance of Old Notes for Exchange; Delivery of New Notes
For each Old Note accepted for exchange, the Holder of such Old Note will
receive a New Note having a principal amount equal to that of the surrendered
Old Note. For purposes of the Exchange Offer, the Issuers shall be deemed to
have accepted properly tendered Old Notes for exchange when, as and if the
Issuers have given oral or written notice thereof to the Exchange Agent.
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of certificates for such Old Notes or a timely Book-Entry
Confirmation of such Old Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility, a properly completed and duly executed Letter of
Transmittal or Agent's Message and all other required documents. If any tendered
Old Notes are not accepted for any reason set forth in the terms and conditions
of the Exchange Offer or if Old Notes are submitted for a greater principal
amount than the Holder desires to exchange, such unaccepted or non-exchanged Old
Notes will be returned without expense to the tendering Holder thereof (or, in
the case of Old Notes tendered by book-entry transfer into the Exchange Agent's
account at the Book-Entry Transfer Facility pursuant to the book-entry transfer
procedures described below, such non-exchanged Old Notes will be credited to an
account maintained with such Book-Entry Transfer Facility) as promptly as
practicable after the Expiration Date.
Book-Entry Transfer
The Exchange Agent will establish a new account or utilize an existing
account with respect to the Old Notes at DTC promptly after the date of this
Prospectus, and any financial institution that is a participant in DTC and whose
name appears on a security position listing as the owner of Old Notes may make a
book-entry tender of Old Notes by causing DTC to transfer such Old Notes into
the Exchange Agent's account in accordance with DTC's procedures for such
transfer. However, although tender of Old Notes may be effected through
book-entry transfer into the Exchange Agent's account at DTC, the Letter of
Transmittal (or a manually signed facsimile thereof), properly completed and
validly executed, with any required signature guarantees, or an Agent's Message
in lieu of the Letter of Transmittal, and any other required documents, must, in
any case, be received by the Exchange Agent at its address set forth below under
the caption "Exchange Agent" on or prior to the Expiration Date, or the
guaranteed delivery procedures described below must be complied with. The
confirmation of a book-entry transfer of Old Notes into the Exchange Agent's
account at DTC as described above is referred to herein as a "Book-Entry
Confirmation." Delivery of documents to DTC in accordance with DTC's procedures
does not constitute delivery to the Exchange Agent.
The term "Agent's Message" means a message transmitted by DTC to, and
received by, the Exchange Agent and forming a part of a Book-Entry Confirmation,
which states that DTC has received an express acknowledgment from the
participant in DTC tendering the Old Notes stating (i) the aggregate principal
amount of Old Notes which have been tendered by such participant, (ii) that such
participant has received and agrees to be bound by the term of the Letter of
Transmittal and (iii) that the Company may enforce such agreement against the
participant.
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Guarantee Delivery Procedures
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available, (ii) who cannot deliver their Old Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent prior to the
Expiration Date or (iii) who cannot complete the procedure for book-entry
transfer on a timely basis, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of Guaranteed
Delivery (by facsimile transmission, mail or hand delivery) setting forth the
name and address of the Holder, the certificate number(s) of such Old Notes and
the principal amount of Old Notes tendered, stating that the tender is being
made thereby and guaranteeing that, within three New York Stock Exchange trading
days after the Expiration Date, the Letter of Transmittal (or facsimile thereof)
or, in the case of a book-entry transfer, an Agent's Message, together with the
certificate(s) representing the Old Notes, or a Book-Entry Confirmation, as the
case may be, and any other documents required by the Letter of Transmittal will
be deposited by the Eligible Institution with the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (or
facsimile thereof) or, in the case of a book-entry transfer, an Agent's Message,
as well as the certificate(s) representing all tendered Old Notes in proper form
for transfer, or a Book-Entry Confirmation, as the case may be, and all other
documents required by the Letter of Transmittal are received by the Exchange
Agent within three New York Stock Exchange trading days after the Expiration
Date.
Withdrawal of Tenders
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date.
To withdraw a tender of Old Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to 5:00 p.m., New York City time, on
the Expiration Date. Any such notice of withdrawal must (i) specify the name of
the person having deposited the Old Notes to be withdrawn (the "Depositor"),
(ii) identify the Old Notes to be withdrawn (including the certificate number or
numbers and principal amount of such Old Notes), (iii) be signed by the Holder
in the same manner as the original signature on the Letter of Transmittal by
which such Old Notes were tendered (including any required signature guarantees)
or be accompanied by documents of transfer sufficient to have the Trustee with
respect to the Old Notes register the transfer of such Old Notes into the name
of the person withdrawing the tender and (iv) specify the name in which any such
Old Notes are to be registered, if different from that of the Depositor. If
certificates for Old Notes have been delivered or otherwise identified to the
Exchange Agent, then, prior to the release of such certificates, the withdrawing
Holder must also submit the serial numbers of the particular certificates to be
withdrawn and a signed notice of withdrawal with signatures guaranteed by an
Eligible Institution unless such Holder is an Eligible Institution. If Old Notes
have been tendered pursuant to the procedure for book-entry transfer described
above, any notice of withdrawal must specify the name and number of the account
at the Book-Entry Transfer Facility to be credited with the withdrawn Old Notes
and otherwise comply with the procedures of the Book Entry Transfer Facility.
All questions as to the validity, form and eligibility (including time of
receipt) of such notices will be determined by the Issuers in their sole
discretion, which determination shall be final and binding on all parties. Any
Old Notes so withdrawn will be deemed not to have been validly tendered for
purposes of the Exchange Offer and no New Notes will be issued with respect
thereto unless the Old Notes so withdrawn are validly retendered. Properly
withdrawn Old Notes may be retendered by following one of the procedures
described above under "--Procedures for Tendering" at any time prior to the
Expiration Date.
Any Old Notes which have been tendered but which are not accepted for
payment due to withdrawal, rejection of tender or termination of the Exchange
Offer will be returned as soon as practicable after withdrawal, rejection of
tender or termination of the Exchange Offer to the Holder thereof without cost
to such Holder (or, in the case of Old Notes tendered by book-entry transfer
into the Exchange Agent's account at the Book-Entry Transfer Facility pursuant
to the book-entry transfer procedures described above, such Old Notes will be
credited to an account maintained with such Book-Entry Transfer Facility for the
Old Notes).
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Conditions
Notwithstanding any other term of the Exchange Offer, the Issuers shall not
be required to accept for exchange, or exchange New Notes for, any Old Notes,
and may terminate the Exchange Offer as provided herein before the acceptance of
such Old Notes, if:
(a) any action or proceeding is instituted or threatened in any court or by
or before any governmental agency with respect to the Exchange Offer which, in
the reasonable judgment of the Issuers, might materially impair the ability of
the Issuers to proceed with the Exchange Offer or materially impair the
contemplated benefits of the Exchange Offer to the Issuers, or any material
adverse development has occurred in any existing action or proceeding with
respect to the Issuers or any of their subsidiaries;
(b) any change, or any development involving a prospective change, in the
business or financial affairs of the Issuers or any of their subsidiaries has
occurred which, in the reasonable judgment of the Issuers, might materially
impair the ability of the Issuers to proceed with the Exchange Offer or
materially impair the contemplated benefits of the Exchange Offer to the
Issuers;
(c) any law, statute, rule or regulation is proposed, adopted or enacted,
which, in the reasonable judgment of the Issuers, might materially impair the
ability of the Issuers to proceed with the Exchange Offer or materially impair
the contemplated benefits of the Exchange Offer to the Issuers; or
(d) any governmental approval has not been obtained, which approval the
Issuers shall, in their reasonable discretion, deem necessary for the
consummation of the Exchange Offer as contemplated hereby.
The foregoing conditions are for the sole benefit of the Issuers and may be
asserted by the Issuers regardless of the circumstances giving rise to any such
condition or may be waived by the Issuers in whole or in part at any time and
from time to time in their reasonable discretion. The failure by the Issuers at
any time to exercise any of the foregoing rights shall not be deemed a waiver of
such right and each such right shall be deemed an ongoing right which may be
asserted at any time and from time to time.
If the Issuers determine in their reasonable discretion that any of the
conditions are not satisfied, the Issuers may (i) refuse to accept any Old Notes
and return all tendered Old Notes to the tendering Holders, (ii) extend the
Exchange Offer and retain all Old Notes tendered prior to the expiration of the
Exchange Offer, subject, however, to the rights of Holders to withdraw such Old
Notes (see "--Withdrawal of Tenders" above) or (iii) waive such unsatisfied
conditions with respect to the Exchange Offer and accept all properly tendered
Old Notes which have not been withdrawn. If such waiver constitutes a material
change to the Exchange Offer, the Issuers will promptly disclose such waiver by
means of a prospectus supplement that will be distributed to the registered
Holders, and the Issuers will extend the Exchange Offer for a period of five to
ten business days, depending upon the significance of the waiver and the manner
of disclosure to the registered Holders, if the Exchange Offer would otherwise
expire during such five to ten business day period.
Exchange Agent
The Bank of New York has been appointed as Exchange Agent for the Exchange
Offer. Requests for additional copies of this Prospectus or of the Letter of
Transmittal should be directed to the Exchange Agent addressed as follows:
To: The Bank of New York
By Hand/Overnight Courier:
The Bank of New York
101 Barclay Street
New York, New York 10286
Attn: George Johnson
Reorganization Section
Facsimile Transmission:
(212) 815-6339
Confirm by Telephone: (212) 815-3687
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Fees and Expenses
The expenses of soliciting tenders will be borne by the Issuers. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telephone or in person by officers and regular
employees of the Issuers and their affiliates.
The Issuers have not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Issuers, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Issuers. Such expenses include fees and expenses of the Exchange
Agent and Trustee, accounting and legal fees and printing costs, among others.
The Issuers will pay all transfer taxes, if any, applicable to the exchange
of Old Notes pursuant to the Exchange Offer. If, however, certificates
representing New Notes or Old Notes for principal amounts not tendered or
accepted for exchange are to be delivered to, or are to be issued in the name
of, any person other than the registered Holder of the Old Notes tendered, or if
tendered Old Notes are registered in the name of any person other than the
person signing the Letter of Transmittal, or if a transfer tax is imposed for
any reason other than the exchange of Old Notes pursuant to the Exchange Offer,
then the amount of any such transfer taxes (whether imposed on the registered
Holder or any other persons) will be payable by the tendering Holder. If
satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted with the Letter of Transmittal, the amount of such transfer taxes will
be billed directly to such tendering Holder.
Accounting Treatment
The New Notes will be recorded at the same carrying value as the Old Notes,
which is the estimated fair market value as reflected in the Issuers' accounting
records on the date of the Initial Offering. Accordingly, no gain or loss for
accounting purposes will be recognized. The expenses of the Exchange Offer, the
unamortized expenses related to the issuance of the Old Notes and the adjustment
to reflect the estimated fair market value of the Old Notes will be amortized
over the term of the Notes.
Regulatory Approvals
The Issuers do not believe that the receipt of any material federal or
state regulatory approvals will be necessary in connection with the Exchange
Offer, other than the effectiveness of the Exchange Offer Registration Statement
under the Securities Act.
Other
Participation in the Exchange Offer is voluntary and Holders of Old Notes
should carefully consider whether to accept the terms and conditions thereof.
Holders of the Old Notes are urged to consult their financial and tax advisors
in making their own decisions on what action to take with respect to the
Exchange Offer.
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MANAGEMENT
Directors and Executive Officers of the Issuers and the Subsidiary Guarantors
Pursuant to the Partnership Agreement (as defined), Foamex is managed by
its managing general partner, FMXI. All of the directors and executive officers
of FMXI are employees of Foamex and/or Foamex International and are not
compensated by FMXI for their services as directors and executive officers of
FMXI. See "Description of the Partnership Agreement."
FCC, FLLC and General Felt are wholly owned subsidiaries of Foamex. Foamex
Fibers is a wholly owned subsidiary of General Felt. The directors of each of
FCC, General Felt and Foamex Fibers are not compensated by FCC, General Felt or
Foamex Fibers for their services as directors.
The following sets forth certain information with respect to the persons
who, as of the date of this Prospectus, are executive officers of Foamex and/or
directors and executive officers of FMXI, FCC, General Felt and/or Foamex
Fibers. FLLC does not have any officers or directors and is managed by its sole
member, Foamex.
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
Andrea Farace ................. 41 Chairman and Chief Executive Officer of Foamex, FMXI,
FCC and Foamex Fibers; Chairman of General Felt
Marshall S. Cogan ............. 60 Vice Chairman of Foamex and FMXI; a director of FCC,
General Felt and Foamex Fibers
Robert J. Hay ................. 71 Chairman Emeritus of Foamex
Salvatore J. Bonanno .......... 56 President and Chief Operating Officer of Foamex and
FMXI; a director of FMXI, FCC and Foamex Fibers
Kenneth R. Fuette ............. 52 Senior Vice President of Finance and Chief Financial Officer
of Foamex and FCC; Senior Vice President of Finance and
a director of FMXI; Vice President, Treasurer, Chief
Financial Officer and a director of General Felt; Senior Vice
President of Finance, Chief Financial Officer and a director
of FCC; Vice President and Treasurer of Foamex Fibers
William H. Bundy .............. 56 Senior Vice President of Manufacturing Operations of
Foamex; Vice President of Foamex Fibers
Paul A. Haslanger ............. 50 Senior Vice President of Strategic Planning and the
Technical Products Segment Group of Foamex
Barry Zimmerman ............... 60 Executive Vice President, Manufacturing Services and
Corporate Development of Foamex; Vice President of FMXI
and General Felt; and Vice President and a director of FCC
Philip N. Smith, Jr ........... 54 Vice President of Foamex; Vice President, Secretary and
General Counsel and a director of FMXI; Vice President
and Secretary of FCC, General Felt and Foamex Fibers
Theodore J. Kall .............. 56 President and a director of General Felt
George L. Karpinski ........... 49 Senior Vice President, Treasurer and Secretary of
Foamex; Vice President of FMXI, FCC, General Felt and
Foamex Fibers
Robert H. Nelson .............. 51 Vice President, Assistant Secretary and Assistant
Treasurer of Foamex; Vice President of Foamex Fibers
and General Felt; Vice President and a director of FCC
R. Allen Baker ................ 36 Vice President and Chief Accounting Officer of Foamex,
FMXI, FCC, General Felt and Foamex Fibers
</TABLE>
The board of directors of each of FMXI, FCC, General Felt and Foamex Fibers
is elected annually until their successors are elected and qualified. Successors
are required to be elected by stockholder vote while vacancies in unexpired
terms and any additional positions created by board action are filled by action
of the existing board of directors. The executive officers named above were
elected to serve in such capacities until their respective successors have been
duly elected and have been qualified or until their earlier death, resignation,
disqualifications or removal from office.
There is no family relationship between any of the directors and executive
officers.
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Andrea Farace began serving as Chairman and Chief Executive Officer of
Foamex, Foamex International, FMXI, FCC, Foamex Fibers and certain affiliated
entities in May 1997. Mr. Farace has also served as Chairman of the Board of
General Felt since May 1997. Mr. Farace has also served as a director of Foamex
International since February 1996. Mr. Farace served as President and a
director of Trace Holdings from December 1994 and December 1993, respectively,
to December 1997. Prior to December 1993, Mr. Farace held several executive
positions within Trace Holdings beginning in April 1991. Mr. Farace was Senior
Executive of C.I.R. S.p.A. from May 1990 to March 1991. Prior to that, Mr.
Farace was a Managing Director at Shearson Lehman Hutton, Inc. Mr. Farace is a
director of Trace Foam and CHF Industries, Inc., both of which are subsidiaries
of Trace Holdings, as well as Atlantic Auto Finance, Inc. ("Atlantic Finance"),
an affiliate of Trace Holdings, and General Felt. Additionally, Mr. Farace is a
director of the Managed High Income Portfolio, Inc. and a member of the
Advisory Board of the Italy Fund, both of which are NYSE-listed mutual funds.
Marshall S. Cogan began serving as Vice Chairman of Foamex International,
Foamex and FMXI and as a director of FCC, General Felt and Foamex Fibers in May
1997. Additionally, Mr. Cogan became the Chairman and Chief Executive Officer
of United Auto Group, Inc. ("UAG"), an affiliate of Trace Holdings in April
1997. Mr. Cogan served as the Chairman of the Board and Chief Executive Officer
of Foamex, FMXI and FCC from January 1994 to May 1997. Additionally, Mr. Cogan
served as Chairman of the Board and Chief Executive Officer of Foamex
International from its inception in September 1993 to May 1997. Mr. Cogan has
served as Chairman of the Executive Committee of Foamex International since
September 1993. Mr. Cogan has been a director of Trace Foam since December 1991
and the Chairman of the Board and President of Trace Foam and Trace Foam Sub,
Inc. ("Trace Foam Sub"), since January 1992 and March 1995, respectively. Mr.
Cogan also served as Vice Chairman of Foamex from January 1993 until January
1994. Mr. Cogan has been the principal stockholder, Chairman or Co-Chairman of
the Board and Chief Executive Officer or Co-Chief Executive Officer of Trace
Holdings, since 1974. He has also been a member of the Board of Directors of
UAG since November 1990, and of Recticel since February 1993. Additionally, Mr.
Cogan serves on the Board of Directors of the American Friends of the Israel
Museum and the American Ballet Theater, the Board of Trustees of The Museum of
Modern Art, the Boston Latin School and New York University Medical Center. Mr.
Cogan also serves on several committees of Harvard University.
Robert J. Hay has been Chairman Emeritus of Foamex since January 1994. Mr.
Hay was Chairman Emeritus and a director of FMXI from January 1994 to May 1997
and also served as Chairman Emeritus and a director of Foamex International
from 1993 to 1997. Mr. Hay was Chairman and Chief Executive Officer of Foamex
from January 1993 to January 1994. Mr. Hay was President of Foamex and its
predecessor from 1972 through 1992. Mr. Hay began his career as a chemist with
The Firestone Tire and Rubber Company, a predecessor of Foamex in 1948.
Salvatore J. Bonanno has been President of Foamex since July 1995 and began
serving as President of Foamex International and FMXI in May 1997 and as Chief
Operating Officer of Foamex and FMXI in July 1997. Mr. Bonanno has also served
as Executive Vice President of Manufacturing, Corporate Planning of Foamex
International since July 1995, and a director since February 1996. Prior to
joining Foamex International, Mr. Bonanno was employed with Chrysler Corporation
for thirty years, most recently serving as the General Manager of International
Manufacturing Operations. Mr. Bonanno currently serves on the Industrial
Advisory Board of Lawrence Livermore National Laboratories and became a director
of FCC and Foamex Fibers in June 1997.
Kenneth R. Fuette has been Senior Vice President of Finance and Chief
Financial Officer of Foamex and Foamex International since July 1997, and Senior
Vice President of Finance of FMXI since January 1994. Mr. Fuette began serving
as a director of FMXI, Senior Vice President of Finance, Chief Financial Officer
and a director of FCC and Vice President and Treasurer of Foamex Fibers in May
1997. Mr. Fuette has also served as Vice President, Treasurer, Chief Financial
Officer and a director of General Felt since June 1997. Prior thereto, Mr.
Fuette served as Senior Vice President of Finance, Chief Accounting Officer and
Chief Financial Officer of Foamex and Foamex International from January 1996 to
July 1997. Mr. Fuette served as a Vice President of Foamex International and its
predecessors from 1983 to 1995 and as Controller of Foamex International or its
predecessors from 1977 to 1995. Mr. Fuette became a director of General Felt in
June 1997.
William H. Bundy has been Senior Vice President of Manufacturing
Operations of Foamex since July 1997 and a Senior Vice President of Foamex
International since March 1994. Mr. Bundy began serving as Vice President of
Foamex Fibers in May 1997. Prior thereto, Mr. Bundy served as a Senior Vice
President of Foamex from January 1994 to July 1997 and as a Senior Vice
President of FMXI from March 1994 to May 1997. Mr. Bundy also served
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<PAGE>
as a director of Foamex International from September 1993 to May 1994, President
and Chief Operating Officer of Foamex International from September 1993 to
January 1994 and President and Chief Operating Officer of Foamex from January
1993 until January 1994. Mr. Bundy was Senior Vice President of Manufacturing of
Foamex from 1984 through 1992. Mr. Bundy began his career as a production
manager for the predecessor to Foamex in 1967.
Paul A. Haslanger began serving as Senior Vice President, Manufacturing
Support of Foamex International and as Senior Vice President of Strategic
Planning and the Technical Products Segment Group of Foamex in July 1997. Prior
thereto, Mr. Haslanger served as Senior Vice President of Technical Products of
Foamex International and Foamex from October 1995 to July 1997. Mr. Haslanger
served as Senior Vice President of Manufacturing of FMXI from October 1993
through May 1997 and Senior Vice President of Foamex International from
September 1993 to January 1996. Mr. Haslanger was also Senior Vice President of
Manufacturing of Foamex from February 1993 to January 1996. Prior thereto, Mr.
Haslanger was Vice President of Manufacturing of Foamex and its predecessor from
1984 through January 1993. He began his career with the predecessor to Foamex in
1969.
Barry Zimmerman has been Executive Vice President, Manufacturing Services
and Corporate Development of Foamex since November 1996, Chairman, President and
a director of Foamex Mexico since September 1993 and Vice President of FMXI and
General Felt since April 1995. Mr. Zimmerman has been a Senior Vice President of
Foamex from October 1995 to November 1996 and a Senior Vice President or Vice
President and Managing Director of Trace Holdings since October 1986. Prior to
that, Mr. Zimmerman held several executive positions within Trace Holdings
beginning in August 1978. Mr. Zimmerman has been a director of Trace Foam since
October 1990. Mr. Zimmerman has served as director of FCC since July 1992.
Philip N. Smith, Jr. has been Vice President of Foamex, Vice President,
Secretary and General Counsel of FMXI since October 1993 and Vice President,
Secretary and General Counsel of Foamex International since its inception in
September 1993 and of UAG since June 1996. Since May 1997, Mr. Smith has served
as a director of FMXI and Vice President and Secretary of FCC, General Felt and
Foamex Fibers. Mr. Smith has been the Secretary of Trace Foam since its
inception in October 1990 and a Vice President of Trace Foam since December
1991. Mr. Smith has been a Vice President or Senior Vice President and the
Secretary and General Counsel of Trace Holdings since January 1988 and has
overseen and been actively involved in transaction negotiations, litigation,
stockholder and director relations and other corporate legal matters. Prior to
joining Trace Holdings, he was the sole shareholder of a professional
corporation which was a partner of Akin, Gump, Strauss, Hauer & Feld, L.L.P
Theodore J. Kall was appointed President and a director of General Felt in
April 1995. Mr. Kall previously served as General Felt's National Accounts
Manager since July 1993. Mr. Kall has served in various sales, marketing and
product management positions including Vice President of Sales and Marketing
from 1980 to 1993. He began his career with General Felt in 1974.
George L. Karpinski has been Senior Vice President, Treasurer and Secretary
of Foamex since July 1997 and has been Vice President and Treasurer of Foamex
International since May 1996. Prior thereto, Mr. Karpinski served as Vice
President, Secretary and Treasurer of Foamex from May 1993 to July 1997. Mr.
Karpinski was Treasurer of Foamex from March 1989 to May 1993 and was Assistant
Treasurer of Foamex from November 1985 to March 1989. Mr. Karpinski began
serving as Vice President of FMXI, FCC, General Felt and Foamex Fibers in May
1997 and became a director of Foamex Mexico in June 1997. Mr. Karpinski began
his career with the predecessor to Foamex in 1969.
Robert H. Nelson has served as Vice President and a director of FCC since
July 1992, as Vice President, Assistant Secretary and Assistant Treasurer of
Foamex since January 1996 and as Vice President of Foamex Fibers and General
Felt since June 1997. Mr. Nelson has also served as Executive Vice President and
Chief Financial Officer of UAG since January 1997 and as a director since
January 1996. He has also served as Vice Chairman of Atlantic Finance since
March 1996, Chief Financial Officer and Treasurer of Trace since 1987 and Senior
Vice President, Chief Operating Officer and a director of Trace since 1994.
R. Allen Baker has served as Vice President and Chief Accounting Officer
of Foamex, FMXI, Foamex International, FCC, General Felt and Foamex Fibers
since August 1997. Prior thereto, Mr. Baker was the Director of Financial
Reporting of Foamex and Foamex International from October 1994 until August
1997. Prior to joining Foamex and Foamex International, Mr. Baker was a manager
in the business assurance practice of Coopers & Lybrand L.L.P. since June 1988.
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For information regarding executive compensation for Foamex and General
Felt, see Foamex's 1996 Annual Report on Form 10-K. The executive officers of
General Felt and Foamex Fibers, with the exception of Theodore J. Kall, are not
compensated in connection with their positions at General Felt and Foamex
Fibers. In the case of Theodore J. Kall, his compensation is paid by General
Felt and Foamex provides information regarding such compensation in its annual
report. See "Incorporation of Certain Documents by Reference."
69
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth, as of December 31, 1997, the beneficial
ownership of the partnership interests of Foamex by (i) each person who is known
to Foamex to own beneficially more than 5.0% of any class of Foamex's
partnership interests, (ii) each director of FMXI (the managing general partner
of Foamex) and FCC (iii) each executive officer listed in the summary
compensation table of Foamex's 1996 Form 10-K and (iv) all executive officers
and directors of Foamex, FMXI and FCC as a group. FCC, FLLC and General Felt are
each wholly owned subsidiaries of Foamex. Foamex Fibers is a wholly owned
subsidiary of General Felt.
Name and Address Type of % of % of
of Beneficial Owners Interest Profits Class
FMXI, Inc. (1)
1000 Columbia Avenue
Linwood, Pennsylvania 19061 ........... General Partner 1.0 33.3
Crain Industries, Inc. (1)
1000 Columbia Avenue
Linwood, Pennsylvania 19061 ........... General Partner 1.0 33.3
Trace Foam Company, Inc. (2)
375 Park Avenue, 11th Floor
New York, New York 10152 .............. General Partner 1.0 33.3
Foamex International Inc. (1)
1000 Columbia Avenue General Partner 2.0 66.6
Linwood, Pennsylvania 19061 ........... Limited Partner 97.0 100.0
Marshall S. Cogan (2)
375 Park Avenue, 11th Floor
New York, New York 10152 .............. General Partner 1.0 33.3
All officers and directors as
a group (11 persons) (2), (3) ......... General Partner 1.0 33.3
- - ----------
(1) FMXI and Crain are each wholly owned by Foamex International.
(2) Trace Foam is a wholly owned subsidiary of Trace Holdings. Marshall S.
Cogan, a director of FMXI, Foamex International and Trace Foam, is the
majority stockholder of Trace Holdings. Mr. Cogan disclaims beneficial
ownership of the partnership interest owned by Trace Foam. The disclosure
of Marshall S. Cogan's beneficial ownership does not include the
beneficially owned partnership interests of Foamex International. Trace
Holdings beneficially owns in excess of 40% of the common stock of Foamex
International.
(3) The disclosure of beneficial ownership of officers and directors does not
include any beneficial ownership arising solely by virtue of such person's
position with FMXI or Foamex International.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Foamex regularly enters into transactions with its affiliates on terms it
believes to be no less favorable to Foamex than those which Foamex could have
obtained from unaffiliated third parties. Payments to affiliates by Foamex and
its subsidiaries in connection with any such transactions are governed by the
provisions of the 9 7/8% Note Indenture, the Indenture and the Credit Facility,
which generally provide that such transactions be on terms comparable to those
generally available in equivalent transactions with third parties.
Airplane Lease
Foamex was party to a lease agreement for an airplane with Trace Aviation
Corp., a subsidiary of Trace Holdings ("Trace Aviation"). During 1995, Foamex
paid Trace Aviation $1.6 million, pursuant to the lease agreement. The lease
agreement also provided for the use of the airplane by Trace Holdings with
remuneration to Foamex based on actual usage of the airplane. During 1995, Trace
Holdings paid to Foamex $0.6 million pursuant to the lease agreement. During
August 1995, Foamex Aviation Inc. ("Aviation"), a wholly owned subsidiary of
Foamex International, acquired the airplane from Trace Holdings and the Foamex
lease and other agreements were terminated. Foamex anticipates that it will
distribute approximately $2.0 million per year to Aviation to enable Aviation to
pay debt service and certain operating costs.
Tax Sharing Agreement
In 1992, Foamex and its partners entered into a tax sharing agreement, as
amended (the "Tax Sharing Agreement"), pursuant to which Foamex agreed to make
quarterly distributions to its partners which, in the aggregate, will equal the
tax liability that Foamex would have paid if it had been a Delaware corporation
filing separate tax returns rather than a Delaware partnership. In connection
with Foamex International's initial public offering in 1993 and the attendant
reallocation of partnership interests, the Foamex Tax Sharing Agreement was
amended to provide that 99% of the payments will be made to Foamex International
and its subsidiaries and 1% of the payments would be made to Trace Foam. For the
fiscal years ended January 1, 1995, December 31, l995 and December 29, 1996,
Foamex made payments of approximately $3.3 million, $2.4 million and $3.5
million, respectively, pursuant to the terms of the Tax Sharing Agreement to
Foamex International and its subsidiaries. During the nine months ended
September 28, 1997, Foamex made payments of approximately $8.8 million under the
Tax Sharing Agreement.
Tax Distribution Advance Agreement
On December 11, 1996, Foamex and FJPS entered into a Tax Distribution
Advance Agreement pursuant to which FJPS has the right to obtain up to $17.0
million of advances against future distributions to the Tax Sharing Agreement.
Any such advances will bear interest at a rate equal to 13.25% per annum. All
advances must be repaid by December 31, 1999, and FJPS is obligated to use 50.0%
of any tax distribution to prepay the outstanding advances. In connection with
the Refinancing Plan, the maximum amount of advances was increased to $25.0
million and FJPS's rights and obligations under the Tax Distribution Advance
Agreement were assumed by Foamex International. In December 1997, Foamex
advanced $13.6 million to Foamex International pursuant to the Tax Distribution
Advance Agreement.
Management Services Agreement
Foamex and Trace Foam entered into a management services agreement,
pursuant to which Trace Foam provides Foamex with general managerial services of
a financial, technical, legal, commercial, administrative and/or advisory nature
for an annual fee of $3.0 million and reimbursement of expenses incurred. During
the last three years the annual fee was $1.75 million. Foamex believes that the
agreement is no less favorable to Foamex than that which Foamex could have
obtained from unaffiliated third parties.
Indemnification Regarding Environmental Matters
Pursuant to the Asset Transfer Agreement, dated as of October 2, 1990, as
amended, between Trace Holdings and Foamex (the "Trace Holdings Asset Transfer
Agreement"), Foamex is indemnified by Trace Holdings for any liabilities
incurred by Foamex arising out of or resulting from, among other things, the
ownership or use of any of the assets transferred pursuant to the Trace Holdings
Asset Transfer Agreement or the conduct of the transferred business on or prior
to October 2, 1990, including, without limitation, any loss actually arising out
of or resulting from any events, occurrences, acts or activities occurring after
October 2, 1990, to the extent resulting from
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conditions existing on or prior to October 2, 1990, relating to (i) injuries to
or the contraction of any diseases by any person resulting from exposure to
Hazardous Substances (as defined in the Trace Holdings Asset Transfer Agreement)
without regard to when such injuries or diseases are first manifested, (ii) the
generation, processing, handling, storage or disposition of or contamination by
any waste or Hazardous Substance, whether on or off the premises from which the
transferred business has been conducted or (iii) any pollution or other damage
or injury to the environment, whether on or off the premises from which the
transferred business has been conducted. Foamex is also indemnified by Trace
Holdings for any liabilities arising under Environmental Laws (as defined in the
Trace Holdings Asset Transfer Agreement) relating to current or former Trace
Holdings assets and for any liability relating to products of the transferred
business shipped on or prior to October 2, 1990.
Certain Transactions Relating to the Acquisition of General Felt
In connection with Foamex's acquisition of General Felt in March 1993,
Trace Holdings and General Felt entered into a reimbursement agreement pursuant
to which Trace Holdings agreed to reimburse General Felt on a pro rata basis
reflecting the period of time each occupied a former General Felt facility for
costs relating to an environmental cleanup plan.
In 1994, General Felt leased two facilities from limited partnerships in
which directors and officers of Foamex International, Foamex and/or Trace Foam
have an interest. These partnerships purchased the properties from General Felt
in 1978. The rental terms under each lease were determined on the basis of
appraised values for comparable properties within each respective area. The
lessor under the first of these leases (the "East State Lease") was East State
Associates, the partners of which include Mr. Cogan. The East State Lease
related to a 100,000 square foot warehouse in Hamilton Township (Trenton), New
Jersey. In accordance with the terms of the East State Lease, the lessor
exercised its right to require General Felt to purchase the facility at the
appraised fair market value of $2,250,000, as agreed by both parties. General
Felt assigned the purchase contract for the property to an unaffiliated third
party who purchased the property on March 28, 1994.
The lessor under the second lease (the "West State Lease") was West State
Associates, the partners of which include Mr. Cogan. The West State Lease
related to a General Felt manufacturing facility in Pico Rivera, California. On
August 26, 1994, General Felt in mutual agreement with the lessor purchased the
facility at the appraised fair market value of $3,350,000.
Certain Transactions Relating to the Acquisition of Great Western
In connection with the acquisition of Great Western in May 1993, Foamex
entered into lease agreements dated May 1993, with John Rallis ("Rallis"),
individually, or an affiliate, relating to former Great Western manufacturing
facilities. Aggregate lease payments for each of the fiscal years ended January
1, 1995, December 31, 1995 and December 29, 1996 were $1.6 million, $1.6 million
and $1.7 million, respectively. Foamex has the option to purchase each of the
properties at any time after April 2001 at a price equal to fair market value.
Part of the aggregate consideration paid by Foamex for the assets of Great
Western was in the form of a subordinated promissory note payable to Rallis in
the principal amount of $7,014,864 that bears interest at a maximum rate of 6.0%
per annum payable semi-annually.
FJPS Note
On June 28, 1994, Foamex purchased an $87.9 million principal amount note
due 2006 from its 98% limited partner FJPS for $35.3 million (the "FJPS Note").
In December 1996 in exchange for certain waivers and amendment of the FJPS Note,
FJPS repaid $18.4 million of the FJPS Note and a waiver payment of $0.2 million
using a portion of the proceeds from the sale of its partnership interest in JPS
Automotive. The FJPS Note was classified in partners' equity (deficit) and the
accreted principal of $16.3 million for the period from June 28, 1994 to
December 29, 1996 was included in the FJPS Note. In connection with the
Refinancing Plan, the FJPS Note was distributed by Foamex to its partners and
canceled.
Foamex International Supply Agreement
In June 1994, Foamex also entered into a supply agreement with Foamex
International (the "Supply Agreement"). Pursuant to the terms of the Supply
Agreement, at the option of Foamex, Foamex International will purchase certain
raw materials which are necessary for the manufacture of Foamex's products, and
resell such raw
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materials to Foamex at a price equal to net cost plus reasonable out-of-pocket
expenses. Management believes that the terms of the Supply Agreement are no less
favorable than those which Foamex could have obtained from an unaffiliated third
party. For the fiscal years ended January 1, 1995, December 31, 1995 and
December 29, 1996, Foamex purchased $66.6 million, $105.1 million and $129.7
million, respectively, in raw materials under the Supply Agreement.
Certain Transactions in Connection with the Refinancing Plan
In connection with the consummation of the Refinancing Plan, Foamex
distributed (i) to FJPS and FMXI, all FJPS Discount Debentures purchased in the
Refinancing Plan, the FJPS Note and the promissory note of Foamex International
payable to Foamex, and (ii) to Trace Foam, an amount in cash equal to 1/99th of
the distribution to FJPS and FMXI. As part of the Refinancing Plan (a) FMXI
dividended its distribution to Foamex International, (b) each of the FJPS
Discount Debentures distributed to FJPS, the Foamex International promissory
note, and the FJPS Note were canceled and (c) FJPS and its general partner, FJGP
Inc., were merged into Foamex International.
On July 7, 1996, Trace Holdings issued to Foamex a promissory note for
approximately $4.4 million plus accrued interest of approximately $0.4 million,
which is an extension of an earlier note. As part of the Refinancing Plan, the
Note was amended and restated, with accrued interest being added to principal,
the maturity was extended to July 7, 2001, and the interest rate was changed to
the sum of 2 3/8% plus Three Month LIBOR. In connection with the Refinancing
Plan, on July 1, 1997 Trace International borrowed an additional $5.0 million on
terms and conditions substantially similar to the existing promissory note, and
the tax distribution advance agreement was amended to increase the permitted
advances to Foamex International from $17.0 million to $25.0 million.
In connection with the Refinancing Plan, FJPS and its general partner FJGP
Inc. were merged into Foamex International. As a result, the partners of Foamex
are Foamex International, with a 98% limited partnership interest, FMXI, a
wholly owned subsidiary of Foamex International, with a 1% managing general
partnership interest, and Trace Foam, with a 1% non-managing general partnership
interest. In addition, Foamex's tax sharing agreement, tax distribution advance
agreement and management agreement were amended as described above.
Certain Transactions in Connection with The Crain Acquisition
As part of the Crain Acquisition and the Related Transactions, Crain
(which at the time was a wholly owned subsidiary of Foamex International)
contributed all of its assets, subject to all of its liabilities to Foamex on
December 23, 1997 in exchange for a 1% non-managing general partnership
interest. The assumed liabilities included indebtedness comprised of an
approximately $118.0 million bridge loan, and $98.0 million principal amount of
the Old Notes. In connection with the such contribution, Foamex refinanced the
bridge loan with $8.0 million of revolving credit borrowing and $110.0 million
of term borrowing under its Credit Agreement. As a result of the contribution,
the partners of Foamex are Foamex International, with a 97% limited partnership
interest, FMXI, a wholly owned subsidiary of Foamex International, with a 1%
managing general partnership interest, Crain, a wholly owned subsidiary of
Foamex International, with a 1% non-managing general partnership interest, and
Trace Foam, with a 1% non-managing general partnership interest. In addition,
Foamex's tax sharing agreement was amended to provide for distributions in
proportion to the new partnership percentages.
Other Transactions
For each of the fiscal years ended January 1, 1995, December 31, 1995 and
December 29, 1996, Foamex made charitable contributions to the Trace
International Holdings, Inc. Foundation (the "Foundation") in the amount of $0.2
million. The Foundation is a Delaware tax-exempt private foundation. Marshall S.
Cogan, Vice Chairman of Foamex International and Foamex, is the sole director of
the Foundation.
In December 1995, Foamex entered into a $2.0 million promissory note with
Foamex International. The note bore interest at a rate per annum equal to six
month LIBOR plus 4.0% and was payable semi-annually in June and December. The
note was scheduled to mature in December 1997. The note was classified in the
other component of partners' equity (deficit). This note was distributed to
Foamex's partners and canceled in connection with the Refinancing Plan.
In December 1997, Foamex purchased two promissory notes from Foamex
International, one on December 26, 1997 for $2.5 million, and one on December
29, 1997 for $2.49 million. The notes bear interest at a rate per
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annum equal to three month LIBOR plus 2.375%. The notes are payable on demand,
or if no demand is made on December 31, 2001.
Trace Holdings rents approximately 5,900 square feet of general, executive
and administrative office space in New York, New York from Foamex, on
substantially the same terms as Foamex leases such space from a third party
lessor. The lease commenced October 1, 1993 with the occupancy and rent payments
commencing on October 1, 1994. The lease provides for an initial term of 11
years and expires on September 30, 2004. The lease provides for two optional
five-year renewal periods at the fair market rental value of the property on the
first day of such renewal term. The annual rental for the period October 1, 1994
through September 30, 2004 is approximately $0.7 million. Under the lease,
Foamex is required to pay certain excess real estate taxes and operating
expenses incurred by the lessor relating to the property for which it will be
proportionally reimbursed by Trace Holdings. The rental terms were the result of
arm-length negotiations between Foamex and the third party lessor. Trace
Holdings will reimburse, through increased rent, Foamex for the cost of any
leasehold improvements applicable to the space occupied for the benefit of Trace
Holdings.
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DESCRIPTION OF CERTAIN DEBT INSTRUMENTS
Set forth below is a summary of all of the material payment terms of
certain debt instruments to which Foamex is a party.
Credit Facility
Foamex and General Felt have entered into a credit agreement with a group
of banks for which The Bank of Nova Scotia ("Scotiabank") and Citicorp USA, Inc.
act as administrative agents (the "Administrative Agents"). The Credit Facility
provides for (i) $330.0 million of term loans, comprised of a $120.0 million
term A sub-facility (the "Term A Loan"), a $110.0 million term B sub-facility
(the "Term B Loan") and a $100.0 million term C sub-facility (the "Term C Loan")
and (ii) a $150.0 million revolving credit facility (the "Revolving Facility").
In connection with the Crain Acquisition, Foamex obtained a new term D
sub-facility (the "Term D Loan") of $110.0 million. The Term D Loan, together
with additional debt, including borrowings under the Revolving Credit Facility,
was used to refinance the Bridge Loan. The Bridge Loan was used to fund the
Crain purchase price.
Any unused Term A Loan commitments will remain open until June 15, 1998 and
can be drawn for the purpose of funding any future repurchase of notes not
repurchased in connection with the Refinancing Plan. In conjunction with the
Refinancing Plan, $88.0 million of Term A Loans, $110.0 million of Term B Loans,
$100.0 million of Term C Loans and $49.0 million of borrowings under the
Revolving Facility were drawn. In connection with the redemption of certain
publicly held debt securities on October 1, 1997, Foamex drew an additional
$29.0 million of Term A Loans. Also, on October 6, 1997, Foamex repaid $38.8
million of Term A borrowings with the net proceeds from the sale of its
needlepunch carpeting, tufted carpeting and artificial grass products business.
The Term A Loan, the Term B Loan and the Term C Loan are amortized each
year and will mature in June 2003, 2005 and 2006, respectively. The Term D Loan
is amortized each year and will mature in December 2006. The Revolving Facility
will terminate in June 2003. Set forth below are the aggregate principal amounts
of the term loans that are amortized for the fourth quarter of 1997 and for each
year thereafter, assuming that $81.2 million (includes drawdown of the remaining
$3.0 million commitment), $110.0 million, $100.0 million and $110.0 million are
drawn for the Term A Loan, Term B Loan, Term C Loan and Term D Loan,
respectively, and no excess cash flow or other prepayments are made.
Calendar Year Amount
(in thousands)
1997 ................... $ 3,559
1998 ................... 9,253
1999 ................... 13,289
2000 ................... 17,324
2001 ................... 20,351
2002 ................... 23,377
2003 ................... 35,747
2004 ................... 69,800
2005 ................... 77,300
2006 ................... 131,200
--------
Total .................. $401,200
========
The maturity of borrowings under the Credit Facility may be accelerated
upon the occurrence of certain events. In addition, Foamex and General Felt are
required, subject to certain exceptions, to prepay outstanding borrowings from
the net proceeds of certain asset sales, equity and debt issuances and a
percentage of annual excess cash flow (based on Foamex's then current Leverage
Ratio (as defined below)). Borrowings under the Credit Facility are secured by
the accounts receivable, inventories, certain real and personal property and
certain intangible assets of Foamex and General Felt, the partnership interests
of Foamex and the capital stock of all the direct and indirect subsidiaries of
Foamex and General Felt.
Funds borrowed under the Credit Facility bear interest at either (i)
Scotiabank's alternate base rate ("Base Rate") or (ii) LIBOR plus, in each case,
an applicable margin (the "Applicable Margin") based on Foamex's ratio (the
"Leverage Ratio") of (a) total funded indebtedness less cash to (b) its trailing
four quarter EBDAIT. Generally, for LIBOR borrowings, the Applicable Margin
ranges from 0.625% (corresponding to a Leverage Ratio less than
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2.50) to 2.625% (corresponding to a Leverage Ratio greater than or equal to
4.50). Generally, for Base Rate borrowings, the Applicable Margin ranges from
0.0% (corresponding to a Leverage Ratio less than 3.00) to 1.625% (corresponding
to a Leverage Ratio greater than or equal to 4.50). Within these ranges, the
Applicable Margin varies depending on the maturity date of the borrowings.
The Credit Facility restricts, among other things and subject to certain
exceptions, Foamex's and General Felt's ability: (i) to incur additional
indebtedness, except for extensions or refundings of certain permitted
indebtedness, (ii) to merge, consolidate, liquidate, dissolve, sell or transfer
all or substantially all of their assets or make other similar fundamental
changes, (iii) to sell assets outside the ordinary course of business in excess
of amounts set forth therein in any fiscal year, (iv) to guarantee or invest in,
or make loans or advances to, other persons or entities, (v) to declare or pay
dividends or make other distributions with respect to their equity interests and
(vi) to engage in certain transactions with affiliates and holders of their
equity interests. In general, these covenants are more restrictive than those
contained in the Indenture and the 9 7/8% Note Indenture. The Credit Facility
also requires Foamex to maintain specified financial ratios.
Events of default under the Credit Facility include, among other things:
(i) any failure by Foamex or General Felt to pay principal thereunder when due,
or to pay interest or any other amount due within five days after the date due,
(ii) the failure of Foamex or any of its subsidiaries to pay any other
indebtedness (including capitalized leases) when due in excess of amounts set
forth therein, or the occurrence of any breach, default or event of default that
would cause or permit the acceleration of indebtedness in excess of amounts set
forth therein, (iii) the breach by Foamex, General Felt, FMXI or Trace Foam of
certain covenants and agreements of the Credit Facility, (iv) the material
inaccuracy of any representation or warranty given by Foamex, General Felt, FMXI
or Trace Foam in the Credit Facility, (v) the continuance of a default by
Foamex, General Felt, FMXI or Trace Foam in the performance of or compliance
with other covenants and agreements in the Credit Facility for 30 days after the
occurrence thereof and (vi) certain changes of control and acts of bankruptcy,
insolvency or dissolution. An event of default under the Credit Facility would
result in an Event of Default under the Indenture and the 9 7/8% Note Indenture.
9-1/2% Senior Secured Notes due 2000
The Senior Secured Notes were issued on June 3, 1993 and bear interest at
the rate of 9-1/2% payable semi-annually on each June 1 and December 1. The
Senior Secured Notes mature on June 1, 2000. The Senior Secured Notes are
collateralized by a first-priority lien on substantially all of the assets of
Foamex except for receivables, real estate and fixtures. The Senior Secured
Notes may be redeemed at the option of Foamex, in whole or in part, at any time
on or after June 1, 1998, initially at 101.583% of their principal amount, plus
accrued interest, and declining to 100% on or after June 1, 1999. As part of the
Refinancing Plan, the indenture pursuant to which the Senior Secured Notes were
issued was amended to remove substantially all restrictive covenants.
9-7/8% Senior Subordinated Notes due 2007
The 9-7/8% Notes were issued on June 12, 1997 and bear interest at the rate
of 9-7/8% payable semi-annually on each June 15 and December 15. The 9-7/8%
Notes mature on June 15, 2007. The 9-7/8% Notes are subordinated in right of
payment to all Senior Debt (as defined). The 9-7/8% Notes may be redeemed at the
option of Foamex, in whole or in part, at any time on or after June 15, 2002,
initially at 104.938% of their principal amount, plus accrued interest, and
declining to 100% on or after June 15, 2005. Prior to June 15, 2005, Foamex may
redeem, on one or more occasions, up to 35% of the initially outstanding
aggregate principal amount of the 9-7/8% Notes at a redemption price equal to
109.875% of the principal amount thereof, plus accrued and unpaid interest and
liquidated damages with the cash proceeds of one or more Public Equity
Offerings; provided that, in each case, at least 65% of the initially
outstanding aggregate principal amount of 9-7/8% Notes remains outstanding
immediately after such redemption. The 9-7/8% Note Indenture contains covenants
substantially similar to the Indenture, except that (i) the prepayment of the
9-7/8% Notes does not constitute a "Restricted Payment" under the Indenture, and
(ii) in connection with Asset Sales, Foamex is required to offer to repurchase
the 9-7/8% Notes before it offers to repurchase the Notes.
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Industrial Revenue Bonds ("IRBs")
Two bond issues in the principal amount of $1.0 million and $6.0 million,
maturing in 2005 and 2013, respectively, are collateralized by certain
properties which have an approximate net carrying value of $11.3 million at
December 29, 1996 and letters of credit approximating $7.3 million. The IRBs
bear interest at a var iable rate with options available to Foamex to convert to
a fixed rate. The interest rates on the IRBs were 4.85% and 4.0% at December 29,
1996 for the $6.0 million and $1.0 million bond issues, respectively. The
interest rate on the $6.0 million bond issue varies weekly based on an interest
rate that is indicative of current bidside yields on high quality short-term,
tax-exempt obligations, or if such interest rate is not available, 70.0% of the
interest rate for thirteen week United States Treasury Bills. The maximum
interest rate for either of the IRBs is 15.0% per annum. At the time of a
conversion to a fixed interest rate and upon appropriate notice, the IRBs are
redeemable at the option of the bondholders.
Subordinated Note Payable
This note payable was issued to the former Chief Operating Officer of
Foamex International, on May 6, 1993 by Foamex in connection with the
acquisition of Great Western. The note bears interest at a maximum rate of 6.0%
per annum and the principal amount is payable in three equal annual installments
beginning May 6, 1999. See "Certain Relationships and Related
Transactions--Certain Transactions Relating to the Acquisition of Great
Western."
Foamex Mexico Loan Agreement
In May 1997, Foamex Mexico entered into a loan agreement which provides for
(i) a $5.0 million term loan and (ii) a $2.0 million line of credit. Borrowings
under such loan agreement bear interest at a rate of LIBOR plus 4.5% and are
collateralized by certain assets of Foamex Mexico. The $5.0 million term loan is
amortized in equal quarterly payments after the first year and will mature in
2002. The $2.0 million line of credit will be used for working capital purposes
and is renewable annually. Foamex Mexico plans to use the proceeds of the term
loan for expenditures associated with the construction of a new manufacturing
facility.
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DESCRIPTION OF NOTES
General
The Old Notes were issued and the New Notes will be issued under an
indenture (the "Indenture") by and among Foamex and FCC, as joint and several
obligors, General Felt, Foamex Fibers and FLLC as Subsidiary Guarantors, Crain
Holdings solely as intermediate obligor and The Bank of New York, as trustee
(the "Trustee"). The terms of the New Notes are identical in all material
respects to the terms of the Old Notes, except that the New Notes have been
registered under the Securities Act, and, therefore, will not bear legends
restricting their transfer and will not contain certain terms providing for an
increase in the interest rate on the Old Notes under the circumstances described
in the Registration Rights Agreement. The terms of the Notes include those
stated in the Indenture and those made part of the Indenture by reference to the
Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). The Notes
are subject to all such terms, and Holders of Notes are referred to the
Indenture and the Trust Indenture Act for a statement thereof. The following is
a summary of all material provisions of the Indenture. A copy of the Indenture
is filed as an exhibit to the Registration Statement of which this Prospectus is
a part. The definition of certain terms used in the following summary are set
forth under "--Certain Definitions." For purposes of this summary, the term
Issuers refers only to Foamex and FCC and not to any of their respective
Subsidiaries.
The Notes are general unsecured obligations of the Issuers, subordinated in
right of payment to all existing and future Senior Debt of the Issuers,
including Indebtedness pursuant to the Credit Facility. The Issuers' obligations
under the Notes are jointly and severally unconditionally guaranteed (the "Note
Guarantees") on a senior subordinated basis by the Subsidiary Guarantors. See
"--Note Guarantees." As of September 28, 1997, on a pro forma basis, after
giving effect to the Crain Acquisition and the Related Transactions, the Issuers
would have had approximately $479.8 million aggregate principal amount of Senior
Debt and approximately $177.4 million aggregate principal amount of Pari Passu
Debt. The Indenture permits the incurrence of additional Senior Debt, Pari Passu
Debt and Subordinated Indebtedness in the future.
The operations of Foamex are conducted in part through its Subsidiaries,
and Foamex may, therefore, be dependent upon the cash flow of its Subsidiaries
to meet its debt obligations, including its obligations under the Notes. While
all of the existing domestic subsidiaries of the Issuers are, and certain future
domestic subsidiaries are expected to be, Subsidiary Guarantors, certain other
foreign Subsidiaries of Foamex are not guarantors and may be restricted in their
ability to pay dividends to Foamex pursuant to instruments governing
indebtedness of such Subsidiaries. Under certain circumstances, the Issuers will
be able to designate any Subsidiaries formed by the Issuers or acquired by the
Issuers after the original issuance of the Notes as Unrestricted Subsidiaries.
Unrestricted Subsidiaries are not Subsidiary Guarantors and are not subject to
most of the restrictive covenants set forth in the Indenture.
Principal, Maturity and Interest
The Notes are limited in aggregate principal amount to $98.0 million and
will mature on August 15, 2005. Each Note will bear interest at the rate of
13-1/2% per annum from the date of issuance of the Crain Note for which the Note
is exchanged, from the date of the last periodic payment of interest on such
Crain Note or from the most recent date to which interest has been paid or
provided for, whichever is later. Interest is payable semi-annually on February
15 and August 15 of each year commencing February 15, 1998 to holders of record
at the close of business on the January 30 or July 30 immediately preceding the
Interest Payment Date. Principal, interest, premium and Liquidated Damages, if
any, on the Notes will be payable at the office or agency of the Issuers
maintained for such purpose within the City and State of New York or, at the
option of the Issuers, payment of interest and Liquidated Damages, if any, may
be made by check mailed to the Holders of the Notes at their respective
addresses set forth in the register of Holders of Notes; provided that all
payments of principal, interest, premium and Liquidated Damages, if any, with
respect to the Notes, the Holders of which have given wire transfer instructions
to the Issuers, will be required to be made by wire transfer of immediately
available next day funds to the accounts specified by the Holders thereof. Until
otherwise designated by the Issuers, the Issuers' office or agency in New York
will be the office of the Trustee maintained for such purpose. The Notes will be
issued in denominations of $1,000 and integral multiple of $1,000.
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Subordination
The payment of principal of, interest and premium and Liquidated Damages,
if any, on the Notes is subordinate in right of payment, as set forth in the
Indenture, to the prior payment in full of all Senior Debt, whether outstanding
on the date of the Indenture or thereafter created, incurred or assumed and all
permissible renewals, extensions, refundings or refinancings thereof.
The Indenture provides that, upon any payment or distribution of assets of
the Issuers of any kind or character, whether in cash, property or securities,
to creditors in any Insolvency or Liquidation Proceeding with respect to either
Issuer all amounts due or to become due under or with respect to all Senior Debt
will first be paid in full before any payment is made on account of the Notes,
except that the Holders of Notes may receive Reorganization Securities. Upon any
such Insolvency or Liquidation Proceeding, any payment or distribution of assets
of Foamex or FCC of any kind or character, whether in cash, property or
securities (other than Reorganization Securities), to which the holders of the
Notes or the Trustee would be entitled will be paid by Foamex or FCC or by any
receiver, trustee in bankruptcy, liquidating trustee, agent or other person
making such payment or distribution, or by the holders of the Notes or by the
Trustee if received by them, directly to the holders of Senior Debt (pro rata to
such holders on the basis of the amounts of Senior Debt held by such holders) or
their Representative or Representatives, as their interests may appear, for
application to the payment of the Senior Debt remaining unpaid until all such
Senior Debt has been paid in full, after giving effect to any concurrent
payment, distribution or provision therefor to or for the holders of Senior
Debt.
The Indenture provides that (a) in the event of and during the continuation
of any default in the payment of principal of, interest or premium, if any, on
any Senior Debt, or any Obligation owing from time to time under or in respect
of Senior Debt, or in the event that any event of default (other than a payment
default) with respect to any Senior Debt will have occurred and be continuing
and will have resulted in such Senior Debt becoming or being declared due and
payable prior to the date on which it would otherwise have become due and
payable, or (b) if any event of default other than as described in clause (a)
above with respect to any Designated Senior Debt will have occurred and be
continuing permitting the holders of such Designated Senior Debt (or their
Representative or Representatives) to declare such Designated Senior Debt due
and payable prior to the date on which it would otherwise have become due and
payable, then no payment will be made by or on behalf of Foamex or FCC on
account of the Notes (other than payments in the form of Reorganization
Securities) (x) in case of any payment or nonpayment default specified in (a),
unless and until such default will have been cured or waived in writing in
accordance with the instruments governing such Senior Debt or such acceleration
will have been rescinded or annulled, or (y) in case of any nonpayment event of
default specified in (b), during the period (a "Payment Blockage Period")
commencing on the date the Issuers or the Trustee receive written notice (a
"Payment Notice") of such event of default (which notice will be binding on the
Trustee and the holders of Notes as to the occurrence of such a payment default
or nonpayment event of default) from the Credit Agent (or other holders of
Designated Senior Debt or their Representative or Representatives) and ending on
the earliest of (A) 179 days after such date, (B) the date, if any, on which
such Designated Senior Debt to which such default relates is paid in full or
such default is cured or waived in writing in accordance with the instruments
governing such Designated Senior Debt by the holders of such Designated Senior
Debt and (C) the date on which the Trustee receives written notice from the
Credit Agent (or other holders of Designated Senior Debt or their Representative
or Representatives), as the case may be, terminating the Payment Blockage
Period. During any consecutive 360-day period, the aggregate of all Payment
Blockage Periods shall not exceed 179 days and there shall be a period of at
least 181 consecutive days in each consecutive 360-day period when no Payment
Blockage Period is in effect. No event of default which existed or was
continuing with respect to the Senior Debt to which notice commencing a Payment
Blockage Period was given on the date such Payment Blockage Period commenced
shall be or be made the basis for the commencement of any subsequent Payment
Blockage Period unless such event of default is cured or waived for a period of
not less than 90 consecutive days.
As a result of the subordination provisions described above, in the event
of Foamex's or FCC's liquidation, dissolution, bankruptcy, reorganization,
insolvency, receivership or similar proceeding or in an assignment for the
benefit of the creditors or a marshaling of the assets and liabilities of either
of the Issuers, holders of Notes may recover less ratably than creditors of the
Issuers who are holders of Senior Debt. See "Risk Factors--Subordination." The
Indenture will limit, subject to certain financial tests, the amount of
additional Indebtedness, including Senior Debt, that the Issuers and their
respective Restricted Subsidiaries can incur. See "--Certain
Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock."
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Note Guarantees
The Issuers' payment obligations under the Notes are jointly and severally
fully and unconditionally guaranteed by the Subsidiary Guarantors. The Note
Guarantees will be subordinated to the prior payment in full of all Senior Debt
of each Subsidiary Guarantor (including such Subsidiary Guarantor's guarantee of
the Credit Agreement, if any) to the same extent that the Notes are subordinated
to Senior Debt of the Issuers. The obligations of any Subsidiary Guarantor under
its Note Guarantee will be limited so as not to constitute a fraudulent
conveyance under applicable law. See "Risk Factors--Certain Creditors' Rights
Considerations."
The Indenture provides that no Subsidiary Guarantor may consolidate with or
merge with or into (whether or not such Subsidiary Guarantor is the surviving
Person), another corporation, Person or entity whether or not affiliated with
such Subsidiary Guarantor unless, subject to the provisions of the following
paragraph, (i) the Person formed by or surviving any such consolidation or
merger (if other than such Subsidiary Guarantor) assumes all the obligations of
such Subsidiary Guarantor pursuant to a supplemental indenture in form and
substance reasonably satisfactory to the Trustee, under the Notes and the
Indenture; (ii) immediately after giving effect to such transaction, no Default
or Event of Default exists; (iii) such Subsidiary Guarantor, or any Person
formed by or surviving any such consolidation or merger, would have Consolidated
Net Worth (immediately after giving effect to such transaction), equal to or
greater than the Consolidated Net Worth of such Subsidiary Guarantor immediately
preceding the transaction; and (iv) Foamex would be permitted by virtue of
Foamex's pro forma Fixed Charge Coverage Ratio, immediately after giving effect
to such transaction, to incur at least $1.00 of additional Indebtedness pursuant
to the Fixed Charge Coverage Ratio test set forth in the covenant described
below under the caption "--Incurrence of Indebtedness and Issuance of Preferred
Stock." The requirements of clauses (iii) and (iv) of this paragraph will not
apply in the case of a consolidation with or merger with or into any other
Person if the acquisition of all of the Equity Interests in such Person would
have complied with the provisions of the covenants described below under the
captions "--Restricted Payments" and "--Incurrence of Indebtedness and Issuance
of Preferred Stock."
The Indenture provides that (a) in the event of a sale or other disposition
of all of the assets of any Subsidiary Guarantor, by way of merger,
consolidation or otherwise, or a sale or other disposition of all of the capital
stock of any Subsidiary Guarantor, or (b) in the event that either of the
Issuers designates a Subsidiary Guarantor to be an Unrestricted Subsidiary, or
such Subsidiary Guarantor ceases to be a Subsidiary of the Issuers, then such
Subsidiary Guarantor (in the event of a sale or other disposition, by way of
such a merger, consolidation or otherwise, of all of the capital stock of such
Subsidiary Guarantor or any such designation) or the entity acquiring the
property (in the event of a sale or other disposition of all of the assets of
such Subsidiary Guarantor) will be released and relieved of any obligations
under its Note Guarantee; provided that the Net Proceeds of such sale or other
disposition are applied in accordance with the applicable provisions of the
Indenture. See "--Repurchase at the Option of Holders." In the case of a sale,
assignment, lease, transfer, conveyance or other disposition of all or
substantially all of the assets of a Subsidiary Guarantor, upon the assumption
provided for in clause (i) in the preceding paragraph, such Subsidiary Guarantor
shall be discharged from all further liability and obligation under the
Indenture.
Intermediate Obligations of Crain Holdings
Crain Holdings was a party to the Indenture for the sole purpose of
assuming the obligations of the Notes before the effectiveness of the Asset
Contribution. As a result of the consummation of the Asset Contribution on
December 23, 1997, Crain Holdings was released as an obligor of the Notes.
Optional Redemption
The Notes will not be redeemable at the Issuers' option prior to August 15,
2000. Thereafter, the Notes will be redeemable at the option of the Issuers, in
whole or in part, at any time upon not less than 30 nor more than 60 days'
notice, at the redemption prices (expressed as percentages of principal amount)
set forth below plus accrued and unpaid interest and Liquidated Damages, if any,
thereon, to the applicable redemption date, if redeemed during the twelve-month
period beginning on August 15 of the years indicated below:
Period Redemption Price
----------------------------- ----------------
2000 ........................ 106.7500%
2001 ........................ 105.0625%
2002 ........................ 103.3750%
2003 ........................ 101.6875%
2004 and thereafter ......... 100.0000%
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Selection and Notice
If less than all of the Notes are to be redeemed at any time, selection of
Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which the
Notes are listed, or, if the Notes are not so listed, on a pro rata basis, by
lot or by such method as the Trustee shall deem fair and appropriate; provided
that no Notes of $1,000 or less shall be redeemed in part. Notices of redemption
shall be mailed by first class mail at least 30 but not more than 60 days before
the redemption date to each Holder of Notes to be redeemed at its registered
address. If any Note is to be redeemed in part only, the notice of redemption
that relates to such Note shall state the portion of the principal amount
thereof to be redeemed. A new Note in principal amount equal to the unredeemed
portion thereof will be issued in the name of the holder thereof upon
cancellation of the original Note. Notes called for redemption become due on the
date fixed for redemption. On and after the redemption date, interest ceases to
accrue on Notes or portions of them called for redemption.
Mandatory Redemption
Except as set forth below under "--Repurchase at the Option of Holders,"
the Issuers are not required to make mandatory redemption or sinking fund
payments with respect to the Notes.
Repurchase at the Option of Holders
Change of Control
Upon the occurrence of a Change of Control, each Holder of the Notes will
have the right to require the Issuers to repurchase all or any part (equal to
$1,000 or an integral multiple thereof) of such Holder's Notes pursuant to the
offer described below (the "Change of Control Offer") at an offer price in cash
equal to 101% of the aggregate principal amount thereof, plus accrued and unpaid
interest and Liquidated Damages, if any, thereon to the date of purchase (the
"Change of Control Payment"). Within 30 days following any Change of Control,
the Issuers will mail a notice to each Holder describing the transaction or
transactions that constituted the Change of Control and offering to repurchase
the Notes on the date specified in such notice, which date shall be no earlier
than 30 days and no later than the fifth Business Day preceding the last day of
the fiscal quarter of Foamex next following the Change of Control date (the
"Change of Control Payment Date"), pursuant to the procedures required by the
Indenture and described in such notice. The Issuers will comply with the
requirements of Rule 14e-l under the Exchange Act any other securities laws and
regulations thereunder to the extent such laws and regulations are applicable in
connection with the repurchase of the Notes as a result of a Change of Control.
On the Change of Control Payment Date, the Issuers will, to the extent
lawful, (1) accept for payment all the Notes or portions thereof properly
tendered pursuant to the Change of Control Offer, (2) deposit with the Paying
Agent an amount equal to the Change of Control Payment in respect to all the
Notes or portions thereof so tendered and (3) deliver or cause to be delivered
to the Trustee the Notes so accepted together with an Officers' Certificate
stating the aggregate principal amount of the Notes or portions thereof being
purchased by the Issuers. The Paying Agent will promptly mail to each Holder of
the Notes so tendered the Change of Control Payment for such Notes, and the
Trustee will promptly authenticate and mail (or cause to be transferred by book
entry) to each Holder a new Note equal in principal amount to any unpurchased
portion of the Notes surrendered, if any; provided that each such new Note will
be in a principal amount of $1,000 or an integral multiple thereof. The
Indenture provides that, prior to complying with the provisions of this
covenant, but in any event prior to the Change of Control Payment Date, the
Issuers will either repay all outstanding Senior Debt or obtain the requisite
consents, if any, under all agreements governing outstanding Senior Debt to
permit the repurchase of the Notes required by this covenant. The Issuers will
publicly announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date. See "Risk
Factors--Limitations on Ability to Make Change of Control Payment."
The Change of Control provisions described above will be applicable whether
or not any other provisions of the Indenture are applicable. Except as described
above with respect to a Change of Control, the Indenture does not contain
provisions that permit the Holders of the Notes to require that the Issuers
repurchase or redeem the Notes in the event of a takeover, recapitalization or
similar transaction.
The Credit Facility restricts the Issuers from repurchasing any Notes and
also provides that certain asset sales and change of control events with respect
to the Issuers would constitute a default thereunder. Any future credit
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agreements or other agreements relating to Senior Debt to which either of the
Issuers becomes a party may contain similar restrictions and provisions. In the
event a Change of Control occurs at a time when the Issuers are prohibited from
purchasing the Notes, the Issuers could seek the consent of their respective
lenders to purchase the Notes or could attempt to refinance the borrowings that
contain such prohibition. If the Issuers do not obtain such consent or repay
such borrowings, the Issuers will remain prohibited from purchasing the Notes.
In such case, the Issuers' failure to purchase tendered Notes would constitute
an Event of Default under the Note Indenture which would, in turn, constitute a
default under the 9-7/8% Note Indenture and the Credit Facility and would likely
cause an event of default under any other outstanding Senior Debt. In such
circumstances, the subordination provisions in the Indenture would likely
restrict payments to the Holders of the Notes. See "Risk Factors--Subordination"
and "Description of Certain Debt Instruments."
The Issuers will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Indenture applicable to a Change of Control Offer made by the Issuers and
purchases all Notes validly tendered and not withdrawn under such Change of
Control Offer.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of each of the Issuers and each of their respective Subsidiaries
taken as a whole. Although there is a developing body of case law interpreting
the phrase "substantially all," there is no precise established definition of
the phrase under applicable law. Accordingly, the ability of a Holder of the
Notes to require the Issuers to repurchase such Notes as a result of sale,
lease, transfer, conveyance or other disposition of less than all of the assets
of the Issuers and their respective Subsidiaries taken as a whole to another
person or group may be uncertain.
The obligation to make a Change of Control Offer, together with
restrictions in the Indenture described herein on the ability of Foamex and its
Restricted Subsidiaries to incur additional indebtedness, to grant liens on its
property, to make Restricted Payments and to make Asset Sales, may make more
difficult or discourage a takeover of Foamex, whether favored or opposed by the
management of Foamex. Consummation of any such transaction in certain
circumstances may require redemption or repurchase of the Notes, and there can
be no assurance that Foamex or the acquiring party will have sufficient
financial resources to effect such redemption or repurchase. Such restrictions
and the restrictions on transactions with Affiliates may, in certain
circumstances, make any leveraged buyout of Foamex or any of its Subsidiaries by
the management of Foamex more difficult. While such restrictions cover a wide
variety of arrangements which have traditionally been used to effect highly
leveraged transactions, the Indenture may not afford the Holders of the Notes
protection in all circumstances from the adverse aspects of highly leveraged
transaction, reorganization, restructuring, merger or similar transaction. In
addition, while neither Foamex nor the Trustee may waive the covenant relating
to a Holder's right to redemption upon a Change of Control, such right may be
waived by the Holders of a majority of the outstanding principal amount of the
Notes.
Asset Sale
The Indenture provides that each of the Issuers will not, and will not
permit any of their respective Restricted Subsidiaries to, consummate an Asset
Sale unless (i) such Issuer (or the Restricted Subsidiary, as the case may be)
receives consideration at the time of such Asset Sale at least equal to the fair
market value (evidenced by an Officers' Certificate delivered to the Trustee and
a resolution of the Board of Directors) of the assets or Equity Interests issued
or sold or otherwise disposed of and (ii) at least 80% of the consideration
therefor received by such Issuer or such Restricted Subsidiary is in the form of
(A) cash, (B) assets useful in a Permitted Business not to exceed $30.0 million
in the aggregate over the life of the Notes, or (C) Equity Interests
representing a controlling interest in a Permitted Business not to exceed $30.0
million in the aggregate over the life of the Notes (collectively, the
"Permitted Consideration"), provided that the amount of (x) any liabilities (as
shown on such Issuer's or such Restricted Subsidiary's most recent balance
sheet), of such Issuer or any Restricted Subsidiary (other than contingent
liabilities (except to the extent reflected (or reserved for) on a balance sheet
of the Issuers or any Restricted Subsidiary as of the date prior to the date of
consummation of such transaction) and liabilities that are by their terms
subordinated to the Notes or the Note Guarantees) that are assumed by the
transferee of any such assets and (y) any securities, notes or other obligations
received by such Issuer or any such Restricted Subsidiary from such transferee
that are converted within 90 days by such Issuer or such Restricted Subsidiary
into Permitted Consideration (to the extent so received), shall be deemed to be
Permitted Consideration of the same type (or in the case of assumed liabilities,
shall be deemed to be cash) for purposes of this provision; and provided
further, that the 80% limitation referred
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to above shall not apply to any Asset Sale in which the Permitted Consideration
portion of the consideration received therefor is equal to or greater than what
the net after-tax proceeds would have been had such Asset Sales complied with
the aforementioned 80% limitation.
Within 365 days after the receipt of any Net Proceeds from an Asset Sale,
the Issuers may apply such Net Proceeds, at their option, (a) to repay Senior
Debt, or (b) to the acquisition of assets to be used in a Permitted Business.
Pending the final application of any such Net Proceeds, the Issuers may
temporarily reduce the Credit Facility or otherwise invest such Net Proceeds in
any manner that is not prohibited by the Indenture. Any Net Proceeds from Asset
Sales that are not applied or invested as provided in the first sentence of this
paragraph will be deemed to constitute "Excess Proceeds." When the aggregate
amount of Excess Proceeds exceeds $15.0 million, the Issuers will be required to
make an offer to all Holders of the Notes (an "Asset Sale Offer") to purchase
the maximum principal amount of the Notes that may be purchased out of the
Excess Proceeds, at an offer price in cash in an amount equal to 100% of the
principal amount thereof plus accrued and unpaid interest and Liquidated
Damages, if any, thereon to the date of purchase, in accordance with the
procedures set forth in the Indenture; provided, however, the obligation to
consummate such repurchase shall be suspended during such time as the Issuers
are conducting an offer to repurchase the 9-7/8% Notes pursuant to the terms of
the 9-7/8% Note Indenture, and the amount of Excess Proceeds shall be reduced by
the amount applied to the payment of the 9-7/8% Notes in such repurchase offer.
To the extent that the aggregate amount of the Notes tendered pursuant to an
Asset Sale Offer is less than the Excess Proceeds, the Issuers may use any
remaining Excess Proceeds for general corporate purposes. If the aggregate
principal amount of the Notes surrendered by Holders thereof exceeds the amount
of Excess Proceeds, the Trustee shall select the Notes to be purchased on a pro
rata basis; provided, however, that the Issuers shall not be obligated to
purchase the Notes in denominations other than integral multiples of $1,000.
Upon completion of such offer to purchase, the amount of Excess Proceeds shall
be reset at zero.
Certain Covenants
Restricted Payments
The Indenture provides that each of the Issuers will not, and will not
permit any of their respective Restricted Subsidiaries to, directly or
indirectly: (i) declare or pay any dividend or make any other payment or
distribution on account of the Issuers' or any of their respective Restricted
Subsidiaries' Equity Interests (including, without limitation, any payment in
connection with any merger or consolidation involving the Issuers (other than
cash in lieu of fractional shares)) or to the direct or indirect holders of the
Issuers' or any of their respective Restricted Subsidiaries' Equity Interests in
their capacity as such (other than dividends or distributions payable (a) in
additional Equity Interests (other than Disqualified Stock) of the Issuers or
(in the case of a dividend, other payment or distribution on account of the
Equity Interest of a Restricted Subsidiary) of such Restricted Subsidiary or (b)
to the Issuers or their Restricted Subsidiaries); (ii) purchase, redeem or
otherwise acquire or retire for value (including without limitation, in
connection with any merger or consolidation involving the Issuers) any Equity
Interests of the Issuers or any direct or indirect parent of the Issuers; (iii)
make any Investment in any Unrestricted Subsidiary; (iv) make any payment on or
with respect to, or purchase, redeem, defease or otherwise acquire or retire for
value any Indebtedness (other than the Notes and the 9-7/8% Notes) that is pari
passu with or subordinated to the Notes or the Note Guarantees, except a payment
of interest or principal at Stated Maturity; or (v) make any Restricted
Investment (all such payments and other actions set forth in clauses (i) through
(v) above being collectively referred to as "Restricted Payments"), unless, at
the time of and after giving effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof; and
(b) Foamex would, at the time of such Restricted Payment and after giving
pro forma effect thereto as if such Restricted Payment had been made at the
beginning of the applicable four-quarter period, have been permitted to incur at
least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage
Ratio test set forth in the first paragraph of the covenant described below
under the caption "--Incurrence of Indebtedness and Issuance of Preferred
Stock"; and
(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by the Issuers and their respective Restricted
Subsidiaries after the date of the Indenture (excluding Restricted Payments
permitted by clauses (ii), (iii), (iv), (vi), (vii), (viii), (x), (xi), (xii),
(xiii), (xiv), (xv), (xvi), (xvii) and (xviii) of the
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next succeeding paragraph), is less than the sum of (i) 50% of the Consolidated
Net Income of Foamex for the preceding four-quarter period, plus (ii) 100% of
the aggregate net cash proceeds received by Foamex from the issue or sale since
June 12, 1997 of Equity Interests of Foamex (other than Disqualified Stock) or
of Disqualified Stock or debt securities of Foamex that have been converted into
such Equity Interests (other than Equity Interests (or Disqualified Stock or
convertible debt securities) sold to a Subsidiary of the Issuers and other than
Disqualified Stock or convertible debt securities that have been converted into
Disqualified Stock) or of capital contributions to the Issuers, plus (iii) to
the extent that any Restricted Investment that was made after June 12, 1997 is
sold for cash or otherwise liquidated or repaid for cash (less the cost of
disposition, if any), or the cash return, including, without limitation, any
cash dividends or distributions, with respect to such Restricted Investment or
from any Unrestricted Subsidiary.
The foregoing provisions will not prohibit (i) the payment of any dividend
or distribution within 60 days after the date of declaration thereof, if at said
date of declaration such payment would have complied with the provisions of the
Indenture; (ii) the redemption, repurchase, retirement, defeasance or other
acquisition of any Pari Passu Debt, or subordinated Indebtedness or Equity
Interests of the Issuers or any Restricted Subsidiary in exchange for, or out of
the net cash proceeds of the substantially concurrent sale or issuance (other
than to a Restricted Subsidiary of the Issuers) of, Equity Interests of the
Issuers or any Restricted Subsidiary (other than any Disqualified Stock);
provided that the amount of any such net cash proceeds that are utilized for any
such redemption, repurchase, retirement, defeasance or other acquisition shall
be excluded from clause (c)(ii) of the preceding paragraph; (iii) the
defeasance, redemption, repurchase or other acquisition of Pari Passu Debt or
subordinated Indebtedness with the net cash proceeds from an incurrence of
Permitted Refinancing Indebtedness; (iv) the payment of any dividend or
distribution by a Restricted Subsidiary of the Issuers to the holders of its
Equity Interests on a pro rata basis; (v) the repurchase, redemption or other
acquisition or retirement for value of any Equity Interests of the Issuers, any
Restricted Subsidiary of the Issuers, or any direct or indirect parent of the
Issuers or their respective Restricted Subsidiaries held by any member of the
Issuers' (or any of its Restricted Subsidiaries') management pursuant to any
management equity subscription agreement or stock option agreement either (a) in
effect as of June 12, 1997; provided that the aggregate price paid for all such
repurchased, redeemed, acquired or retired Equity Interests shall not exceed
$2.5 million in any twelve-month period and no Default or Event of Default shall
have occurred and be continuing immediately after such transaction or (b) upon
the termination of such person's employment; (vi) the advancement of payment or
payment of distributions pursuant to the Tax Sharing Agreement and the making of
up to $17.0 million of loans or advances pursuant to the Tax Advance Agreement
dated as of December 11, 1996 between FJPS and Foamex as amended to the date of
the Indenture; (vii) the payment by Foamex of a management fee pursuant to the
Management Services Agreement in an amount not to exceed $3.0 million per annum;
(viii) distributions to Foamex International Inc. and its Subsidiaries which are
utilized to pay the debt service and other expenses of Foamex Aviation Corp.,
the aggregate amount of which shall not exceed $2.0 million in any twelve-month
period; (ix) additional payments in an aggregate amount not to exceed $25.0
million; (x) Contributions to a Restricted Subsidiary if such Subsidiary (a)
executes and delivers to the Trustee a supplemental indenture in form reasonably
satisfactory to the Trustee pursuant to which such Restricted Subsidiary shall
guarantee all of the Obligations of the Issuers with respect to the Indenture
and the Notes and (b) delivers to the Trustee an Opinion of Counsel reasonably
satisfactory to the Trustee to the effect that such supplemental indenture, has
been duly executed and delivered by such Restricted Subsidiary and is in
compliance with the terms of the Indenture; (xi) distributions, loans or
advances to the holders of the Equity Interests of the Issuers in an amount
sufficient to pay all or a portion of the principal of, interest or premium, if
any, on the Foamex-JPS Automotive L.P. Senior Secured Discount Debentures due
2004; (xii) distributions, loans or advances to holders of the Equity Interests
of the Issuers in an amount sufficient to enable Foamex International to pay its
reasonable, out of pocket operating and administrative expenses, including
without limitation, directors fees, legal and audit expenses, SEC compliance
expenses and corporate franchise and other taxes; provided that no such expense
payments shall be made to an Affiliate (other than a director or officer of the
Issuers whose status as an Affiliate results solely from his position as a
director or officer of the Issuers) of Foamex International; (xiii) Investments
received by the Issuers or any of their Restricted Subsidiaries as non-cash
consideration from Asset Sales to the extent permitted by the covenant described
under the caption "--Repurchase at the Option of Holders--Asset Sales"; (xiv)
the Closing Date Transactions; (xv) payments made pursuant to the Great Western
Note; (xvi) payments made to purchase any Indebtedness subject to the Closing
Date Transactions that is not purchased pursuant to such Closing Date
Transactions; (xvii) the issuance or sale of Equity Interests of Foamex Latin
America to key executives of Foamex
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Latin America not to exceed 5% of the outstanding Equity Interests of Foamex
Latin America ; and (xviii) the Crain Acquisition Transactions.
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if such designation would not cause a Default; provided
that in no event shall the business currently operated by any Subsidiary
Guarantor be transferred to or held by an Unrestricted Subsidiary. For purposes
of making such determination, all outstanding Investments by either Issuer and
their respective Restricted Subsidiaries (except to the extent repaid in cash)
in the Subsidiary so designated will be deemed to be Restricted Payments at the
time of such designation and will be included for purposes of calculating the
aggregate amount of Restricted Payments under clause (c) of first paragraph of
this covenant. All such outstanding Investments will be deemed to constitute
Investments in an amount equal to the fair market value of such Investments at
the time of such designation. Such designation will only be permitted if such
Restricted Payment would be permitted at such time and if such Restricted
Subsidiary otherwise meets the definition of an Unrestricted Subsidiary.
The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued by the Issuers or such Restricted
Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair
market value of any individual or series of related non-cash Restricted Payments
(other than the Closing Date Transactions and the Crain Acquisition
Transactions) shall be determined by the Board of Directors whose resolution
with respect thereto shall be delivered to the Trustee, such determination to be
based upon an opinion or appraisal issued by an accounting, appraisal or
investment banking firm of national standing, as applicable, if such fair market
value exceeds $1.0 million. In connection with each Restricted Payment, the
Issuers shall deliver to the Trustee, prior to or within 60 days of the making
of such Restricted Payment, an Officers' Certificate stating that such
Restricted Payment is permitted and setting forth the basis upon which the
calculations required by the covenant "Restricted Payments" were computed,
together with a copy of any fairness opinion or appraisal required by the
Indenture.
Incurrence of Indebtedness and Issuance of Preferred Stock
The Indenture provides that the Issuers will not, and will not permit any
of their respective Subsidiaries to, directly or indirectly, create, incur,
issue, assume, guarantee or otherwise become directly or indirectly liable,
contingently or otherwise, with respect to (collectively, "incur") any
Indebtedness (including Acquired Debt) and that the Issuers and the Subsidiary
Guarantors will not issue any Disqualified Stock and the Issuers will not permit
any of their respective Subsidiaries which are not Subsidiary Guarantors to
issue any shares of preferred stock; provided, however, that the Issuers and
their Subsidiaries may incur Indebtedness (including Acquired Debt and
Indebtedness under the Credit Facility) or issue shares of Disqualified Stock or
in the case of Subsidiaries which are not Subsidiary Guarantors, issue preferred
stock if: the Fixed Charge Coverage Ratio for Foamex's most recently ended four
full fiscal quarters for which internal financial statements are available
immediately preceding the date on which such additional Indebtedness is incurred
or such Disqualified Stock or preferred stock is issued would have been at least
2.25 to 1, determined on a pro forma basis (including a pro forma application of
the net proceeds therefrom), as if the additional Indebtedness had been
incurred, or the Disqualified Stock or preferred stock had been issued and such
net proceeds had been applied, as the case may be, at the beginning of such
four-quarter period.
The provisions of the first paragraph of this covenant will not apply to
the incurrence of any of the following items of Indebtedness (collectively,
"Permitted Debt"):
(i) the incurrence by the Issuers or any of their respective Subsidiaries
of term Indebtedness under the Credit Facility; provided that the aggregate
principal amount of all term Indebtedness outstanding under the Credit Facility
after giving effect to such incurrence, including all term Indebtedness incurred
to refund, refinance or replace any other Indebtedness incurred pursuant to this
clause (i), does not exceed an amount equal to $470.0 million less the aggregate
amount of all Net Proceeds of Asset Sales that have been applied since the date
of the Indenture to repay such term Indebtedness under the Credit Facility and
resulting in a permanent reduction of the related commitments pursuant to the
covenant described above under the caption "Asset Sales";
(ii) the incurrence by the Issuers or any of their Subsidiaries of
revolving credit Indebtedness and letters of credit (with letters of credit
being deemed to have a principal amount, without duplication, equal to the
maximum potential liability of the Issuers and their Subsidiaries thereunder)
under the Credit Facility; provided that the aggregate principal amount of all
revolving credit Indebtedness outstanding under the Credit Facility after giving
effect to such incurrence, including all Indebtedness incurred to refund,
refinance or replace any other revolving
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Indebtedness incurred pursuant to this clause (ii), does not exceed an amount
equal to $150.0 million, less the aggregate amount of all Net Proceeds of Asset
Sales applied to repay such revolving Indebtedness and resulting in a permanent
reduction of the related commitments pursuant to the covenant described above
under the caption "--Asset Sales"; provided, however, that notwithstanding
anything to the contrary contained in the Indenture, in no event shall the
amount of Indebtedness which the Issuers and their Subsidiaries may incur in the
aggregate pursuant to clause (i) and this clause (ii) be less than $150.0
million;
(iii) the incurrence by the Issuers and their respective Subsidiaries of
the Existing Indebtedness;
(iv) the incurrence by the Issuers and the Subsidiary Guarantors of
Indebtedness represented by the Notes;
(v) the incurrence by the Issuers or any of their respective Subsidiaries
of Indebtedness represented by Capital Lease Obligations, mortgage financings or
purchase money obligations, in each case incurred for the purpose of financing
all or any part of the purchase price or cost of construction or improvement of
property, plant or equipment used in the business of the Issuers or such
Subsidiary, in an aggregate principal amount not to exceed $25.0 million at any
time outstanding;
(vi) the incurrence by the Issuers or any of their respective Subsidiaries
of Permitted Refinancing Indebtedness in exchange for, or the net proceeds of
which are used to refund, refinance or replace Indebtedness that was permitted
by the Indenture to be incurred;
(vii) the incurrence by the Issuers or any of their respective Restricted
Subsidiaries of intercompany Indebtedness between or among the Issuers and any
of their respective Restricted Subsidiaries; provided, however, that (i) if an
Issuer is the obligor on such Indebtedness and the payee is not a Subsidiary
Guarantor, such Indebtedness is expressly subordinated to the prior payment in
full in cash of all Obligations with respect to the Notes and (ii)(A) any
subsequent issuance or transfer of Equity Interests that results in any such
Indebtedness being held by a Person other than an Issuer or a Restricted
Subsidiary and (B) any sale or other transfer of any such Indebtedness to a
Person that is not either an Issuer or a Restricted Subsidiary shall be deemed,
in each case, to constitute an incurrence of such Indebtedness by an Issuer or
such Restricted Subsidiary, as the case may be;
(viii) the incurrence by the Issuers or any of their respective
Subsidiaries of Hedging Obligations;
(ix) the Guarantee by the Issuers or any of their respective Subsidiaries
of Indebtedness of the Issuers or a Restricted Subsidiary of the Issuers that
was permitted to be incurred by another provision of this covenant;
(x) the incurrence by the Issuers' Unrestricted Subsidiaries of
Non-Recourse Debt and preferred stock, provided, however, that if any such
Indebtedness ceases to be Non-Recourse Debt of an Unrestricted Subsidiary, such
event shall be deemed to constitute an incurrence of Indebtedness by a
Restricted Subsidiary of the Issuers;
(xi) the incurrence by the Issuers or any of their respective Subsidiaries
of additional Indebtedness including, without limitation, pursuant to the Credit
Facility, in an aggregate principal amount (or accreted value, as applicable) at
any time outstanding, including all Permitted Refinancing Indebtedness incurred
to refund, refinance or replace any other Indebtedness incurred pursuant to this
clause (xi), not to exceed $45.0 million;
(xii) Acquired Debt of a Subsidiary in existence at the time of the
acquisition of such Subsidiary, if such Acquired Debt was not incurred in
contemplation of such acquisition and such Acquired Debt is Non-Recourse Debt
(except with respect to such acquired Subsidiary and its Subsidiaries);
(xiii) Indebtedness of Foamex Canada, Inc. and its Subsidiaries (which is
Non-Recourse Debt, except with respect to such entities) in an amount, at any
time outstanding not to exceed CND$15.0 million;
(xiv) Indebtedness of Foamex Latin America (which is Non-Recourse Debt,
except with respect to such entities) in an amount, at any time outstanding not
to exceed $12.0 million;
(xv) Assets Sales in the form of Receivables Transactions; and
(xvi) Indebtedness of Foamex Asia, Inc. and its Subsidiaries (which is
Non-Recourse Debt, except with respect to such entities) in an amount, at any
time outstanding not to exceed $5.0 million.
For purposes of determining compliance with this covenant, in the event
that an item of Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (i) through (xvi) above or is
entitled to be incurred pursuant to the first paragraph of this covenant, the
Issuers shall, in its sole discretion,
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classify such item of Indebtedness in any manner that complies with this
covenant and such item of Indebtedness will be treated as having been incurred
pursuant to only one of such clauses or pursuant to the first paragraph hereof.
Neither the accrual of interest, nor the accretion of accreted value will be
deemed to be an incurrence of Indebtedness for purposes of this covenant.
Liens
The Indenture provides that the Issuers will not and will not permit any of
their respective Restricted Subsidiaries to, directly or indirectly, create,
incur, assume or suffer to exist any Lien on any asset now owned or hereafter
acquired, or any income or profits therefrom or assign or convey any right to
receive income therefrom, except Permitted Liens.
Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries
The Indenture provides that the Issuers will not, and will not permit any
of their respective Restricted Subsidiaries to, directly or indirectly, create
or otherwise cause or suffer to exist or become effective any encumbrance or
restriction on the ability of any Restricted Subsidiary which is not a
Subsidiary Guarantor to (i)(a) pay dividends or make any other distributions to
the Issuers or any of their respective Restricted Subsidiaries (1) on its
Capital Stock or (2) with respect to any other interest or participation in, or
measured by, its profits, or (b) pay any indebtedness owed to the Issuers or any
of their respective Restricted Subsidiaries, (ii) make loans or advances to the
Issuers or any of their respective Restricted Subsidiaries or (iii) transfer any
of its properties or assets to the Issuers or any of their respective Restricted
Subsidiaries, except for such encumbrances or restrictions existing under or by
reason of (a) Existing Indebtedness as in effect on the date of the Indenture,
(b) the Credit Facility as in effect as of the date of the Indenture, and any
amendments, modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings thereof, provided that such amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacement or refinancings are no more restrictive with respect to such
dividend and other payment restrictions than those contained in the Credit
Facility as in effect on the date of the Indenture, (c) the Indenture and the
Notes, (d) applicable law, (e) any instrument governing Indebtedness or Capital
Stock of a Person acquired by the Issuers or any of their respective Restricted
Subsidiaries as in effect at the time of such acquisition (except to the extent
such Indebtedness was incurred in connection with or in contemplation of such
acquisition), which encumbrance or restriction is not applicable to any Person,
or the properties or assets of any Person, other than the Person and its
Subsidiaries, or the property or assets of the Person and its Subsidiaries, so
acquired, provided that, in the case of Indebtedness, such Indebtedness was
permitted by the terms of the Indenture to be incurred, (f) by reason of
customary non-assignment provisions in leases entered into in the ordinary
course of business and consistent with past practices, (g) purchase money
obligations for property acquired that impose restrictions of the nature
described in clause (iii) above on the property so acquired, (h) Permitted
Refinancing Indebtedness, provided that the restrictions contained in the
agreements governing such Permitted Refinancing Indebtedness are no more
restrictive than those contained in the agreements governing the Indebtedness
being refinanced, (i) any instrument or agreement governing Indebtedness
permitted to be incurred under the Indenture, which is secured by a Lien
permitted to be incurred under the Indenture, which encumbrance or restriction
is not applicable to any property or assets other than the property or assets
subject to such Lien, or (j) restrictions applicable to a Receivables Subsidiary
arising from a Receivables Transaction.
Merger, Consolidation, or Sale of Assets
The Indenture provides that the Issuers may not consolidate or merge with
or into (whether or not the Issuers are the surviving entity), or sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of
their properties or assets in one or more related transactions, to another
corporation, Person or entity unless (i) such Issuer is the surviving entity or
the entity or the Person formed by or surviving any such consolidation or merger
(if other than such Issuer) or to which such sale, assignment, transfer, lease,
conveyance or other disposition shall have been made is organized and existing
under the laws of the United States, any state thereof or the District of
Columbia provided that FCC may not consolidate or merge with or into any entity
other than a corporation satisfying such requirements for so long as Foamex
remains a partnership; (ii) the entity or Person formed by or surviving any such
consolidation or merger (if other than such Issuer) or the entity or Person to
which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made assumes all the obligations of such Issuer under the Notes
and the Indenture pursuant to a supplemental indenture in a form reasonably
satisfactory to the Trustee; (iii) immediately after such transaction no Default
or Event of Default exists; and (iv) except in the case
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of a merger of an Issuer with or into one of its Wholly Owned Restricted
Subsidiaries, the Issuer or the entity or Person formed by or surviving any such
consolidation or merger (if other than the Issuer), or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made (A) will have Consolidated Net Worth immediately after the transaction
equal to or greater than the Consolidated Net Worth of such Issuer immediately
preceding the transaction and (B) will, at the time of such transaction and
after giving pro forma effect thereto as if such transaction had occurred at the
beginning of the applicable four-quarter period, be permitted to incur at least
$1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio
test set forth in the first paragraph of the covenant described above under the
caption "--Incurrence of Indebtedness and Issuance of Preferred Stock." In the
case of a sale, assignment, lease, transfer, conveyance or other disposition of
all or substantially all of the assets of an Issuer, upon the assumption
provided for in clause (ii) above, such Issuer shall be discharged from all
further liability and obligation under the Indenture.
Transactions with Affiliates
The Indenture provides that the Issuers will not, and will not permit any
of their respective Restricted Subsidiaries to, make any payment to, or sell,
lease, transfer or otherwise dispose of any of its properties or assets to, or
purchase any property or assets from, or enter into or make or amend any
transaction, contract, agreement, understanding, loan, advance or guarantee
with, or for the benefit of, any Affiliate (each of the foregoing, an "Affiliate
Transaction"), unless (i) such Affiliate Transaction is on terms that are no
less favorable to the Issuers or the relevant Subsidiary than those that would
have been obtained in a comparable transaction by the Issuers or such Subsidiary
with an unrelated Person and (ii) the Issuers deliver to the Trustee (a) with
respect to any Affiliate Transaction or series of related Affiliate Transactions
involving aggregate consideration in excess of $1.0 million, a resolution of the
Board of Directors set forth in an Officers' Certificate certifying that such
Affiliate Transaction complies with clause (i) above and that such Affiliate
Transaction has been approved by a majority of the members of the Board of
Directors and (b) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of $5.0
million, an opinion as to the fairness to the Holders of such Affiliate
Transaction from a financial point of view issued by an accounting, appraisal or
investment banking firm of national standing; provided that (l) the Crain
Acquisition Transactions; (m) prepaid expenses and loans or advances to
employees and similar items in the ordinary course of business; (n) the
advancement of payment or payment of distributions pursuant to the Tax Sharing
Agreement and the making of loans or advances pursuant to the Tax Advance
Agreement dated as of December 11, 1996 between FJPS and Foamex, as amended to
the date of the Indenture; (o) the payment by Foamex of a management fee
pursuant to the Management Services Agreement in an amount not to exceed $3.0
million per annum; (p) distributions to Foamex International and its
Subsidiaries which are utilized to pay the debt service and other expenses of
Foamex Aviation Corp., the aggregate amount of which shall not exceed $2.0
million in any twelve-month period; (q) the issuance or sale of Equity Interests
of Foamex Latin America to key executives of Foamex Latin America, not to exceed
5% of the outstanding Equity Interests of Foamex Latin America; (r) Investments
in the Trace Note not to exceed $5.0 million; (s) Investments in the Trace
Global Opportunity Fund not to exceed $5.0 million; (t) borrowings of up to $5.0
million by Trace Holdings from the Issuers and their respective Subsidiaries;
(u) the Closing Date Transactions; (v) transactions pursuant to the Supply
Agreement with Foamex International, dated as of June 28, 1994; (w) purchases
(and sales) of inventory and services in the ordinary course of business at a
price not greater (less) than the price paid by (charged to) purchasers of a
similar quantity of inventory and services which are not Affiliates of the
Issuers, (x) any employment agreement entered into by the Issuers or any of
their respective Restricted Subsidiaries in the ordinary course of business and
consistent with the current market practice or the past practice of the Issuers
or such Restricted Subsidiary; (y) transactions between or among the Issuers
and/or its Restricted Subsidiaries; and (z) Restricted Payments that are
permitted by the provisions of the Indenture described above under the caption
"--Restricted Payments," in each case, shall not be deemed Affiliate
Transactions.
Anti-Layering
The Indenture provides that (i) the Issuers will not incur, create, issue,
assume, guarantee or otherwise become liable for any Indebtedness that is both
(a) subordinate or junior in right of payment to any Senior Debt and (b) senior
in any respect in right of payment to the Notes and (ii) no Subsidiary Guarantor
will incur, create, issue, assume, guarantee or otherwise become liable for any
Indebtedness that is both (a) subordinate or junior in right of payment to its
Senior Debt and (b) senior in right of payment to its Note Guarantee.
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Sale and Leaseback Transactions
The Indenture provides that the Issuers will not, and will not permit any
of their respective Restricted Subsidiaries to, enter into any sale and
leaseback transaction; provided that the Issuers may enter into a sale and
leaseback transaction if (i) the Issuers could have (a) incurred Indebtedness in
an amount equal to the Attributable Debt relating to such sale and leaseback
transaction pursuant to the covenant described above under the caption
"--Incurrence of Additional Indebtedness and Issuance of Preferred Stock" and
(b) incurred a Lien to secure such Indebtedness pursuant to the covenant
described above under the caption "--Liens" and (ii) the gross cash proceeds of
such sale and leaseback transaction are at least equal to the fair market value
(in the case of gross cash proceeds in excess of $5.0 million as determined in
good faith by the Board of Directors and set forth in an Officers' Certificate
delivered to the Trustee) of the property that is the subject of such sale and
leaseback transaction.
Limitation on Issuances and Sales of Capital Stock of Restricted
Subsidiaries
The Indenture provides that the Issuers (i) will not, and will not permit
any Restricted Subsidiary of the Issuers to, transfer, convey, sell, lease or
otherwise dispose of any Capital Stock of any Restricted Subsidiary of the
Issuers to any Person (other than the Issuers or a Restricted Subsidiary of the
Issuers), unless (a) such transfer, conveyance, sale, lease or other disposition
is of all the Capital Stock of such Restricted Subsidiary and (b) the cash Net
Proceeds from such transfer, conveyance, sale, lease or other disposition are
applied in accordance with the covenant described above under the caption
"--Asset Sales," and (ii) will not permit any Restricted Subsidiary of the
Issuers to issue any of its Equity Interests (other than, if necessary, shares
of its Capital Stock constituting directors' qualifying shares) to any Person
other than to the Issuers or a Restricted Subsidiary of the Issuers; provided,
however, the foregoing restrictions will not apply to (A) Investments in the
entities described under clause (o) of the definition of Permitted Investments;
(B) transfers, conveyances, sales, leases or other dispositions (collectively
"dispositions") of any Capital Stock of any Restricted Subsidiary that have a
fair market value at the time of such disposition of less than $1.0 million; or
(C) a public offering of Equity Interests of Foamex Latin America which results
in the net proceeds to Foamex Latin America of at least $15.0 million.
Business Activities
The Indenture provides that the Issuers will not, and will not permit any
of their respective Restricted Subsidiaries to, engage in any business other
than Permitted Businesses, except to such extent as would not be material to the
Issuers and their respective Restricted Subsidiaries taken as a whole.
Payments for Consent
The Indenture provides that neither the Issuers nor any of their respective
Restricted Subsidiaries will, directly or indirectly, pay or cause to be paid
any consideration, whether by way of interest, fee or otherwise, to any Holder
of any Notes for or as an inducement to any consent, waiver or amendment of any
of the terms or provisions of the Indenture or the Notes unless such
consideration is offered to be paid or is paid to all Holders of the Notes that
consent, waive or agree to amend in the time frame set forth in the solicitation
documents relating to such consent, waiver or agreement.
Additional Guarantees
The Indenture provides that (i) if the Issuers or any of their respective
Restricted Subsidiaries shall, after the date of the Indenture, transfer or
cause to be transferred, including by way of any Investment, in one or a series
of transactions (whether or not related), any assets, businesses, divisions,
real property or equipment having an aggregate fair market value (as determined
in good faith by the Board of Directors) in excess of $1.0 million to any
Restricted Subsidiary that is not a Subsidiary Guarantor or a Foreign
Subsidiary, (ii) if Foamex or any of its Restricted Subsidiaries shall acquire
another Restricted Subsidiary other than a Foreign Subsidiary having total
assets with a fair market value (as determined in good faith by the Board of
Directors) in excess of $1.0 million, or (iii) if any Restricted Subsidiary
other than a Foreign Subsidiary shall incur Acquired Debt in excess of $1.0
million, then the Issuers shall, at the time of such transfer, acquisition or
incurrence, (i) cause such transferee, acquired Restricted Subsidiary or
Restricted Subsidiary incurring Acquired Debt (if not then a Subsidiary
Guarantor) to execute a Note Guarantee of the Obligations of the Issuers under
the Notes in the form set forth in the Indenture and (ii) deliver to the Trustee
an Opinion of Counsel, in form reasonably satisfactory to the Trustee, that such
Note Guarantee is a valid, binding and enforceable obligation of such
transferee, acquired Restricted Subsidiary or Restricted Subsidiary incurring
Acquired Debt, subject to customary exceptions for bankruptcy, fraudulent
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conveyance and equitable principles. Notwithstanding the foregoing, the Issuers
or any of their Restricted Subsidiaries may make a Restricted Investment in any
Wholly Owned Restricted Subsidiary of the Issuers without compliance with this
covenant provided that such Restricted Investment is permitted by the covenant
described under the caption "--Restricted Payments."
Reports
The Indenture provides that, whether or not required by the rules and
regulations of the Commission, so long as any Notes are outstanding, the Issuers
will furnish to the Trustee and the Holders of Notes (i) all quarterly and
annual financial information that would be required to be contained in a filing
with the Commission on Forms 10-Q and 10-K if the Issuers were required to file
such Forms, including a "Management's Discussion and Analysis of Financial
Condition and Results of Operations" that describes the financial condition and
results of operations of the Issuers and their consolidated Subsidiaries and,
with respect to the annual information only, a report thereon by Foamex's
certified independent accountants and (ii) all current reports that would be
required to be filed with the Commission on Form 8-K if the Issuers were
required to file such reports. In addition, whether or not required by the rules
and regulations of the Commission, the Issuers will file a copy of all such
information and reports with the Commission for public availability (unless the
Commission will not accept such a filing) and make such information available to
securities analysts and prospective investors upon request. In addition, the
Issuers have agreed that, for so long as any Notes remain outstanding, they will
furnish to the Holders and to securities analysts and prospective investors,
upon their request, the information required to be delivered pursuant to Rule
144A(d)(4) under the Securities Act.
Certain Effects of the Covenants
Although the covenant described above under "Incurrence of Indebtedness and
Issuance of Preferred Stock" will restrict the incurrence of certain additional
Indebtedness by Foamex and its Subsidiaries, Foamex and its Subsidiaries will
nevertheless be able to incur Permitted Debt and additional Indebtedness if the
appropriate Fixed Charge Coverage Ratio is obtained (the "Debt Test"). The Debt
Test may have limited applicability in the event of a leveraged buyout initiated
or supported by Foamex, its management, or an affiliate of either party.
However, the Debt Test, together with other covenants in the Indenture,
including those relating to Restricted Payments, Liens, and Transactions with
Affiliates, may not afford Holders of Notes protection in all circumstances from
the adverse aspects of a highly leveraged or similar transaction. Neither Foamex
nor the Trustee may waive such covenants; however, such covenants, except for
certain limited exceptions related to payment and subordination, may be waived
by the Holders of a majority of the outstanding principal amount of the Notes.
See "--Amendment, Supplement and Waiver."
Events of Default and Remedies
The Indenture provides that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest on, or
Liquidated Damages with respect to, the Notes (whether or not prohibited by the
subordination provisions of the Indenture); (ii) default in payment when due of
the principal of or premium, if any, on the Notes (whether or not prohibited by
the subordination provisions of the Indenture); (iii) failure by the Issuers to
comply with the provisions described under the captions "--Change of Control,"
or to consummate a mandatory Offer to purchase pursuant to the covenant
described above under the caption "--Asset Sales," or "--Merger, Consolidation,
or Sale of Assets"; (iv) failure by the Issuers for 60 days after notice to
comply with any of its other agreements in the Indenture or the Notes; (v)
default under any mortgage, indenture or instrument under which there may be
issued or by which there may be secured or evidenced any Indebtedness for money
borrowed by the Issuers or any of their respective Restricted Subsidiaries (or
the payment of which is Guaranteed by the Issuers or any of their respective
Restricted Subsidiaries) whether such Indebtedness or Guarantee now exists, or
is created after the date of the Indenture, which default (a) is caused by a
failure to pay principal of, interest or premium, if any, on such Indebtedness
prior to the expiration of the grace period provided in such Indebtedness on the
date of such default (a "Payment Default") or (b) results in the acceleration of
such Indebtedness prior to its Stated Maturity and, in each case, the principal
amount of any such Indebtedness, together with the principal amount of any other
such Indebtedness under which there has been a Payment Default or the Stated
Maturity of which has been so accelerated, aggregates $20.0 million or more;
(vi) failure by the Issuers or any of their respective Restricted Subsidiaries
to pay final judgments aggregating in excess of $10.0 million, which judgments
are not paid, discharged or stayed for a period of 60 days after entry thereof;
and (vii) certain events of bankruptcy or insolvency with respect to the Issuers
or any of their respective Significant Subsidiaries (as defined in the
Indenture).
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If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding Notes may
declare all the Notes to be due and payable immediately; provided, however, that
if any Indebtedness or Obligation is outstanding pursuant to the Credit
Facility, upon a declaration of acceleration by the Holders of the Notes or the
Trustee, all principal and interest under the Indenture shall be due and payable
upon the earlier of (x) the day which is five Business Days after the provision
to the Issuers, the Credit Agent and the Trustee of such written notice of
acceleration or (y) the date of acceleration of any Indebtedness under the
Credit Facility; and provided, further, that in the event of an acceleration
based upon an Event of Default set forth in clause (v) above, such declaration
of acceleration shall be automatically annulled if the holders of Indebtedness
which is the subject of such failure to pay at maturity or acceleration have
rescinded their declaration of acceleration in respect of such Indebtedness or
such failure to pay at maturity shall have been cured or waived within 30 days
thereof and no other Event of Default has occurred during such 30-day period
which has not been cured, paid or waived. Notwithstanding the foregoing, in the
case of an Event of Default arising from certain events of bankruptcy or
insolvency, with respect to the Issuers or any of their respective Restricted
Subsidiaries all outstanding Notes will become due and payable without further
action or notice. Holders of the Notes may not enforce the Indenture or the
Notes except as provided in the Indenture. Subject to certain limitations,
Holders of a majority in principal amount of the then outstanding Notes may
direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from Holders of the Notes notice of any continuing Default or Event of
Default (except a Default or Event of Default relating to the payment of
principal or interest) if it determines that withholding notice is in their
interest.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of either of the
Issuers with the intention of avoiding payment of the premium that the Issuers
would have had to pay if the Issuers then had elected to redeem the Notes
pursuant to the optional redemption provisions of the Indenture, an equivalent
premium shall also become and be immediately due and payable to the extent
permitted by law upon the acceleration of the Notes. If an Event of Default
occurs by reason of any willful action (or inaction) taken (or not taken) by or
on behalf of the Issuers with the intention of avoiding the prohibition on
redemption of the Notes prior to August 15, 2000, then the premium specified in
the Indenture shall also become immediately due and payable to the extent
permitted by law upon the acceleration of the Notes.
The Holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the Holders of all of the
Notes waive any existing Default or Event of Default and its consequences under
the Indenture except a continuing Default or Event of Default in the payment of
interest on, or the principal of, the Notes.
The Issuers are required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Issuers are required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
No Personal Liability of Directors, Officers, Employees, Partners and
Stockholders
No director, officer, employee, partner, incorporator or stockholder of the
Issuers or any of their Restricted Subsidiaries, as such, shall have any
liability for any obligations of the Issuers or any Subsidiary Guarantor under
the Notes, the Indenture, the Note Guarantees or for any claim based on, in
respect of, or by reason of, such obligations or their creation. Each Holder of
Notes by accepting a Note waives and releases all such liability. The waiver and
release are part of the consideration for issuance of the Notes. Such waiver may
not be effective to waive liabilities under the federal securities laws and it
is the view of the Commission that such a waiver is against public policy.
Satisfaction and Discharge of the Indenture; Defeasance
The Indenture provides that the Issuers may terminate their Obligations
under the Indenture and the Obligations of the Subsidiary Guarantors under the
Note Guarantees at any time by delivering all outstanding Notes issued under the
Indenture to the Trustee for cancellation and paying all sums to be paid
pursuant to the terms of the Indenture. In addition, the Issuers are permitted
to terminate their Obligations under the Indenture and the Obligations of the
Subsidiary Guarantors under the Note Guarantees by irrevocably depositing with
the Trustee money or United States Government Obligations sufficient to pay
principal, interest and premium and Liquidated Damages, if any, on the Notes to
maturity or redemption, and all other sums payable pursuant to the terms of the
Indenture after complying
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with certain other procedures set forth therein. Notwithstanding the foregoing,
certain Obligations of the Issuers and the Subsidiary Guarantors under the
Indenture, the Notes and the Note Guarantees shall survive until the Notes are
no longer outstanding.
Transfer and Exchange
A Holder may transfer or exchange the Notes in accordance with the
Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Issuers may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture. The Issuers are not required to transfer or exchange
any Note selected for redemption. Also, the Issuers are not required to transfer
or exchange any Note for a period of 15 days before a selection of the Notes to
be redeemed.
A registered Holder of a Note will be treated as the owner of it for all
purposes.
Amendment, Supplement and Waiver
Except as provided in the next two succeeding paragraphs, the Indenture or
the Notes may be amended or supplemented with the consent of the Holders of at
least a majority in principal amount of the Notes then outstanding (including,
without limitation, consents obtained in connection with a purchase of, or
tender offer or exchange offer for, the Notes), and any existing default or
compliance with any provision of the Indenture or the Notes may be waived with
the consent of the Holders of a majority in principal amount of the then
outstanding Notes (including consents obtained in connection with a tender offer
or exchange offer for the Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting Holder): (i) reduce the
principal amount of the Notes whose Holders must consent to an amendment,
supplement or waiver, (ii) reduce the principal of or change the fixed maturity
of any Note or alter the provisions with respect to the redemption of the Notes
(other than provisions relating to the covenants described above under the
caption "--Repurchase at the Option of Holders"), (iii) reduce the rate of or
change the time for payment of interest on any Note, (iv) waive a Default or
Event of Default in the payment of principal of or premium or Liquidated
Damages, if any, or interest on the Notes (except a rescission of acceleration
of the Notes by the Holders of at least a majority in aggregate principal amount
of the Notes and a waiver of the payment default that resulted from such
acceleration), (v) make any Note payable in money other than that stated in the
Notes, (vi) make any change in the provisions of the Indenture relating to
waivers of past Defaults or the rights of Holders of the Notes to receive
payments of principal of or premium, if any, or interest on the Notes, (vii)
waive a redemption payment with respect to any Note (other than a payment
required by one of the covenants described above under the caption "--Repurchase
at the Option of Holders") or (viii) make any change in the foregoing amendment
and waiver provisions. In addition, any amendment to the provisions of Article
10 or Article 12 of the Indenture (which relate to subordination) will require
the consent of the Holders of at least 75% in aggregate principal amount of the
Notes then outstanding if such amendment would adversely affect the rights of
Holders of the Notes.
Notwithstanding the foregoing, without the consent of any Holder of the
Notes, the Issuers, the Subsidiary Guarantors and the Trustee may amend or
supplement the Indenture or the Notes to cure any ambiguity, defect or
inconsistency, to provide for uncertificated Notes in addition to or in place of
certificated Notes, to provide for the assumption and discharge of the Issuers'
and the Subsidiary Guarantors' obligations to Holders of the Notes in the case
of a merger, consolidation or sale of assets or Capital Stock, to make any
change that would provide any additional rights or benefits to the Holders of
the Notes or that does not adversely affect the legal rights under the Indenture
of any such Holder, to comply with requirements of the Commission in order to
effect or maintain the qualification of the Indenture under the Trust Indenture
Act or to allow any Subsidiary to Guarantee the Notes.
Concerning the Trustee
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Issuers or the Subsidiary Guarantors, to
obtain payment of claims in certain cases, or to realize on certain property
received in respect of any such claim as security or otherwise. The Trustee will
be permitted to engage in other transactions; however, if it acquires any
conflicting interest it must eliminate such conflict within 90 days, apply to
the Commission for permission to continue or resign.
The Holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject
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to certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the conduct
of his own affairs. Subject to such provisions, the Trustee will be under no
obligation to exercise any of its rights or powers under the Indenture at the
request of any Holder of the Notes, unless such Holder shall have offered to the
Trustee security and indemnity satisfactory to it against any loss, liability or
expense.
Book-Entry, Delivery and Form
Except as set forth below, the Notes will initially be issued in the form
of one or more notes in global form without coupons (each, a "Global Note").
Upon issuance, each Global Note will be deposited with, or on behalf of, the
Depository Trust Company (the "Depositary") and registered in the name of Cede &
Co., as nominee of the Depositary.
If a Holder tendering the Old Notes so requests, such Holder's Notes will
be issued as described below under "Certificated Securities" in form without
coupons (the "Certificated Securities").
The Depositary has advised the Issuers that it is (i) a limited purpose
trust company organized under the laws of the State of New York, (ii) a member
of the Federal Reserve System, (iii) a "clearing corporation" within the meaning
of the Uniform Commercial Code, as amended, and (iv) a "Clearing Agency"
registered pursuant to Section 17A of the Exchange Act. The Depositary was
created to hold securities for its participants (collectively, the
"Participants") and facilitates the clearance and settlement of securities
transactions between Participants through electronic book-entry charges to the
accounts of its Participants, thereby eliminating the need for physical transfer
and delivery of certificates. The Depositary's Participants include securities
brokers and dealers, banks and trust companies, clearing corporations and
certain other organizations. Access to the Depositary's system is also available
to other entities such as banks, brokers, dealers and trust companies
(collectively, the "Indirect Participants") that clear through or maintain a
custodial relationship with a Participant, either directly or indirectly.
The Issuers expect that pursuant to procedures established by the
Depositary (i) upon deposit of the Global Notes, the Depositary will credit the
accounts of Participants who elect to exchange Old Notes with an interest in the
Global Note and (ii) ownership of the Notes will be shown on, and the transfer
of ownership thereof will be effected only through, records maintained by the
Depositary (with respect to the interest of Participants), the Participants and
the Indirect Participants. The laws of some states require that certain persons
take physical delivery of definitive form of securities that they own and that
security interests in negotiable instruments can only be perfected by delivery
of certificates representing the instruments.
So long as the Depositary or its nominee is the registered owner of a
Global Note, the Depositary or such nominee, as the case may be, will be
considered the sole owner or holder of the Notes represented by the Global Note
for all purposes under the Indenture. Except as provided below, owners of
beneficial interests in a Global Note will not be entitled to have the Notes
represented by such Global Notes registered in their names, will not receive or
be entitled to receive physical delivery of Certificated Securities, and will
not be considered the owners or holders thereof under the Indenture for any
purpose, including with respect to the giving of any direction, instruction or
approval to the Trustee thereunder. As a result, the ability of a person having
a beneficial interest in the Notes represented by a Global Note to pledge such
interest to persons or entities that do not participate in the Depositary's
system, or to otherwise take action with respect to such interest, may be
affected by the lack of a physical certificate evidencing such interest.
The Issuers understand that under existing industry practice, in the event
the Issuers request any action of holders or an owner of a beneficial interest
in a Global Note desires to take any action that the Depositary, as the holder
of such Global Note, is entitled to take, the Depositary would authorize the
Participants to take such action and the Participant would authorize persons
owning through such Participants to take such action or would otherwise act upon
the instruction of such persons. Neither the Issuers nor the Trustee will have
any responsibility or liability for any aspect of the records relating to or
payments made on account of the Notes by the Depositary, or for maintaining,
supervising or reviewing any records of the Depositary relating to such New
Notes.
Payments with respect to the principal of, premium, if any, interest and
Liquidated Damages, if any, on any Notes represented by a Global Note registered
in the name of the Depositary or its nominee on the applicable record date will
be payable by the Trustee to or at the direction of the Depositary or its
nominee in its capacity as the registered holder of the Global Note representing
such Notes under the Indenture. Under the terms of the Indenture,
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the Issuers and the Trustee may treat the persons in whose names the Notes,
including the Global Notes, are registered as the owners thereof for the purpose
of receiving such payment and for any and all other purposes whatsoever.
Consequently, neither the Issuers nor the Trustee have or will have any
responsibility or liability for the payment of such amounts to beneficial owners
of the Notes (including principal, premium, if any, interests and Liquidated
Damages, if any), or to immediately credit the accounts of the relevant
Participants with such payment, in amounts proportionate to their respective
holdings in principal amount of beneficial interest in the Global Note as shown
on the records of the Depositary. Payments by the Participants and the Indirect
Participants to the beneficial owners of the Notes will be governed by standing
instructions and customary practice and will be the responsibility of the
Participants or the Indirect Participants.
Certificated Securities
If (i) the Issuers notify the Trustee in writing that the Depositary is no
longer willing or able to act as a depositary and the Issuers are unable to
locate a qualified successor within 90 days or (ii) the Issuers, at their
option, notify the Trustee in writing that they elect to cause the issuance of
New Notes in definitive form under the Indenture, then, upon surrender by the
Depositary of its Global Notes, Certificated Securities will be issued to each
person that the Depositary identifies as the beneficial owner of the New Notes
represented by the Global Note. In addition, any person having a beneficial
interest in a Global Note or any Holder of Old Notes whose Old Notes have been
accepted for exchange may, upon request to the Trustee or the Exchange Agent, as
the case may be, exchange such beneficial interest or Old Notes for Certificated
Securities. Upon any such issuance, the Trustee is required to register such
Certificated Securities in the name of such person or persons (or the nominee of
any thereof), and cause the same to be delivered thereto.
Neither the Issuers nor the Trustee shall be liable for any delay by the
Depositary or any Participant or Indirect Participant in identifying the
beneficial owners of the related New Notes and each such person may conclusively
rely on, and shall be protected in relying on, instructions from the Depositary
for all purposes (including with respect to the registration and delivery, and
the respective principal amounts, of the New Notes to be issued).
Certain Definitions
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person to the extent of the
fair market value of such asset where the Indebtedness so secured is not the
Indebtedness of such Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the voting securities of a Person shall
be deemed to be control. Notwithstanding the foregoing, Donaldson, Lufkin &
Jenrette Securities Corporation will not be deemed to be an Affiliate as of the
date of the Indenture.
"Asset Sale" means (i) the sale, lease, conveyance or other disposition of
any assets (excluding any sale and leaseback transaction, the granting of a
Permitted Lien, and the transfer of cash and Cash Equivalents) other than sales
of inventory, licensing of intellectual property or sales of services, in each
case in the ordinary course of business, but including a Receivables Transaction
(provided that the sale, lease, conveyance or other disposition of all or
substantially all of the assets of the Issuers and their Restricted Subsidiaries
taken as a whole will be governed by the provisions of the Indenture described
above under the caption "--Change of Control" and/or the provisions described
above under the caption "--Merger, Consolidation or Sale of Assets" and not by
the provisions of the Asset Sale covenant), and (ii) the issue or sale by the
Issuers or any of their respective Restricted Subsidiaries of Equity Interests
of any of the Issuers' Restricted Subsidiaries, in the case of either clause (i)
or (ii), whether
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in a single transaction or a series of related transactions (a) that have a fair
market value in excess of $10.0 million or (b) for Net Proceeds in excess of
$10.0 million. Notwithstanding the foregoing: (i) a transfer of assets by either
of the Issuers to a Restricted Subsidiary or by a Restricted Subsidiary to
either of the Issuers or to another Restricted Subsidiary, (ii) an issuance of
Equity Interests by a Restricted Subsidiary to either of the Issuers or to
another Restricted Subsidiary, (iii) Hedging Obligations and (iv) a Restricted
Payment that is permitted by the covenant described above under the caption
"--Restricted Payments" will not be deemed to be Asset Sales.
"Attributable Debt" in respect of a sale and leaseback transaction means,
at the time of determination, the present value (discounted at the rate of
interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale and leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended).
"Beneficial Owner" means "beneficial owner", as such terms is defined in
Rule l3d-3 and Rule l3d-5 under the Exchange Act; provided, however, that (i) a
person shall not be deemed to have beneficial ownership of securities subject to
a stock purchase agreement, merger agreement, or similar agreement until the
consummation of the transactions contemplated by such agreement, and (ii) for
purposes of determining beneficial ownership of Voting Stock of Foamex,
stockholders of Foamex International Inc. shall be deemed to beneficially own a
percentage of Voting Stock of Foamex equal to their percentage beneficial
ownership of Voting Stock of Foamex International Inc. multiplied by Foamex
International Inc.'s beneficial ownership of Voting Stock of Foamex.
"Board of Directors" means the Board of Directors of the Managing General
Partner, on behalf of Foamex (or Foamex, if Foamex is a corporation), FCC, or
any Subsidiary Guarantor or any authorized committee of the Board of Directors.
"Business Day" means any day except a Saturday, Sunday or other day in the
City of New York, or in the city of the corporate trust office of the Trustee,
on which banks are authorized to close.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited) and
(iv) any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of, the
issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States of America or
any agency or instrumentality thereof (provided that the full faith and credit
of the United States of America is pledged in support thereof), (iii) time
deposits and certificates of deposit, including eurodollar time deposits, of any
commercial bank organized in the United States having capital and surplus in
excess of $100,000,000 or a commercial bank organized under the laws of any
other country that is a member of the OECD having total assets in excess of
$100,000,000 with a maturity date not more than one year from the date of
acquisition, (iv) repurchase obligations with a term of not more than seven days
for underlying securities of the types described in clauses (i) and (ii) above
entered into with any bank meeting the qualifications specified in clause (iii)
above, (v) direct obligations issued by any state of the United States of
America or any political subdivision of any state or any public instrumentality
thereof maturing within 90 days after the date of acquisition thereof and, at
the time of acquisition, having one of the two highest ratings obtainable from
either Standard & Poor's Corporation or Moody's Investors Service, Inc. (or, if
at any time neither Standard & Poor's Corporation nor Moody's Investors Service,
Inc. shall be rating such obligations, then from such other nationally
recognized rating service acceptable to the Trustee), (vi) commercial paper
issued by the parent corporation of any commercial bank organized in the United
States having capital and surplus in excess of $100,000,000 or a commercial bank
organized under the laws of any other country that is a member of the OECD
having total assets in excess of $100,000,000, and commercial paper issued by
others having one of the two highest ratings obtainable from either Standard &
Poor's Corporation or Moody's Investors Service, Inc. (or, if at any time
neither Standard & Poor's Corporation nor Moody's Investors Service, Inc. shall
be rating such obligations, then from such other nationally recognized rating
services acceptable to the Trustee) and in each case maturing within one year
after the date of
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acquisition, (vii) overnight bank deposits and bankers' acceptances at any
commercial bank organized in the United States having capital and surplus in
excess of $100,000,000 or a commercial bank organized under the laws of any
other country that is member of the OECD having total assets in excess of
$100,000,000, (viii) deposits available for withdrawal on demand with commercial
banks organized in the United States having capital and surplus in excess of
$50,000,000 or a commercial bank organized under the laws of any other country
that is a member of the OECD having total assets in excess of $50,000,000 and
(ix) investments in money market funds substantially all of whose assets
comprise securities of the types described in clauses (i) through (viii).
"Change of Control" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of either of the Issuers and their respective
Restricted Subsidiaries taken as a whole to any "person" (as such term is used
in Section 13(d)(3) of the Exchange Act) other than the Principals or their
Related Parties (as defined below), (ii) the adoption of a plan relating to the
liquidation or dissolution of the Issuers, (iii) the consummation of any
transaction (including, without limitation, any merger or consolidation) the
result of which is that any "person" (as defined above), other than the
Principals and their Related Parties, becomes the Beneficial Owner of (A) more
than 25% of the Voting Stock of either of the Issuers (measured by voting power
rather than by number of shares) and (B) a greater percentage of the Voting
Stock than the Principals and their Related Parties or (iv) the first day on
which a majority of the members of the Board of Directors of either of the
Issuers are not Continuing Directors.
"Closing Date Transactions" means the following transactions entered into
by Foamex in connection with the issuance of the 9-7/8% Notes: (i) the
distribution to Foamex-JPS Automotive L.P. ("FJPS") and FMXI, Inc. of: (a) all
of the FJPS and Foamex-JPS Capital Corporation Senior Secured Discount
Debentures due 2004 purchased by Foamex on or prior to the date of the
Indenture; (b) the promissory note of FJPS payable to Foamex, dated June 28,
1994 and (c) the promissory note of Foamex International Inc. payable to Foamex,
dated December 8, 1995; (ii) a cash distribution to Trace Foam Company, Inc. in
an amount equal to one-ninety ninth (1/99) of the distribution in (i) above;
(iii) the amendment of the promissory note of Trace International Holdings, Inc.
payable to Foamex, dated July 7, 1996, which extends the maturity of such
obligation to 2001; and (iv) the Tender Offer and the incurrence of borrowings
under the Credit Facility in connection with the Refinancing Plan.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus (i) an amount
equal to any extraordinary loss plus any net loss realized in connection with an
Asset Sale or discontinued operations (to the extent such losses were deducted
in computing such Consolidated Net Income), plus (ii) provision for taxes based
on income or profits of such Person and its Subsidiaries for such period
(including, to the extent applicable, payments made pursuant to any tax sharing
agreements), to the extent that such provision for taxes was included in
computing such Consolidated Net Income, plus (iii) consolidated interest expense
of such Person and its Subsidiaries for such period, whether paid or accrued and
whether or not capitalized (including, without limitation, amortization of debt
issuance costs and original issue discount, non-cash interest payments, the
interest component of any deferred payment obligations, the interest component
of all payments associated with Capital Lease Obligations, imputed interest with
respect to Attributable Debt, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance financings
(whether or not accounted for by the Issuers and their respective Subsidiaries
as interest expense), and net payments (if any) pursuant to Hedging
Obligations), to the extent that any such expense was deducted in computing such
Consolidated Net Income, plus (iv) depreciation, amortization (including
amortization of goodwill and other intangibles) and other non-cash expenses of
such Person and its Subsidiaries for such period to the extent that such
depreciation, amortization and other non-cash expenses were deducted in
computing such Consolidated Net Income, minus (v) non-cash items increasing such
Consolidated Net Income for such period, in each case, on a consolidated basis
and determined in accordance with GAAP.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP
(excluding, however, the effect of the Closing Date Transactions and of any
other extraordinary transaction in connection with the incurrence of the 9-7/8%
Notes, and the consummation of the recapitalization of the Issuers in connection
therewith); provided that (i) the Net Income of any Person that is not a
Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends or
distributions with respect to current or prior years Net Income (if not
previously distributed or
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dividended) paid in cash to the referent Person or a Restricted Subsidiary
thereof; (ii) the Net Income of any Restricted Subsidiary that is not a
Subsidiary Guarantor shall be excluded to the extent that the declaration or
payment of dividends or similar distributions by that Restricted Subsidiary of
that Net Income is not at the date of determination permitted without any prior
governmental approval (that has not been obtained) or, directly or indirectly,
by operation of the terms of its charter or any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulation applicable to that
Restricted Subsidiary or its stockholders; (iii) the Net Income of any Person
acquired in a pooling of interests transaction for any period prior to the date
of such acquisition shall be excluded; (iv) the cumulative effect of a change in
accounting principles shall be excluded; and (v) the Net Income (but not loss)
of any Unrestricted Subsidiary shall be excluded, whether or not distributed to
the Issuers or one of their respective Subsidiaries except as set forth in (i).
"Consolidated Net Worth" means, (A) with respect to any partnership, the
common and preferred partnership equity of such partnership and its consolidated
subsidiaries, as determined on a consolidated basis in accordance with GAAP, and
(B) with respect to any other Person as of any date, the sum of (i) the
consolidated equity of the common equityholders of such Person and its
consolidated Subsidiaries as of such date plus (ii) the respective amounts
reported on such Person's balance sheet as of such date with respect to any
series of preferred equity (other than Disqualified Stock) that by its terms is
not entitled to the payment of dividends unless such dividends may be declared
and paid only out of net earnings in respect of the year of such declaration and
payment, but only to the extent of any cash received by such Person upon
issuance of such preferred stock, less (x) all write-ups (other than write-ups
resulting from foreign currency translations and write-ups of tangible assets of
a going concern business made within 12 months after the acquisition of such
business) subsequent to the date of the Indenture in the book value of any asset
owned by such Person or a consolidated Subsidiary of such Person, (y) all
investments as of such date in unconsolidated Subsidiaries and in Persons that
are not Subsidiaries (except, in each case, Permitted Investments), plus (z) all
unamortized debt discount and expense and unamortized deferred charges as of
such date, all of the foregoing determined in accordance with GAAP.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of the Issuers who (i) was a member of such Board of
Directors on the date of the Indenture or (ii) was nominated for election or
elected to such Board of Directors with the approval of a majority of the
Continuing Directors who were members of such Board at the time of such
nomination or election.
"Contributions" means any loans, cash advances, capital contributions,
investments or other transfers of assets for less than fair value by the Issuers
or any of their respective Restricted Subsidiaries to any Subsidiary or other
Affiliate of the Issuers or any of their respective Restricted Subsidiaries
other than a Subsidiary Guarantor, other than loans and cash advances to
officers and directors made in the ordinary course of business not to exceed
$5.0 million.
"Crain Acquisition Transactions" means the contribution by Crain
Industries, Inc. and/or any of its subsidiaries of substantially all of their
assets, subject to substantially all of their liabilities to Foamex L.P. in
exchange for a limited partnership interest, the assumption by Foamex L.P. of
all such liabilities, and the refinancing of certain indebtedness assumed
through borrowings under the Credit Facility.
"Credit Agent" means any of The Bank of Nova Scotia or Citicorp USA, Inc.,
in their respective capacity as Administrative Agents for the lenders party to
the Credit Facility, or any successor thereto or any person otherwise appointed.
"Credit Facility" means that certain Credit Facility, dated as of June 12,
1997, by and among the Issuers and The Bank of Nova Scotia and Citicorp USA,
Inc., as Credit Agents, providing for up to $620.0 million of borrowings,
including any related notes, guarantees, collateral documents, instruments and
agreements executed in connection therewith, and in each case as amended,
modified, renewed, refunded, replaced or refinanced from time to time, and after
the Credit Agent has acknowledged in writing that the Credit Facility has been
terminated and all then outstanding Indebtedness and obligations thereunder with
respect thereto have been repaid in full in cash and discharged, any successors
to or replacements of such Credit Facility (as designated by the Board of
Directors as evidenced by a resolution), as such successors or replacements may
be amended, modified, renewed, refunded, replaced or refinanced from time to
time.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
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"Designated Senior Debt" means (i) any Indebtedness outstanding under the
Credit Facility and (ii) any other Senior Debt the principal amount of which is
$25.0 million or more and that has been designated by the Issuers as Designated
Senior Debt.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the holder thereof, in whole or in part, on or prior to the date
that is 91 days after the date on which the Notes mature.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Existing Indebtedness" means (i) up to $14.1 million in aggregate
principal amount of Indebtedness of the Issuers and their respective Restricted
Subsidiaries (other than Indebtedness under the Credit Facility plus
Indebtedness subject to the Closing Date Transactions that is not purchased
pursuant to such Closing Date Transactions) in existence on the date of the
Indenture, including the Great Western Note and (ii) the 9-7/8% Notes, in each
case until all such amounts are repaid.
"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of (i) the consolidated interest expense of such Person and
its Restricted Subsidiaries for such period, whether paid or accrued (including,
without limitation, original issue discount, non-cash interest payments, the
interest component of any deferred payment obligations, the interest component
of all payments associated with Capital Lease Obligations, imputed interest with
respect to Attributable Debt, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance financings, and
net payments (if any) pursuant to Hedging Obligations, but excluding the
amortization of deferred financing costs) and (ii) the consolidated interest
expense of such Person and its Restricted Subsidiaries that was capitalized
during such period to the extent related to Indebtedness, and (iii) any interest
expense on Indebtedness of another Person (other than such Person's Restricted
Subsidiaries) that is Guaranteed by such Person or one of its Restricted
Subsidiaries or secured by a Lien on assets of such Person or one of its
Restricted Subsidiaries (whether or not such Guarantee or Lien is called upon),
but only to the extent of the interest expense attributable to the lesser of (a)
the principal amount of such Indebtedness, or (b) the fair market value of such
asset and (iv) the product of (a) all dividend payments, whether or not in cash,
on any series of preferred stock of such Person or any of its Restricted
Subsidiaries, other than dividend payments to such Person or its Restricted
Subsidiaries and dividends on Equity Interests payable solely in Equity
Interests of the Issuers, times (b) a fraction, the numerator of which is one
and the denominator of which is one minus the then current combined federal,
state and local statutory tax rate of such Person and its Restricted
Subsidiaries, expressed as a decimal, in each case, on a consolidated basis and
in accordance with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person for such period
to the Fixed Charges of such Person for such period. In the event that the
Issuers or any of their respective Restricted Subsidiaries incurs, assumes,
Guarantees or redeems, repurchases or otherwise retires any Indebtedness (other
than revolving credit borrowings) or issues preferred stock subsequent to the
commencement of the period for which the Fixed Charge Coverage Ratio is being
calculated but prior to the date on which the event for which the calculation of
the Fixed Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed
Charge Coverage Ratio shall be calculated giving pro forma effect to such
incurrence, assumption, Guarantee or redemption, repurchase or retirement of
Indebtedness, or such issuance or redemption of preferred stock, as if the same
had occurred at the beginning of the applicable four-quarter reference period.
In addition, for purposes of making the computation referred to above, (i)
acquisitions that have been made by the Issuers or any of their respective
Restricted Subsidiaries, including through mergers or consolidations and
including any related financing transactions, during the four-quarter reference
period or subsequent to such reference period and on or prior to the Calculation
Date shall be deemed to have occurred on the first day of the four-quarter
reference period and Consolidated Cash Flow for such reference period shall be
calculated without giving effect to clause (iii) of the proviso set forth in the
definition of Consolidated Net Income, and (ii) the Consolidated Cash Flow
attributable to discontinued operations, as determined in accordance with GAAP,
and operations or businesses disposed of prior to the Calculation Date, shall be
excluded, and (iii) the Fixed Charges attributable to discontinued operations,
as determined in accordance with GAAP, and operations or businesses disposed of
prior to the Calculation Date, shall be excluded, but only to the extent that
the obligations giving rise to such Fixed Charges will not be obligations of the
referent Person or any of its Restricted Subsidiaries following the Calculation
Date.
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"Foamex Latin America" means Foamex Latin America, Inc. and its direct and
indirect Subsidiaries.
"Foreign Subsidiary" means any Subsidiary of the Issuers either (a) which
is organized outside of the United States of America, (b) whose principal
activities are conducted outside of the United States of America or (c) whose
only material assets are Equity Interests in Subsidiaries which are Foreign
Subsidiaries.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on June 12, 1997.
"Great Western Note" means the subordinated promissory note incurred in
connection with the acquisition of Great Western in the principal amount of
$7,014,864 that bears interest at a maximum rate of 6.0% per annum payable
semi-annually.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) interest rate or currency swap agreements, interest rate
or currency cap agreements, interest rate or currency collar agreements and (ii)
other agreements or arrangements designed to protect such Person against or
expose such Person to fluctuations in interest rates and/or currency exchange
rates.
"Indebtedness" means, with respect to any Person, without duplication, any
indebtedness of such Person, whether or not contingent, in respect of borrowed
money or evidenced by bonds, notes, debentures or similar instruments or letters
of credit (or reimbursement agreements in respect thereof) or banker's
acceptances or representing Capital Lease Obligations or the balance deferred
and unpaid of the purchase price of any property, except any such balance that
constitutes an accrued expense or trade payable, if and to the extent any of the
foregoing indebtedness (other than letters of credit) would appear as a
liability upon a balance sheet of such Person prepared in accordance with GAAP,
as well as all Indebtedness of others secured by a Lien on any asset of such
Person (whether or not such Indebtedness is assumed by such Person) to the
extent of the fair market value of such asset where the Indebtedness so secured
is not the Indebtedness of such Person and, to the extent not otherwise
included, the Guarantee by such Person of any Indebtedness of any other Person.
The amount of any Indebtedness outstanding as of any date shall be (i) the
accreted value thereof, to the extent such Indebtedness does not require current
payments of interest, and (ii) the principal amount thereof, together with any
interest thereon that is more than 30 days past due, in the case of any other
Indebtedness. Notwithstanding anything in the Indenture to the contrary, Hedging
Obligations shall not constitute Indebtedness, except to the extent they appear
on the balance sheet of Foamex.
"Insolvency or Liquidation Proceedings" means (i) any insolvency or
bankruptcy case or proceeding, or any receivership, liquidation, reorganization
or other similar case or proceeding, relative to Foamex or FCC or to the
creditors of Foamex or FCC, as such, or to the assets of Foamex or FCC, or (ii)
any liquidation, dissolution, reorganization or winding up of Foamex or FCC,
whether voluntary or involuntary and involving insolvency or bankruptcy, or
(iii) any assignment for the benefit of creditors or any other marshaling of
assets and liabilities of Foamex or FCC.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including Guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding advances to officers and employees
made in the ordinary course of business), purchases or other acquisitions for
consideration of Indebtedness, Equity Interests or other securities, together
with all items that are or would be classified as investments on a balance sheet
prepared in accordance with GAAP. If the Issuers or any Restricted Subsidiary of
the Issuers sells or otherwise disposes of any Equity Interests of any direct or
indirect Restricted Subsidiary of the Issuers such that, after giving effect to
any such sale or disposition, such Person is no longer a Restricted Subsidiary
of one of the Issuers, the Issuers shall be deemed to have made an Investment on
the date of any such sale or disposition equal to the fair market value of the
Equity Interests of such Subsidiary not sold or disposed of in an amount
determined as provided in the final paragraph of the covenant described above
under the caption "--Restricted Payments." A provision in an agreement relating
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to the purchase or sale of any of the Issuers' or their respective Restricted
Subsidiaries' assets containing an "earn out" or providing for an adjustment to
the purchase or sale price based on a financial statement relating to the assets
purchased or sold shall not be deemed to be an "Investment."
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"Management Services Agreement" means that management services agreement,
by and between Foamex and Trace Foam Company, Inc. as in effect on the date of
the Indenture.
"Managing General Partner" means FMXI, Inc., a Delaware corporation and
its successors.
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (or loss
in the case of (a)), together with any related provision for taxes (including
pursuant to the Tax Sharing Agreement) on such gain (or loss in the case of
(a)), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions and losses)
or (b) the disposition of any securities other than Cash Equivalents by such
Person or any of its Restricted Subsidiaries or the extinguishment of any
Indebtedness of such Person or any of its Restricted Subsidiaries and (ii) any
extraordinary or nonrecurring gain (or loss), together with any related
provision for taxes on such extraordinary or nonrecurring gain (or loss),
excluding charges related to hyper-inflationary accounting pursuant to FASB 52
and interpretations by the Commission thereof.
"Net Proceeds" means the aggregate cash proceeds received by the Issuers or
any of their respective Restricted Subsidiaries in respect of any Asset Sale
(including, without limitation, any cash received upon the sale or other
disposition of any non-cash consideration received in any Asset Sale), net of
the direct costs relating to such Asset Sale (including, without limitation,
legal, accounting and investment banking fees, consent fees to facilitate such
Asset Sale and sales commissions) and any relocation expenses incurred as a
result thereof, taxes paid or payable as a result thereof (after taking into
account any available tax credits or deductions and any tax sharing
arrangements), and any reserve for adjustment in respect of the sale price of
such asset or assets established in accordance with GAAP.
"9-7/8% Note Indenture" means the Indenture, dated as of June 12, 1997,
among Foamex L.P., Foamex Capital Corporation, General Felt Industries, Inc.,
Foamex Fibers, Inc. and The Bank of New York, as trustee, relating to the 9-7/8%
Notes.
"9-7/8% Note" means the $150,000,000 principal amount of the Issuers'
9-7/8% Senior Subordinated Notes due 2007.
"Non-Recourse Debt" means Indebtedness (i) as to which neither of the
Issuers nor any of their respective Restricted Subsidiaries (a) provides credit
support of any kind (including any undertaking, agreement or instrument that
would constitute Indebtedness), (b) is directly or indirectly liable (as a
guarantor or otherwise), or (c) constitutes the lender; (ii) no default with
respect to which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness of either of
the Issuers or any of their respective Restricted Subsidiaries to declare a
default on such other Indebtedness or cause the payment thereof to be
accelerated or payable prior to its stated maturity; and (iii) as to which the
lenders, except for lenders under instruments governing Acquired Debt (a) have
acknowledged that they do not have recourse to the holder of the Equity Interest
of the debtor or (b) have been notified in writing that they will not have any
recourse to the stock or assets of either of the Issuers or any of their
respective Restricted Subsidiaries.
"Obligations" means any principal, interest, penalties, expenses, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Pari Passu Debt" means any Indebtedness of the Issuers or any of their
Restricted Subsidiaries which, by its terms is pari passu in right of payment to
the Notes.
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"Payment in Full" (together with any correlative phrases, e.g., "paid in
full" and "pay in full") means (i) with respect to any Senior Debt other than
Senior Debt under or in respect of the Credit Facility, payment in full thereof
or due provision for payment thereof (x) in accordance with the terms of the
agreement or instrument pursuant to which such Senior Debt was issued or is
governed or (y) otherwise to the reasonable satisfaction of the holders of such
Senior Debt, which shall include, in any Insolvency or Liquidation Proceeding,
approval by such holders individually or as a class, of the provision for
payment thereof, and (ii) with respect to Senior Debt under or in respect of the
Credit Facility, payment in full thereof in cash or Cash Equivalents.
"Permitted Business" means (i) the manufacture and distribution of
polyurethane and advanced polymer foam and activities related thereto, and (ii)
other businesses engaged in by the Issuers and their respective Restricted
Subsidiaries on the date of the Indenture and similar lines of businesses to
those engaged in by the Issuers on the date of the Indenture, including, but not
limited to, the manufacture and distribution of plastics and related products.
"Permitted Investments" means (a) any Investment in either of the Issuers
or in a Wholly Owned Restricted Subsidiary of either of the Issuers and that is
engaged in a Permitted Business; (b) any Investment in Cash Equivalents; (c) any
Investment by either of the Issuers or any Restricted Subsidiary of either of
the Issuers in a Person, if as a result of such Investment (i) such Person
becomes a Wholly Owned Restricted Subsidiary of the Issuers or such Restricted
Subsidiary is engaged in a Permitted Business or (ii) such Person is merged,
consolidated or amalgamated with or into, or transfers or conveys substantially
all of its assets to, or is liquidated into, either of the Issuers or a
Restricted Subsidiary of either of the Issuers that is engaged in a Permitted
Business; (d) any Investment made as a result of the receipt of non-cash
consideration from an Asset Sale that was made in compliance with the covenant
described above under the caption "--Repurchase at the Option of Holders--Asset
Sales"; (e) any Investment to the extent made in exchange for the issuance of
Equity Interests (other than Disqualified Stock) of the Issuers or a Subsidiary
Guarantor; (f) other Investments in any Person having an aggregate fair market
value (measured on the date each such Investment was made and without giving
effect to subsequent changes in value), when taken together with all other
Investments made pursuant to this clause (f) that are at the time outstanding,
not to exceed the sum of (A) $15.0 million, and (B) the aggregate net cash
proceeds (or non-cash proceeds when converted into cash) received by Foamex and
its Restricted Subsidiaries from the sale or disposition of investments existing
as of June 12, 1997 or made pursuant to this clause (f); (g) securities received
in connection with any good faith settlement or Insolvency or Liquidation
Proceeding; (h) Hedging Obligations entered into in the ordinary course of
business in connection with the operation of the business of the Issuers and
their Restricted Subsidiaries or as required by any Indebtedness issued in
compliance with the Indenture; (i) prepaid expenses and loans or advances to
employees and similar items in the ordinary course of business; (j) endorsements
of negotiable instruments and other similar negotiable documents; (k)
transactions with Affiliates as permitted under the Indenture; (l) Investments
outstanding as of the date of the Indenture, (m) Investments of up to $5.0
million in Trace Global Opportunities Fund, (n) loans or advances of up to $5.0
million in Trace Holdings, and (o) Investments in, including Contributions to,
Foamex Latin America, Foamex Asia or one or more Foreign Subsidiaries, provided
that the maximum amount of such Investments outstanding at any one time does not
exceed $50.0 million, plus the cash dividends and distributions received by the
Issuer and its Restricted Subsidiaries with respect to Investments pursuant to
this clause (o).
"Permitted Liens" means (i) Liens securing Indebtedness under the Credit
Facility; (ii) Liens in favor of either of the Issuers or any Subsidiary
Guarantor; (iii) Liens on property of a Person existing at the time such Person
is merged into or consolidated with the Issuers or any Subsidiary of either of
the Issuers; provided that such Liens were in existence prior to the
contemplation of such merger or consolidation and do not extend to any assets
other than those of the Person merged into or consolidated with either of the
Issuers; (iv) Liens on property existing at the time of acquisition thereof by
the Issuers or any Subsidiary of the Issuers, provided that such Liens were in
existence prior to the contemplation of such acquisition; (v) Liens to secure
the performance of statutory obligations, surety or appeal bonds, performance
bonds or other obligations of a like nature incurred in the ordinary course of
business; (vi) Liens to secure Indebtedness (including Capital Lease
Obligations) permitted by clause (v) of the second paragraph of the covenant
entitled "Incurrence of Indebtedness and Issuance of Preferred Stock" covering
only the assets acquired with such Indebtedness; (vii) Liens existing on the
date of the Indenture; (viii) Liens for taxes, assessments or governmental
charges or claims that are not yet delinquent or that are being contested in
good faith by appropriate proceedings promptly instituted and diligently
concluded, provided that any reserve or other appropriate provision as shall be
required in conformity with GAAP shall have been made therefor, (ix) Liens on
assets of Unrestricted Subsidiaries that secure Non-Recourse Debt of
Unrestricted Subsidiaries; (x) Liens incurred
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in the ordinary course of business including, without limitation, judgment and
attachment liens, of the Issuers or any Subsidiary of the Issuers with respect
to obligations that do not exceed $25.0 million at any one time outstanding and
that are not incurred in connection with the borrowing of money or the obtaining
of advances or credit (other than trade credit in the ordinary course of
business); (xi) Liens in favor of the Trustee; (xii) Liens on Receivables in
connection with Receivables Transaction; (xiii) Liens incurred in connection
with Permitted Refinancing Indebtedness, but only if such Liens extend to no
more assets than the Liens securing the Indebtedness being refinanced; (xiv)
Liens securing Senior Debt; (xv) Liens for taxes, assessments, governmental
charges or claims which are being contested in good faith by appropriate
proceedings promptly instituted and diligently conducted and if a reserve or
other appropriate provision, if any, as shall be required in conformity with
GAAP shall have been made therefor; (xvi) statutory Liens of landlords and
carriers', warehousemen's, mechanics', suppliers', materialmen's, repairmen's,
or other like Liens (including contractual landlords liens) arising in the
ordinary course of business and with respect to amounts not yet delinquent or
being contested in good faith by appropriate proceedings, if a reserve or other
appropriate provision, if any, as shall be required in conformity with GAAP
shall have been made therefor; (xvii) Liens incurred or deposits made in the
ordinary course of business in connection with workers' compensation,
unemployment insurance and other types of social security; (xviii) Liens
incurred or deposits made to secure the performance of tenders, bids, leases,
statutory obligations, surety and appeal bonds, government contracts,
performance and return-of-money bonds and other obligations of a like nature
incurred in the ordinary course of business (exclusive of obligations for the
payment of borrowed money); (xix) Liens to secure Indebtedness of any Restricted
Subsidiary, that is a Foreign Subsidiary provided that such Indebtedness is used
by such Restricted Subsidiary to finance operations of such Foreign Subsidiary
outside the United States and Canada; (xx) easements, rights-of-way,
restrictions, minor defects or irregularities in title and other similar charges
or encumbrances not interfering in any material respect with the business of
Foamex or any of its Subsidiaries; and (xxi) Liens arising from filing Uniform
Commercial Code financing statements regarding leases (other than true leases
and true consignments).
"Permitted Refinancing Indebtedness" means any Indebtedness of the Issuers
or any of their respective Restricted Subsidiaries issued in exchange for, or
the net proceeds of which are used to extend, refinance, renew, replace, defease
or refund other Indebtedness of the Issuers or any of their respective
Restricted Subsidiaries; provided that: (i) the principal amount (or accreted
value, if applicable) of such Permitted Refinancing Indebtedness does not exceed
the principal amount of (or accreted value, if applicable), plus prepayment
premium and accrued interest on, the Indebtedness so extended, refinanced,
renewed, replaced, defeased or refunded (plus the amount of reasonable expenses
incurred in connection therewith); (ii) such Permitted Refinancing Indebtedness
has a final maturity date later than the final maturity date of, and has a
Weighted Average Life to Maturity equal to or greater than the Weighted Average
Life to Maturity of, the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; (iii) if the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded is subordinated in right of
payment to the Notes, such Permitted Refinancing Indebtedness has a final
maturity date later than the final maturity date of, and is subordinated in
right of payment to, the Notes on terms at least as favorable to the holders of
Notes as those contained in the documentation governing the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded; and (iv) such
Indebtedness is incurred either by one of the Issuers or by the Restricted
Subsidiary which is the obligor on the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, government
or any agency or political subdivision thereof or any other entity.
"Post-Petition Interest" means all interest and expenses accrued or
accruing after the commencement of any Insolvency or Liquidation Proceeding in
accordance with and at the contract rate (including, without limitation, any
rate applicable upon default) specified in the agreement or instrument creating,
evidencing or governing any Senior Debt, whether or not, pursuant to applicable
law or otherwise, the claim for such interest is allowed as a claim in such
Insolvency or Liquidation Proceeding.
"Principals" means Trace International Holdings, Inc. and Marshall S.
Cogan.
"Public Equity Offering" means a public offering of Equity Interests (other
than Disqualified Stock) of (i) Foamex or FCC; or (ii) Foamex International Inc.
to the extent the net proceeds thereof are contributed to one of the Issuers as
a capital contribution, that, in each case, results in the net proceeds to
either of the Issuers of at least $25.0 million.
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"Receivables" means, with respect to any Person or entity, all of the
following property and interests in property of such Person or entity, whether
now existing or existing in the future or hereafter acquired or arising: (i)
accounts, (ii) accounts receivable incurred in the ordinary course of business,
including without limitation, all rights to payment created by or arising from
sales of goods, leases of goods or the rendition of services no matter how
evidenced, whether or not earned by performance, (iii) all rights to any goods
or merchandise represented by any of the foregoing after creation of the
foregoing, including, without limitation, returned or repossessed goods, (iv)
all reserves and credit balances with respect to any such accounts receivable or
account debtors, (v) all letters of credit, security, or guarantees for any of
the foregoing, (vi) all insurance policies or reports relating to any of the
foregoing, (vii) all collection or deposit accounts relating to any of the
foregoing, (viii) all proceeds of the foregoing and (ix) all books and records
relating to any of the foregoing.
"Receivables Subsidiary" means an Unrestricted Subsidiary exclusively
engaged in Receivables Transactions and activities related thereto; provided,
however, that at no time shall the Issuers and their respective Subsidiaries
have more than one Receivables Subsidiary.
"Receivables Transaction" means (i) the sale or other disposition to a
third party of Receivables or an interest therein, or (ii) the sale or other
disposition of Receivables or an interest therein to a Receivables Subsidiary
followed by a financing transaction in connection with such sale or disposition
of such Receivables (whether such financing transaction is effected by such
Receivables Subsidiary or by a third party to whom such Receivables Subsidiary
sells such Receivables or interests therein); provided that in each of the
foregoing, the Issuers or their Restricted Subsidiaries receive at least 80% of
the aggregate principal amount of any Receivables financed in such transaction.
"Related Party" with respect to any Principal means (A) any controlling
stockholder, 80% (or more) owned Subsidiary, or spouse or immediate family
member (in the case of an individual) of such Principal or (B) any trust,
corporation, partnership or other entity, the beneficiaries, stockholders,
partners, owners or Persons beneficially holding an 80% or more controlling
interest of which consist of such Principal and/or such other Persons referred
to in the immediately preceding clause (A) and this clause (B).
"Reorganization Securities" means securities distributed to the holders of
the Notes in an Insolvency or Liquidation Proceeding pursuant to a plan of
reorganization consented to by each class of the Senior Debt, but only if all of
the terms and conditions of such securities (including, without limitation,
term, tenor, interest, amortization, subordination, standstills, covenants and
defaults) are at least as favorable (and provide the same relative benefits) to
the holders of Senior Debt and to the holders of any security distributed in
such Insolvency or Liquidation Proceeding on account of any such Senior Debt as
the terms and conditions of the Notes and the Indenture are, and provide to the
holders of Senior Debt.
"Representative" means the trustee, agent or representative for any Senior
Debt.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"Senior Debt" means all Indebtedness and other Obligations specified below
payable directly or indirectly by either of the Issuers or any of their
respective Restricted Subsidiaries, whether outstanding on the date of the
Indenture or thereafter created, incurred or assumed by either of the Issuers or
any of their respective Restricted Subsidiaries: (i) the principal of, interest
on and all other Obligations related to the Credit Facility (including without
limitation all loans, letters of credit and other extensions of credit under the
Credit Facility, and all expenses, fees, reimbursements, indemnities and other
amounts owing pursuant to the Credit Facility); (ii) amounts payable in respect
of any Hedging Obligations; (iii) all Indebtedness not prohibited by the
"Incurrence of Indebtedness and Issuance of Preferred Stock" covenant that is
not expressly pari passu with or subordinated to the Notes, and (iv) all
permitted renewals, extensions, refundings or refinancings thereof. All
Post-Petition Interest on Senior Debt shall constitute Senior Debt.
Notwithstanding anything to the contrary in the foregoing, Senior Debt will not
include (i) Indebtedness of either of the Issuers or any of their respective
Restricted Subsidiaries to any other Restricted Subsidiaries which is not a
Subsidiary Guarantor, (ii) Indebtedness of FCC to Foamex, (iii) any Indebtedness
which by the express terms of the agreement or instrument creating, evidencing
or governing the same is junior or subordinate in right of payment to any item
of Senior Debt, (iv) any trade payable arising from the purchase of goods or
materials or for services obtained in the ordinary course of business, or (v)
Indebtedness incurred in
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violation of the Indenture. To the extent any payment of Senior Debt (whether by
or on behalf of the Issuers or any of their respective Restricted Subsidiaries,
as proceeds or security or enforcement of any right of setoff or otherwise) is
declared to be fraudulent or preferential, set aside, or required to be paid to
a trustee, receiver or other similar party under any bankruptcy, insolvency,
receivership or similar law, then if such payment is recovered by or paid over
to such trustee, receiver or other similar party, the Senior Debt or part
thereof originally intended to be satisfied shall be deemed to be reinstated and
outstanding as if such payment had not occurred. All Senior Debt shall be and
remain Senior Debt for all purposes of the Indenture, whether or not
subordinated in a bankruptcy, receivership, insolvency or similar proceeding.
"Stated Maturity" means, with respect to any installment of interest,
accreted value or principal on any series of Indebtedness, the date on which
such payment of interest or principal is due or is scheduled to be paid in the
original documentation governing such Indebtedness, and shall not include any
contingent obligations to repay, redeem or repurchase any such interest,
accreted value or principal prior to the date originally scheduled for the
payment or accretion thereof.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof).
"Subsidiary Guarantors" means General Felt Industries, Inc., Foamex Fibers,
Inc., Foamex LLC and those Restricted Subsidiaries required to execute a Note
Guarantee pursuant to the provisions of the Indenture described under the
caption "Additional Guarantees" and any other Subsidiary that executes a Note
Guarantee.
"Tax Sharing Agreement" means the tax sharing agreement, among Foamex,
Trace Foam Company, Inc., FMXI, Inc. and Foamex International Inc. as in effect
on the date of the Indenture.
"Trace Note" means the promissory note of Trace International Holdings,
Inc. dated July 7, 1996 payable to Foamex, as amended and restated as part of
the Closing Date Transactions.
"United States Government Obligations" means direct obligations of the
United States of America, or any agency or instrumentality thereof the payment
of which the full faith and credit of the United States of America is pledged.
"Unrestricted Subsidiary" means (i) any Subsidiary that is designated by
the Board of Directors of either Issuer as an Unrestricted Subsidiary pursuant
to a Board Resolution; but only to the extent that such Subsidiary: (a) has no
Indebtedness other than Non-Recourse Debt; (b) on the date of such designation
is not party to any agreement, contract, arrangement or understanding with
either of the Issuers or any Restricted Subsidiary of either of the Issuers
unless the terms of any such agreement, contract, arrangement or understanding
are no less favorable to such Issuer or such Restricted Subsidiary than those
that might be obtained at the time from Persons who are not Affiliates of such
Issuer; (c) is a Person with respect to which neither of the Issuers nor any of
their respective Restricted Subsidiaries has any direct or indirect obligation
(x) to subscribe for additional Equity Interests or (y) to maintain or preserve
such Person's financial condition or to cause such Person to achieve any
specified levels of operating results; (d) has not guaranteed or otherwise
directly or indirectly provided credit support for any Indebtedness of either of
the Issuers or any of their respective Restricted Subsidiaries; and (e) has at
least one director on its board of directors that is not a director or executive
officer of either of the Issuers or any of their respective Restricted
Subsidiaries and has at least one executive officer that is not a director or
executive officer of either of the Issuers or any of their respective Restricted
Subsidiaries. Any such designation by the Board of Directors of either Issuer
shall be evidenced to the Trustee by filing with the Trustee a certified copy of
the Board Resolution giving effect to such designation and an Officers'
Certificate certifying that such designation complied with the foregoing
conditions and was permitted by the covenant described above under the caption
"Certain Covenants--Restricted Payments." If, at any time, any Unrestricted
Subsidiary would fail to meet the foregoing requirements as an Unrestricted
Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for
purposes of the Indenture and any Indebtedness of such Subsidiary shall be
deemed to be incurred by a Restricted Subsidiary of such Issuer as of such date
(and, if such Indebtedness is not permitted to be incurred as of such date under
the covenant described
104
<PAGE>
under the caption "--Incurrence of Indebtedness and Issuance of Preferred
Stock," the Issuers shall be in default of such covenant). The Board of
Directors of either of the Issuers may at any time designate any Unrestricted
Subsidiary to be a Restricted Subsidiary; provided that such designation shall
be deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of such
Issuer of any outstanding Indebtedness of such Unrestricted Subsidiary and such
designation shall only be permitted if (i) such Indebtedness is permitted under
the covenant described under the caption "Certain Covenants--Incurrence of
Indebtedness and Issuance of Preferred Stock," calculated on a pro forma basis
as if such designation had occurred at the beginning of the four-quarter
reference period, and (ii) no Default or Event of Default would be in existence
following such designation.
"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person.
105
<PAGE>
DESCRIPTION OF THE PARTNERSHIP AGREEMENT
Set forth below is a summary of certain material terms of the Fourth
Amended and Restated Agreement of Limited Partnership of Foamex dated as of
December 14, 1993 and amended as of June 28, 1994, June 12, 1997 and December
23, 1997 (the "Partnership Agreement"). A copy of such agreement has been filed
as an exhibit to the Registration Statement of which this Prospectus is a part.
Organization and Duration
Foamex is a Delaware limited partnership. FMXI, a wholly owned subsidiary
of Foamex International, serves as the managing general partner of Foamex and
has a 1.0% interest therein, and Crain, another wholly owned subsidiary of
Foamex International, is a non-managing general partner of Foamex and has a 1.0%
interest therein. Trace Foam is a non-managing general partner of Foamex and has
a 1.0% interest therein. Foamex International is a limited partner of Foamex and
has a 97.0% interest therein. Foamex will continue its existence until December
14, 2033, unless terminated earlier in accordance with the terms of the
Partnership Agreement. See "--Dissolution" below.
Management
The business and affairs of Foamex are managed by FMXI as the managing
general partner. The Partnership Agreement authorizes FMXI to designate officers
of Foamex who are responsible for implementing the decisions of FMXI and for
conducting the ordinary and usual business and affairs of Foamex. See
"Management--Directors and Executive Officers of the Issuers and Subsidiary
Guarantors."
Assignment of Partnership Interests
No partner of Foamex may sell or otherwise encumber or dispose of, whether
voluntarily or by operation of law, any part or all of its interest in Foamex
without the written consent of the other partners and any attempt to do so will
be void.
A person or entity will not be admitted as a substitute general partner of
Foamex or a substitute limited partner of Foamex until such time as such person
or entity (i) executes a counterpart of the Partnership Agreement or an
amendment to the Partnership Agreement agreeing to be bound by the terms and
conditions of the Partnership Agreement and (ii) is listed as a general partner
or a limited partner, as the case may be, on the books and records of Foamex. No
partner may withdraw from Foamex or otherwise assign its partnership interest
other than pursuant to the Partnership Agreement.
Amendment of the Partnership Agreement
The Partnership Agreement may not be amended except by an instrument in
writing signed by partners holding more than 50% of the partnership interests in
Foamex at such time; provided, however, no amendment affecting the rights of
Trace Foam in respect of allocations, distributions, assignments,
indemnification or capital contributions may be made without the approval of
Trace Foam.
Dissolution
The partnership existence of Foamex shall continue until December 14, 2033
and then dissolve unless extended by mutual written consent of all partners,
unless any of the following events occur which shall require a dissolution of
Foamex: (i) any event of withdrawal of a general partner that causes a general
partner to cease to be a general partner of Foamex under the Delaware Revised
Uniform Limited Partnership Act (the "Partnership Act"), except that Foamex
shall not be dissolved if (a) at the time of such event all remaining general
partners agree to carry on the business of Foamex without dissolution upon such
an event or (b) within 90 days after such event all partners of Foamex agree in
writing to continue the business of Foamex and to the appointment, effective as
of the date of such event, of one or more general partners of Foamex or (ii) the
entry of a decree of judicial dissolution under the Partnership Act.
Notwithstanding the foregoing, except to the extent required by applicable
law, Foamex may not be dissolved until 90 days after Scotiabank, and Citicorp
USA, Inc. as Administrative Agents (or any successor agent as Administrative
Agent) of the Credit Facility, shall have received written notice of such
impending or proposed dissolution. See "Description of Certain Debt
Instruments--Credit Facility."
106
<PAGE>
Indemnification
The Partnership Agreement provides that, to the fullest extent permitted by
law, Foamex will indemnify the partners, their respective affiliates, officers,
directors, stockholders, employees and agents, and any employee, agent and
officer of Foamex, against all expenses actually and reasonably incurred by it
or them in connection with any threatened, pending or completed action, suit or
proceeding against it or them or by, against or in the right of Foamex to which
it or them is or was a party, or is threatened to be made a party, involving an
alleged cause of action for damages arising out of, or in any way related to or
connected with, the business or internal affairs of Foamex, if, in the
transaction giving rise to such action, suit, or proceeding, such person acted
in good faith, without gross negligence or willful misconduct or the willful
breach of the Partnership Agreement and in a manner such person reasonably
believed to be within the scope of its authority under the Partnership
Agreement.
107
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes certain United States federal income
tax consequences of the exchange of the Old Notes and the ownership and
disposition of the New Notes to a U.S. Holder. For this purpose, a "U.S. Holder"
is a person who is, for United States federal income tax purposes, (i) a citizen
or resident of the United States; (ii) a corporation, partnership or other
entity created or organized in or under the laws of the United States or of any
political subdivision thereof; (iii) an estate the income of which is subject to
United States federal income taxation regardless of its source; or (iv) a trust
if a court within the U.S. is able to exercise primary supervision over the
administration of the trust and one or more U.S. fiduciaries have the authority
to control all substantial decisions of the trust. Although the following
discussion does not purport to describe all of the tax considerations that may
be relevant to a U.S Holder, such discussion summarizes the material United
States federal income tax consequences to a U.S. Holder that purchased the Old
Notes pursuant to their original issue and that holds the Notes as a capital
asset within the meaning of Section 1221 of the Internal Revenue Code of 1986,
as amended (the "Code").
The statements regarding United States tax laws and practices set forth
below are based on the Code, administrative pronouncements, judicial decisions
and existing and proposed Treasury regulations in force and as applied in
practice on the date of this Prospectus and are subject to changes to those laws
and practices, and any relevant judicial decisions, subsequent to the date of
this Prospectus, which changes may be retroactive.
This discussion does not deal with persons that are subject to special tax
rules, such as dealers in securities, financial institutions, life insurance
companies, tax-exempt entities, persons holding the Notes as a part of a hedging
or conversion transaction or a straddle or persons whose "functional currency"
is not the United States dollar.
HOLDERS ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE UNITED
STATES TAX CONSEQUENCES OF THE OWNERSHIP AND DISPOSITION OF THE NOTES,
INCLUDING THE EFFECT OF ANY STATE OR LOCAL TAX LAWS.
The Exchange Offer
The exchange of Old Notes for New Notes pursuant to the Exchange Offer
should be treated as a continuation of the corresponding Old Notes because the
terms of the New Notes are not materially different from the terms of the Old
Notes. Accordingly, such exchange should not constitute a taxable event to U.S.
Holders and, therefore, (i) no gain or loss should be realized by U.S. Holders
upon receipt of a New Note, (ii) the holding period of the New Note should
include the holding period of the Old Note exchanged therefor and (iii) the
adjusted tax basis of the New Note should be the same as the adjusted tax basis
of the Old Note exchanged therefor immediately before the exchange.
Stated Interest
Stated interest on a Note will be taxable to a U.S. Holder as ordinary
interest income at the time that such interest accrues or is received, in
accordance with the U.S. Holder's regular method of accounting for federal
income tax purposes. As described more fully below, because the Old Notes were
treated as received in a taxable sale or exchange, the Old Notes (and therefore
the New Notes) may be treated as issued at a premium. If the New Notes are
treated as issued at a premium, a U.S. Holder may, under certain conditions,
offset interest income on the New Notes by an allocable portion of such premium
over the term of the New Notes. See "Sale, Exchange or Retirement of the Notes;
Amortization of Premium."
Sale, Exchange or Retirement of the Notes; Amortization of Premium
A U.S. Holder generally will recognize gain or loss on the sale, exchange
or retirement of a Note in an amount equal to the difference between the amount
realized on the sale, exchange or retirement and the tax basis of the Note. Gain
or loss recognized on the sale, exchange or retirement of a Note (excluding
amounts received in respect of accrued interest, which will be taxable as
ordinary interest income) generally will be capital gain or loss and will be
long-term capital gain or loss if the Note was held for more than one year. In
the case of individuals, such gain or loss will be subject to a maximum rate of
twenty eight percent if the Old Note and the New Note have been held for more
than one year but less than eighteen months, and will be subject to a maximum
tax rate of twenty percent if held for more than eighteen months.
108
<PAGE>
If the issue price of the New Notes exceeds their principal amount, then a
portion of such excess may constitute "amortizable bond premium" under Section
171 of the Code. A U.S. Holder may elect under certain conditions to amortize
amortizable bond premium over the term of the Notes as an offset against
interest income. Because the Issuer is permitted under certain conditions to
redeem the Notes at prices that exceed their principal amount, such right will
have the effect of reducing or eliminating any such amortizable bond premium,
depending upon the extent to which the issue price of the Notes exceeds the
optional redemption price. U.S. Holders who nevertheless desire to amortize the
full excess, if any, of the issue price of the Notes over their principal amount
should consider an election under Treasury Regulations Section 1.1272-3 to
report the accrual of interest on the New Notes on a constant yield-to-maturity
basis. Such an election must be made for the taxable year in which such U.S.
Holder acquires an Old Note and, once made, may not be revoked without the
consent of the IRS. On December 30, 1997, the IRS issued final regulations under
Section 171 of the Code. If an election under Treasury Regulations Section
1.1272-3 election was not made for the Old Notes, a U.S. Holder should consider
an election under Treasury Regulations Section 1.171-4, which would allow such
U.S. Holder to amortize the bond premium attributable to the years for which the
election is in effect. Such an election may be made for both the taxable year of
the Exchange Offer and any subsequent year and, once made, may not be revoked
without the consent of the IRS. Moreover, electing U.S. Holders otherwise
permitted to report income under the "cash method" of accounting would not be
permitted to do so with respect to payments under the Note and, accordingly,
such an election may result in an acceleration of interest income otherwise
reportable under a Note.
Backup Withholding
Under certain circumstances a U.S. Holder of a Note may be subject to
"backup withholding" at a 31% rate with respect to payments of interest thereon
or the gross proceeds from the disposition thereof. This withholding generally
applies if the U.S. Holder fails to furnish his or her social security number or
other taxpayer identification number ("TIN") in the specified manner and in
certain other circumstances. Any amount withheld from a payment to a U.S. Holder
under the backup withholding rules is allowable as a credit against such U.S.
Holder's federal income tax liability, provided that the required information is
furnished to the Internal Revenue Service. Corporations and certain other
entities described in the Code and Treasury regulations are exempt from backup
withholding if their exempt status is properly established.
109
<PAGE>
PLAN OF DISTRIBUTION
Each Holder desiring to participate in the Exchange Offer will be required
to represent, among other things, that (i) it is not an "affiliate" (as defined
in Rule 405 of the Securities Act) of the Issuers, (ii) it is not engaged in,
and does not intend to engage in, and has no arrangement or understanding with
any person to participate in, a distribution of the New Notes, and (iii) it is
acquiring the New Notes in the ordinary course of its business (a holder unable
to make the foregoing representations is referred to herein as a "Restricted
Holder"). A Restricted Holder will not be able to participate in the Exchange
Offer, and may only sell its Old Notes pursuant to a registration statement
containing the selling securityholder information required by Item 507 of
Regulation S-K of the Securities Act, or pursuant to an exemption from the
registration requirement of the Securities Act.
Each Participating Broker-Dealer is required to acknowledge in the Letter
of Transmittal that it acquired the Old Notes as a result of market-making
activities or other trading activities and that it will deliver a prospectus in
connection with the resale of such New Notes. Based upon interpretations by the
staff of the Commission, the Issuers believe that New Notes issued pursuant to
the Exchange Offer to Participating Broker-Dealers may be offered for resale,
resold, and otherwise transferred by a Participating Broker-Dealer (other than a
Restricted Holder) upon compliance with the prospectus delivery requirements,
but without compliance with the registration requirements, of the Securities
Act. The Issuers have agreed that for a period of 120 days following
consummation of the Exchange Offer, they will make this Prospectus available to
Participating Broker-Dealers for use in connection with any such resale. During
such period of time, delivery of this Prospectus, as it may be amended or
supplemented, will satisfy the prospectus delivery requirements of a
Participating Broker-Dealer engaged in market making or other trading
activities.
Based upon interpretations by the staff of the Commission, the Issuers
believe that New Notes issued pursuant to the Exchange Offer may be offered for
resale, resold and otherwise transferred by a Holder thereof (other than a
Restricted Holder or a Participating Broker-Dealer) without compliance with the
registration and prospectus delivery requirements of the Securities Act.
The Issuers will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by Participating Broker-Dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the New Notes or a combination of such methods
of resale, at market prices prevailing at the time of resale, at prices related
to such prevailing market prices or at negotiated prices. Any such resale may be
made directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
Participating Broker-Dealer and/or the purchasers of any such New Notes. Any
Participating Broker-Dealer that resells New Notes that were received by it for
its own account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such New Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of New Notes and any commissions or concessions received by any such
persons may be deemed to be underwriting compensation under the Securities Act.
The Letter of Transmittal states that by acknowledging that it will deliver and
by delivering a prospectus, a Participating Broker-Dealer will not be deemed to
admit that it is an "underwriter" within the meaning of the Securities Act.
The Issuers have agreed to pay all expenses incidental to the Exchange
Offer other than commissions and concessions of any brokers or dealers and will
indemnify holders of the Notes (including any broker-dealers) against certain
liabilities, including liabilities under the Securities Act, as set forth in the
Registration Rights Agreement.
LEGAL MATTERS
Certain legal matters in connection with the New Notes offered hereby will
be passed upon for the Issuers and Subsidiary Guarantors by Willkie Farr &
Gallagher, New York, New York.
110
<PAGE>
EXPERTS
The (i) consolidated financial statements of Foamex as of December 31, 1995
and December 29, 1996 and for each of the three years in the period ended
December 29, 1996, (ii) balance sheets of Foamex Capital Corporation as of
December 31, 1995 and December 29, 1996, (iii) consolidated financial statements
of General Felt Industries, Inc. as of December 31, 1995 and December 29, 1996
and for each of the three years in the period ended December 29, 1996, (iv)
financial statements of Foamex Fibers, Inc. as of December 31, 1995 and December
29, 1996 and for the period from April 13, 1995 to December 31, 1995 and for the
year ended December 29, 1996 and the combined financial statements of GS
Industries, Inc. and Pontotoc Fibers, Inc. for the year ended December 31, 1994
and for the period from January 1, 1995 to April 12, 1995, (v) the consolidated
balance sheet of FMXI, Inc. as of December 29, 1996 and (vi) the consolidated
balance sheet of Trace Foam Company, Inc. as of December 31, 1996, included in
this Registration Statement have been included in reliance upon the reports of
Coopers & Lybrand L.L.P., independent accountants, given on the authority of
that firm as experts in accounting and auditing. The consolidated financial
statements of Crain Industries, Inc. as of December 31, 1996 and for the year
then ended, included in this Registration Statement have been included in
reliance upon the report of Arthur Andersen L.L.P., independent accountants,
given on authority of that firm as experts in accounting and auditing.
FORWARD-LOOKING STATEMENTS
In connection with certain forward-looking statements contained in this
Prospectus, Foamex notes that there are various factors that could cause actual
results to differ materially from those set forth in any such forward-looking
statements, such as the integration of acquired businesses, raw material price
increases, general economic conditions, the implementation and estimated
annualized savings of the operations plan and changes in environmental
legislation and environmental conditions. The forward-looking statements
contained in this Prospectus were prepared by management and are qualified by,
and subject to, significant business, economic, competitive, regulatory and
other uncertainties and contingencies, all of which are difficult or impossible
to predict and many of which are beyond the control of Foamex. Accordingly,
there can be no assurance that the forward-looking statements contained in this
Prospectus will be realized or that actual results will not be significantly
higher or lower. The forward-looking statements have not been audited by,
examined by, compiled by or subjected to agreed-upon procedures by independent
accountants, and no third-party has independently verified or reviewed such
statements. Readers of this Prospectus should consider these facts in evaluating
the information contained herein. In addition, the business and operations of
Foamex are subject to substantial risks which increase the uncertainty inherent
in the forward-looking statements contained in this Prospectus. The inclusion of
forward-looking statements contained in this Prospectus should not be regarded
as a representation by Foamex or any other person that the forward-looking
statements contained herein will be achieved. In light of the foregoing, readers
of this Prospectus are cautioned not to place undue reliance on the
forward-looking statements contained herein.
111
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Foamex L.P.
Report of Independent Accountants ........................................................ F-3
Consolidated Balance Sheets as of December 31, 1995 and December 29, 1996 ................ F-4
Consolidated Statements of Operations for the years ended 1994, 1995 and 1996 ............ F-6
Consolidated Statements of Cash Flows for the years ended 1994, 1995 and 1996 ............ F-7
Consolidated Statements of Partners' Equity (Deficit) for the years ended 1994,
1995 and 1996 .......................................................................... F-8
Notes to Consolidated Financial Statements ............................................... F-9
Condensed Consolidated Balance Sheets as of December 29, 1996 and September 28, 1997
(unaudited) ............................................................................. F-28
Condensed Consolidated Statements of Operations--Thirty-Nine Week Periods Ended
September 29, 1996 and September 28, 1997 (unaudited) ................................... F-29
Condensed Consolidated Statements of Cash Flows--Thirty-Nine Week Periods Ended September
29, 1996 and September 28, 1997 (unaudited) ............................................. F-30
Notes to Condensed Consolidated Financial Statements (unaudited).......................... F-31
Foamex Capital Corporation
Report of Independent Accountants ........................................................ F-39
Balance Sheets as of December 31, 1995 and December 29, 1996 ............................. F-40
Notes to Balance Sheets .................................................................. F-41
Balance Sheets as of December 29, 1996 and September 28, 1997 (unaudited) ................ F-42
Notes to Balance Sheets (unaudited) ...................................................... F-43
Crain Industries, Inc.
Report of Independent Public Accountants ................................................. F-45
Consolidated Balance Sheet as of December 31, 1996 ....................................... F-46
Consolidated Statement of Operations for the year ended December 31, 1996 ................ F-47
Consolidated Statement of Stockholder's Equity for the year ended December 31, 1996 ...... F-48
Consolidated Statement of Cash Flows for the year ended December 31, 1996 ................ F-49
Notes to Consolidated Financial Statements ............................................... F-50
Consolidated Balance Sheets as of December 31, 1996 and September 30, 1997 (unaudited) ... F-57
Consolidated Statements of Operations--Thirty-Nine Week Periods Ended September 30, 1996
and 1997 (unaudited) .................................................................... F-58
Consolidated Statements of Cash Flows--Thirty-Nine Week Periods Ended September 30, 1996
and 1997 (unaudited) .................................................................... F-59
Notes to Consolidated Financial Statements (unaudited) ................................... F-60
</TABLE>
F-1
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
Page
-----
<S> <C>
General Felt Industries, Inc.
Report of Independent Accountants ........................................................ F-61
Consolidated Balance Sheets as of December 31, 1995 and December 29, 1996 ................ F-62
Consolidated Statements of Operations for the years ended 1994, 1995 and 1996 ............ F-64
Consolidated Statements of Cash Flows for the years ended 1994, 1995 and 1996 ............ F-65
Consolidated Statements of Stockholder's Equity for the years ended 1994, 1995 and 1996 .. F-66
Notes to Consolidated Financial Statements ............................................... F-67
Condensed Consolidated Balance Sheets as of December 29, 1996 and September 28, 1997
(unaudited) ............................................................................. F-77
Condensed Consolidated Statements of Operations--Thirty-Nine Week Periods Ended September
29, 1996 and September 28, 1997 (unaudited) ............................................. F-78
Condensed Consolidated Statements of Cash Flows--Thirty-Nine Week Periods Ended September
29, 1996 and September 28, 1997 (unaudited) ............................................. F-79
Notes to Condensed Consolidated Financial Statements (unaudited) ......................... F-80
Foamex Fibers, Inc.
Report of Independent Accountants ........................................................ F-82
Balance Sheets as of December 31, 1995 and December 29, 1996 ............................. F-83
Statements of Operations for the year ended December 31, 1994, for the period from
January 1, 1995 to April 12, 1995 (Predecessor Company), for the period from
April 13, 1995 to December 31, 1995 and for the year ended December 29, 1996 ............ F-84
Statements of Cash Flows for the year ended December 31, 1994, for the period from
January 1, 1995 to April 12, 1995 (Predecessor Company), for the period from
April 13, 1995 to December 31, 1995 and for the year ended December 29, 1996 ............ F-85
Statements of Stockholder's Equity for the year ended December 31, 1994, for the period
from January 1, 1995 to April 12, 1995 (Predecessor Company), for the period from
April 13, 1995 to December 31, 1995 and for the year ended December 29, 1996 ............ F-86
Notes to Financial Statements ............................................................ F-87
Condensed Balance Sheets as of December 29, 1996 and September 28, 1997 (unaudited) ..... F-91
Condensed Statements of Operations--Thirty-Nine Week Periods Ended September 29, 1996 and
September 28, 1997 (unaudited) ......................................................... F-92
Condensed Statements of Cash Flows--Thirty-Nine Week Periods Ended September 29, 1996 and
September 28, 1997 (unaudited) ......................................................... F-93
Notes to Condensed Financial Statements (unaudited) ..................................... F-94
FMXI, Inc.
Report of Independent Accountants ....................................................... F-95
Consolidated Balance Sheet as of December 29, 1996 ...................................... F-96
Notes to Consolidated Balance Sheet ..................................................... F-98
Trace Foam Company, Inc.
Report of Independent Accountants ....................................................... F-112
Consolidated Balance Sheet as of December 31, 1996 ...................................... F-113
Notes to Consolidated Balance Sheet ..................................................... F-114
</TABLE>
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of Foamex L.P.:
We have audited the accompanying consolidated balance sheets of Foamex L.P. and
subsidiaries ("Foamex L.P.") as of December 31, 1995 and December 29, 1996, and
the related consolidated statements of operations, cash flows and partners'
equity (deficit) for each of the three years in the period ended December 29,
1996. These financial statements are the responsibility of Foamex L.P.'s
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Foamex L.P. and
subsidiaries as of December 31, 1995 and December 29, 1996, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 29, 1996 in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 26, 1997
F-3
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(thousands)
December 31, December 29,
1995 1996
------------ -------------
ASSETS:
CURRENT ASSETS:
Cash and cash equivalents ......................... $ 638 $ 20,968
Restricted cash ................................... -- 12,143
Accounts receivable, net of allowance
for doubtful accounts of $9,138 and $6,328 ...... 113,583 125,847
Inventories ....................................... 89,952 102,610
Deferred income taxes ............................. -- 6,720
Due from related parties .......................... 1,569 1,791
Other current assets .............................. 19,784 18,841
-------- ---------
Total current assets ............................ 225,526 288,920
-------- ---------
PROPERTY, PLANT AND EQUIPMENT:
Land and land improvements ........................ 4,632 9,674
Buildings and leasehold improvements .............. 78,169 78,082
Machinery, equipment and furnishings .............. 176,019 185,348
Construction in progress .......................... 7,985 20,784
-------- ---------
Total ........................................... 266,805 293,888
Less accumulated depreciation and amortization .... (97,739) (111,461)
-------- ---------
Property, plant and equipment, net ................ 169,066 182,427
COST IN EXCESS OF ASSETS ACQUIRED, NET ............. 91,165 83,991
DEBT ISSUANCE COSTS, NET ........................... 18,703 14,902
NET ASSETS OF DISCONTINUED OPERATIONS .............. 85,073 --
OTHER ASSETS ....................................... 16,359 15,917
-------- ---------
TOTAL ASSETS ....................................... $605,892 $ 586,157
======== =========
The accompanying notes are an integral part of the
consolidated financial statements.
F-4
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES CONSOLIDATED
BALANCE SHEETS--(Continued)
(thousands)
December 31, December 29,
1995 1996
----------- ------------
LIABILITIES AND PARTNERS' EQUITY (DEFICIT):
CURRENT LIABILITIES:
Short-term borrowings .................................. $ 2,199 $ 3,692
Current portion of long-term debt--unrelated parties ... 8,511 13,735
Accounts payable ....................................... 67,658 75,621
Accounts payable to related parties .................... 11,731 8,803
Accrued employee compensation .......................... 8,116 7,302
Accrued interest ....................................... 9,591 8,871
Accrued restructuring charges .......................... 15,882 6,300
Other accrued liabilities .............................. 30,516 27,506
-------- --------
Total current liabilities ............................ 154,204 151,830
LONG-TERM DEBT--UNRELATED PARTIES ....................... 428,416 386,800
LONG TERM DEBT--RELATED PARTIES ......................... 5,540 5,817
DEFERRED INCOME TAXES ................................... 1,394 4,663
ACCRUED RESTRUCTURING CHARGES ........................... 3,773 4,043
OTHER LIABILITIES ....................................... 25,169 20,172
-------- --------
Total liabilities .................................... 618,496 573,325
-------- --------
COMMITMENTS AND CONTINGENCIES -- --
-------- --------
PARTNERS' EQUITY (DEFICIT):
General partners ....................................... 404 632
Limited partners ....................................... 46,036 57,654
Note receivable from partner ........................... (44,444) (33,180)
Other .................................................. (14,600) (12,274)
-------- --------
Total partners' equity (deficit) ..................... (12,604) 12,832
-------- --------
TOTAL LIABILITIES AND PARTNERS' EQUITY (DEFICIT) ........ $605,892 $586,157
======== ========
The accompanying notes are an integral part of the
consolidated financial statements.
F-5
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended 1994, 1995 and 1996
(thousands)
<TABLE>
<CAPTION>
January 1, December 31, December 29,
1995 1995 1996
---------- ------------ ------------
<S> <C> <C> <C>
NET SALES .................................. $833,660 $ 862,834 $ 926,351
COST OF GOODS SOLD ......................... 691,265 762,085 773,119
-------- --------- ---------
GROSS PROFIT ............................... 142,395 100,749 153,232
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES ................................. 57,059 63,466 56,778
RESTRUCTURING AND OTHER CHARGES
(CREDITS) ................................ -- 39,249 (6,415)
-------- --------- ---------
INCOME (LOSS) FROM OPERATIONS .............. 85,336 (1,966) 102,869
INTEREST AND DEBT ISSUANCE EXPENSE ......... 41,532 44,550 43,211
OTHER INCOME (EXPENSE), NET ................ 732 (205) 1,705
-------- --------- ---------
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE PROVISION FOR INCOME
TAXES .................................... 44,536 (46,721) 61,363
PROVISION FOR INCOME TAXES ................. 6,525 1,405 7,702
-------- --------- ---------
INCOME (LOSS) FROM CONTINUING
OPERATIONS ............................... 38,011 (48,126) 53,661
-------- --------- ---------
DISCONTINUED OPERATIONS:
INCOME (LOSS) FROM DISCONTINUED
OPERATIONS, NET OF INCOME TAXES .......... 1,230 (5,117) (230)
LOSS ON DISPOSAL OF DISCONTINUED
OPERATIONS, INCLUDING PROVISIONS FOR
OPERATING LOSSES DURING THE PHASE-OUT
PERIOD, NET OF INCOME TAXES .............. -- -- (41,820)
-------- --------- ---------
INCOME (LOSS) FROM DISCONTINUED
OPERATIONS, NET OF INCOME TAXES .......... 1,230 (5,117) (42,050)
-------- --------- ---------
INCOME (LOSS) BEFORE EXTRAORDINARY LOSS 39,241 (53,243) 11,611
EXTRAORDINARY LOSS ON EARLY
EXTINGUISHMENT OF DEBT ................... -- -- (1,912)
-------- --------- ---------
NET INCOME (LOSS) .......................... $ 39,241 $ (53,243) $ 9,699
======== ========= =========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-6
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended 1994, 1995 and 1996
(thousands)
<TABLE>
<CAPTION>
January 1, December 31, December 29,
1995 1995 1996
---------- ------------ -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) ...................................................... $ 39,241 $ (53,243) $ 9,699
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation and amortization ........................................ 22,108 22,905 21,132
Amortization of debt issuance costs and debt discount ................ 2,116 2,729 2,919
Net loss on disposal of discontinued operations ...................... -- -- 40,551
Net (income) loss from discontinued operations ....................... (1,230) 5,117 1,499
Asset writedowns and other charges (credits) ......................... -- 16,677 (7,364)
Extraordinary loss on early extinguishment of debt ................... -- -- 1,217
Provision for uncollectible accounts ................................. 878 4,627 704
Deferred income taxes ................................................ 5,520 659 6,010
Other, net ........................................................... 6 (706) (5,804)
Changes in operating assets and liabilities, net of acquisitions and
discontinued operations:
Accounts receivable .................................................. (24,677) (1,472) (13,130)
Inventories .......................................................... (21,790) 14,146 (13,078)
Accounts payable and accounts payable related parties ................ 28,491 823 5,035
Accrued restructuring charges ........................................ (3,469) 16,834 (7,000)
Other assets and liabilities ......................................... 3,414 7,415 (5,724)
--------- --------- ---------
Net cash provided by continuing operations .......................... 50,608 36,511 36,666
Net cash used for discontinued operations ........................... (323) (9,175) (486)
--------- --------- ---------
Net cash provided by operating activities ........................... 50,285 27,336 36,180
--------- --------- ---------
INVESTING ACTIVITIES:
Capital expenditures ................................................... (21,201) (19,348) (23,344)
Acquisitions, net of cash acquired ..................................... -- (7,272) (841)
Proceeds from sale of discontinued operations .......................... -- -- 42,650
Purchase of note from related party .................................... -- (2,000) --
Repayment of (purchase of) note from partner ........................... (35,300) -- 18,623
Increase in restricted cash ............................................ -- -- (12,143)
Capital expenditures for discontinued operations ....................... (6,565) (4,429) (919)
Other investing activities ............................................. (1,412) 2,495 (1,276)
--------- --------- ---------
Net cash provided by (used for) investing activities ................. (64,478) (30,554) 22,750
--------- --------- ---------
FINANCING ACTIVITIES:
Net proceeds from (repayments of) short-term borrowings ................ 537 (1,685) 1,493
Net proceeds from (repayments of) revolving loans ...................... 3,000 (3,000) --
Proceeds from long-term debt--unrelated parties ........................ 40,000 -- 1,500
Repayments of long-term debt--unrelated parties ........................ (3,256) (9,099) (38,116)
Distributions and redemptions to partners .............................. (3,257) (2,379) (3,487)
Debt issuance costs .................................................... (4,816) -- --
Other financing activities ............................................. (1,974) -- 10
--------- --------- ---------
Net cash provided by (used for) financing activities ................. 30,234 (16,163) (38,600)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents .................... 16,041 (19,381) 20,330
Cash and cash equivalents at beginning of period ........................ 3,978 20,019 638
--------- --------- ---------
Cash and cash equivalents at end of period .............................. $ 20,019 $ 638 $ 20,968
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-7
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY (DEFICIT)
For the Years Ended 1994, 1995 and 1996
(thousands)
<TABLE>
<CAPTION>
Note
General Limited Receivable
Partners Partners from Partner Other Total
--------- --------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C>
Balances at January 2, 1994 .......................... $ 11,338 $ 45,199 $ -- $ (7,151) $ 49,386
Net income ........................................... 1,377 37,864 -- -- 39,241
Distributions ........................................ (117) (4,487) -- -- (4,604)
Note receivable from partner ......................... -- -- (35,300) -- (35,300)
Accretion of note receivable from partner ............ 58 2,809 (2,867) -- --
Transfer of partnership interests .................... (11,208) 11,208 -- -- --
Contribution of Foamex Latin America, Inc. ........... -- 5,093 -- (453) 4,640
Additional pension liability ......................... -- -- -- 168 168
Foreign currency translation adjustment .............. -- -- -- (983) (983)
--------- --------- --------- --------- ---------
Balances at January 1, 1995 .......................... 1,448 97,686 (38,167) (8,419) 52,548
Net loss ............................................. (1,044) (52,199) -- -- (53,243)
Distributions ........................................ (125) (5,603) -- -- (5,728)
Purchase of note receivable from
Foamex International ................................ -- -- -- (2,000) (2,000)
Increase in note receivable from Trace Holdings ...... -- -- -- (1,373) (1,373)
Accretion of note receivable from partner ............ 125 6,152 (6,277) -- --
Additional pension liability ......................... -- -- -- (3,290) (3,290)
Foreign currency translation adjustment .............. -- -- -- 482 482
--------- --------- --------- --------- ---------
Balances at December 31, 1995 ........................ 404 46,036 (44,444) (14,600) (12,604)
Net income ........................................... 184 9,515 -- -- 9,699
Distributions ........................................ (104) (5,108) -- -- (5,212)
Accretion of note receivable from partner ............ 144 7,031 (7,175) -- --
Repayment of note receivable from partner ............ -- -- 18,439 -- 18,439
Repayment premium on note receivable from partner..... 4 180 -- -- 184
Additional pension liability ......................... -- -- -- 2,372 2,372
Foreign currency translation adjustment .............. -- -- -- (46) (46)
--------- --------- --------- --------- ---------
Balances at December 29, 1996 ........................ $ 632 $ 57,654 $ (33,180) $ (12,274) $ 12,832
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-8
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
Foamex L.P., a Delaware limited partnership, is an indirect, majority-owned
subsidiary of Foamex International Inc. ("Foamex International"). Foamex L.P. is
a significant manufacturer and marketer of flexible polyurethane foam and foam
products in North America. Foamex L.P.'s products include (i) foam for carpet
cushion and other carpet products, (ii) cushioning foams for furniture, bedding,
packaging and health care, (iii) foams for automotive trim and accessories and
(iv) technical foams for filtration, consumer products and packaging.
During 1996, Foamex L.P. sold Perfect Fit Industries, Inc. ("Perfect Fit")
which comprised the home comfort products segment of Foamex L.P. The
consolidated financial statements of Foamex L.P. have been restated for
discontinued operations and include a net loss of $41.8 million (net of $1.2
million income tax benefit) on the disposal of this business segment which
includes provisions for operating losses during the phase-out period. (See Note
3 for further discussion.) In addition, during April 1996 Foamex International
contributed the foam products operations of Foamex Latin America, Inc. ("Foamex
Mexico") to Foamex L.P. The contribution was accounted for in a manner similar
to a pooling of interests since the entities were under common control.
Accordingly, all prior periods presented have been restated to reflect the
results of operations and financial position of Foamex Mexico.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The consolidated financial statements include the accounts of Foamex L.P.
and all subsidiaries that Foamex L.P. directly or indirectly controls, either
through majority ownership or otherwise, other than the home comfort products
segment which is accounted for as discontinued operations. Intercompany accounts
and transactions for continuing operations have been eliminated in
consolidation.
The consolidated financial statements have been restated for discontinued
operations. The accompanying notes present amounts related only to continuing
operations.
Fiscal Year
Foamex L.P.'s fiscal year ends on the Sunday closest to the thirty-first
day of December. Fiscal years 1994, 1995 and 1996 were composed of fifty-two
weeks and ended on January 1, 1995, December 31, 1995 and December 29, 1996,
respectively.
Accounting Estimates
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 at the
date of the financial statements and the reported amounts of revenues and
expenses during the reported period. Actual results could differ from those
estimates. (See Notes 4, 9, 10, 15, 16 and 17 and Cost in Excess of Net Assets
Acquired below.)
Revenue Recognition
Revenue from sales is recognized when products are shipped.
Discounts and Billing Adjustments
A reduction in sales revenue is recognized for sales discounts when product
is invoiced or for other billing adjustments when authorized.
Cash and Cash Equivalents
Foamex L.P. considers all highly liquid investments with an original
maturity of three months or less when purchased to be cash equivalents. On
December 29, 1996, cash and cash equivalents included $18.4 million of
repurchase agreements collateralized by U.S. Government securities.
F-9
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Restricted Cash
As of December 29, 1996, Foamex L.P. had restricted cash of approximately
$12.1 million. This cash was derived from the net sales proceeds relating to the
sale of Perfect Fit and is restricted by Foamex L.P.'s debt agreements. As of
February 26, 1997, Foamex L.P. has used approximately $8.4 million of the
restricted cash to repurchase approximately $8.0 million of outstanding
indebtedness.
Inventories
Inventories are stated at the lower of cost or market. The cost of the
inventories is determined on a first-in, first-out basis.
Property, Plant and Equipment
Property, plant and equipment are stated at cost and are depreciated using
the straight-line method over the estimated useful lives of the assets. The
range of useful lives estimated for buildings is generally twenty to thirty-five
years and the range for machinery, equipment and furnishings is five to twelve
years. Leasehold improvements are amortized over the shorter of the terms of the
respective leases or the estimated useful lives of the leasehold improvements.
Depreciation expense for the years ended 1994, 1995 and 1996 was $16.8 million,
$18.7 million and $17.9 million, respectively. For income tax purposes, Foamex
L.P. uses accelerated depreciation methods.
Cost of maintenance and repairs is charged to expense as incurred. Renewals
and improvements are capitalized. Upon retirement or other disposition of items
of plant and equipment, the cost and related accumulated depreciation are
removed from the accounts and any gain or loss is included in operations.
Debt Issuance Costs
Debt issuance costs consist of amounts incurred in obtaining long-term
financing. These costs are being amortized over the term of the related debt
using the interest method. Accumulated amortization as of December 31, 1995 and
December 29, 1996 was approximately $5.7 million and $7.5 million, respectively.
Cost in Excess of Net Assets Acquired
The excess of the acquisition cost over the fair value of net assets
acquired in business combinations accounted for as purchases is amortized using
the straight-line method over a forty year period. At each balance sheet date
Foamex L.P. evaluates the recoverability of cost in excess of net assets
acquired using certain financial indicators such as historical and future
ability to generate income from operations based on a going concern basis.
Accumulated amortization as of December 31, 1995 and December 29, 1996 was
approximately $9.1 million and $11.6 million, respectively.
Environmental Matters
Environmental expenditures that relate to current operations are expensed
or capitalized as appropriate. Expenditures that relate to an existing condition
caused by past operations, and which do not contribute to current or future
revenue generation, are expensed. Liabilities are recorded when environmental
assessments and/or remedial efforts are probable and the costs can be reasonably
estimated.
Postretirement and Postemployment Benefits
Foamex L.P. accrues postretirement benefits throughout the employees'
active service periods until they attain full eligibility for those benefits.
Also, Foamex L.P. accrues postemployment benefits when it becomes probable that
such benefits will be paid and when sufficient information exists to make
reasonable estimates of the amounts to be paid.
Foreign Currency Accounting
The financial statements of foreign subsidiaries, except in countries
treated as highly inflationary, have been translated into U.S. dollars by using
the year end exchange rates for assets and liabilities and average exchange
F-10
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
rates for the statements of operations. Currency translation adjustments are
included in other partners' equity (deficit) until the entity is substantially
sold or liquidated. For operations in countries treated as highly inflationary,
certain financial statement amounts are translated at historical exchange rates,
with all other assets and liabilities translated at year end exchange rates.
These translation adjustments are reflected in the results of operations and are
insignificant for all periods presented. Also, foreign currency transaction
gains and losses are insignificant for all periods presented. The effect of
foreign currency exchange rates on cash flows is not material.
Interest Rate Swap Agreement
The differential to be paid or received under an interest rate swap
agreement is recognized as an adjustment to interest and debt issuance expense
in the current period as interest rates change.
Income Taxes
Income taxes are accounted for under the liability method, in which
deferred income taxes are provided for temporary differences between the
financial reporting and income tax basis of assets and liabilities using the
income tax rates, under existing legislation, expected to be in effect at the
date such temporary differences are expected to reverse.
Foamex L.P., as a limited partnership, is not subject to federal income
taxes; therefore no current or deferred provision has been provided for such
taxes. However, Foamex L.P. has provided for the income taxes of certain states
in which it is subject to taxes and for certain subsidiaries which are subject
to federal and state income taxes. The partners will provide for their
respective shares of income or loss in their federal or applicable state income
tax returns. Foamex L.P. has a tax sharing agreement that provides for the
payment of distributions to the partners for amounts that would be required to
be paid if Foamex L.P. was a corporation filing separate tax returns. The
ability of Foamex L.P. to make such distributions is limited by the terms of its
credit agreements and indentures. (See Note 8).
Reclassifications
Certain amounts in the 1994 and 1995 consolidated financial statements have
been reclassified to conform with the current year's presentation.
3. DISCONTINUED OPERATIONS
During 1996, Foamex L.P. finalized the sale of the outstanding common stock
of Perfect Fit, a wholly owned subsidiary, for an adjusted sale price of
approximately $44.2 million. The sale included all of the net assets of Foamex
L.P.'s home comfort products segment. Actual and estimated transaction expenses
related to the sale totaled approximately $1.5 million. Foamex L.P. has recorded
a net loss on the sale of Perfect Fit of approximately $41.8 million, which
includes the loss on disposal and a net loss of $1.3 million (net of $1.2
million income tax benefit) relating to operating losses during the phase-out
period. Interest and debt issuance expense was allocated to discontinued
operations based on the estimated debt to be retired from the net proceeds of
the sale. A valuation allowance has been provided for the capital loss relating
to the sale of Perfect Fit since future capital gain taxable income is not
likely to be sufficient to recognize the deferred tax asset relating to the
capital loss carryforward.
F-11
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
3. DISCONTINUED OPERATIONS (continued)
Foamex L.P.'s financial statements have been restated to reflect the
discontinuation of the home comfort products segment. A summary of the operating
results for the discontinued operations is as follows:
1994 1995 1996(1)
------- ------- -------
(thousands)
Net Sales .................................... $95,381 $98,464 $50,097
Gross profit ................................. 18,200 14,946 8,065
Income (loss) from operations ................ 4,170 (3,058) 1,123
Interest and debt issuance expense ........... 3,671 4,699 2,384
Other expense ................................ -- -- 348
Income (loss) from discontinued operations
before income taxes ......................... 499 (7,757) (1,609)
Provision (benefit) for income taxes ......... (731) (2,640) (1,379)
Income (loss) from discontinued operations,
net of income taxes ........................ 1,230 (5,117) (230)
(1) Foamex L.P.'s discontinued operations includes the operations of Perfect
Fit through June 1996.
Net assets of discontinued operations (excluding intercompany net assets)
at December 31, 1995 were as follows:
1995
-------
(thousands)
Current assets ................................. $31,925
Property, plant and equipment, net ............. 21,672
Cost in excess of assets acquired, net ......... 40,333
Other assets ................................... 2,219
-------
Total assets ................................... 96,149
-------
Current liabilities ............................ 11,076
-------
Total liabilities .............................. 11,076
-------
Net assets ..................................... $85,073
=======
4. RESTRUCTURING AND OTHER CHARGES (CREDITS)
In 1995, Foamex L.P. approved a restructuring plan (the "1995 restructuring
plan") to consolidate thirteen foam production, fabrication or branch locations,
to concentrate resources as a result of industry conditions and to better
position itself to achieve its strategic growth objectives. Foamex L.P. recorded
restructuring and other charges of $39.2 million which was comprised of $35.6
million associated with the consolidation of the foam production, fabrication or
branch locations, $2.2 million associated with the completion of a 1993
restructuring plan and $1.4 million associated with merger and acquisition
activities of Foamex L.P. The components of the $35.6 million restructuring
charge include: $16.7 million for fixed asset writedowns (net of estimated sale
proceeds), $15.1 million for plant closure and operating lease obligations and
$3.8 million for personnel reductions. The $3.8 million cost for personnel
reductions primarily represents severance and employee benefit costs associated
with the elimination of manufacturing and administrative personnel.
In 1996, Foamex L.P. determined to continue to operate one of the
facilities originally identified for closure in the 1995 restructuring plan
because of improved economics and the lack of synergy to be achieved from
relocating the manufacturing process. In addition, Foamex L.P. has approved a
plan to close two facilities that were not originally identified in the 1995
restructuring plan. As a result of these changes to the 1995 restructuring plan
and the favorable termination of certain lease agreements and other matters,
Foamex L.P. recorded a $6.4 million net
F-12
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4. RESTRUCTURING AND OTHER CHARGES (CREDITS) (continued)
restructuring credit which included a restructuring credit of $11.3 million
associated with Foamex L.P.'s decision not to close the facility identified as
part of the 1995 restructuring plan and $1.7 million of restructuring credits
relating primarily to the favorable termination of certain lease agreements and
other matters relating to the 1995 restructuring plan, offset by $6.6 million of
restructuring charges relating to the closure of the two facilities during 1997
(the "1996 restructuring plan").
Generally, the 1995 restructuring plan has been implemented as originally
contemplated. The following table sets forth the components of Foamex L.P.'s
restructuring and other charges:
<TABLE>
<CAPTION>
Asset Plant Closure Personnel
Total Writedowns and Leases Reductions Other
------- ------------- ---------- ---------- -------
(millions)
<S> <C> <C> <C> <C> <C>
1995 restructuring charge .......................... $ 39.2 $ 16.7 $ 15.1 $ 3.8 $ 3.6
Asset writeoff/writedowns .......................... (23.3) (20.9) -- -- ( 2.4)
Cash spending ...................................... ( 0.4) -- ( 0.3) ( 0.1) --
------- ------- ------- ------- -------
Balances at December 31, 1995 ...................... 15.5 ( 4.2) 14.8 3.7 1.2
Cash spending ...................................... ( 9.7) -- ( 6.6) ( 2.0) ( 1.1)
Cash proceeds ...................................... 1.0 1.0 -- -- --
1996 restructuring charge .......................... 6.6 2.4 4.1 0.1 --
Restructuring credits .............................. (13.0) ( 9.7) ( 2.8) ( 0.4) ( 0.1)
Asset adjustment for restructuring credits ......... 8.1 8.7 ( 0.6) -- --
------- ------- ------- ------- -------
Balances at December 29, 1996 ...................... $ 8.5 $ (1.8) $ 8.9 $ 1.4 $ --
======= ======= ======= ======= =======
</TABLE>
As indicated in the table above, the accrued restructuring balance at
December 29, 1996 will be used for payments relating to plant closure and leases
including rundown costs at the facilities. The $1.8 million of asset writedowns
relates to estimated proceeds and is included in noncurrent assets. Foamex L.P.
expects to incur approximately $6.3 million of charges during 1997 with the
remaining $4.0 million to be incurred through 2001. As of December 29, 1996,
Foamex L.P. has terminated approximately 270 employees and notified
approximately 40 employees in the manufacturing and administrative areas of
their impending termination in connection with the 1995 and 1996 restructuring
plans.
5. ACQUISITIONS
In April 1995, Foamex L.P. acquired certain assets and assumed certain
liabilities of manufacturers of synthetic fabrics for the carpet and furniture
industries for aggregate consideration of approximately $8.0 million, including
related fees and expenses of approximately $0.3 million, with an initial cash
payment of $7.2 million. The excess of the purchase price over the estimated
fair value of the net assets acquired was approximately $3.9 million. The
acquisition was accounted for as a purchase and the operations of the acquired
company are included in the consolidated statements of operations and cash flows
from the date of its acquisition. The excess of the purchase price over the
estimated fair value of the net assets acquired is being amortized using the
straight-line method over forty years.
F-13
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
6. INVENTORIES
Inventories consists of:
December 31, December 29,
1995 1996
-------------- -------------
(thousands)
Raw materials and supplies ......... $49,963 $ 61,559
Work in process .................... 14,451 13,453
Finished goods ..................... 25,538 27,598
------- --------
Total .............................. $89,952 $102,610
======= ========
7. SHORT-TERM BORROWINGS
Short-term borrowings include borrowings outstanding under a line of credit
facility for Foamex Canada Inc. ("Foamex Canada") bearing interest at the bank's
prime rate (4.75% at December 29, 1996) plus 1/2%. The weighted average interest
rates on Foamex Canada's short-term borrowings outstanding for 1994, 1995 and
1996 were 7.3%, 8.0% and 5.9%, respectively. Borrowings under Foamex Canada's
credit facility are due on demand and are collateralized by accounts receivable,
property and inventories of Foamex Canada having an approximate net carrying
value of $17.1 million as of December 29, 1996. The unused amount under this
line of credit totaled $0.7 million as of December 29, 1996.
8. LONG-TERM DEBT
Long-term debt consists of:
<TABLE>
<CAPTION>
December 31, December 29,
1995 1996
------------ ------------
(thousands)
<S> <C> <C>
Unrelated parties:
9-1/2% Senior secured notes due 2000 ............................... $116,667 $106,793
11-1/4% Senior notes due 2002 ...................................... 150,000 141,400
11-7/8% Senior subordinated debentures due 2004 (net of unamortized
debt discount of $827 and $769)................................... 125,173 125,056
11-7/8% Senior subordinated debentures due 2004, Series B .......... 7,000 7,000
Industrial revenue bonds ........................................... 7,000 7,000
Foamex L.P. term loan (8.54% interest rate as of December 29, 1996) 30,000 11,000
Other .............................................................. 1,087 2,286
-------- --------
Total ............................................................ 436,927 400,535
Less current portion ............................................... 8,511 13,735
-------- --------
Long-term debt--unrelated parties .................................. $428,416 $386,800
======== ========
Related parties:
Subordinated note payable (net of unamortized debt discount of
$1,475 and $1,198)................................................ $ 5,540 $ 5,817
======== ========
</TABLE>
9-1/2% Senior Secured Notes due 2000 ("Senior Secured Notes")
The Senior Secured Notes were issued on June 3, 1993 and bear interest at
the rate of 9-1/2% payable semiannually on each June 1 and December 1. The
Senior Secured Notes mature on June 1, 2000. The Senior Secured Notes are
collateralized by a first-priority lien on substantially all of the assets of
Foamex L.P. except for receivables, real estate and fixtures. The Senior Secured
Notes may be redeemed at the option of Foamex L.P., in whole or in part, at any
time on or after June 1, 1998, initially at 101.583% of their principal amount,
plus accrued interest, and declining to 100% on or after June 1, 1999. The
Senior Secured Notes have been guaranteed, on a
F-14
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
8. LONG-TERM DEBT (continued)
senior secured basis by General Felt Industries, Inc. ("General Felt") and on a
senior unsecured basis by Foamex International. During 1996, Foamex L.P.
repurchased $9.9 million of Senior Secured Notes with the net proceeds from the
sale of Perfect Fit (see Note 11).
11-1/4% Senior Notes due 2002 ("Senior Notes")
The Senior Notes bear interest at the rate of 11-1/4% payable semiannually
on each April 1 and October 1. The Senior Notes mature on October 1, 2002. The
Senior Notes may be redeemed at the option of Foamex L.P., in whole or in part,
at any time on or after October 1, 1997, initially at 104.219% of their
principal amount, plus accrued interest, and declining to 100% on or after
October 1, 2000. In October 1994, Foamex L.P. provided certain real property as
collateral for the Senior Notes, with a net book value of $37.8 million at
December 29, 1996. The Senior Notes have been guaranteed, on a senior basis, by
General Felt and Foamex International. During 1996, Foamex L.P. repurchased $8.6
million of Senior Notes with the net proceeds from the sale of Perfect Fit (see
Note 11).
11-7/8% Senior Subordinated Debentures ("Subordinated Debentures")
The Subordinated Debentures bear interest at the rate of 11-7/8% payable
semiannually on each April 1 and October 1. The Subordinated Debentures mature
on October 1, 2004. The Subordinated Debentures may be redeemed at the option of
Foamex L.P., in whole or in part, at any time on or after October 1, 1997,
initially at 105.938% of their principal amount, plus accrued interest, and
declining to 100% on or after October 1, 2002. The Subordinated Debentures are
subordinated in right of payment to all senior indebtedness, including the
Senior Secured Notes and the Senior Notes. The Subordinated Debentures have been
guaranteed, on a senior subordinated basis, by General Felt and Foamex
International. During 1996, Foamex L.P. repurchased $0.1 million of Subordinated
Debentures with the net proceeds from the sale of Perfect Fit (see Note 11).
11-7/8% Senior Subordinated Debentures, Series B ("Series B Debentures")
The Series B Debentures were issued July 30, 1993, by Foamex L.P. in an
exchange offer to holders of senior subordinated debentures issued in connection
with the acquisition of General Felt on March 23, 1993. The Series B Debentures
have terms substantially similar to the Subordinated Debentures, except that
holders of the Series B Debentures are entitled to receive proceeds from an
asset sale only if any proceeds remain after an offer to repurchase has been
made to the holders of the Subordinated Debentures. The Series B Debentures have
been guaranteed on a senior subordinated basis by General Felt.
Industrial Revenue Bonds ("IRBs")
Two bond issues in the principal amount of $1.0 million and $6.0 million,
maturing in 2005 and 2013, respectively, are collateralized by certain
properties which have an approximate net carrying value of $11.3 million at
December 29, 1996 and letters of credit approximating $7.3 million. The IRBs
bear interest at a variable rate with options available to Foamex L.P. to
convert to a fixed rate. The interest rates on the IRBs were 4.85% and 4.0% at
December 29, 1996 for the $6.0 million and $1.0 million bond issues,
respectively. The interest rate on the $6.0 million bond issue varies weekly
based on an interest rate that is indicative of current bidside yields on high
quality short-term, tax-exempt obligations, or if such interest rate is not
available, 70.0% of the interest rate for thirteen week United States Treasury
Bills. The maximum interest rate for either of the IRBs is 15.0% per annum. At
the time of a conversion to a fixed interest rate and upon appropriate notice,
the IRBs are redeemable at the option of the bondholders.
Term and Revolving Loans
Foamex L.P. has a credit agreement (the "Foamex L.P. Credit Facility") with
a group of banks that provide for loans of up to $85.0 million of which up to
$40.0 million was available as a term loan payable in twenty equal quarterly
installments commencing October 1994 and up to $45.0 million is available under
a revolving line of
F-15
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
8. LONG-TERM DEBT (continued)
credit which expires in June 1999. In 1994, Foamex L.P. and General Felt entered
into a $40.0 million term loan under the Foamex L.P. Credit Facility; no further
term loan borrowings are available thereunder. During 1996, Foamex L.P. and
General Felt used $12.0 million of net proceeds from the Perfect Fit sale to
repay term loan borrowings. Borrowings under the Foamex L.P. Credit Facility are
collateralized by the accounts receivable of Foamex L.P. and General Felt.
Pursuant to the terms of the Foamex L.P. Credit Facility, borrowed funds will
bear interest at a floating rate equal to 1.0% per annum plus the highest of (i)
the base rate of The Bank of Nova Scotia, as in effect from time to time, (ii) a
rate that is, generally, 0.5% per annum plus a fluctuating rate generally equal
to the rate on three month certificates of deposit, subject to certain
adjustments, plus a fluctuating rate generally equal to the annual assessment
rate paid by The Bank of Nova Scotia to the Federal Deposit Insurance
Corporation or (iii) 0.5% per annum plus the federal funds rate in effect from
time to time. At the option of Foamex L.P., portions of the outstanding loan
under the Foamex L.P. Credit Facility will be convertible into Eurodollar rate
loans bearing interest at a rate generally equal to 3.0% per annum above the
average LIBOR rate of Citibank, N.A. and The Bank of Nova Scotia. As of December
29, 1996, there was approximately $11.7 million in letters of credit outstanding
under the Foamex L.P. Credit Facility. As of December 29, 1996, there was unused
availability of approximately $33.3 million under the Foamex L.P. Credit
Facility.
Subordinated Note Payable
This note payable was issued to John Rallis ("Rallis"), the Chief Operating
Officer of Foamex International, on May 6, 1993 by Foamex L.P. in connection
with the acquisition of Great Western Foam Products Corporation and certain
related entities and assets (collectively, "Great Western"). The note bears
interest at a maximum rate of 6% per annum and the principal amount is payable
in three equal annual installments beginning May 6, 1999.
Other
As of December 29, 1996, other debt is comprised primarily of capital lease
obligations and borrowings by Foamex Mexico.
Interest Rate Swap Agreements
Foamex L.P. enters into interest rate swaps to lower funding costs and/or
to manage interest costs and exposure to changing interest rates. Foamex L.P.
does not hold or issue financial instruments for trading purposes. Foamex L.P.
has an interest rate swap agreement, as amended, with a notional amount of
$150.0 million through December 2001. Under the swap agreement, Foamex L.P. has
made variable payments based on LIBOR through December 1996 and is obligated to
make fixed payments at 5.30% per annum for the twelve months ended in December
1997 and variable payments based on LIBOR for the remainder of the agreement, in
exchange for fixed payments by the swap partner at 5.81% per annum through
December 1996, and 6.50% per annum for the remainder of the agreement, payable
semiannually in arrears. The swap partner has the ability to terminate the swap
agreement after the December 1997 payment if the LIBOR rate Foamex L.P. is to
pay for any period thereafter is equal to or less than 4.50% per annum. Interest
expense will be subject to fluctuations in LIBOR during the term of the swap
agreement except during 1997. Foamex L.P. is exposed to credit loss in the event
of nonperformance by the swap partner; however, the occurrence of this event is
not anticipated.
Also, Foamex L.P. has an interest rate swap agreement, as amended, for a
notional amount of $150.0 million through December 2001. Under this swap
agreement, Foamex L.P. has made variable payments based on LIBOR with a cap of
5.50% per annum and a floor of 4.75% per annum for the six months ended in June
1995, variable payments based on LIBOR with a floor of 4.75% per annum for the
six months ended in December 1995, fixed payments at a rate of 5.81% per annum
for the twelve months ended in December 1996 and is obligated to make fixed
payments at a rate of 5.30% per annum for the twelve months in December 1997 and
variable payments based on LIBOR for the remainder of the agreement, in exchange
for variable payments by the swap partner at the rate of LIBOR plus 0.80% per
annum for the six months ended in June 1995, LIBOR plus 0.72% per annum for the
F-16
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
8. LONG-TERM DEBT (continued)
six months ended in December 1995, LIBOR plus 2.45% per annum for the six months
ended in June 1996, LIBOR plus 2.39% per annum for the six months ended in
December 1996 and fixed payments at 6.50% per annum for the remainder of the
term of the agreement, payable semiannually in arrears. The swap partner has the
ability to terminate the swap agreement after the December 1997 payment if the
LIBOR rate Foamex L.P. is to pay for any period thereafter is equal to or less
than 4.50% per annum. Foamex L.P. is exposed to credit loss in the event of
nonperformance by the swap partner; however, the occurrence of this event is not
anticipated. Interest expense will be subject to fluctuations in LIBOR during
the term of the swap agreement except during 1997. The effect of the two
interest rate swaps described above was a favorable adjustment to interest
expense of $3.0 million, $1.4 million and $3.7 million for 1994, 1995 and 1996,
respectively.
Debt Restrictions and Covenants
The indentures, credit agreement and other indebtedness agreements contain
various covenants, including restrictions on payments of distributions by Foamex
L.P. to its partners, the incurrence of additional indebtedness, the sale of
assets, mergers and consolidations and transactions with affiliates. In
addition, certain agreements contain a provision that, in the event of a defined
change of control, the indebtedness must be repaid, in certain cases at the
option of the holder. Also, Foamex L.P. is required under certain of these
agreements to maintain specified financial ratios of which the most restrictive
is the maintenance of net worth and interest coverage ratios, as defined. Under
the most restrictive of the distribution restrictions, approximately $0.7
million was available to be paid by Foamex L.P. to its partners at December 29,
1996.
As of December 29, 1996, Foamex L.P. was in compliance with the covenants
of the indentures, credit agreements and other indebtedness agreements and
expects to be in compliance with these covenants for the foreseeable future.
Future Obligations on Long-Term Debt
Scheduled maturities of long-term debt are shown below:
Year Ended Long-Term Debt
---------- --------------
(thousands)
1997 ................................ $ 13,490
1998 ................................ 4,000
1999 ................................ 5,338
2000 ................................ 106,631
2001 ................................ 2,339
Thereafter .......................... 275,735
--------
Total .............................. 407,533
Less unamortized discount ........... 1,967
--------
Total ............................... $405,566
========
In addition, Foamex L.P. has approximately $0.8 million of total capital
lease obligations that are payable in 1997 through 2000 in annual amounts of
approximately $0.2 million.
9. EMPLOYEE BENEFIT PLANS
Defined Benefit Pension Plans
Foamex L.P. maintains noncontributory defined benefit pension plans for
salaried and certain hourly employees. The salaried plan provides benefits that
are based principally on years of credited service and level of compensation.
The hourly plans provide benefits that are based principally on stated amounts
for each year of credited service.
F-17
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
9. EMPLOYEE BENEFIT PLANS (continued)
Net periodic pension cost included the following components:
1994 1995 1996
------- ------- -------
(thousands)
Service cost .......................... $ 2,452 $ 2,087 $ 2,471
Interest cost ......................... 3,541 3,742 3,997
Actual return on plan assets .......... 624 (5,682) (8,841)
Net amortization and deferral ......... (4,649) 1,807 4,643
------- ------- -------
Total ................................. $ 1,968 $ 1,954 $ 2,270
======= ======= =======
Foamex L.P.'s funding policy is to contribute annually an amount that both
satisfies the minimum funding requirements of the Employee Retirement Income
Security Act of 1974 and does not exceed the full funding limitations of the
Internal Revenue Code of 1986, as amended (the "Code"). Plan investments consist
primarily of corporate equity and debt securities, mutual life insurance funds
and cash equivalents. During 1996, the discount rate was adjusted to 7.50%. The
following table sets forth the funded status of Foamex L.P.'s underfunded plans
and the amounts recognized in the accompanying consolidated balance sheets as of
December 31, 1995 and December 29, 1996:
December 31, December 29,
1995 1996
------------ ------------
(thousands)
Actuarial present value of accumulated
benefit obligations:
Vested benefits ..................................... $ 52,762 $55,336
Nonvested benefits .................................. 1,916 2,137
-------- -------
Accumulated benefit obligations ..................... $ 54,678 $57,473
======== =======
Total projected benefit obligations ................. $ 55,810 $58,775
Fair value of plan assets ........................... 44,441 53,734
-------- -------
Projected benefit obligations in excess of
plan assets ....................................... (11,369) (5,041)
Unrecognized net loss from past experience
difference from that assumed and effect of
changes in assumptions ............................ 6,394 1,099
Additional minimum liability ........................ (5,265) (2,694)
-------- -------
Accrued pension cost ................................ $(10,240) $(6,636)
======== =======
Significant assumptions used in determining the plans' funded status are as
follows:
December 31, December 29,
1995 1996
----------- ------------
(thousands)
Expected long-term rates of return on plan assets .... 9.00% 9.50%
Discount rates on projected benefit obligations ...... 7.25% 7.50%
Rates of increase in compensation levels
(where applicable) ................................. 4.00% 4.00%
Defined Contribution Plan
Foamex L.P. maintains a defined contribution plan which is qualified under
Section 401(k) of the Code and is available for eligible employees who elect to
participate in the plan. Employee contributions are voluntary and subject to
certain limitations as imposed by the Code. During 1995 and 1996, Foamex L.P.
provided contributions amounting to a 25% match of employees' contributions up
to 4% of eligible compensation. Foamex L.P. also provides an additional 25%
match of employees' contributions up to 4% of eligible compensation made to a
fund which invests in Foamex International common stock. In addition, Foamex
L.P. may make discretionary
F-18
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
9. EMPLOYEE BENEFIT PLANS (continued)
contributions amounting to a 25% match of employees' contributions up to 4% of
eligible compensation. Prior to 1995, employer contributions were discretionary
and provided a 50% match of employees' contributions up to 3% of eligible
compensation. The expense for these contributions for 1994, 1995 and 1996 was
approximately $0.4 million, $0.7 million and $0.8 million, respectively.
Postretirement Benefits
In addition to providing pension benefits, Foamex L.P. provides
postretirement health care and life insurance for eligible employees. During
1995, changes were made to postretirement benefits offered to certain employees
which resulted in a curtailment loss of $0.6 million. During 1996, certain
employees accepted an early retirement program resulting in a special
termination loss of $0.6 million. These plans are unfunded and Foamex L.P.
retains the right, subject to existing agreements, to modify or eliminate these
benefits.
The components of 1994, 1995 and 1996 expense for postretirement benefits
are as follows:
1994 1995 1996
---- ------ ------
(thousands)
Service costs for benefits earned ............. $172 $ 24 $ 12
Interest cost on liability .................... 192 83 67
Net amortization and deferral ................. 134 (13) (53)
Special termination/curtailment loss .......... -- 619 576
---- ---- ----
Net periodic postretirement benefit cost ...... $498 $713 $602
==== ==== ====
The accumulated postretirement benefit obligation at December 31, 1995 and
December 29, 1996 resulted in an unfunded obligation of $1.6 million and $2.1
million, respectively.
A 10% and 9% annual rate of increase in the per capita costs of covered
health care benefits was assumed for each of 1995 and 1996, respectively. This
rate was assumed to gradually decrease to 5% by the year 2000. Increasing the
weighted average assumed health care cost trend rates by one percentage point
would have an insignificant impact on the accumulated postretirement benefit
obligation and service and interest cost. The discount rate used was 7.25% and
7.50% as of December 31, 1995 and December 29, 1996, respectively.
Postemployment Benefits
Foamex L.P. provides certain postemployment benefits to former or inactive
employees and their dependents during the time period following employment but
before retirement. At December 31, 1995 and December 29, 1996, Foamex L.P.'s
liability for postemployment benefits was insignificant for each period.
Other
In December 1994, Foamex L.P. changed its method of compensating certain
employees for vacation which increased income from operations by $4.3 million
for 1994.
10. INCOME TAXES
Income (loss) from continuing operations before provision for income taxes
consists of the following:
F-19
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
10. INCOME TAXES (continued)
1994 1995 1996
------- -------- -------
(thousands)
United States ................................ $42,610 $(45,738) $58,277
Foreign ...................................... 1,926 (983) 3,086
------- -------- -------
Income (loss) from continuing
operations before provision
(benefit) for income taxes ................. $44,536 $(46,721) $61,363
======= ======== =======
The components of the total consolidated provision (benefit) for income
taxes are summarized as follows:
1994 1995 1996
------- -------- -------
(thousands)
Continuing operations ........................ $6,525 $ 1,405 $ 7,702
Discontinued operations ...................... (731) (2,640) (2,606)
------ ------- -------
Total consolidated provision (benefit)
for income taxes ......................... $5,794 $(1,235) $ 5,096
====== ======= =======
The total consolidated provision (benefit) for income taxes is summarized
as follows:
1994 1995 1996
------ ------- ------
(thousands)
Current:
Federal .................................. $ -- $ -- $ 220
State .................................... 172 266 686
Foreign .................................. 833 480 786
------ ------- ------
Total current ............................ 1,005 746 1,692
------ ------- ------
Deferred:
Federal .................................. 3,598 (1,424) 1,665
State .................................... 1,212 (268) 1,248
Foreign .................................. (21) (289) 491
------ ------- ------
Total deferred ........................... 4,789 (1,981) 3,404
------ ------- ------
Total consolidated provision (benefit)
for income taxes ........................ $5,794 $(1,235) $5,096
====== ======= ======
The tax effects of the temporary differences that give rise to significant
deferred tax assets and liabilities are:
December 31, December 29,
1995 1996
----------- ------------
(thousands)
Deferred tax assets:
Inventory basis differences ...................... $ 861 $ 415
Employee benefit accruals ........................ 976 714
Allowances and contingent liabilities ............ 2,427 2,548
Restructuring and plant closing accruals ......... 7,644 3,632
Other ............................................ 77 221
Net operating loss carryforwards ................. 8,975 5,154
Capital loss carryforwards ....................... -- 14,193
Valuation allowance for deferred tax assets ...... (13,473) (15,988)
--------- --------
Deferred tax assets .............................. 7,487 10,889
--------- --------
F-20
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
10. INCOME TAXES (continued)
Deferred tax liabilities:
Basis difference in property, plant and equipment .... 8,507 7,644
Other ............................................... 374 1,188
--- -----
Deferred tax liabilities ............................ 8,881 8,832
----- -----
Net deferred tax assets (liabilities) ............... $ (1,394) $2,057
======== ======
Foamex L.P. has determined that taxable capital gains in the foreseeable
future for a subsidiary that files a separate federal income tax return will
likely not be sufficient to recognize the deferred tax asset associated with the
capital loss carryforward of that subsidiary. Accordingly, a valuation allowance
has been provided for the deferred tax asset associated with the capital loss
carryforward and certain other deferred tax assets. During 1996, the valuation
allowance for deferred tax assets increased by $2.5 million which included a
$14.2 million increase for the capital loss carryforward, offset by $6.9 million
decrease due to reversal of General Felt preacquisition temporary differences
and $4.8 million for reversal of General Felt postacquisition temporary
differences which is reflected in the consolidated statement of operations. The
$6.9 million reversal of preacquisition temporary differences was used to reduce
cost in excess of assets acquired. As of December 29, 1996, approximately $1.8
million of deferred tax assets are related to preacquisition activities and if
utilized will further reduce cost in excess of assets acquired. At December 29,
1996, General Felt has $14.7 million of regular tax net operating loss
carryforwards for federal income tax purposes expiring from 2003 to 2010 of
which $7.0 million was acquired in 1993 and is subject to limitations. In
addition, General Felt has $40.6 million of capital loss carryforwards that
expire in 2001.
A reconciliation of the statutory federal income tax rate to the effective
income tax rate on continuing operations is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
------------ ------------- ------------
(thousands)
<S> <C> <C> <C>
Statutory income taxes ................................ $ 15,588 $ (16,352) $ 21,477
State income taxes, net of federal .................... 900 266 1,288
Permanent difference on partnership income ............ (11,009) 12,233 (11,714)
Limitation on the utilization of tax benefits ......... -- 4,929 --
Valuation allowance ................................... (452) -- (4,823)
Cost in excess of assets acquired ..................... 525 554 551
Other ................................................. 973 (225) 923
--------- --------- ---------
Total ................................................ $ 6,525 $ 1,405 $ 7,702
========= ========= =========
</TABLE>
11. EXTRAORDINARY LOSS
During 1996, Foamex L.P. used $31.3 million of the net proceeds from the
sale of Perfect Fit to extinguish debt of $30.6 million and redemption premiums
of $0.6 million. Foamex L.P. wrote off $1.2 million of debt issuance costs
associated with the early extinguishment of debt and incurred transaction costs
of $0.1 million. The early extinguishment of debt resulted in an extraordinary
loss of $1.9 million.
12. COMMITMENTS AND CONTINGENCIES
Operating Leases
Foamex L.P. is obligated under various noncancelable lease agreements for
rental of facilities, vehicles and other equipment. Many of the leases contain
renewal options with varying terms and escalation clauses that provide for
increased rentals based upon increases in the Consumer Price Index, real estate
taxes and lessors' operating expenses. Total minimum rental commitments
(excluding commitments accrued as part of the 1995 and 1996 restructuring plans)
required under operating leases at December 29, 1996 are:
F-21
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
12. COMMITMENTS AND CONTINGENCIES (continued)
Third Party Related Party
Leases Leases
----------- -------------
(thousands)
1997 ............... $ 7,874 $ 1,767
1998 ............... 6,164 1,823
1999 ............... 4,866 1,823
2000 ............... 3,812 1,823
2001 ............... 2,883 2,265
Thereafter ......... 4,122 5,800
------- -------
Total ............. $29,721 $15,301
======= =======
Rental expense charged to operations under operating leases approximated
$9.7 million, $10.1 million and $9.6 million for 1994, 1995 and 1996,
respectively. Substantially all such rental expense represented the minimum
rental payments under operating leases. In addition, Foamex L.P. incurred rental
expense of approximately $3.9 million, $3.5 million and $1.7 million for 1994,
1995 and 1996, respectively, under leases with related parties.
13. RELATED PARTY TRANSACTIONS AND BALANCES
Foamex L.P. regularly enters into transactions with its affiliates in the
ordinary course of business.
During April 1996, Foamex International contributed the foam products
operations of Foamex Mexico to Foamex L.P. The contribution was accounted for in
a manner similar to a pooling of interests since the entities were under common
control. Accordingly, all prior periods presented have been restated to reflect
the results of operations and financial position of Foamex Mexico. The
restatement of prior periods was insignificant to the consolidated financial
statements.
During 1996, Foamex L.P. chartered an aircraft (which is owned by a wholly
owned subsidiary of Foamex International) through a third party and incurred
costs of approximately $1.4 million.
In December 1995, Foamex L.P. entered into a $2.0 million promissory note
with Foamex International. The note bears interest at a rate per annum equal to
six months LIBOR plus 4.0% and is payable semiannually in June and December. The
note matures in December 1997. The note has been classified in the other
component of partners' equity (deficit).
On July 7, 1996, Trace International Holdings, Inc. ("Trace Holdings")
issued to Foamex L.P. a promissory note for $4.4 million in principal amount
plus accrued interest of $0.4 million, which is an extension of a promissory
note of Trace Holdings that was due in July 1996. The promissory note is due and
payable on demand or, if no demand is made, July 7, 1997, and bears interest at
9.5%, payable quarterly in arrears commencing October 1, 1996. The promissory
note is included in other partners' equity (deficit).
In connection with the acquisition of Great Western, Foamex L.P. issued a
promissory note to Rallis (see Note 8) and entered into lease agreements (see
Note 12) with Rallis and an affiliate of Rallis, for the rental of former Great
Western manufacturing facilities located in Orange, Ontario and Hayward,
California and a warehouse facility in Tigard, Oregon. Foamex L.P. has the
option to purchase each of these properties from Rallis or such affiliate.
Foamex L.P. was party to a lease agreement for an airplane with Trace
Aviation Corp. ("Trace Aviation"), a subsidiary of Trace Holdings. During 1994
and 1995, Foamex L.P. paid Trace Aviation $2.7 million and $1.6 million,
respectively, pursuant to the lease agreement. The lease agreement also
provided for the use of the airplane by Trace Holdings with remuneration to
Foamex L.P. based on actual usage of the plane. During 1994 and 1995, Trace
Holdings paid to Foamex L.P. $0.5 million and $0.6 million, respectively,
pursuant to the agreement. During August 1995, Foamex Aviation Inc.
("Aviation"), a wholly owned subsidiary of Foamex International, acquired the
aircraft
F-22
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
13. RELATED PARTY TRANSACTIONS AND BALANCES (continued)
from Trace Holdings for $3.0 million in cash and the assumption of $11.7
million of related debt. In connection with the acquisition of the aircraft,
the Foamex L.P. lease and other agreements were terminated.
Foamex L.P. has a management service agreement with Trace Foam Company,
Inc. ("Trace Foam"), a wholly-owned subsidiary of Trace Holdings, pursuant to
which Trace Foam provides general managerial services of a financial, technical,
legal, commercial, administrative and/or advisory nature to Foamex L.P. for an
annual fee of $1.75 million and reimbursement of expenses incurred. Trace
Holdings rents approximately 5,900 square feet of general, executive, and
administrative office space in New York, New York from Foamex L.P. on
substantially the same terms as Foamex L.P. leases such space from a third party
lessor.
During 1994 and 1995, Foamex L.P. purchased approximately $11.9 million and
$2.5 million, respectively, of scrap material from Recticel Foam Corporation
("RFC"), a former partner of Foamex L.P. and whose chairman is a director of
Foamex International, under a minimum annual volume agreement which expired in
June 1995.
On June 28, 1994, Foamex L.P. purchased an $87.9 million principal amount
note due 2006 from its 98% limited partner Foamex-JPS Automotive L.P. ("FJPS")
for $35.3 million (the "FJPS Note"). The FJPS Note will not pay interest until
July 2000. Instead, principal will accrete (from the initial purchase price of
$35.3 million) on a daily basis and compound semiannually at the rate of 15.50%
per annum through June 1996; 15.75% per annum thereafter through June 1997; and
16.00% per annum thereafter through June 2000. Interest will be due semiannually
in cash at 16.00% per annum from July 2000 through the maturity date. In
December 1996 in exchange for certain waivers and amendment of the FJPS Note,
FJPS repaid $18.4 million of the FJPS Note and a waiver payment of $0.2 million
using a portion of the proceeds from the sale of its partnership interest in JPS
Automotive L.P. FJPS has the right to reborrow such amount, subject to
limitations in the Foamex L.P. Credit Facility, solely for the purpose of
funding a purchase price adjustment payment, if any, in connection with the JPS
Automotive L.P. sale. The FJPS Note has been classified in partners' equity
(deficit) and the accreted principal of $16.3 million for the period from June
28, 1994 to December 29, 1996 has been included in the FJPS Note. The FJPS Note
may be redeemed at the option of FJPS, in whole or in part, at any time at the
redemption prices (expressed as percentages of the Accreted Value (as defined)
if on or prior to July 1, 2000, and thereafter, expressed as percentages of the
principal amount) initially equal to 108% for the twelve-month period commencing
July 1, 1994 declining to 100% on or after July 1, 2005. If FJPS does not repay
the indebtedness with at least 85% of the net proceeds of any Equity Offering
(as defined), the rate at which the FJPS Note accretes and the interest rate on
the FJPS Note will increase.
In June 1994, Foamex L.P. also entered into a supply agreement with Foamex
International (the "Supply Agreement"). Pursuant to the terms of the Supply
Agreement, at the option of Foamex L.P., Foamex International will purchase
certain raw materials which are necessary for the manufacture of Foamex L.P.'s
products, and resell such materials to Foamex L.P. at a price equal to net cost
plus reasonable out of pocket expenses. Management believes that the terms of
the Supply Agreement are no less favorable than those which Foamex L.P. could
have obtained from an unaffiliated third party. During 1995 and 1996, Foamex
L.P. made $105.1 million and $129.7 million, respectively, of purchases relating
to the Supply Agreement.
As of December 31, 1995 and December 29, 1996, due to related parties
amounted to $11.7 million and $8.8 million, respectively, and represents the net
amounts payable to Foamex International and subsidiaries for purchases under the
Supply Agreement and other matters.
Foamex L.P. made charitable contributions to the Trace International
Holdings, Inc. Foundation of approximately $0.2 million in each of 1994, 1995
and 1996.
On December 11, 1996, Foamex L.P. entered into a Tax Distribution Advance
Agreement with FJPS, pursuant to which FJPS is entitled to obtain advances, in
the aggregate not to exceed $17.0 million, against future distributions under
Foamex L.P.'s tax distribution agreement. As of December 29, 1996, there were no
advances under this agreement.
F-23
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
14. PARTNERS' EQUITY (DEFICIT)
Foamex L.P. was formed as a Delaware limited partnership on September 5,
1990, and initially capitalized on October 2, 1990, in accordance with a limited
partnership agreement as amended through June 1994. In connection with a June
1994 amendment, the ownership of Foamex L.P. changed as follows: (i) FMXI, a
wholly-owned subsidiary of Foamex International, bifurcated its 4% managing
general partnership interest into a 1% managing general partnership interest and
a 3% limited partnership interest and distributed the limited partnership
interest to Foamex International, (ii) Foamex International contributed its 95%
limited partnership interest and the 3% limited partnership interest received
from FMXI to FJPS and withdrew as a partner of Foamex L.P. and (iii) FJPS was
admitted as a partner of Foamex L.P. with a 98% limited partnership interest.
The partners also consented to the pledge by FJPS of a 43.44% limited
partnership interest in Foamex L.P. to secure the repayment of certain of FJPS's
indebtedness incurred in connection with the acquisition of JPS Automotive L.P.
by Foamex International. As of December 31, 1995 and December 29, 1996, the
partnership interests of FMXI, Inc. ("FMXI"), Trace Foam, and FJPS were 1.0%,
1.0% and 98.0%, respectively.
Cash distributions for 1994, 1995 and 1996 were paid (received) as follows:
1994 1995 1996
-------- -------- ---------
(thousands)
FMXI ......................... $ 59 $ 12 $ (35)
Trace Foam ................... 29 -- 45
Foamex International ......... 653 -- --
FJPS ......................... 2,516 2,367 3,477
------ ------ ------
Total ....................... $3,257 $2,379 $3,487
====== ====== ======
Other
The other component of partners' equity (deficit) consists of the
following:
<TABLE>
<CAPTION>
January 1, December 31, December 29,
1995 1995 1996
---------- ----------- ------------
(thousands)
<S> <C> <C> <C>
Foreign currency translation adjustment ........ $ 3,930 $ 3,448 $ 3,494
Additional pension liability ................... 1,489 4,779 2,407
Note receivable from Trace Holdings ............ 3,000 4,373 4,373
Note receivable from Foamex International ...... -- 2,000 2,000
------- ------- -------
$ 8,419 $14,600 $12,274
======= ======= =======
</TABLE>
15. ENVIRONMENTAL MATTERS
Foamex L.P. is subject to extensive and changing federal, state, local and
foreign environmental laws and regulations, including those relating to the use,
handling, storage, discharge and disposal of hazardous substances and the
remediation of environmental contamination, and as a result, is from time to
time involved in administrative and judicial proceedings and inquiries relating
to environmental matters. During 1996, expenditures in connection with Foamex
L.P.'s compliance with federal, state, local and foreign environmental laws and
regulations did not have a material adverse effect on Foamex L.P.'s operations,
financial position, capital expenditures or competitive position. As of December
29, 1996, Foamex L.P. has environmental accruals of approximately $4.1 million
for environmental matters. In addition, as of December 29, 1996 Foamex L.P. has
net receivables of approximately $0.9 million relating to indemnification for
environmental liabilities, net of an allowance of approximately $1.0 million
relating to potential disagreements regarding the scope of the indemnification.
Foamex L.P. believes that realization of the net receivables established for
indemnification is probable.
The Clean Air Act Amendments of 1990 (the "1990 CAA Amendments") provide
for the establishment of federal emission standards for hazardous air pollutants
including methylene chloride and TDI, principal raw
F-24
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
15. ENVIRONMENTAL MATTERS (continued)
materials used in the manufacturing of foam. Foamex L.P. completely eliminated
the use of chlorofluorocarbons and methylchloroform by the end of 1995. The 1990
CAA Amendments also may result in the imposition of more stringent standards
regulating air emissions from the use of these chemicals by polyurethane foam
manufacturers, but these standards have not yet been promulgated.
Foamex L.P. has reported to appropriate state authorities that it has found
soil and groundwater contamination in excess of state standards at four
facilities and soil contamination in excess of state standards at three other
facilities. Foamex L.P. has begun remediation and is conducting further
investigations into the extent of the contamination at these facilities and,
accordingly, the extent of the remediation that may ultimately be required. The
actual cost and the timetable of any such remediation cannot be predicted with
any degree of certainty at this time. As of December 29, 1996, Foamex L.P. has
environmental accruals of approximately $3.2 million for the remaining potential
remediation costs for these facilities based on engineering estimates.
Federal regulations require that by the end of 1998 all underground storage
tanks ("USTs") be removed or upgraded in all states to meet applicable
standards. Foamex L.P. has six USTs that will require removal or permanent
in-place closure by the end of 1998. Due to the age of these tanks, leakage may
have occurred resulting in soil and possibly groundwater contamination. Foamex
L.P. has accrued $0.4 million for the estimated removal and remediation, if any,
associated with these USTs. However, the full extent of contamination and,
accordingly, the actual cost of such remediation cannot be predicted with any
degree of certainty at this time. Foamex L.P. believes that its USTs do not pose
a significant risk of environmental liability because of Foamex L.P.'s
monitoring practices for USTs and conditional approval for the permanent
in-place closure for certain USTs. However, there can be no assurance that such
USTs will not result in significant environmental liability in the future.
Foamex L.P. has been designated as a Potentially Responsible Party ("PRP")
by the United States Environmental Protection Agency (the "EPA") with respect to
thirteen sites, with an estimated total liability to Foamex L.P. for the
thirteen sites of less than approximately $0.5 million. Estimates of total
cleanup costs and fractional allocations of liability are generally provided by
the EPA or the committee of PRP's with respect to the specified site. In each
case, the participation of Foamex L.P. is considered to be immaterial.
Although it is possible that new information or future developments could
require Foamex L.P. to reassess its potential exposure relating to all pending
environmental matters, including those described herein, management believes
that, based upon all currently available information, the resolution of such
environmental matters will not have a material adverse effect on Foamex L.P.'s
operations, financial position, capital expenditures or competitive position.
The possibility exists, however, that new environmental legislation and/or
environmental regulations may be adopted, or other environmental conditions may
be found to exist, that may require expenditures not currently anticipated and
that may be material.
16. LITIGATION
As of February 26, 1997, Foamex L.P. and Trace Holdings were two of
multiple defendants in actions filed on behalf of approximately 5,000 recipients
of breast implants in various United States federal and state courts and one
Canadian provincial court, some of which allege substantial damages, but most of
which allege unspecified damages for personal injuries of various types. Five of
these cases seek to allege claims on behalf of all breast implant recipients or
other allegedly affected parties, but no class has been approved or certified by
the court. In addition, three cases have been filed alleging claims on behalf of
approximately 700 residents of Australia, New Zealand, England, and Ireland.
During 1995, Foamex L.P. and Trace Holdings were granted summary judgments and
dismissed as defendants from all cases in the federal courts of the United
States and the state courts of California. Appeals for these decisions were
withdrawn and the decisions are final. In addition, two of the cases filed on
behalf of 903 foreign plaintiffs were dismissed on the grounds that the cases
could not be brought in the United States courts. This decision is subject to
appeal. Foamex L.P. believes that the number of suits and claimants may
increase.
F-25
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
16. LITIGATION (continued)
Although breast implants do not contain foam, certain silicone gel implants were
produced using a polyurethane foam covering fabricated by independent
distributors or fabricators from bulk foam purchased from Foamex L.P. or Trace
Holdings. Neither Foamex L.P. nor Trace Holdings recommended, authorized or
approved the use of its foam for these purposes. While it is not feasible to
predict or determine the outcome of these actions, based on management's present
assessment of the merits of pending claims, after consultation with the general
counsel of Trace Holdings, and without taking into account potential indemnity
from the manufacturers of polyurethane covered breast implants, management
believes that the disposition of matters that are pending or that may reasonably
be anticipated to be asserted should not have a material adverse effect on
either Foamex L.P.'s or Trace Holdings' consolidated financial position or
results of operations. In addition, Foamex L.P. is also indemnified by Trace
Holdings for any such liabilities relating to foam manufactured prior to October
1990. Although Trace Holdings has paid Foamex L.P.'s litigation expenses to date
pursuant to such indemnification and management believes Trace Holdings likely
will be in a position to continue to pay such expenses, there can be no absolute
assurance that Trace Holdings will be able to provide such indemnification.
Based on information available at this time with respect to the potential
liability, and without taking into account the indemnification provided by Trace
Holdings and the coverage provided by Trace Holdings' and Foamex L.P.'s
liability insurance, Foamex L.P. believes that the proceedings should not
ultimately result in any liability that would have a material adverse effect on
the financial position or results of operations of Foamex L.P. If management's
assessment of Foamex L.P.'s liability with respect to these actions is
incorrect, such actions could have a material adverse effect on Foamex L.P.
Foamex L.P. is party to various other lawsuits, both as defendant and
plaintiff, arising in the normal course of business. It is the opinion of
management that the disposition of these lawsuits will not individually or in
the aggregate, have a material adverse effect on the financial position or
results of operations of Foamex L.P. If management's assessment of Foamex L.P.'s
liability with respect to these actions is incorrect, such actions could have a
material adverse effect on Foamex L.P.'s consolidated financial position.
17. FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK
Interest Rate Swap Agreements
Foamex L.P. has two interest rate swap agreements involving the exchange of
fixed and floating interest payment obligations without the exchange of the
underlying principal amounts. At December 29, 1996, the total notional principal
amount of these interest rate swap agreements was $300.0 million. The
counterparty to these agreements is a large international financial institution.
The interest rate swap agreements subject Foamex L.P. to financial risk that
will vary during the life of these agreements in relation to market interest
rates.
Concentration of Credit Risk
Financial instruments which potentially subject Foamex L.P. to significant
concentrations of credit risk consist primarily of cash and cash equivalents and
trade accounts receivable. Foamex L.P. maintains cash and cash equivalents and
certain other financial instruments with various large financial institutions.
Foamex L.P.'s periodic evaluation of these financial institutions is considered
in Foamex L.P.'s investment strategy.
Foamex L.P. sells foam products to the automotive, carpet, cushioning and
other industries. Foamex L.P. performs ongoing credit evaluations of its
customers and generally does not require collateral. Foamex L.P. maintains
allowance accounts for potential credit losses and such losses have been within
management's expectations.
Disclosure about Fair Value of Financial Instruments
The following disclosures of the estimated fair value amounts have been
determined based on Foamex L.P.'s assessment of available market information and
appropriate valuation methodologies.
F-26
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
17. FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK (continued)
The estimated fair values of Foamex L.P.'s financial instruments as of
December 29, 1996 are as follows:
Carrying Amount Fair Value
--------------- ----------
(thousands)
Liabilities:
Long-term debt .............. $406,352 $427,862
======== ========
Interest rate swaps ......... $ -- $ 3,160
======== ========
Carrying amounts reported in the consolidated balance sheet for cash and
cash equivalents, accounts receivable, accounts payable, accrued liabilities and
short-term borrowings approximates fair value due to the short-term nature of
these instruments.
The fair value of long-term debt is estimated using quoted market prices,
where available, or discounted cash flows.
The fair value of interest rate swaps is based on the amount at which
Foamex L.P. would pay if the swaps were settled, as determined by estimates
obtained from dealers.
Fair value estimates are made at a specific point in time, based on
relevant market information about the financial instruments. These estimates are
subjective in nature and involve uncertainties and matters of significant
judgment and, therefore, cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.
18. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
1994 1995 1996
------- ------- -------
(thousands)
Cash paid for interest ............... $42,734 $47,282 $43,378
======= ======= =======
Cash paid for income taxes ........... $ 1,757 $ 634 $ 1,533
======= ======= =======
Noncash capital expenditures ......... $ -- $ 378 $ 165
======= ======= =======
F-27
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
(thousands)
December 29, September 28,
1996 1997
------------ -------------
ASSETS:
CURRENT ASSETS:
Cash and cash equivalents ....................... $ 20,968 $ 1,078
Accounts receivable, net ........................ 125,847 141,609
Inventories ..................................... 102,610 94,301
Other current assets ............................ 39,495 48,584
--------- ----------
Total current assets ........................... 288,920 285,572
PROPERTY, PLANT AND EQUIPMENT, NET ................. 182,427 195,178
COST IN EXCESS OF ASSETS ACQUIRED, NET ............. 83,991 82,114
DEBT ISSUANCE COSTS, NET ........................... 14,902 17,771
OTHER ASSETS ....................................... 15,917 20,364
--------- ----------
TOTAL ASSETS ....................................... $ 586,157 $ 600,999
========= ==========
LIABILITIES AND PARTNERS' EQUITY (DEFICIT):
CURRENT LIABILITIES:
Short-term borrowings ........................... $ 3,692 $ 4,871
Current portion of long-term debt ............... 13,735 8,664
Accounts payable ................................ 75,621 71,952
Accounts payable to related parties ............. 8,803 16,556
Accrued interest ................................ 8,871 7,220
Other accrued liabilities ....................... 41,108 48,590
--------- ----------
Total current liabilities ...................... 151,830 157,853
--------- ----------
LONG-TERM DEBT ..................................... 392,617 519,668
--------- ----------
OTHER LIABILITIES .................................. 28,878 27,074
--------- ----------
COMMITMENTS AND CONTINGENCIES ...................... -- --
--------- ----------
PARTNERS' EQUITY (DEFICIT):
Partners' capital accounts ...................... 58,286 (87,670)
Note receivable from partner .................... (33,180) --
Other ........................................... (12,274) (15,926)
--------- ----------
Total partners' equity (deficit) ............... 12,832 (103,596)
--------- ----------
TOTAL LIABILITIES AND PARTNERS' EQUITY (DEFICIT) ... $ 586,157 $ 600,999
========= ==========
The accompanying notes are an integral part of the
condensed consolidated financial statements.
F-28
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(thousands)
39-Week Periods Ended
------------------------------
September 29, September 28,
1996 1997
-------------- -------------
NET SALES .................................. $696,344 $702,441
COST OF GOODS SOLD ......................... 582,186 576,825
-------- --------
GROSS PROFIT ............................... 114,158 125,616
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES .................................. 42,184 46,893
-------- --------
INCOME FROM OPERATIONS ..................... 71,974 78,723
INTEREST AND DEBT ISSUANCE EXPENSE ......... 31,855 33,355
OTHER INCOME, NET .......................... 1,076 1,403
-------- --------
INCOME FROM CONTINUING OPERATIONS
BEFORE PROVISION FOR INCOME TAXES ......... 41,195 46,771
PROVISION FOR INCOME TAXES ................. 6,584 4,618
-------- --------
INCOME FROM CONTINUING OPERATIONS .......... 34,611 42,153
LOSS FROM DISCONTINUED OPERATIONS .......... (41,516) --
EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT
OF DEBT ................................... (672) (45,538)
-------- --------
NET INCOME (LOSS) .......................... $ (7,577) $ (3,385)
======== ========
The accompanying notes are an integral part of the
condensed consolidated financial statements.
F-29
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(thousands)
<TABLE>
<CAPTION>
39-Week Periods Ended
--------------------------------
September 29, September 28,
1996 1997
--------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) ................................................. $ (7,577) $ (3,385)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation and amortization ................................... 15,945 15,570
Amortization of debt issuance costs and debt discount ........... 2,124 1,903
Extraordinary loss on extinguishment of debt .................... 672 45,538
Loss from discontinued operations ............................... 41,516 --
Other operating activities ...................................... (4,126) (1,696)
Changes in operating assets and liabilities ..................... (14,025) (26,200)
-------- ----------
Net cash provided by continuing operations ..................... 34,529 31,730
Net cash used for discontinued operations ...................... (486) --
-------- ----------
Net cash provided by operating activities ...................... 34,043 31,730
-------- ----------
INVESTING ACTIVITIES:
Capital expenditures .............................................. (14,536) (25,444)
Purchase of FJPS senior secured discount debentures ............... -- (105,829)
Decrease in restricted cash ....................................... (33,149) 12,143
Loan to partner ................................................... -- (5,000)
Proceeds from sale of discontinued operations ..................... 45,425 --
Other investing activities ........................................ 1,745 (930)
Discontinued operations investing activities ...................... (919) --
-------- ----------
Net cash used for investing activities ......................... (1,434) (125,060)
-------- ----------
FINANCING ACTIVITIES:
Net proceeds from short-term borrowings ........................... 2,970 1,179
Proceeds from revolving loans ..................................... -- 31,000
Proceeds from long-term debt ...................................... -- 453,500
Repayment of long-term debt ....................................... (18,392) (363,443)
Premiums and payments associated with debt extinguishment ......... -- (22,921)
Debt issuance costs ............................................... -- (15,617)
Distributions to partners ......................................... (3,478) (10,283)
Other financing activities ........................................ (8) 25
-------- ----------
Net cash provided by (used for) financing activities ........... (18,908) 73,440
-------- ----------
Net increase (decrease) in cash and cash equivalents ............... 13,701 (19,890)
Cash and cash equivalents at beginning of period ................... 638 20,968
-------- ----------
Cash and cash equivalents at end of period ......................... $ 14,339 $ 1,078
======== ==========
</TABLE>
The accompanying notes are an integral part of the
condensed consolidated financial statements.
F-30
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
Foamex L.P.'s condensed consolidated balance sheet as of December 29, 1996
has been condensed from the audited consolidated balance sheet at that date. The
condensed consolidated balance sheet as of September 28, 1997 and the condensed
consolidated statements of operations for the thirteen week and thirty-nine week
periods ended September 29, 1996 and September 28, 1997 and the condensed
consolidated statements of cash flows for the thirty-nine week periods ended
September 29, 1996 and September 28, 1997 have been prepared by Foamex L.P. and
subsidiaries and have not been audited by Foamex L.P.'s independent accountants.
In the opinion of management, all adjustments, consisting only of normal
recurring adjustments, considered necessary for a fair presentation of the
consolidated financial position, results of operations and cash flows have been
included.
Upon consummation of the Refinancing Plan, as defined, on June 12, 1997
(see Note 4 below for further discussion), Foamex-JPS Automotive L.P. ("FJPS")
was merged into Foamex International Inc. ("Foamex International"), which thus
became a 98% limited partner of Foamex L.P. FMXI, Inc. ("FMXI") is a 1%
managing general partner of Foamex L.P. and Trace Foam Company, Inc. ("Trace
Foam") is a 1% non-managing general partner of Foamex L.P. FMXI is a wholly
owned subsidiary of Foamex International.
Certain information and note disclosures normally included in the financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted in accordance with the rules and regulations of
the Securities and Exchange Commission. These condensed consolidated financial
statements should be read in conjunction with Foamex L.P.'s 1996 consolidated
financial statements and notes thereto as set forth in Foamex L.P.'s Annual
Report on Form 10-K for the fiscal year ended December 29, 1996.
2. DISCONTINUED OPERATIONS
During 1996, Foamex L.P. sold the outstanding common stock of Perfect Fit
Industries, Inc. ("Perfect Fit"), a wholly owned subsidiary, for an adjusted
sale price of approximately $44.2 million. The sale included the net assets of
Foamex L.P.'s home comfort products business segment.
Foamex L.P.'s condensed consolidated financial statements reflect the
discontinuation of the home comfort products business segment. Interest and debt
issuance expense was allocated to discontinued operations based on the estimated
debt to be retired with the net proceeds from the sale. A summary of the
operating results for the discontinued operations is as follows:
<TABLE>
<CAPTION>
39-Week Period Ended
September 29, 1996
-----------------------
(thousands)
<S> <C>
Net sales ............................................................ $ 50,097
Gross profit ......................................................... 8,065
Income from operations ............................................... 1,123
Interest and debt issuance expense ................................... 2,384
Other expense ........................................................ 348
Loss on disposal of discontinued operations .......................... (41,286)
Loss from discontinued operations before benefit from income taxes ... (42,895)
Benefit for income taxes ............................................. (1,379)
Loss from discontinued operations, net of income taxes ............... (41,516)
</TABLE>
F-31
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
3. INVENTORIES
The components of inventories consist of:
December 29, September 28,
1996 1997
-------------- --------------
(thousands)
Raw materials and supplies ......... $ 61,559 $49,067
Work in process .................... 13,453 17,568
Finished goods ..................... 27,598 27,666
-------- -------
Total ............................. $102,610 $94,301
======== =======
4. LONG-TERM DEBT
Long-term debt consists of:
<TABLE>
<CAPTION>
December 29, September 28,
1996 1997
-------------- --------------
(thousands)
<S> <C> <C>
9-7/8% senior subordinated notes due 2007(1) ......................... $ -- $150,000
Foamex L.P. term loan facilities (7.83% interest rate at
September 28, 1997)(2) .............................................. -- 298,000
Foamex L.P. revolving loan (7.62% interest rate at
September 28, 1997)(3) .............................................. -- 31,000
9-1/2% senior secured notes due 2000(4) .............................. 106,793 4,523
11-1/4% senior notes due 2002(4) ..................................... 141,400 5,825
11-7/8% senior subordinated debentures due 2004
(net of unamortized debt discount of $769 and $116)(4) .............. 125,056 20,227
11-7/8% senior subordinated debentures due 2004, Series B(5) ......... 7,000 45
Industrial revenue bonds(6) .......................................... 7,000 7,000
Foamex L.P. term loan (8.54% interest rate as of
December 29, 1996)(6) ............................................... 11,000 --
Subordinated note (net of debt discount of $1,198 and $969)(6) ....... 5,817 6,046
Other ................................................................ 2,286 5,666
-------- --------
406,352 528,332
Less current portion ................................................. 13,735 8,664
-------- --------
Long-term debt ....................................................... $392,617 $519,668
======== ========
</TABLE>
- - ----------
(1) Debt of Foamex L.P. and Foamex Capital Corporation ("FCC") (together, the
"Issuers"), guaranteed by General Felt Industries, Inc. ("General Felt"),
Foamex Fibers, Inc. ("Foamex Fibers") and certain future domestic
subsidiaries of the Issuers.
(2) Debt of Foamex L.P., guaranteed by Foamex International, General Felt and
Foamex Fibers.
(3) Debt of Foamex L.P. and General Felt, guaranteed by Foamex International
and Foamex Fibers.
(4) Debt of the Issuers, guaranteed by Foamex International and General Felt.
(5) Debt of the Issuers, guaranteed by General Felt.
(6) Debt of Foamex L.P.
F-32
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4. LONG-TERM DEBT (continued)
Refinancing Plan
On June 12, 1997, Foamex International substantially completed a
refinancing plan (the "Refinancing Plan") that included the refinancing of
certain long-term indebtedness to reduce Foamex International's interest expense
and improve financing flexibility. In connection with the Refinancing Plan,
Foamex L.P. purchased approximately $342.3 million of aggregate principal amount
of its public debt and approximately $116.7 million of aggregate principal
amount of FJPS's senior secured discount debentures due 2004 (the "Discount
Debentures") and repaid $5.2 million of term loan borrowings under its old
credit facility. Foamex L.P. incurred an extraordinary loss on the early
extinguishment of debt associated with the Refinancing Plan of approximately
$44.5 million. The Refinancing Plan was funded by $347.0 million of borrowings
under a new $480.0 million credit facility (the "New Credit Facility") and the
net proceeds from the issuance of $150.0 million of 9-7/8% senior subordinated
notes due 2007.
In addition, on October 1, 1997, Foamex L.P. redeemed all of the
outstanding: (i) 11-1/4% senior notes due 2002, (ii) 11-7/8% senior subordinated
debentures due 2004 and (iii) the 11-7/8% senior subordinated debentures due
2004, Series B, constituting approximately $26.0 million of the approximately
$30.0 million of its outstanding public debt that was not tendered as part of
the Refinancing Plan. The redemption was funded from the New Credit Facility. In
connection with this redemption, Foamex L.P. expects to incur an extraordinary
loss on the early extinguishment of debt of approximately $2.6 million in the
fourth quarter of 1997.
Term Loans and Revolving Loan
On June 12, 1997, Foamex L.P. entered into the New Credit Facility with a
group of banks that provides for term loans of up to $330.0 million which expire
from June 2003 to June 2006 and borrowings of up to $150.0 million under a
revolving line of credit which expires in June 2003. In connection with the
Refinancing Plan, Foamex L.P. entered into term loans of $298.0 million and
borrowed $49.0 million under the revolving line of credit.
The term loans are comprised of a (i) term A loan ("Term A") which provides
up to $120.0 million of borrowings of which Foamex L.P. borrowed $88.0 million
in connection with the Refinancing Plan, (ii) term B loan ("Term B") of $110.0
million and (iii) term C loan ("Term C") of $100.0 million. The remaining $32.0
million available under the Term A is restricted and can only be used by Foamex
L.P. to retire its public debt not tendered in connection with the Refinancing
Plan with such unused availability terminating June 15, 1998. Foamex L.P.
borrowed $29.0 million under the Term A in connection with the October 1, 1997
redemption.
Borrowings under the New Credit Facility are collateralized by
substantially all of the assets of Foamex L.P., General Felt and Foamex Fibers
on a pari passu basis with the 9-1/2% senior secured notes due 2000 and the
industrial revenue bonds (collectively, the "Notes"); however, the rights of the
holders of the applicable issue of Notes to receive payment upon the disposition
of the collateral securing such issue of Notes has been preserved.
Pursuant to the terms of the New Credit Facility, borrowed funds will bear
interest at a floating rate equal to an applicable margin, as defined, plus the
higher of (i) the base rate of The Bank of Nova Scotia, in effect from time to
time, or (ii) a rate that is equal to 0.5% per annum plus the federal funds rate
in effect from time to time. The applicable margin is determined based on the
total net debt to EBDAIT ratio, as defined, and can range from no margin up to
1.125% per annum for Term A and revolving loans, from 0.875% per annum to 1.375%
per annum for Term B and from 1.125% per annum to 1.625% per annum for Term C.
At the option of Foamex L.P., portions of the outstanding loans under the New
Credit Facility are convertible into LIBOR based loans which bear interest at a
floating rate equal to an applicable margin for LIBOR based loans, as defined,
plus the average LIBOR, as defined. The applicable margin for LIBOR based loans
is a rate that will generally equal the applicable margin (discussed above) plus
1.0% per annum.
9-7/8% Senior Subordinated Notes due 2007 ("Senior Subordinated Notes")
The Senior Subordinated Notes were issued by Foamex L.P. and FCC in a
private placement under Rule 144A of the Securities Act of 1933, as amended, on
June 12, 1997 in connection with the Refinancing Plan. The Senior
F-33
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4. LONG-TERM DEBT (continued)
Subordinated Notes bear interest at the rate of 9-7/8% per annum payable
semiannually on each June 15 and December 15, commencing December 15, 1997. The
Senior Subordinated Notes mature on June 15, 2007. The Senior Subordinated Notes
may be redeemed at the option of Foamex L.P., in whole or in part, at any time
on or after June 15, 2002, initially at 104.938% of their principal amount, plus
accrued interest and liquidated damages, as defined, if any, thereon to the date
of redemption and declining to 100.0% on or after June 15, 2005. In addition, at
any time prior to June 15, 2000, Foamex L.P. may on one or more occasions redeem
up to 35.0% of the initially outstanding principal amount of the Senior
Subordinated Notes at a redemption price equal to 109.875% of the principal
amount, plus accrued interest and liquidated damages, if any, thereon to the
date of redemption with the cash proceeds of one or more Public Equity
Offerings, as defined. Upon the occurrence of a change of control, as defined,
each holder of Senior Subordinated Notes will have the right to require Foamex
L.P. to repurchase the Senior Subordinated Notes at a price equal to 101.0% of
the principal amount, plus accrued interest and liquidated damages, if any, to
the date of repurchase. The Senior Subordinated Notes are subordinated in right
of payment to all senior indebtedness and are pari passu in right of payment to
the subordinated note. The Senior Subordinated Notes contain certain covenants
that limit, among other things, the ability of Foamex L.P. (i) to pay
distributions or redeem partnership interests, (ii) to make certain restrictive
payments or investments, (iii) to incur additional indebtedness or issue
Preferred Equity Interest, as defined, (iv) to merge, consolidate or sell all or
substantially all of its assets, or (vi) to enter into certain transactions with
affiliates or related persons. The Senior Subordinated Notes are guaranteed by
General Felt and Foamex Fibers and certain future domestic subsidiaries of the
Issuers.
The Issuers have filed a registration statement relating to an exchange
offer in which the Issuers will offer to exchange the Senior Subordinated Notes
issued in the private placement for new notes. The terms of the new notes will
be substantially identical in all respects (including principal amount, interest
rate, maturity and ranking) to the terms of the Senior Subordinated Notes,
except that the new notes will be transferable by holders thereof without
further registration under the Securities Act of 1933, as amended (except in the
case of Senior Subordinated Notes held by affiliates of the Issuers and for
certain other holders), and are not subject to any covenant regarding
registration under the Securities Act of 1933, as amended. The exchange offer is
expected to be consummated during November 1997.
Principal payments on Foamex L.P.'s long-term debt for the remainder of
1997 and for the next five years are as follows: 1997--$4.1 million; 1998--$11.9
million; 1999--$20.9 million; 2000--$31.3 million; 2001--$31.3 million;
2002--$32.7 million; and thereafter--$397.2 million.
Early Extinguishment of Debt--Refinancing Plan
In connection with the Refinancing Plan, Foamex L.P. incurred an
extraordinary loss on the early extinguishment of debt of approximately $44.5
million. The extraordinary loss is comprised of approximately $20.2 million for
premium and consent fee payments, approximately $12.6 million for the write-off
of debt issuance costs and debt discount, approximately $8.2 million for the
loss associated with the effective termination and amendment of the interest
rate swap agreements and approximately $3.5 million of professional fees and
other costs. In connection with the Refinancing Plan, Foamex L.P. repaid $5.2
million in term loan borrowings under its old credit facility and purchased
approximately $459.0 million of aggregate principal amount of public debt
comprised of:
o $99.8 million of aggregate principal amount of its 9-1/2% senior
secured notes due 2000 for an aggregate consideration of 104.193% of
principal plus accrued interest, comprised of a tender price of
102.193% and a consent fee of 2.0%;
o $130.1 million of aggregate principal amount of its 11-1/4% senior
notes due 2002 for an aggregate consideration of 105.709% of principal
plus accrued interest, comprised of a tender price of 103.709% and a
consent fee of 2.0%;
o $105.5 million of aggregate principal amount of its 11-7/8% senior
subordinated debentures due 2004 for an aggregate consideration of
107.586% of principal plus accrued interest, comprised of a tender
price of 105.586% and a consent fee of 2.0%;
F-34
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4. LONG-TERM DEBT (continued)
o $6.9 million of aggregate principal amount of its 11-7/8% senior
subordinated debentures, series B due 2004 for an aggregate
consideration of 107.586% of principal plus accrued interest, comprised
of a tender price of 105.586% and a consent fee of 2.0%; and
o $116.7 million of aggregate principal amount of the Discount Debentures
for an aggregate consideration of 90.0% of principal amount, which
represents approximately 121.9% of the accreted book value as of June
12, 1997, comprised of a tender price of 88.0% of principal amount and
a consent fee of 2.0%.
Early Extinguishment of Debt--Other
In addition, during 1997 Foamex L.P. incurred extraordinary losses of
approximately $1.0 million associated with the early extinguishment of
approximately $11.8 million of long-term debt funded with approximately $12.1
million of the remaining net proceeds from the sale of Perfect Fit. The
extraordinary loss is comprised of approximately $0.4 million of premium
payments and approximately $0.6 million for the write-off of debt issuance
costs. The long-term debt was comprised of:
o $2.5 million of aggregate principal amount of its 9-1/2% senior secured
notes due 2000.
o $5.5 million of aggregate principal amount of its 11-1/4% senior notes
due 2002.
o Bank term loan borrowings of $3.8 million under Foamex L.P.'s old
credit facility.
Interest Rate Swaps
Foamex L.P. uses derivative financial instruments to manage interest
expense. All derivative financial instruments are classified as "held for
purposes other than trading". Foamex L.P. does not use derivatives for
speculative purposes.
Interest rate swap agreements are used to manage interest expense by
changing the interest rate characteristics of certain debt instruments to
approximate current market conditions. The amended interest rate swap agreement
matures in June 2007 which is consistent with the underlying debt. The
differential paid or received on interest rate swap agreements is recognized on
an accrual basis as an adjustment to interest and debt issuance expense.
In connection with the Refinancing Plan, Foamex L.P.'s existing interest
rate swap agreements with a notional amount of $300.0 million were considered to
be effectively terminated since the underlying debt was extinguished. These
interest rate swap agreements had an estimated fair value liability of $8.2
million at the date of the Refinancing Plan which is included in the
extraordinary loss on the early extinguishment of debt. In lieu of a cash
payment for the estimated fair value of the existing interest rate swap
agreements, Foamex L.P. entered into an amendment of the existing interest rate
swap agreements resulting in one interest rate swap agreement with a notional
amount of $150.0 million through June 2007. Accordingly, the $8.2 million fair
value liability has been recorded as a deferred credit which will be amortized
as a reduction in interest and debt issuance expense on a straight-line basis
over the life of the amended interest rate swap agreement. Under the amended
interest rate swap agreement, Foamex L.P. is obligated to make fixed payments of
5.75% per annum through December 1997 and variable payments based on the higher
of LIBOR at the beginning of the period or the end of the period for the
remainder of the agreement, in exchange for fixed payments by the swap partner
at 6.44% per annum for the life of the agreement, payable semiannually in
arrears. The amended interest rate swap agreement can be terminated by either
party in June 2002, and annually thereafter, for a cash settlement based on the
fair market value of the amended interest rate swap agreement. Interest and debt
issuance expense is subject to fluctuations in LIBOR during the term of the swap
agreement except during 1997. Foamex L.P. is exposed to credit loss in the event
of nonperformance by the swap partner; however, the occurrence of this event is
not anticipated. The effect of the interest rate swaps described above was a
favorable adjustment to interest and debt issuance expense of $2.8 million and
$2.2 million for the thirty-nine week periods ended September 29, 1996 and
September 28, 1997, respectively.
F-35
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
5. RELATED PARTY TRANSACTIONS
On July 1, 1997, Trace Holdings borrowed $5.0 million pursuant to a
promissory note with an aggregate principal amount of $5.0 million issued to
Foamex L.P. on June 12, 1997. The promissory note is due and payable on demand
or, if no demand is made, on July 7, 2001, and bears interest at 2-3/8% plus
three-month LIBOR, as defined, per annum payable quarterly in arrears commencing
October 1, 1997. The promissory note is included in the other component of
partners' equity (deficit).
In connection with the Refinancing Plan, Foamex L.P. purchased
approximately $116.7 million of aggregate principal amount of Discount
Debentures for approximately $105.8 million including transaction costs of
approximately $0.8 million. Foamex L.P. subsequently distributed the Discount
Debentures to FJPS and FMXI.
On June 12, 1997, Foamex L.P. distributed its $2.0 million aggregate
principal amount promissory note due from Foamex International to FJPS and FMXI.
Also on June 12, 1997, Foamex L.P. distributed its $56.2 million aggregate
principal amount note, as amended, due 2006 (the "FJPS Note") from FJPS with an
accreted value as of June 12, 1997 of $35.6 million to FJPS and FMXI. The
accretion of the original issue discount of $4.7 million and $2.4 million for
the thirty-nine week period ended September 29, 1996 and for the period from
December 30, 1996 to June 12, 1997, respectively, was reflected as a direct
increase in the FJPS Note and partners' capital account, and thereby excluded
from the condensed consolidated statements of operations.
In connection with the Refinancing Plan, Foamex L.P. made a cash
distribution of approximately $1.5 million to Trace Foam as a result of Foamex
L.P.'s distribution to FJPS and FMXI of the Discount Debentures, the FJPS Note
and the $2.0 million aggregate principal amount promissory note due from Foamex
International.
On June 12, 1997, a promissory note issued to Foamex L.P. by Trace
International Holdings, Inc. ("Trace Holdings") was amended. The amended
promissory note is an extension of a promissory note of Trace Holdings that was
due in July 1997. The aggregate principal amount of the amended promissory note
was increased to approximately $4.8 million and the maturity of the promissory
note was extended. The promissory note is due and payable on demand or, if no
demand is made, on July 7, 2001, and bears interest at 2-3/8% plus three-month
LIBOR, as defined, per annum payable quarterly in arrears. The promissory note
is included in the other component of partners' equity (deficit).
During June 1997, Foamex L.P. and Trace Foam amended their management
services agreement to increase the annual fee from $1.75 million to $3.0
million, plus reimbursement of expenses incurred.
Foamex L.P. has a supply agreement (the "Supply Agreement") with Foamex
International pursuant to which, at the option of Foamex L.P., Foamex
International will purchase certain raw materials, which are necessary for the
manufacture of Foamex L.P.'s products, and resell such materials to Foamex L.P.
at a price equal to net cost plus reasonable out of pocket expenses. Management
believes that the terms of the Supply Agreement are no less favorable than those
which Foamex L.P. could have obtained from an unaffiliated third party. During
the thirty-nine week periods ended September 29, 1996 and September 28, 1997,
Foamex L.P. purchased approximately $84.3 million and $94.4 million,
respectively, of raw materials under the Supply Agreement. As of December 29,
1996 and September 28, 1997, Foamex L.P. had accounts payable to Foamex
International of approximately $8.8 million and $16.6 million, respectively,
associated with the Supply Agreement.
Foamex L.P. chartered an aircraft (which is owned by a wholly-owned
subsidiary of Foamex International) through a third party and incurred costs of
approximately $0.9 million for each of the thirty-nine week periods ended
September 29, 1996 and September 28, 1997.
F-36
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
6. ENVIRONMENTAL MATTERS
As of September 28, 1997, Foamex L.P. has accruals of approximately $3.8
million for environmental matters. In addition, as of September 28, 1997, Foamex
L.P. has net receivables of approximately $1.0 million relating to
indemnification for environmental liabilities, net of an allowance of
approximately $1.0 million relating to potential disagreements regarding the
scope of the indemnification. Foamex L.P. believes that realization of the net
receivables established for indemnification is probable.
On May 5, 1997, there was an accidental chemical spill at one of Foamex
L.P.'s manufacturing facilities that was contained on site. Foamex L.P. is in
the process of disposing of the contaminated soil which is estimated to cost
approximately $0.6 million. As of September 28, 1997, Foamex L.P. has spent
approximately $0.5 million for remediation costs related to this chemical spill.
The actual cost and the timetable for the clean-up of the site cannot be
predicted with any degree of certainty at this time; therefore, there can be no
assurance that the clean-up of the site will not result in a more significant
environmental liability in the future.
Foamex L.P. has reported to appropriate state authorities that it has found
soil and groundwater contamination in excess of state standards at four
additional facilities and soil contamination in excess of state standards at
three other facilities. Foamex L.P. has begun remediation and is conducting
further investigations into the extent of the contamination at these facilities
and, accordingly, the extent of the remediation that may ultimately be required.
The actual cost and the timetable of any such remediation cannot be predicted
with any degree of certainty at this time. As of September 28, 1997, Foamex L.P.
has environmental accruals of approximately $2.9 million for the remaining
potential remediation costs for these facilities based on engineering estimates.
Federal regulations require that by 1998 all underground storage tanks
("USTs") be removed or upgraded in most states to meet applicable standards.
Foamex L.P. has six USTs that will require removal or permanent in-place closure
by the end of 1998. Due to the age of these tanks, leakage may have occurred
resulting in soil and possibly groundwater contamination. Foamex L.P. has
accrued approximately $0.3 million for the estimated removal and remediation, if
any, associated with the USTs. However, the full extent of contamination and,
accordingly, the actual cost of such remediation cannot be predicted with any
degree of certainty at this time. Foamex L.P. believes that its USTs do not pose
a significant risk of environmental liability because of Foamex L.P.'s
monitoring practices for USTs and conditional approval for permanent in-place
closure for certain USTs. However, there can be no assurance that such USTs will
not result in significant environmental liability in the future.
Foamex L.P. has been designated as a Potentially Responsible Party ("PRP")
by the United States Environmental Protection Agency (the "EPA") with respect to
thirteen sites, with an estimated total liability to Foamex L.P. for the
thirteen sites of less than approximately $0.5 million. Estimates of total
clean-up costs and fractional allocations of liability are generally provided by
the EPA or the committee of PRP's with respect to the specified site. In each
case, the participation of Foamex L.P. is considered to be immaterial.
Although it is possible that new information or future developments could
require Foamex L.P. to reassess its potential exposure relating to all pending
environmental matters, management believes that, based upon all currently
available information, the resolution of such environmental matters will not
have a material adverse effect on Foamex L.P.'s operations, financial position,
capital expenditures or competitive position. The possibility exists, however,
that new environmental legislation and/or environmental regulations may be
adopted, or other environmental conditions may be found to exist, that may
require expenditures not currently anticipated and that may be material.
F-37
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7. LITIGATION
As of November 3, 1997, Foamex L.P. and Trace Holdings were two of multiple
defendants in actions filed on behalf of approximately 5,500 persons in various
United States federal and state courts and one Canadian provincial court by
recipients of breast implants, some of which allege substantial damages, but
most of which allege unspecified damages for personal injuries of various types.
Three of these cases seek to allege claims on behalf of all breast implant
recipients or other allegedly affected parties, but only one class has been
approved or certified by a court, and that is a class limited to Louisiana
residents or persons who received their implants in Louisiana. In addition,
three cases have been filed alleging claims on behalf of approximately 725
residents of Australia and New Zealand. During 1995, Foamex L.P. and Trace
Holdings were granted summary judgments and dismissed as defendants from all
cases in the federal courts of the United States and the state courts of
California. Appeals for these decisions were withdrawn and the decisions are
final. Although breast implants do not contain foam, certain silicone gel
implants were produced using a polyurethane foam covering fabricated by
independent distributors or fabricators from bulk foam purchased from Foamex
L.P. or Trace Holdings. Neither Foamex L.P. nor Trace Holdings recommended,
authorized or approved the use of its foam for these purposes. Foamex L.P.
believes that the number of suits and claimants may increase, but not
significantly. While it is not feasible to predict or determine the outcome of
these actions, based on management's present assessment of the merits of pending
claims, after consultation with the general counsel of Trace Holdings,
management believes that the disposition of matters that are pending or that may
reasonably be anticipated to be asserted should not have a material adverse
effect on either Foamex L.P.'s or Trace Holdings' consolidated financial
position or results of operations. In addition, Foamex L.P. is also indemnified
by Trace Holdings for any such liabilities relating to foam manufactured prior
to the capitalization of Foamex L.P. in October 1990. Although Trace Holdings
has paid Foamex L.P.'s litigation expenses pursuant to such indemnification, and
management believes Trace Holdings will be in a position to continue to pay such
expenses, there can be no assurance that Trace Holdings will be able to continue
to provide such indemnification. Based on information available at this time
with respect to the potential liability, Foamex L.P. believes that the
proceedings should not ultimately result in any liability that would have a
material adverse effect on the financial position or results of operations of
Foamex L.P. If management's assessment of Foamex L.P.'s liability with respect
to these actions is incorrect, such actions could have a material adverse effect
on Foamex L.P.
Foamex L.P. is party to various other lawsuits, both as defendant and
plaintiff, arising in the normal course of business. It is the opinion of
management that the disposition of these lawsuits will not individually or in
the aggregate, have a material adverse effect on the financial position or
results of operations of Foamex L.P. If management's assessment of Foamex L.P.'s
liability with respect to these actions is incorrect, such actions could have a
material adverse effect on Foamex L.P.'s consolidated financial position.
8. SUBSEQUENT EVENT
On October 6, 1997, Foamex L.P. sold substantially all of the net assets of
its needlepunch carpeting, tufted carpeting and artificial grass products
business located at its facilities in Dalton, Georgia to Bretlin, Inc. for an
aggregate sale price of approximately $41.2 million, subject to post-closing
adjustments. Foamex L.P. expects to realize an immaterial gain on the sale, net
of income taxes, in the fourth quarter of 1997. Foamex L.P. used $38.8 million
of the net sale proceeds to repay outstanding term loan borrowings under the New
Credit Facility. In connection with this repayment, Foamex L.P., expects to
incur an extraordinary loss on the early extinguishment of debt of approximately
$0.9 million during the fourth quarter of 1997.
F-38
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
Foamex Capital Corporation
Wilmington, Delaware
We have audited the accompanying balance sheets of Foamex Capital Corporation
("FCC") (a wholly owned subsidiary of Foamex L.P.) as of December 31, 1995 and
December 29, 1996. These balance sheets are the responsibility of FCC's
management. Our responsibility is to express an opinion on these balance sheets
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheets are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the balance sheets referred to above present fairly, in all
material respects, the financial position of FCC at December 31, 1995 and
December 29, 1996, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 26, 1997
The accompanying notes are an integral part of the
condensed consolidated financial statements.
F-39
<PAGE>
FOAMEX CAPITAL CORPORATION
(A Wholly-Owned Subsidiary of Foamex L.P.)
BALANCE SHEETS
December 31, December 29,
1995 1996
------------ ------------
ASSETS:
CASH .................................................. $1,000 $1,000
====== ======
LIABILITIES AND STOCKHOLDER'S EQUITY:
COMMITMENTS AND CONTINGENCIES ......................... $ -- $ --
------ ------
STOCKHOLDER'S EQUITY:
Common stock, par value $.01 per share;
1,000 shares authorized, issued and outstanding ... 10 10
Additional paid-in capital ......................... 990 990
------ ------
TOTAL STOCKHOLDER'S EQUITY ............................ $1,000 $1,000
====== ======
The accompanying notes are an integral part of the balance sheets.
F-40
<PAGE>
FOAMEX CAPITAL CORPORATION
(A Wholly-Owned Subsidiary of Foamex L.P.)
NOTES TO BALANCE SHEETS
1. ORGANIZATION
Foamex Capital Corporation ("FCC"), a wholly owned subsidiary of Foamex
L.P., was formed on July 20, 1992 and initially capitalized on July 23, 1992,
for the sole purpose of obtaining financing from external sources.
2. COMMITMENTS AND CONTINGENCIES
FCC is a joint obligor on the following borrowings of Foamex L.P.:
9-1/2% Senior Secured Notes due 2000 ("Senior Secured Notes")
The Senior Secured Notes were issued on June 3, 1993 and bear interest at
the rate of 9-1/2% payable semiannually on each June 1 and December 1. The
Senior Secured Notes mature on June 1, 2000. The Senior Secured Notes are
collateralized by a first-priority lien on substantially all of the assets of
Foamex L.P. except for receivables, real estate and fixtures. The Senior Secured
Notes may be redeemed at the option of Foamex L.P., in whole or in part, at any
time on or after June 1, 1998, initially at 101.583% of their principal amount,
plus accrued interest, and declining to 100% on or after June 1, 1999. The
Senior Secured Notes have been guaranteed, on a senior secured basis by General
Felt Industries, Inc. (General Felt) and on a senior unsecured basis by Foamex
International Inc. (Foamex International). During 1996, Foamex L.P. repurchased
$9.9 million of Senior Secured Notes.
11-1/4% Senior Notes due 2002 ("Senior Notes")
The Senior Notes bear interest at the rate of 11-1/4% payable semiannually
on each April 1 and October 1. The Senior Notes mature on October 1, 2002. The
Senior Notes may be redeemed at the option of Foamex L.P., in whole or in part,
at any time on or after October 1, 1997, initially at 104.219% of their
principal amount, plus accrued interest, and declining to 100% on or after
October 1, 2000. In October 1994, Foamex L.P. provided certain real property as
collateral for the Senior Notes, with a net book value of $37.8 million at
December 29, 1996. The Senior Notes have been guaranteed, on a senior basis, by
General Felt and Foamex International. During 1996, Foamex L.P. repurchased $8.6
million of Senior Notes.
11-7/8% Senior Subordinated Debentures ("Subordinated Debentures")
The Subordinated Debentures bear interest at the rate of 11-7/8% payable
semiannually on each April 1 and October 1. The Subordinated Debentures mature
on October 1, 2004. The Subordinated Debentures may be redeemed at the option of
Foamex L.P., in whole or in part, at any time on or after October 1, 1997,
initially at 105.938% of their principal amount, plus accrued interest, and
declining to 100% on or after October 1, 2002. The Subordinated Debentures are
subordinated in right of payment to all senior indebtedness, including the
Senior Secured Notes and the Senior Notes. The Subordinated Debentures have been
guaranteed, on a senior subordinated basis, by General Felt and Foamex
International. During 1996, Foamex L.P. repurchased $0.1 million of Subordinated
Debentures.
11-7/8% Senior Subordinated Debentures, Series B ("Series B Debentures")
The Series B Debentures were issued July 30, 1993, by Foamex L.P. in an
exchange offer to holders of senior subordinated debentures issued in connection
with the acquisition of General Felt on March 23, 1993. The Series B Debentures
have terms substantially similar to the Subordinated Debentures, except that
holders of the Series B Debentures are entitled to receive proceeds from an
asset sale only if any proceeds remain after an offer to repurchase has been
made to the holders of the Subordinated Debentures. The Series B Debentures have
been guaranteed on a senior subordinated basis by General Felt.
F-41
<PAGE>
FOAMEX CAPITAL CORPORATION
(A Wholly-Owned Subsidiary of Foamex L.P.)
BALANCE SHEETS (unaudited)
December 29, September 28,
1996 1997
------------ -------------
ASSETS:
CASH .................................................. $1,000 $1,000
====== ======
LIABILITIES AND STOCKHOLDER'S EQUITY:
COMMITMENTS AND CONTINGENCIES ......................... $ -- $ --
------ ------
STOCKHOLDER'S EQUITY:
Common stock, par value $.01 per share;
1,000 shares authorized, issued and outstanding ... 10 --
Additional paid-in capital ......................... 990 1,000
------ ------
TOTAL STOCKHOLDER'S EQUITY ............................ $1,000 $1,000
====== ======
The accompanying notes are an integral part of the balance sheets.
F-42
<PAGE>
FOAMEX CAPITAL CORPORATION
(A Wholly-Owned Subsidiary of Foamex L.P.)
NOTES TO BALANCE SHEETS (unaudited)
1. ORGANIZATION
Foamex Capital Corporation ("FCC"), a wholly owned subsidiary of Foamex
L.P., was formed for the sole purpose of obtaining financing from external
sources.
2. COMMITMENTS AND CONTINGENCIES
FCC is a joint obligor on the following borrowings of Foamex L.P.:
9-7/8% Senior Subordinated Notes due 2007 ("Senior Subordinated Notes")
The Senior Subordinated Notes were issued by Foamex L.P. and FCC
(collectively, the "Issuers") in a private placement under Rule 144A of the
Securities Act of 1933, as amended, on June 12, 1997 in connection with the
Refinancing Plan. The Senior Subordinated Notes bear interest at the rate of
9-7/8% per annum payable semiannually on each June 15 and December 15,
commencing December 15, 1997. The Senior Subordinated Notes mature on June 15,
2007. The Senior Subordinated Notes may be redeemed at the option of Foamex
L.P., in whole or in part, at any time on or after June 15, 2002, initially at
104.938% of their principal amount, plus accrued interest and liquidated
damages, as defined, if any, thereon to the date of redemption and declining to
100.0% on or after June 15, 2005. In addition, at any time prior to June 15,
2000, Foamex L.P. may on one or more occasions redeem up to 35.0% of the
initially outstanding principal amount of the Senior Subordinated Notes at a
redemption price equal to 109.875% of the principal amount, plus accrued
interest and liquidated damages, if any, thereon to the date of redemption with
the cash proceeds of one or more Public Equity Offerings, as defined. Upon the
occurrence of a change of control, as defined, each holder of Senior
Subordinated Notes will have the right to require Foamex L.P. to repurchase the
Senior Subordinated Notes at a price equal to 101.0% of the principal amount,
plus accrued interest and liquidated damages, if any, to the date of repurchase.
The Senior Subordinated Notes are subordinated in right of payment to all senior
indebtedness and are pari passu in right of payment to the subordinated note.
The Senior Subordinated Notes contain certain covenants that limit, among other
things, the ability of Foamex L.P. (i) to pay distributions or redeem
partnership interests, (ii) to make certain restrictive payments or investments,
(iii) to incur additional indebtedness or issue Preferred Equity Interest, as
defined, (iv) to merge, consolidate or sell all or substantially all of its
assets, or (vi) to enter into certain transactions with affiliates or related
persons. The Senior Subordinated Notes are guaranteed by General Felt and Foamex
Fibers and certain future domestic subsidiaries of the Issuers.
The Issuers have filed a registration statement relating to an exchange
offer in which the Issuers will offer to exchange the Senior Subordinated Notes
issued in the private placement for new notes. The terms of the new notes will
be substantially identical in all respects (including principal amount, interest
rate, maturity and ranking) to the terms of the Senior Subordinated Notes,
except that the new notes will be transferable by holders thereof without
further registration under the Securities Act of 1933, as amended (except in the
case of Senior Subordinated Notes held by affiliates of the Issuers and for
certain other holders), and are not subject to any covenant regarding
registration under the Securities Act of 1933, as amended. The exchange offer is
expected to be consummated during November 1997.
9-1/2% Senior Secured Notes due 2000 ("Senior Secured Notes")
The Senior Secured Notes were issued on June 3, 1993 and bear interest at
the rate of 9-1/2% per annum payable semiannually on each June 1 and December 1.
The Senior Secured Notes mature on June 1, 2000. The Senior Secured Notes are
collateralized by a first-priority lien on substantially all of the assets of
Foamex L.P. except for receivables, real estate and fixtures. The Senior Secured
Notes may be redeemed at the option of Foamex L.P., in whole or in part, at any
time on or after June 1, 1998, initially at 101.583% of their principal amount,
plus accrued interest, and declining to 100.0% on or after June 1, 1999. The
Senior Secured Notes have been guaranteed, on a senior secured basis by General
Felt and on a senior unsecured basis by Foamex International. During 1996 and
1997, Foamex L.P. repurchased $9.9 million and $102.3 million, respectively,
aggregate principal amount of Senior Secured Notes.
F-43
<PAGE>
FOAMEX CAPITAL CORPORATION
(A Wholly-Owned Subsidiary of Foamex L.P.)
NOTES TO BALANCE SHEETS (unaudited)--(Continued)
2. COMMITMENTS AND CONTINGENCIES (continued)
11-1/4% Senior Notes due 2002 ("Senior Notes")
The Senior Notes bear interest at the rate of 11-1/4% per annum payable
semiannually on each April 1 and October 1. The Senior Notes mature on October
1, 2002. The Senior Notes may be redeemed at the option of Foamex L.P., in whole
or in part, at any time on or after October 1, 1997, initially at 104.219% of
their principal amount, plus accrued interest, and declining to 100.0% on or
after October 1, 2000. In October 1994, Foamex L.P. provided certain real
property as collateral for the Senior Notes, with a net book value of $37.8
million at December 29, 1996. The Senior Notes have been guaranteed, on a senior
basis, by General Felt. During 1996 and 1997, Foamex L.P. repurchased $8.6
million and $135.6 million, respectively, aggregate principal amount of Senior
Notes. Foamex L.P. redeemed all of the outstanding Senior Notes on October 1,
1997.
11-7/8% Senior Subordinated Debentures ("Subordinated Debentures")
The Subordinated Debentures bear interest at the rate of 11-7/8% per annum
payable semiannually on each April 1 and October 1. The Subordinated Debentures
mature on October 1, 2004. The Subordinated Debentures may be redeemed at the
option of Foamex L.P., in whole or in part, at any time on or after October 1,
1997, initially at 105.938% of their principal amount, plus accrued interest,
and declining to 100.0% on or after October 1, 2002. The Subordinated Debentures
are subordinated in right of payment to all senior indebtedness, including the
Senior Secured Notes and the Senior Notes. The Subordinated Debentures have been
guaranteed, on a senior subordinated basis, by General Felt and rank pari passu
in right of payment to the Senior Subordinated Notes. During 1996 and 1997,
Foamex L.P. repurchased $0.1 million and $104.9 million, respectively, aggregate
principal amount of Subordinated Debentures. Foamex L.P. redeemed all of the
outstanding Subordinated Debentures on October 1, 1997.
11-7/8% Senior Subordinated Debentures, Series B ("Series B Debentures")
The Series B Debentures were issued July 30, 1993, by Foamex L.P. in an
exchange offer to holders of senior subordinated debentures issued in connection
with the acquisition of General Felt on March 23, 1993. The Series B Debentures
have terms substantially similar to the Subordinated Debentures, except that
holders of the Series B Debentures are entitled to receive proceeds from an
asset sale only if any proceeds remain after an offer to repurchase has been
made to the holders of the Subordinated Debentures. The Series B Debentures have
been guaranteed on a senior subordinated basis by General Felt. During 1997,
Foamex L.P. repurchased $6.9 million of Series B Debentures. Foamex L.P.
redeemed all of the outstanding Series B Debentures on October 1, 1997.
F-44
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Crain Industries, Inc.:
We have audited the accompanying consolidated balance sheet of Crain Industries,
Inc. (a Delaware corporation and a wholly owned subsidiary of Crain Holdings
Corp.) and subsidiaries as of December 31, 1996, and the related consolidated
statements of operations, stockholder's equity, and cash flows for the year
ended December 31, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Crain
Industries, Inc. and subsidiaries as of December 31, 1996, and the consolidated
results of their operations and their cash flows for the year ended December 31,
1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN
St. Louis, Missouri
January 31, 1997
The accompanying notes are an integral part of the balance sheets.
F-45
<PAGE>
CRAIN INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEET
(In thousands, except share data)
December 31,
1996
-------------
ASSETS:
CURRENT ASSETS:
Cash and cash equivalents ................................... $ 6,102
Accounts receivable, less allowance of $7,554 ............... 40,921
Inventories ................................................. 30,025
Prepaid expenses and other .................................. 3,014
--------
Total current assets ....................................... 80,062
PROPERTY, PLANT AND EQUIPMENT, NET ............................ 49,873
INTANGIBLE ASSETS, NET ........................................ 56,297
DEFERRED FINANCING COSTS, NET ................................. 11,334
OTHER ASSETS .................................................. 1,310
--------
TOTAL ASSETS .................................................. $198,876
========
LIABILITIES AND STOCKHOLDER'S EQUITY:
CURRENT LIABILITIES:
Current maturities of long-term obligations ................. $ 136
Accounts payable ............................................ 23,320
Accrued and other liabilities ............................... 9,790
Accrued interest ............................................ 5,176
Accrued payroll and personnel ............................... 6,986
--------
Total current liabilities .................................. 45,408
LONG-TERM OBLIGATIONS, LESS CURRENT MATURITIES ................ 118,182
OTHER LONG-TERM LIABILITIES ................................... 5,444
--------
TOTAL LIABILITIES ............................................. 169,034
STOCKHOLDER'S EQUITY:
Common Stock, $.01 par value, 1,000 shares authorized, issued
and outstanding ............................................ 0
Contributed capital ......................................... 29,492
Retained earnings ........................................... 350
--------
Total stockholder's equity ................................. 29,842
--------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY .................... $198,876
========
See accompanying notes to the consolidated financial statements.
F-46
<PAGE>
CRAIN INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands)
December 31,
1996
-------------
NET SALES ........................................ $306,093
OPERATING EXPENSES:
COST OF GOODS SOLD ............................. 243,745
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES ...................................... 35,299
DEPRECIATION AND AMORTIZATION .................. 9,295
--------
OPERATING INCOME ................................. 17,754
OTHER EXPENSES:
INTEREST EXPENSE ............................... 14,618
AMORTIZATION OF DEFERRED FINANCING
COSTS ......................................... 1,841
OTHER EXPENSE .................................. 304
--------
INCOME BEFORE PROVISION FOR INCOME TAXES ......... 991
PROVISION FOR INCOME TAXES ....................... 395
--------
NET INCOME ....................................... $ 59
========
See accompanying notes to the consolidated financial statements.
F-47
<PAGE>
CRAIN INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
for the Year Ended December 31, 1996
(In thousands)
Retained Total
Common Contributed Earnings Stockholder's
Stock Capital (Deficit) Equity
------- ----------- ---------- -------------
December 31, 1995 ........... $ 0 $24,528 $ (246) $24,282
Contributed capital ......... -- 4,964 -- 4,964
Net income .................. -- -- 596 596
--- ------- ------ -------
December 31, 1996 ........... $ 0 $29,492 $ 350 $29,842
=== ======= ====== =======
See accompanying notes to the consolidated financial statements.
F-48
<PAGE>
CRAIN INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
Year Ended
December 31,
1996
------------
OPERATING ACTIVITIES:
Net income .............................................. $ 596
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization .......................... 9,295
Amortization of deferred financing costs ............... 1,841
Changes in assets and liabilities, net of acquisitions:
Accounts receivable ................................... 1,515
Inventories ........................................... (492)
Prepaid expenses and other ............................ 115
Accounts payable ...................................... 1,273
Accrued and other liabilities ......................... 705
Accrued interest ...................................... 156
Income taxes payable .................................. 216
----------
Net cash from operating activities .................... 15,220
----------
INVESTING ACTIVITIES:
Acquisitions, net of cash acquired ...................... (14,568)
Capital expenditures .................................... (11,030)
----------
Net cash used for investing activities ................ (25,598)
----------
FINANCING ACTIVITIES:
Borrowings on long-term obligations ..................... 115,270
Payments on long-term obligations ....................... (103,290)
Equity proceeds ......................................... 4,964
Financing fees and other ................................ (2,447)
----------
Net cash from financing activities ....................... 14,497
----------
Net change in cash and cash equivalents .................. 4,119
Cash and cash equivalents at beginning of period ......... 1,983
----------
Cash and cash equivalents at end of period ............... $ 6,102
==========
See accompanying notes to the consolidated financial statements.
F-49
<PAGE>
CRAIN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share data)
1. THE COMPANY
Crain Industries, Inc., a Delaware corporation ("Crain" or the "Company"),
was formed on May 25, 1995 to participate in the Acquisition (as described
below) and the transactions related thereto. Crain is a wholly owned subsidiary
of Crain Holdings Corp. ("Holdings"). Prior to the Acquisition, Crain conducted
no operations other than those incident to the Acquisition. The Company is
engaged in the design, manufacturing and marketing of flexible polyurethane foam
and foam products. The Company's products are sold to a wide variety of
customers primarily in the furniture, bedding and carpet markets.
On August 29, 1995, Crain consummated an agreement pursuant to which the
Company acquired certain assets for an aggregate cash consideration of $130,027
and assumed certain liabilities of Crain Industries, Inc., an Arkansas
corporation (the "Predecessor") (the "Acquisition"). The initial cash
consideration for the Acquisition was reduced by $10,000 during 1996 as the
result of a favorable settlement of a lawsuit with the Predecessor, discussed in
Note 11. The Company has designated August 26, 1995 as the effective date of the
Acquisition for financial reporting purposes. Subsequent to the Acquisition, the
Company changed its fiscal year end to December 31. Previously, the
Predecessor's fiscal year end was the last Friday in August.
The Acquisition was accounted for using the purchase method of accounting
whereby the total acquisition cost was allocated to the acquired net assets
based on their respective fair values.
The total acquisition cost was allocated to the acquired net assets as
follows:
Current assets ........................ $ 70,710
Property, plant and equipment ......... 40,434
Goodwill .............................. 50,188
Fees and costs ........................ 12,500
Other assets .......................... 1,914
Current liabilities ................... (43,469)
Non-current liabilities ............... (2,250)
---------
$ 130,027
=========
2. COMFORT CLINIC ACQUISITION
On October 18, 1996, the Company acquired substantially all of the assets
of the Comfort Clinic division of Bio Clinic Corporation (the "Comfort
Acquisition"). The consideration paid in connection with the Comfort Acquisition
consisted of cash in the amount of $14,568, subject to final adjustments. The
Comfort Acquisition was funded with borrowings of approximately $9,500 of senior
debt under the Revolver (hereinafter defined) and approximately $5,000 of
capital contributions from Holdings. The Comfort Acquisition was accounted for
using the purchase method of accounting whereby the total acquisition cost has
been preliminarily allocated to the acquired net assets based on their estimated
respective fair values. The purchase price allocations are still in process. It
is not expected that the final allocaiton of the acquistion cost will result in
a materially different allocation than is presented herein.
The total acqusition cost has been preliminarily allocated to the acquired
net assets as follows:
Current assets ........................ $ 9,824
Property, plant and equipment ......... 4,644
Goodwill and intangibles .............. 6,654
Other ................................. 48
Fees and costs ........................ 1,000
Current liabilities ................... (6,722)
Non-current liabilities ............... (880)
--------
$ 14,568
========
F-50
<PAGE>
CRAIN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands except share data)
2. COMFORT CLINIC ACQUISITION (continued)
Unaudited pro forma data, which shows condensed results of operations for
the year ended December 31, 1996, as though the Comfort Acquisition and related
financing had occurred as of January 1, 1996 is as follows:
Year Ended
December 31, 1996
-----------------
Net sales ................. $328,158
Net loss .................. (595)
3. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Crain and its
wholly owned subsidiaries. All material intercompany balances and transactions
have been eliminated in consolidation.
Revenue Recognition
Sales and related costs of goods sold are included in income when goods are
shipped to the customers.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out ("FIFO") method.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is
calculated using the straight-line method. The average estimated lives utilized
in calculating depreciation are as follows: machinery and equipment--3-8 years;
and transportation equipment--3-5 years. Leasehold improvements are depreciated
over the shorter of the term of the respective lease or the life of the
respective improvement. Interest costs applicable to equipment constructed for
use by the Company are capitalized as a part of the assets.
Intangible Assets
Intangible assets consist principally of goodwill arising from the excess
of cost over the value of net assets acquired, which is amortized using the
straight-line method over forty years. Accumulated amortization aggregated
$2,118 at December 31, 1996. The Company generally assesses the recoverability
of its intangible assets primarily based on its current and anticipated future
undiscounted cash flows. At December 31, 1996, the Company does not believe
there have been any impairment of its intangible assets.
Deferred Financing Costs
Deferred financing costs, consisting of fees and other expenses associated
with the debt financing, are amortized over the term of the related debt using
the straight-line method which approximates the effective interest method.
Fair Value of Financial Instruments
The Company's financial instruments, excluding the Senior Notes (as
hereinafter defined) are carried at fair value or amounts that approximate fair
value. The Company has estimated the fair value of the Senior Notes using
current market data. At December 31, 1996, the estimated fair market value of
the Senior Notes was $112,750.
Estimates and Assumptions
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
F-51
<PAGE>
CRAIN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands except share data)
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Statements of Cash Flows
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid investments purchased with maturities of three
months or less to be cash equivalents. Interest paid for the year ended December
31, 1996, was approximately $14,630. Taxes paid for the year ended December 31,
1996 was approximately $106.
4. INVENTORIES
The composition of inventories at December 31, 1996 is as follows:
1996
-------
Raw materials .......................... $21,194
Finished goods ......................... 8,831
-------
$30,025
=======
5. PROPERTY, PLANT AND EQUIPMENT
The composition of property, plant and equipment at December 31, 1996 is as
follows:
1996
----------
Machinery and equipment ................. $ 43,181
Transportation equipment ................ 5,534
Construction in progress ................ 4,965
Leasehold improvements .................. 3,871
Land and buildings ...................... 2,000
Less: accumulated depreciation .......... (9,678)
--------
$ 49,873
========
6. FINANCING COSTS AND RELATED PARTY TRANSACTIONS
In connection with the Acquisition, the Company incurred aggregate fees and
costs of $13,000. Costs of $10,000 related to the Senior Notes and Revolver (see
Note 7) are included in deferred financing costs and amortized over the terms of
the related borrowings. Costs of $500 related to the issuance of Holdings'
common stock have been deducted from the proceeds to reduce the carrying value
of the common stock.
In connection with the Acquisition and obtaining the related financing, the
Company entered into a Monitoring and Oversight Agreement ("Agreement") with
Hicks, Muse & Co. Partners L.P. ("Hicks, Muse") (an affiliate of the Company)
pursuant to which the Company paid Hicks, Muse a cash fee of $2,500 as
compensation for financial advisory services. The fees have been allocated to
the debt and equity securities issued in connection with the Acquisition as
deferred financing costs or as a deduction from the cash proceeds received from
the sale of the common stock of Holdings. In connection with the Comfort
Acquisition and obtaining the related financing, the Company paid a fee of $210
to Hicks, Muse. The Agreement further provides that the Company shall pay Hicks,
Muse an annual fee of $250 for ten years for monitoring and oversight services
adjusted annually at the end of each fiscal year to an amount equal to .1% of
the consolidated net sales of the Company, but in no event less than $250
annually. The obligation under the Agreement and the related deferred financing
costs have been recorded in the consolidated balance sheets.
F-52
<PAGE>
CRAIN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands except share data)
7. LONG-TERM OBLIGATIONS
The composition of long-term obligations at December 31, 1996 is as
follows:
1996
----------
Revolving credit facility .......... $ 17,700
Senior subordinated notes .......... 100,000
Notes payable ...................... 618
--------
Total ............................. 118,318
Less current maturities ............ 136
--------
$118,182
========
The schedule of principal payments for long-term obligations at December
31, 1996 is as follows:
1997 ............................. $ 136
1998 ............................. 149
1999 ............................. 164
2000 ............................. 17,869
2001 ............................. --
Thereafter ....................... 100,000
--------
$118,318
========
Credit Agreement
In connection with the Acquisition, Crain and Holdings entered into a
credit agreement (the "Credit Agreement") dated as of August 29, 1995 with
certain financial institutions. Borrowings under the Credit Agreement are
collateralized by first priority mortgages and liens on all of the assets of the
Company. In addition, borrowings under the Credit Agreement are guaranteed by
Holdings. The Credit Agreement terminates on August 29, 2000, at which time all
outstanding borrowings are due.
The Credit Agreement consists of a $50,000 revolving credit facility (the
"Revolver"). The Revolver provides that up to $7,500 of such facilities may be
used for the issuance of letters of credit. At December 31, 1996, Crain had
$6,032 in outstanding letters of credit. At December 31, 1996 there was $26,268
of unused borrowing capacity under the Credit Agreement. The Credit Agreement
contains several financial covenants which, among other things, require Crain to
maintain certain financial ratios and restrict Crain's ability to incur
indebtedness, make capital expenditures and pay dividends. A commitment fee on
the unused portion of the Revolver of .5% is payable on each quarterly payment
date.
Borrowings under the Revolver bear interest, at the option of Crain, at a
rate per annum equal to (a) the Alternative Base Rate (as defined in the Credit
Agreement) plus 1.5% or (b) the Eurodollar Rate (as defined in the Credit
Agreement) plus 2.5%. The Alternative Base Rate and Eurodollar Rate margins are
established quarterly based on a formula as defined in the Credit Agreement.
Interest payment dates vary depending on the interest rate option to which the
Revolver is tied, but generally interest is payable quarterly.
Senior Subordinated Notes
The senior subordinated notes due 2005 (the "Senior Notes") were issued
under an indenture, dated August 29, 1995 (the "Indenture") in connection with
the Acquisition. The Senior Notes represent unsecured general obligations of
Crain and are subordinated to all Senior Debt (as defined in the Indenture) of
Crain. The Senior Notes, which were originally sold pursuant to an exemption
from the registration requirements of the Securities Act of 1933, as amended,
were exchanged for identical notes registered under such Act in February 1996.
F-53
<PAGE>
CRAIN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands except share data)
7. LONG-TERM OBLIGATIONS (continued)
The Senior Notes mature on August 15, 2005. Interest on the Senior Notes is
payable semiannually on each February 15 and August 15. The Senior Notes bear
interest at the rate of 13.5% per annum. The Senior Notes may not be redeemed
prior to August 15, 2000, except in the event of a Change of Control (as
defined) or Crain may, subject to certain requirements (as defined), on or prior
to August 15, 1998 redeem up to 33-1/3% of the aggregate original principal
amount with proceeds from an Equity Offering (as defined).
The Senior Notes are fully and unconditionally (as well as jointly and
severally) guaranteed on an unsecured, senior subordinated basis by Crain Aero,
Inc. ("Crain Aero"). The Company's only other subsidiary, Sleep Solutions,
Industries, Inc. ("Sleep Solutions"), does not guarantee the Senior Notes as it
is not required under the terms of the Indenture. Each of Crain Aero and Sleep
Solutions is a wholly owned subsidiary of the Company.
8. STOCK OPTION PLANS
In accordance with SFAS No. 123, "Accounting for Stock-Based Compensation",
the Company applies APB Opinion No. 25, "Accounting for Stock Issued to
Employees", and related interpretations in accounting for Holdings' stock option
plans. Accordingly, no compensation cost has been recognized for the plans. Had
compensation cost for the plans been determined based upon the fair value at the
grant date for awards under those plans, consistent with the methodology
prescribed under SFAS No. 123, the effect on the Company's net income would be
immaterial.
Changes in the status of the stock option plans are summarized below:
Weighted Average
Exercise Price Options Options
Per Share Granted Vested
----------------- ------------- ----------
December 31, 1995 ......... $ 1.00 2,032,323 --
Granted .................. 1.26 175,000 --
Vested ................... -- -- 235,600
Forfeited ................ 1.00 (100,000) --
------- --------- -------
December 31, 1996 ......... $ 1.06 2,107,323 235,600
======= ========= =======
The weighted average grant-date fair value of options granted during 1996
was $1.26 per share. Of the options outstanding at December 31, 1996, 1,113,000
options, 904,323 options and 90,000 options have exercise prices of $1.00, $1.09
and $1.50, respectively, and have weighted average remaining contractual lives
of 8.9 years, 8.7 years and 10 years, respectively. The weighted average
exercise price of options vested at December 31, 1996, is $1.00 per share.
9. INCOME TAXES
The Company accounts for income taxes in accordance with the provisions of
SFAS No. 109. The provision for income taxes for the year ended December 31,
1996 is as follows:
1996
-------
Current:
Federal ................. $(2,224)
State ................... (327)
Deferred:
Federal ................. 2,568
State ................... 378
-------
Total .................... $ 395
=======
F-54
<PAGE>
CRAIN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands except share data)
9. INCOME TAXES (continued)
Reconciliation between statutory income tax rate and effective tax rate is
summarized below:
1996
-----
U.S. Federal statutory rate .......... $337
State taxes .......................... 50
Other ................................ 8
----
$395
====
The tax effects of significant temporary differences representing deferred
tax assets and liabilities are as follows:
1996
---------
Deferred tax assets:
Accrued liabilities not yet deductible ......... $2,625
Net operating loss carryforward ................ 3,437
Other .......................................... 228
------
6,290
------
Deferred tax liabilities:
Depreciation and amortization .................. 6,601
Other .......................................... 165
------
6,766
------
Net deferred tax liability ...................... $ (476)
======
10. COMMITMENTS
The Company leases certain buildings, transportation vehicles and other
equipment. Total rental expense under operating leases for the year ended
December 31, 1996 was $9,286. Future minimum lease payments under operating
leases that have initial or remaining noncancelable lease terms in excess of one
year, for the years ended December 31 are:
1997 ............................... $ 4,594
1998 ............................... 4,405
1999 ............................... 3,790
2000 ............................... 2,849
2001 ............................... 2,309
Thereafter ......................... 7,059
-------
$25,006
=======
The Company does not have any capital leases and does not hold any
derivative financial instruments with off-balance sheet risk.
F-55
<PAGE>
CRAIN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands except share data)
11. CONTINGENCIES
The Company is subject to legal proceedings and claims which arise in the
normal course of business. In the opinion of the Company's management, the
ultimate liabilities with respect to these actions should not, individually or
in the aggregate, have a material adverse effect on the Company's financial
condition or result of operations. The Company believes it is in material
compliance with applicable environmental laws and regulations and that its
environmental controls are adequate to address existing regulatory requirements.
On December 13, 1995, the Company initiated a lawsuit in the District Court
of Dallas County, Texas styled Crain Industries, Inc., f/k/a Crain Acquisition
Corp. v. Dude, Inc., f/k/a Crain Industries, Inc., H.C. "Dude" Crain, Jr., et
al., Cause No. 95-12997, seeking money damages based on certain allegations of
misrepresentation, fraud, and breach of contract in connection with the
acquisition. In August 1996, the Company settled all litigation with the sole
shareholder of the Predecessor. The settlement amounted to a $10,000 reduction
in the purchase price amount through the cancellation of a $10,000 note payable
owed to the sole shareholder of the Predecessor.
12. RETIREMENT PLAN
The Company has a defined contribution retirement savings plan (the "Plan")
covering substantially all employees who meet certain eligibility requirements
as to age and length of service. The Plan incorporates the salary deferral
provision of Section 401(k) of the Internal Revenue Code and employees may defer
up to 15% of compensation or the annual maximum limit prescribed by the Internal
Revenue Code. The Company may elect to match a percentage of the employees'
deferrals. Company contribution expense related to the Plan for the year ended
December 31, 1996 was approximately $555.
F-56
<PAGE>
CRAIN INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS (unaudited)
(In thousands, except share data)
December 31, September 30,
1996 1997
------------- --------------
ASSETS:
CURRENT ASSETS:
Cash and cash equivalents ....................... $ 6,102 $ 2,395
Accounts receivable, net ........................ 40,921 49,589
Inventories ..................................... 30,025 37,468
Prepaid expenses and other ...................... 3,014 3,237
-------- --------
Total current assets ........................... 80,062 92,689
PROPERTY, PLANT AND EQUIPMENT, NET ............... 49,873 52,184
INTANGIBLE ASSETS, NET ........................... 56,297 62,527
DEFERRED FINANCING COSTS, NET .................... 11,334 10,303
OTHER ASSETS ..................................... 1,310 1,821
-------- --------
TOTAL ASSETS ..................................... $198,876 $219,524
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY:
CURRENT LIABILITIES:
Current maturities of long-term obligations ..... $ 136 $ 245
Accounts payable ................................ 23,320 29,768
Accrued and other liabilities ................... 9,790 9,593
Accrued interest ................................ 5,176 1,747
Accrued payroll and personnel ................... 6,986 5,941
-------- --------
Total current liabilities ...................... 45,408 47,294
LONG-TERM OBLIGATIONS, LESS CURRENT MATURITIES ... 118,182 127,833
OTHER LONG-TERM LIABILITIES ...................... 5,444 5,092
-------- --------
TOTAL LIABILITIES ................................ 169,034 180,219
-------- --------
STOCKHOLDER'S EQUITY:
Common Stock, $.01 par value, 1,000 shares
authorized, issued and outstanding ............ -- --
Contributed capital ............................. 29,492 39,466
Retained earnings (deficit) ..................... 350 (161)
-------- --------
Total stockholder's equity ..................... 29,842 39,305
-------- --------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY ....... $198,876 $219,524
======== ========
The accompanying notes are an integral part of the
consolidated financial statements.
F-57
<PAGE>
CRAIN INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(thousands)
39-Week Periods Ended
-----------------------------
September 30, September 30,
1996 1997
------------- -------------
NET SALES ................................... $226,191 $237,890
OPERATING EXPENSES:
COST OF GOODS SOLD ......................... 180,111 186,663
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES .................................. 25,206 30,207
DEPRECIATION AND AMORTIZATION .............. 6,567 8,661
-------- --------
INCOME FROM OPERATIONS ...................... 14,307 12,359
INTEREST EXPENSE ............................ 10,851 11,567
AMORITIZATION OF DEFERRED FINANCING COSTS ... 1,268 1,496
OTHER INCOME (EXPENSE), NET ................. 24 (120)
-------- --------
INCOME (LOSS) BEFORE PROVISION FOR INCOME
TAXES ...................................... 2,212 (824)
PROVISION (BENEFIT) FOR INCOME TAXES ........ 938 (313)
-------- --------
NET INCOME (LOSS) ........................... $ 1,274 $ (511)
======== ========
The accompanying notes are an integral part of the
consolidated financial statements.
F-58
<PAGE>
CRAIN INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(In thousands)
39-Week Periods Ended
----------------------------
September 30, September 30,
1996 1997
------------- -------------
OPERATING ACTIVITIES:
Net (loss) income ................................... $ 1,274 $ (511)
Adjustments to reconcile net income
(loss) to net cash provided from
operating activities:
Depreciation and amortization ...................... 6,567 8,661
Amortization of deferred financing costs ........... 1,268 1,496
Changes in assets and liabilities:
Accounts receivable ................................ (6,180) (6,274)
Inventories ........................................ (819) (6,955)
Prepaid expenses and other ......................... (1,077) (1,043)
Accounts payable ................................... 4,751 5,035
Accrued and other liabilities ...................... 4,678 (3,044)
Accrued interest ................................... (3,279) (3,429)
-------- --------
Net cash from operating activities ................ 7,183 (6,064)
-------- --------
INVESTING ACTIVITIES:
Acquisitions, net of cash ........................... -- (12,578)
Capital expenditures ................................ (8,887) (4,325)
Net cash from investing activities ................ (8,887) (16,903)
-------- --------
FINANCING ACTIVITIES:
Proceeds from borrowings of long-term obligations ... 73,802 84,071
Repayment on long-term obligations .................. (69,840) (74,785)
Deferred purchase price payment ..................... (2,319) --
Capital contributed ................................. (100) 9,974
-------- --------
Net cash from financing activities ................ 1,543 19,260
-------- --------
Net change in cash and cash equivalents .............. (161) (3,707)
Cash and cash equivalents at beginning of
the period .......................................... 1,983 6,102
-------- --------
Cash and cash equivalents at end of the period ....... $ 1,822 $ 2,395
======== ========
The accompanying notes are an integral part of the
consolidated financial statements.
F-59
<PAGE>
CRAIN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(In thousands, except share data)
1. BASIS OF PRESENTATION
Unaudited Interim Consolidated Financial Statements
The unaudited interim consolidated financial statements reflect all
adjustments consisting only of normal recurring adjustments which are, in the
opinion of management, necessary for a fair presentation of financial condition
and results of operations. The results for the three and nine months ended
September 30, 1997, are not necessarily indicative of the results that may be
expected for a full fiscal year.
Statement of Cash Flows
Interest paid for the nine months ended September 30, 1996 and 1997, is
approximately $14,304 and $14,996, respectively. Income taxes paid for the nine
months ended September 30, 1996 and 1997, is approximately $101 and $215,
respectively.
2. INVENTORIES
Inventories are valued at the lower of cost or market. Cost is determined
using the first-in, first-out (FIFO) method.
The composition of inventories at September 30, 1997, is as follows:
Raw materials .......................................... $27,412
Finished goods ......................................... 10,056
-------
Total ................................................. $37,468
=======
F-60
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholder of
General Felt Industries, Inc.:
We have audited the accompanying consolidated balance sheets of General Felt
Industries, Inc. and subsidiaries ("General Felt") as of December 31, 1995 and
December 29, 1996, and the related consolidated statements of operations, cash
flows and stockholder's equity for each of the three years in the period ended
December 29, 1996. These financial statements are the responsibility of General
Felt's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of General Felt as of
December 31, 1995 and December 29, 1996, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 29, 1996, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 26, 1997
F-61
<PAGE>
GENERAL FELT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(thousands)
December 31, December 29,
1995 1996
------------ ------------
ASSETS:
CURRENT ASSETS:
Cash .............................................. $ 538 $ 336
Restricted cash ................................... -- 12,143
Accounts receivable, net of allowance for
doubtful accounts of $5,986 and $4,453 ........... 35,532 44,973
Inventories ....................................... 18,485 25,314
Deferred income taxes ............................. -- 6,342
Other current assets .............................. 3,574 3,093
-------- --------
Total current assets ............................ 58,129 92,201
-------- --------
PROPERTY, PLANT AND EQUIPMENT:
Land and land improvements ....................... 600 3,491
Buildings and leasehold improvements ............. 5,579 5,896
Machinery, equipment and furnishings ............. 23,426 29,354
Construction in progress ......................... 803 1,957
-------- --------
Total ........................................... 30,408 40,698
Less accumulated depreciation and amortization ... (5,322) (8,950)
-------- --------
Property, plant and equipment, net ............... 25,086 31,748
COST IN EXCESS OF ASSETS ACQUIRED, NET ............. 58,964 50,574
NET ASSETS OF DISCONTINUED OPERATIONS .............. 11,689 --
OTHER ASSETS ....................................... 1,629 3,158
-------- --------
TOTAL ASSETS ....................................... $155,497 $177,681
======== ========
The accompanying notes are an integral part of the
consolidated financial statements.
F-62
<PAGE>
GENERAL FELT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS--(Continued)
(thousands)
December 31, December 29,
1995 1996
------------ ------------
LIABILITIES AND STOCKHOLDER'S EQUITY:
CURRENT LIABILITIES:
Current portion of long-term debt--
unrelated parties .................................. $ 3,000 $ --
Current portion of long-term debt--related party .... -- 12,143
Accounts payable .................................... 10,697 13,719
Accounts payable to related party ................... 13,000 17,987
Accrued employee compensation ....................... 2,133 1,434
Accrued restructuring charges ....................... 4,308 2,279
Other accrued liabilities ........................... 10,780 14,210
-------- --------
Total current liabilities .......................... 43,918 61,772
LONG-TERM DEBT--UNRELATED PARTIES ..................... 8,250 --
LONG-TERM DEBT--RELATED PARTY ......................... 48,306 9,260
DEFERRED INCOME TAXES ................................. -- 3,273
ACCRUED RESTRUCTURING--NONCURRENT ..................... -- 2,308
OTHER LIABILITIES ..................................... 5,514 4,049
-------- --------
Total liabilities .................................. 105,988 80,662
-------- --------
COMMITMENTS AND CONTINGENCIES ......................... -- --
-------- --------
STOCKHOLDER'S EQUITY:
Common stock, $.01 par value; authorized,
issued and outstanding 1,000 shares ................ -- --
Additional paid-in capital .......................... 69,194 143,965
Retained earnings (accumulated deficit) ............. (19,685) (46,946)
-------- --------
Total stockholder's equity ......................... 49,509 97,019
-------- --------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY ............ $155,497 $177,681
======== ========
The accompanying notes are an integral part of the
consolidated financial statements.
F-63
<PAGE>
GENERAL FELT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended 1994, 1995 and 1996
(thousands)
<TABLE>
<CAPTION>
January 1, December 31, December 29,
1995 1995 1996
------------ -------------- -------------
<S> <C> <C> <C>
NET SALES ....................................... $290,577 $ 279,123 $ 302,648
COST OF GOODS SOLD .............................. 251,120 252,591 263,316
-------- --------- ---------
GROSS PROFIT .................................... 39,457 26,532 39,332
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES ....................................... 24,392 22,312 18,819
RESTRUCTURING CHARGES (CREDITS) ................. -- 14,156 (5,460)
-------- --------- ---------
INCOME (LOSS) FROM OPERATIONS ................... 15,065 (9,936) 25,973
INTEREST EXPENSE ................................ 1,178 1,164 2,179
OTHER INCOME, NET ............................... 90 52 1,015
-------- --------- ---------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE PROVISION FOR INCOME TAXES .............. 13,977 (11,048) 24,809
PROVISION FOR INCOME TAXES ...................... 5,587 962 6,344
-------- --------- ---------
INCOME (LOSS) FROM CONTINUING OPERATIONS ........ 8,390 (12,010) 18,465
-------- --------- ---------
DISCONTINUED OPERATIONS:
OPERATING LOSS FROM DISCONTINUED
OPERATIONS, NET OF INCOME TAXES ................ (2,293) (11,040) (3,389)
LOSS ON DISPOSAL OF DISCONTINUED
OPERATIONS INCLUDING PROVISION FOR
OPERATING LOSSES DURING THE PHASE-
OUT PERIOD, NET OF INCOME TAXES ................ -- -- (42,337)
-------- --------- ---------
LOSS FROM DISCONTINUED OPERATIONS, NET
OF INCOME TAXES ................................ (2,293) (11,040) (45,726)
-------- --------- ---------
NET INCOME (LOSS) ............................... $ 6,097 $ (23,050) $ (27,261)
======== ========= =========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-64
<PAGE>
GENERAL FELT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended 1994, 1995 and 1996
(thousands)
<TABLE>
<CAPTION>
January 1, December 31, December 29,
1995 1995 1996
---------- ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) ........................................... $ 6,097 $ (23,050) $ (27,261)
Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities:
Depreciation and amortization .............................. 4,054 4,476 4,564
Net loss on disposal of discontinued operations ............ -- -- 40,551
Net loss from discontinued operations....................... 2,293 11,040 5,175
Asset writedowns and other charges (credits) ............... -- 8,505 (6,769)
Provision for uncollectible accounts ....................... 607 2,992 967
Deferred income taxes ...................................... 5,541 962 5,519
Changes in operating assets and liabilities, net of
acquisitions and discontinued operations:
Accounts receivable ........................................ (4,512) 721 (10,358)
Inventories ................................................ 254 157 (6,829)
Accounts payable and accounts payable to related party...... 6,039 (6,309) 8,009
Accrued restructuring charges .............................. (566) 3,424 280
Other assets and liabilities ............................... (7,961) (2,328) (1,813)
--------- --------- ---------
Net cash provided by continued operations ................. 11,846 590 12,035
Net cash used for discontinued operations ................. (969) (12,617) (524)
--------- --------- ---------
Net cash provided by (used for) operating
activities ................................................ 10,877 (12,027) 11,511
--------- --------- ---------
INVESTING ACTIVITIES:
Capital expenditures ........................................ (3,391) (1,604) (2,442)
Proceeds from sale of subsidiary ............................ -- -- 42,650
Acquisition, net of cash acquired ........................... -- (7,272) --
Increase in restricted cash ................................. -- -- (12,143)
Capital expenditures for discontinued operations ............ (6,565) (4,429) (919)
Other investing activities .................................. 1,016 10 (2,149)
--------- --------- ---------
Net cash provided by (used for) investing
activities ................................................ (8,940) (13,295) 24,997
--------- --------- ---------
FINANCING ACTIVITIES:
Net proceeds from (repayments of) revolving loans ........... 3,000 (3,000) --
Net proceeds from (repayments of) Foamex L.P. notes
payable ..................................................... (26,734) 14,742 (26,903)
Proceeds from long-term debt--unrelated party ............... 15,000 -- --
Payments on long-term debt--unrelated party ................. (750) (3,000) (11,250)
Net financing activities of discontinued operations ......... 7,534 17,046 1,443
--------- --------- ---------
Net cash provided by (used for) financing
activities ................................................ (1,950) 25,788 (36,710)
--------- --------- ---------
Net increase (decrease) in cash .............................. (13) 466 (202)
Cash at beginning of period .................................. 85 72 538
--------- --------- ---------
Cash at end of period ........................................ $ 72 $ 538 $ 336
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-65
<PAGE>
GENERAL FELT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
For the Years Ended 1994, 1995 and 1996
(thousands)
<TABLE>
<CAPTION>
Retained
Common Stock Additional Earnings
--------------- Paid-In (Accumulated
Shares Amount Capital Deficit)
------- ------- ---------- ------------
<S> <C> <C> <C> <C>
Balances at January 2, 1994 ................................... 1 -- $ 67,036 $ (2,732)
Net income .................................................... -- -- -- 6,097
---- ----- -------- --------
Balances at January 1, 1995 ................................... 1 -- 67,036 3,365
Assumption of pension liability by Foamex L.P. ................ -- -- 2,158 --
Net loss ...................................................... -- -- -- (23,050)
---- ----- -------- --------
Balances at December 31, 1995 ................................. 1 -- 69,194 (19,685)
Net loss ...................................................... -- -- -- (27,261)
Contribution by Foamex L.P. of intercompany notes in
connection with sale of Perfect Fit Industries, Inc. ......... -- -- 74,771 --
---- ----- -------- --------
Balances at December 29, 1996 ................................. 1 -- $143,965 $(46,946)
==== ====== ======== ========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-66
<PAGE>
GENERAL FELT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
General Felt Industries, Inc. and subsidiaries ("General Felt") is one of
the largest distributors and manufacturers of carpet cushion in North America.
In addition, Foamex Fibers, Inc. ("Foamex Fibers"), a wholly-owned subsidiary,
manufactures various nonwoven textile fiber products used primarily for carpet
padding and in the furniture industry.
General Felt is a wholly owned subsidiary of Foamex L.P. which in turn is
a 99% owned subsidiary of Foamex International Inc. ("Foamex International").
During 1996, General Felt sold Perfect Fit Industries, Inc. ("Perfect Fit")
which comprised the home comfort products segment of General Felt. The
consolidated financial statements of General Felt have been restated for
discontinued operations and include a net loss of $42.3 million, which includes
the loss on disposal and a net loss of $1.8 million (net of $1.2 million income
tax benefit) relating to operating losses during the phase-out period.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The consolidated financial statements include the accounts of General Felt,
other than the home comfort products segment, which is accounted for as
discontinued operations. Intercompany accounts and transactions for continuing
operations have been eliminated in consolidation.
The consolidated financial statements have been restated for discontinued
operations. The accompanying notes present amounts related only to continuing
operations.
Fiscal Year
General Felt's fiscal year ends on the Sunday closest to the thirty-first
day of December. Fiscal years 1994, 1995 and 1996 were composed of fifty-two
weeks and ended on January 1, 1995, December 31, 1995 and December 29, 1996,
respectively.
Accounting Estimates
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 at the
date of the financial statements and reported amounts of revenues and expenses
during the reported period. Actual results could differ from those estimates.
(See Notes 4, 10, 11 and 14 and Cost in Excess of Net Assets Acquired below).
Revenue Recognition
Revenue from sales is recognized when products are shipped.
Discounts and Billing Adjustments
A reduction in sales revenue is recognized for sales discounts when product
is invoiced or for other billing adjustments when authorized.
Cash Management
General Felt's cash management system operates such that checks processed
by General Felt but not yet presented to the bank are not considered reductions
of cash or accounts payable. Checks presented to the bank for payment are
provided for by a draw on the revolving notes with Foamex L.P. Cash receipts are
used to reduce the outstanding borrowings under the Foamex L.P. revolving notes.
As of December 31, 1995 and December 29, 1996, $0.4 million and $0.4 million,
respectively, of processed checks have not been presented to the bank and are
included in accounts payable.
Restricted Cash
As of December 29, 1996, General Felt had restricted cash of approximately
$12.1 million. This cash was derived from the net sales proceeds relating to the
sale of Perfect Fit and is restricted by Foamex L.P.'s debt agreements. This
restricted cash will be used to reduce long-term debt--related party with Foamex
L.P. during 1997;
F-67
<PAGE>
GENERAL FELT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
accordingly, a corresponding amount of long-term debt--related party has been
classified as current in the accompanying consolidated balance sheets.
Inventories
Inventories are stated at the lower of cost or market. The cost of
inventories is determined on a first-in, first-out basis.
Property, Plant and Equipment
Property, plant and equipment are stated at cost and are depreciated using
the straight-line method over the estimated useful lives of the assets. The
range of useful lives estimated for buildings and building improvements is
generally ten to forty years and the range for machinery, equipment and
furnishings is five to twelve years. Leasehold improvements are amortized over
the shorter of the terms of the respective lease or the estimated useful life of
the improvement, whichever is shorter. Depreciation expense for the years ended
1994, 1995 and 1996 was $2.6 million, $2.8 million and $3.0 million,
respectively. For income tax purposes, General Felt uses accelerated
depreciation methods.
Cost of maintenance and repairs is charged to expense as incurred. Renewals
and improvements are capitalized. Upon retirement or other disposition of items
of plant and equipment, the cost and related accumulated depreciation are
removed from the accounts and any gain or loss is included in operations. During
1994, General Felt sold equipment with a net book value of approximately $1.0
million to a related party. There was no gain or loss on the sale.
Cost in Excess of Net Assets Acquired
The excess of the acquisition cost over the fair value of net assets
acquired in business combinations accounted for by the purchase method is
amortized using the straight-line method over a forty year period. At each
balance sheet date General Felt evaluates the recoverability of cost in excess
of net assets acquired using certain financial indicators such as historical and
future ability to generate income from operations based on a going concern
basis. Accumulated amortization as of December 31, 1995 and December 29, 1996 is
approximately $4.3 million and $5.9 million, respectively.
Environmental Matters
Environmental expenditures that relate to current operations are expensed
or capitalized as appropriate. Expenditures that relate to an existing condition
caused by past operations, which do not contribute to current or future revenue
generation, are expensed. Liabilities are recorded when environmental
assessments and/or remedial efforts are probable, and the cost can be reasonably
estimated.
Income Taxes
Income taxes are accounted for under the liability method in which deferred
income taxes are provided for temporary differences between the financial
reporting and income tax basis of assets and liabilities using the income tax
rates, under existing legislation, expected to be in effect at the date such
temporary differences are expected to reverse.
Reclassifications
Certain amounts in the 1994 and 1995 consolidated financial statements have
been reclassified to conform with the current year's presentation.
3. DISCONTINUED OPERATIONS
During 1996, General Felt finalized the sale of the outstanding common
stock of Perfect Fit, a wholly owned subsidiary, for an adjusted sale price of
approximately $44.2 million. The sale included all of the net assets of the home
comfort products segment with an adjusted net book value of approximately $84.5
million after Foamex L.P.
F-68
<PAGE>
GENERAL FELT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
3. DISCONTINUED OPERATIONS (continued)
contributed Perfect Fit's intercompany notes receivable and accrued interest
thereon with Foamex L.P. to General Felt. Actual and estimated transaction
expenses related to the sale totaled approximately $1.5 million. General Felt
has recorded a loss for discontinued operations of approximately $42.3 million,
which includes the loss on disposal and a net loss of $1.8 million (net of $1.2
million income tax benefit) relating to operating losses during the phase-out
period. A valuation allowance has been provided for the capital loss relating to
the sale of Perfect Fit since General Felt has determined that capital gain
taxable income is not likely to be sufficient to recognize the deferred tax
asset relating to the capital loss carryforward.
Summary operating results of General Felt's discontinued operations were as
follows:
1994 1995 1996(1)
------- -------- -------
(thousands)
Net sales .............................. $95,381 $ 98,464 $50,097
Gross profit ........................... 18,200 14,946 8,065
Income (loss) from operations .......... 4,170 (3,058) 1,123
Interest and debt issuance expense ..... 7,194 10,636 5,543
Other expense .......................... -- -- 348
Loss from discontinued operations
before income taxes .................... (3,024) (13,694) (4,768)
Provision (benefit) for income taxes ... (731) (2,654) (1,379)
------- -------- -------
Loss from discontinued operations,
net of income taxes .................... $(2,293) $(11,040) $(3,389)
======= ======== =======
(1) General Felt's discontinued operations includes the operations of
Perfect Fit through June 1996. Net assets of General Felt's discontinued
operations (excluding intercompany net assets) at December 31, 1995 is as
follows:
1995
------------
(thousands)
Current assets ................................. $31,925
Property, plant and equipment, net ............. 21,672
Cost in excess of assets acquired, net ......... 40,333
Other assets ................................... 2,219
-------
Total assets .................................. 96,149
-------
Current liabilities ............................ 11,076
Long-term debt due to Foamex L.P. .............. 73,384
-------
Total liabilities ............................. 84,460
-------
Net assets .................................... $11,689
=======
4. RESTRUCTURING CHARGES
In 1995, General Felt approved a restructuring plan (the "1995
restructuring plan") to consolidate two foam production, fabrication or branch
locations to concentrate resources as a result of industry conditions and better
position itself to achieve its strategic growth objectives. General Felt
recorded restructuring charges of $14.2 million which was comprised of $13.1
million charge associated with the consolidation of the two foam production,
fabrication or branch locations and a $1.1 million charge associated with the
completion of a 1993 restructuring plan. The components of the $13.1 million
restructuring charge include: $8.5 million for fixed asset writedowns (net of
estimated sale proceeds), $3.8 million for plant closure and operating lease
obligations and $0.8 million for personnel reductions. The $0.8 million cost for
personnel reductions primarily represents severance and employee benefit costs
associated with the elimination of manufacturing and administrative personnel.
F-69
<PAGE>
GENERAL FELT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4. RESTRUCTURING CHARGES (continued)
In 1996, General Felt determined to continue to operate one of the
facilities originally identified for closure in the 1995 restructuring plan
because of improved economics and the lack of synergy to be achieved from
relocating the manufacturing process. In addition, General Felt has approved a
plan to close a facility that was not originally identified in the 1995
restructuring plan. As a result of these changes to the 1995 restructuring plan,
General Felt recorded a $5.5 million net restructuring credit which included a
restructuring credit of $11.3 million associated with General Felt's decision
not to close the facility identified as part of the 1995 restructuring plan
offset by $5.8 million of restructuring charges relating to the closure of a
facility during 1997 (the "1996 restructuring plan").
Generally, the 1995 restructuring plan has been implemented as originally
contemplated. The following table sets forth the components of General Felt's
restructuring and other charges:
<TABLE>
<CAPTION>
Asset Plant Closure Personnel
Total Writedowns and Leases Reductions Other
------- ---------- ------------- ---------- ------
(millions)
<S> <C> <C> <C> <C> <C>
1995 restructuring charge ........................... $ 14.2 $ 8.5 $ 3.8 $ 0.8 $ 1.1
Asset writeoff/writedowns ........................... (11.3) (9.9) (0.3) -- (1.1)
------- ------ ------ ------ ------
Balances at December 31, 1995 ....................... 2.9 (1.4) 3.5 0.8 --
Cash spending ....................................... ( 1.0) -- (0.5) (0.5) --
1996 restructuring charge ........................... 5.8 1.6 3.9 0.3 --
Restructuring credits ............................... (11.3) (8.4) (2.7) (0.2) --
Asset adjustments for restructuring credits ......... 8.2 8.2 -- -- --
------- ------ ------ ------ ------
Balances at December 29, 1996 ....................... $ 4.6 $ -- $ 4.2 $ 0.4 $ --
======= ====== ====== ====== ======
</TABLE>
As indicated in the table above, the accrued restructuring balance at
December 29, 1996, will be used for plant closure and leases including rundown
costs at the facilities. General Felt expects to incur approximately $2.3
million of charges during 1997 with the remaining $2.3 million to be incurred
through 2001. General Felt has terminated or notified 61 employees in the
manufacturing and administrative areas of their impending termination.
5. ACQUISITIONS
In April 1995, Foamex Fibers acquired certain assets and assumed certain
liabilities of GS Industries, Inc. and Pontotoc Fibers, Inc., manufacturers of
various nonwoven textile fiber products used primarily for carpet padding and in
the furniture industry for aggregate consideration of approximately $8.0
million, including related fees and expenses of approximately $0.3 million, with
an initial cash payment of $7.2 million. The excess of the purchase price over
the estimated fair value of the net assets acquired was approximately $3.9
million. The acquisition was accounted for as a purchase and the operations of
the acquired companies are included in the consolidated statements of operations
and cash flows from the date of acquisition. The cost of the acquisition has
been allocated on the basis of the fair value of the assets acquired and the
liabilities assumed. The excess of the purchase price over the estimated fair
value of the net assets acquired is being amortized using the straight-line
method over forty years.
6. INVENTORIES
Inventories consist of:
December 31, December 29,
1995 1996
-------------- -------------
(thousands)
Raw material and supplies ......... $ 7,277 $12,795
Work in process ................... 917 1,120
Finished goods .................... 10,291 11,399
------- -------
Total ............................ $18,485 $25,314
======= =======
F-70
<PAGE>
GENERAL FELT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7. LONG-TERM DEBT--RELATED PARTY
General Felt has two revolving promissory notes with Foamex L.P. to borrow
up to a maximum of $64.0 million. During 1996, General Felt used approximately
$22.5 million of the net proceeds from the sale of Perfect Fit to reduce these
promissory notes with Foamex L.P. The notes are due on demand, however, the
remaining net proceeds of $12.1 million from the sale of Perfect Fit will be
used to paydown the notes with Foamex L.P. during 1997 and is classified as a
current liability in the accompanying balance sheets. Foamex L.P. has indicated
that it does not intend to demand payment on the remaining balance of the notes
during 1997. Accordingly, the balance of the notes of $9.3 million is classified
as long-term in the accompanying balance sheets. Interest is payable quarterly
at the prime rate (8.25% at December 29, 1996). General Felt's cash receipts
reduce the outstanding balance and the cash requirements increase the
outstanding balance on a daily basis.
8. LONG-TERM DEBT--UNRELATED PARTY
Long-term debt--unrelated parties consists of:
December 31,
1995
-------------
(thousands)
Term loan .................... $11,250
Revolving loan ............... --
-------
11,250
Less current portion ......... 3,000
-------
Total ........................ $ 8,250
=======
Term and Revolving Loans
On June 28, 1994, Foamex L.P. and General Felt entered into an amended
credit agreement (the "Foamex L.P. Credit Facility"). The Foamex L.P. Credit
Facility provides for loans of up to $85.0 million of which up to $40.0 million
was available as a term loan payable in 20 equal quarterly installments
commencing October 1994 and up to $45.0 million is available under a revolving
line of credit which expires in June 1999. On June 28, 1994, Foamex L.P. and
General Felt entered into a $40.0 million term loan under the Foamex L.P. Credit
Facility of which $15.0 million was borrowed by General Felt; no further term
loan borrowings are available thereunder. Borrowings under the Foamex L.P.
Credit Facility are collateralized by the accounts receivable of Foamex L.P. and
General Felt. During 1996, General Felt used $9.0 million of net proceeds from
the sale of Perfect Fit to repay its outstanding term loan borrowings. Pursuant
to the terms of the Foamex L.P. Credit Facility, borrowed funds will bear
interest at a floating rate equal to 1.0% per annum plus the higher of (I) the
base rate of The Bank of Nova Scotia, as in effect from time to time, (ii) a
rate that is, generally, 0.5% per annum plus a fluctuating rate generally equal
to the rate on three-month certificates of deposit, subject to certain
adjustments, plus a fluctuating rate generally equal to the annual assessment
rate paid by The Bank of Nova Scotia to the Federal Deposit Insurance
Corporation or (iii) 0.5% per annum plus the federal funds rate in effect from
time to time. At the option of either borrower, portions of outstanding loans
under the Foamex L.P. Credit Facility will be convertible into Eurodollar rate
loans bearing interest at a rate generally equal to 3.0% per annum above the
average LIBOR rate of Citibank, N.A. and The Bank of Nova Scotia. As of December
29, 1996, no revolving credit borrowings were outstanding under the Foamex L.P.
Credit Facility with unused availability of $33.3 million. In addition, there
were $11.7 million in letters of credit outstanding under the Foamex L.P. Credit
Facility.
Debt Restrictions and Covenants
The Foamex L.P. indentures, credit agreement and other indebtedness
agreements contain various covenants, including restrictions on payments of
distributions by Foamex L.P. to its partners, the incurrence of additional
indebtedness, the sale of assets, mergers and consolidations and transactions
with affiliates. In addition, certain agreements contain a provision that, in
the event of a defined change of control, the indebtedness must be repaid,
F-71
<PAGE>
GENERAL FELT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
8. LONG-TERM DEBT--UNRELATED PARTY (continued)
in certain cases at the option of the holder. Also, Foamex L.P. is required
under certain of these agreements to maintain specified financial ratios of
which the most restrictive is the maintenance of net worth and interest coverage
ratios, as defined. Under the most restrictive of the distribution restrictions,
approximately $0.7 million was available to be paid by Foamex L.P. to its
partners at December 29, 1996. Also, General Felt is required to maintain $41.0
million net worth, as defined.
As of December 29, 1996, Foamex L.P. and General Felt were in compliance
with the covenants of the Foamex L.P. Credit Facility and expect to be in
compliance with the covenants for the foreseeable future.
9. EMPLOYEE BENEFIT PLANS
Prior to December 31, 1996, General Felt had noncontributory defined
benefit pension plans (the "Plans") for eligible salaried employees (the
"Salaried Plan") and certain hourly employees at the Trenton and Pico Rivera
manufacturing facilities (the "Trenton Plan" and the "Pico Plan"). The Plans
provided benefits based principally on years of credited service and the highest
level of compensation earned during a specified period before retirement for the
Salaried Plan and stated amounts for each year of credited service for the
Trenton Plan and the Pico Plan. General Felt accounted for such pension plans
pursuant to SFAS No. 87, "Employer's Accounting for Pensions".
General Felt's funding policy was to make no less than the minimum annual
contributions required based upon actuarial methods allowable by applicable
governmental regulations. Effective January 1, 1995, General Felt merged the
Salaried Plan and the Trenton Plan with the defined benefit salaried pension
plan of Foamex L.P. During 1995, General Felt merged the Pico Plan with the
defined benefit hourly pension plan of Foamex L.P. Consequently, the aggregate
pension liability of approximately $2.2 million as of December 31, 1995 relating
to these plans has been included in additional paid-in capital since Foamex L.P.
has assumed all future obligations under the plans. General Felt will incur
pension expense for future periods to the extent it provides funding to the
plans. During 1996, General Felt funded approximately $0.1 million to the plans.
Net periodic pension cost includes the following components:
1994
--------
(thousands)
Service cost-benefits earned during the period ......... $ 419
Interest cost on projected benefit obligation .......... 1,077
Actual return on plan assets ........................... 84
Net amortization and deferral .......................... (1,195)
--------
Net periodic pension cost .............................. $ 385
========
The assumptions used to determine net periodic pension cost and related
pension obligations were as follows:
1994
-----
Discount rate ........................................ 8.25%
Rate of increase in compensation levels .............. 4.00
Expected long-term rate of return on assets .......... 9.75
In addition, certain employees of General Felt are covered by
union-sponsored collectively bargained, multi-employer pension plans. General
Felt contributed and charged to expense $0.1 million related to these plans for
each of the years 1994, 1995 and 1996.
During 1995, General Felt merged its defined contribution plan with Foamex
L.P. Foamex L.P. is the plan sponsor; however, General Felt incurs a
contribution expense for its employees. The plan is qualified under Section
401(k) of the Internal Revenue Code (the "Code") and covers eligible employees
who elect to participate in the plan. Employee contributions are voluntary and
subject to certain limitations as imposed by the Code. During 1995,
F-72
<PAGE>
GENERAL FELT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
9. EMPLOYEE BENEFIT PLANS (continued)
General Felt provided contributions amounting to a 25% match of employees'
contributions up to 4% of eligible compensation. General Felt also provides an
additional 25% match of employees' contributions up to 4% of eligible
compensation made to a fund which invests in Foamex International common stock.
In addition, General Felt may make discretionary contributions amounting to a
25% match of employees' contributions up to 4% of eligible compensation. Prior
to 1995, contributions were provided only to employees who were members of
collective bargaining agreements. The expense for these contributions was $0.1
million for each of the years 1995 and 1996.
10. INCOME TAXES
The components of the total consolidated provision (benefit) for income
taxes are summarized as follows:
1994 1995 1996
------ ------- -------
(thousands)
Continuing operations ................... $5,587 $ 962 $ 6,344
Discontinued operations ................. (731) (2,654) (2,558)
------ ------- -------
Total consolidated provision (benefit)
for income taxes ..................... $4,856 $(1,692) $ 3,786
====== ======= =======
Current:
Federal ................................ $ -- $ -- $ 220
State .................................. 46 -- 605
------ ------- -------
Total current ......................... 46 -- 825
------ ------- -------
Deferred:
Federal ................................ 3,598 (1,424) 1,666
State .................................. 1,212 (268) 1,295
------ ------- -------
Total deferred ........................ 4,810 (1,692) 2,961
------ ------- -------
Total consolidated provision (benefit)
for income taxes ....................... $4,856 $(1,692) $ 3,786
====== ======= =======
The components of the temporary differences that give rise to significant
deferred tax assets and liabilities are:
December 31, December 29,
1995 1996
------------ ------------
(thousands)
Deferred tax assets:
Inventory basis differences .................... $ 861 $ 415
Employee benefit accruals ...................... 1,004 714
Allowances and contingent liabilities .......... 2,427 2,548
Restructuring and plant closing accruals ....... 7,498 3,632
Other .......................................... 77 139
Net operating loss carryforward ................. 8,975 5,154
Capital loss carryforwards ...................... -- 14,193
Valuation allowance ............................. (13,473) (15,988)
-------- --------
Deferred tax assets ............................ 7,369 10,807
-------- --------
Deferred tax liabilities:
Difference between book and tax depreciation ... 7,009 6,722
Other .......................................... 360 1,016
Deferred tax liabilities ........................ 7,369 7,738
-------- --------
Net deferred tax asset (liabilities) ........... $ -- $ 3,069
======== ========
F-73
<PAGE>
GENERAL FELT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
10. INCOME TAXES (continued)
A reconciliation of the statutory federal income tax rate to the effective
income tax rate on continuing operations is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
--------- -------------- -----------
(thousands)
<S> <C> <C> <C>
Statutory income taxes ............................ $4,892 $(3,867) $ 8,683
State income taxes, net of federal ................ 839 (648) 1,235
Limitation on utilization of tax benefits ......... -- 4,929 --
Amortization of excess cost ....................... 525 554 517
Valuation allowance ............................... (452) -- (4,823)
Other ............................................. (217) (6) 732
------ ---------- --------
Tax provision ..................................... $5,587 $ 962 $ 6,344
====== ========= ========
</TABLE>
General Felt has determined that taxable capital gains in the foreseeable
future will likely not be sufficient to recognize the deferred tax asset
associated with the capital loss carryforward. Accordingly, a valuation
allowance has been provided for the deferred tax asset associated with the
capital loss carryforward and certain other deferred tax assets. During 1996,
the valuation allowance for deferred tax assets increased by $2.5 million which
included a $14.2 million increase for the capital loss carryforward, offset by
$6.9 million decrease due to reversal of preacquisition temporary differences
and $4.8 million for reversal of postacquisition temporary differences which is
reflected in the consolidated statement of operations. The $6.9 million reversal
of preacquisition temporary differences was used to reduce cost in excess of
assets acquired. As of December 29, 1996, approximately $1.8 million of deferred
tax assets are related to preacquisition activities and if utilized will further
reduce cost in excess of assets acquired. At December 29, 1996, General Felt has
$14.7 million of regular tax net operating loss carryforwards for federal income
tax purposes expiring from 2003 to 2010 of which $7.0 million was acquired in
1993 and is subject to limitations. In addition, General Felt has $40.6 million
of capital loss carryforwards that expire in 2001.
11. ENVIRONMENTAL MATTERS
During 1996, expenditures in connection with General Felt's compliance with
federal, state, and local environmental laws and regulations did not have a
material adverse effect on General Felt's operations, financial position,
capital expenditures or competitive position. As of December 29, 1996, General
Felt had environmental accruals of approximately $1.5 million for environmental
matters.
General Felt has reported to appropriate state authorities that it has
found soil and groundwater contamination in excess of state standards at a
facility located in Philadelphia. General Felt has begun remediation and is
conducting further investigations into the extent of the contamination at this
facility and, accordingly, the extent of the remediation that may ultimately be
required. The actual cost and the timetable of any such remediation cannot be
predicted with any degree of certainty at this time. As of December 29, 1996,
General Felt had environmental accruals of approximately $1.2 million for the
remaining potential remediation costs for these facilities based on engineering
estimates.
Federal regulations require that by the end of 1998 all underground storage
tanks ("USTs") be removed or upgraded in all states to meet applicable
standards. General Felt has six USTs that will require removal or permanent
in-place closure by the end of 1998. Due to the age of these tanks, leakage may
have occurred resulting in soil and possibly groundwater contamination. General
Felt has accrued $0.3 million for the estimated removal and remediation, if any,
associated with these USTs. However, the full extent of contamination and,
accordingly, the actual cost of such remediation cannot be predicted with any
degree of certainty at this time. General Felt believes that its USTs do not
pose a significant risk of environmental liability because of General Felt's
monitoring practices
F-74
<PAGE>
GENERAL FELT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
11. ENVIRONMENTAL MATTERS (continued)
for USTs and conditional approval for the permanent in-place closure for certain
USTs. However, there can be no assurance that such USTs will not result in
significant environmental liability in the future.
Although it is possible that new information or future developments could
require General Felt to reassess its potential exposure relating to all pending
environmental matters, including those described herein, management believes
that, based upon all currently available information, the resolution of such
environmental matters will not have a material adverse effect on General Felt's
operations, financial position, capital expenditures or competitive position.
The possibility exists, however, that new environmental legislation and/or
environmental regulations may be adopted, or other environmental conditions may
be found to exist, that may require expenditures not currently anticipated and
that may be material.
12. COMMITMENTS AND CONTINGENCIES
Operating Leases
General Felt is obligated, under various noncancelable lease agreements,
for rental of facilities and machinery and equipment. Many of the leases contain
renewal options with varying terms and escalation clauses that provide for
increased rentals based upon increases in the Consumer Price Index, real estate
taxes and the lessors' operating expenses. Total minimum rental commitment
(excluding commitments accrued as part of the 1995 and 1996 restructuring plans)
required under operating leases at December 29, 1996 was:
(thousands)
------------
1997 .................................. $1,070
1998 .................................. 809
1999 .................................. 446
2000 .................................. 367
2001 .................................. 340
Thereafter ............................ 1,061
------
Total minimum lease payments ......... $4,093
======
Total rent expense for all operating leases for the years ended 1994, 1995
and 1996 was approximately $3.5 million, $2.8 million and $2.1 million,
respectively.
Guarantor
General Felt has pledged its stock as collateral for certain debt of
Foamex L.P. and is a co-guarantor of the borrowings outstanding under the
Foamex L.P. Credit Facility and Foamex L.P. bond indentures, which as of
December 29, 1996, had amounts outstanding of approximately $11.0 million and
$380.2 million, respectively.
13. RELATED PARTY TRANSACTIONS AND BALANCES
General Felt purchased $149.0 million, $141.2 million and $154.0 million of
carpet cushion foam from Foamex L.P. during 1994, 1995 and 1996, respectively.
In connection with the consolidation of General Felt's administrative
functions with those of Foamex L.P., General Felt paid approximately $2.3
million and $1.4 million to Foamex L.P. in 1995 and 1996, respectively, for
direct costs incurred by Foamex L.P. on General Felt's behalf and for an
allocation of shared services and facilities.
During 1993, General Felt leased two facilities from limited partnerships
in which certain directors and officers of related parties have an interest. The
lessor under the first of these leases (the "East State Lease") is East State
Associates. The lease related to a warehouse at General Felt's Trenton, New
Jersey facility. In accordance with the terms of the lease, the lessor exercised
its right to require General Felt to purchase the facility at the appraised fair
market value of approximately $2.3 million. General Felt assigned the purchase
contract for the property to
F-75
<PAGE>
GENERAL FELT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
13. RELATED PARTY TRANSACTIONS AND BALANCES (continued)
an unaffiliated third party who purchased the property on March 28, 1994.
General Felt no longer leases the facility. The lessor under the second lease
(the "West State Lease") is West State Associates. The lease relates to General
Felt's manufacturing facility in Pico Rivera, California. During 1994, General
Felt purchased the facility in Pico Rivera, California from the lessor at the
appraised fair market value of $3.4 million. Rental payments for these leases
for the year ended January 1, 1995 were $0.3 million.
14. FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK
Concentration of Credit Risk
General Felt's financial instruments subject to credit risk are primarily
trade accounts receivable. Accounts receivable are concentrated with large
retail customers. General Felt performs ongoing credit evaluations of its
customers' financial conditions and, generally, requires no collateral. General
Felt maintains allowance accounts for potential credit losses and such losses
have been within management's expectations. Additionally, General Felt's ten
largest customers accounted for approximately 32.6% and 30.8% of accounts
receivable at December 31, 1995 and December 29, 1996, respectively.
Disclosure about Fair Value of Financial Instruments
The following disclosures of the estimated fair value amounts have been
determined based on General Felt's assessment of available market information
and appropriate valuation methodologies.
Carrying amounts reported in the consolidated balance sheet for cash and
cash equivalents, accounts receivable, accounts payable, accrued liabilities and
short term borrowings approximates fair value due to the short-term nature of
these instruments.
The carrying value of long-term debt approximates fair value based on the
borrowing rate available to General Felt for bank loans with similar terms and
maturities.
Fair value estimates are made at a specific point in time, based on
relevant market information about the financial instruments. These estimates are
subjective in nature and involve uncertainties and matters of significant
judgment and, therefore, cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.
15. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Supplemental disclosures of cash flow information:
1994 1995 1996
------ ------ ------
(thousands)
Interest paid .................. $3,609 $5,300 $4,434
====== ====== ======
Income taxes paid, net ......... $ 316 $ 183 $ 596
====== ====== ======
F-76
<PAGE>
GENERAL FELT INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
(thousands)
December 29, September 28,
1996 1997
----------- ------------
ASSETS:
CURRENT ASSETS:
Cash ............................................... $ 336 $ 209
Restricted cash .................................... 12,143 --
Accounts receivable, net ........................... 44,973 46,889
Inventories ........................................ 25,314 20,338
Other current assets ............................... 9,435 6,252
--------- ---------
Total current assets ............................. 92,201 73,688
PROPERTY, PLANT AND EQUIPMENT, NET .................. 31,748 30,713
COST IN EXCESS OF ASSETS ACQUIRED, NET .............. 50,574 49,531
OTHER ASSETS ........................................ 3,158 2,873
--------- ---------
TOTAL ASSETS ........................................ $ 177,681 $ 156,805
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY:
CURRENT LIABILITIES:
Current portion of long-term debt--related party ... $ 12,143 $ --
Accounts payable ................................... 13,719 9,404
Accounts payable to related parties ................ 17,987 16,910
Other accrued liabilities .......................... 17,923 17,602
--------- ---------
Total current liabilities ........................ 61,772 43,916
--------- ---------
LONG-TERM DEBT--RELATED PARTY ....................... 9,260 2,227
--------- ---------
OTHER LIABILITIES ................................... 9,630 8,931
--------- ---------
COMMITMENTS AND CONTINGENCIES ....................... -- --
--------- ---------
STOCKHOLDER'S EQUITY:
Common stock, $.01 par value;
1,000 shares authorized, issued and
outstanding ................................... -- --
Additional paid-in capital ......................... 143,965 143,965
Retained earnings (accumulated deficit) ............ (46,946) (42,234)
--------- ---------
Total stockholder's equity ....................... 97,019 101,731
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY .......... $ 177,681 $ 156,805
========= =========
The accompanying notes are an integral part of the
condensed consolidated financial statements.
F-77
<PAGE>
GENERAL FELT INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(thousands)
39-Week Periods Ended
-------------------------------
September 29, September 28,
1996 1997
-------------- --------------
NET SALES ...................................... $ 225,836 $223,648
COST OF GOODS SOLD ............................. 193,917 201,108
--------- --------
GROSS PROFIT ................................... 31,919 22,540
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ... 13,703 14,111
--------- --------
INCOME FROM OPERATIONS ......................... 18,216 8,429
INTEREST EXPENSE ............................... 1,474 765
OTHER INCOME, NET .............................. 527 147
--------- --------
INCOME FROM CONTINUING OPERATIONS BEFORE
PROVISION FOR INCOME TAXES .................... 17,269 7,811
PROVISION FOR INCOME TAXES ..................... 6,693 3,099
--------- --------
INCOME FROM CONTINUING OPERATIONS .............. 10,576 4,712
LOSS FROM DISCONTINUED OPERATIONS,
NET OF INCOME TAXES ........................... (45,192) --
--------- --------
NET INCOME (LOSS) .............................. $ (34,616) $ 4,712
========= ========
The accompanying notes are an integral part of the
condensed consolidated financial statements.
F-78
<PAGE>
GENERAL FELT INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(thousands)
39-Week Periods Ended
----------------------------
September 29, September 28,
1996 1997
------------- -------------
OPERATING ACTIVITIES:
Net income (loss) ................................... $ (34,616) $ 4,712
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization ...................... 3,480 3,426
Income from discontinued operations ................ 45,192 --
Other operating activities ......................... (458) 2,610
Changes in operating assets and liabilities,
net of discontinued operations .................... (3,588) (2,651)
--------- ---------
Net cash provided by operating activities ......... 10,010 8,097
Net cash used for discontinued operations ......... (524) --
--------- ---------
Net cash provided by operating activities ......... 9,486 8,097
--------- ---------
INVESTING ACTIVIITIES:
Capital expenditures ............................... (1,799) (1,287)
Proceeds from sale of discontinued operations ...... 45,425 --
Decrease (increase) in restricted cash ............. (33,149) 12,143
Other investing activities ......................... -- 96
Capital expenditures for discontinued operations ... (919) --
--------- ---------
Net cash provided by investing activities ......... 9,558 10,952
--------- ---------
FINANCING ACTIVITIES:
Net repayments of Foamex L.P. notes payable ........ (9,107) (19,176)
Principal payments of long-term debt--
unrelated parties ................................. (11,250) --
Net financing activities of discontinued
operations ........................................ 1,443 --
--------- ---------
Net cash used for financing activities ............ (18,914) (19,176)
--------- ---------
Net increase (decrease) in cash ...................... 130 (127)
Cash at beginning of period .......................... 538 336
--------- ---------
Cash at end of period ................................ $ 668 $ 209
========= =========
The accompanying notes are an integral part of the
condensed consolidated financial statements.
F-79
<PAGE>
GENERAL FELT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
1. ORGANIZATION AND BASIS OF PRESENTATION
General Felt Industries, Inc. and subsidiaries' ("General Felt") condensed
consolidated balance sheet as of December 29, 1996 has been condensed from the
audited consolidated balance sheet at that date. The condensed consolidated
balance sheet as of September 28, 1997 and the condensed consolidated statements
of operations and the condensed consolidated statements of cash flows for the
thirty-nine week periods ended September 29, 1996 and September 28, 1997 have
been prepared by General Felt and have not been audited by General Felt's
independent accountants. In the opinion of management, all adjustments,
consisting only of normal recurring adjustments, considered necessary for a fair
presentation of the consolidated financial position, results of operations and
cash flows have been included.
Certain information and note disclosures normally included in the financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted in accordance with the rules and regulations of
the Securities and Exchange Commission. These condensed consolidated financial
statements should be read in conjunction with General Felt's 1996 consolidated
financial statements and notes thereto as set forth elsewhere in this
Prospectus.
2. DISCONTINUED OPERATIONS
During 1996, General Felt sold the outstanding common stock of Perfect Fit
Industries, Inc. ("Perfect Fit"), a wholly owned subsidiary, for an adjusted
sale price of approximately $44.2 million. The sale included the net assets of
General Felt's home comfort products business segment.
General Felt's condensed consolidated financial statements have been
restated to reflect the discontinuation of the home comfort products business
segment. A summary of the operating results for the discontinued operations is
as follows:
39-Week Period Ended
September 29, 1996
--------------------
(thousands)
Net sales ................................................ $ 50,097
Gross profit ............................................. 8,065
Income from operations ................................... 1,123
Interest and debt issuance expense ....................... 5,543
Loss on disposal of discontinued operations .............. (41,803)
Other expense ............................................ 348
Loss from discontinued operations before benefit
from income taxes ...................................... (46,571)
Benefit for income taxes ................................. 1,379
Loss from discontinued operations, net of income taxes ... (45,192)
3. INVENTORIES
Inventories consist of:
December 29, September 28,
1996 1997
-------------- --------------
(thousands)
Raw materials and supplies ......... $12,795 $ 9,892
Work-in-process .................... 1,120 1,047
Finished goods ..................... 11,399 9,399
------- -------
Total ............................. $25,314 $20,338
======= =======
F-80
<PAGE>
GENERAL FELT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)--(Continued)
4. RELATED PARTY TRANSACTIONS
General Felt purchased approximately $112.5 million and $109.6 million of
carpet cushion from Foamex L.P. during the thirty-nine week periods ended
September 29, 1996 and September 28, 1997, respectively.
5. ENVIRONMENTAL MATTERS
As of September 28, 1997, General Felt had accruals of approximately $1.3
million for environmental matters.
General Felt has reported to appropriate state authorities that it has
found soil and groundwater contamination in excess of state standards at a
facility located in Philadelphia, Pennsylvania. General Felt has begun
remediation and is conducting further investigations into the extent of the
contamination at this facility and, accordingly, the extent of the remediation
that may ultimately be required. The actual cost and the timetable of any such
remediation cannot be predicted with any degree of certainty at this time. As of
September 28, 1997, General Felt had environmental accruals of approximately
$1.0 million for the remaining potential remediation costs for this facility
based on engineering estimates.
Federal regulations require that by 1998 all underground storage tanks
("USTs") be removed or upgraded in most states to meet applicable standards.
General Felt has six USTs that will require removal or permanent in-place
closure by the end of 1998. Due to the age of these tanks, leakage may have
occurred resulting in soil and possibly groundwater contamination. General Felt
has accrued $0.3 million for the estimated removal and remediation, if any,
associated with these USTs. However, the full extent of contamination and,
accordingly, the actual cost of such remediation cannot be predicted with any
degree of certainty at this time. General Felt believes that its USTs do not
pose a significant risk of environmental liability because of General Felt's
monitoring practices for USTs and conditional approval for permanent in-place
closure for certain USTs. However, there can be no assurance that such USTs will
not result in significant environmental liability in the future.
Although it is possible that new information or future developments could
require General Felt to reassess its potential exposure relating to all pending
environmental matters, including those described herein, management believes
that, based upon all currently available information, the resolution of such
environmental matters will not have a material adverse effect on General Felt's
operations, financial position, capital expenditures or competitive position.
The possibility exists, however, that new environmental legislation and/or
environmental regulations may be adopted, or other environmental conditions may
be found to exist, that may require expenditures not currently anticipated and
that may be material.
6. SUBSEQUENT EVENTS
On October 6, 1997, General Felt sold substantially all of the net assets
of its needlepunch carpeting, tufted carpeting and artificial grass products
business located at its facilities in Dalton, Georgia to Bretlin, Inc. for an
aggregate sale price of approximately $41.2 million, subject to post-closing
adjustments. General Felt expects to realize an immaterial gain on the sale, net
of income taxes, during the fourth quarter of 1997.
In addition, on October 6, 1997, General Felt loaned $38.8 million to
Foamex L.P. in exchange for a note receivable with an aggregate principal amount
of $38.8 million. The note is due on demand but not before one year following
the payment in full of all of Foamex L.P.'s Obligations, as defined, relating to
its $480 million credit facility (the "New Credit Facility") and the termination
in full of the Commitments, as defined, of such new Credit Facility. The note
bears interest at prime, as defined, payable quarterly in arrears.
F-81
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholder of Foamex Fibers, Inc.:
We have audited the accompanying balance sheets of Foamex Fibers, Inc. ("Foamex
Fibers") (successor to GS Industries, Inc. and Pontotoc Fibers, Inc.
(collectively, the "Predecessor Company")) as of December 31, 1995 and December
29, 1996, and the related combined statements of operations, cash flows and
stockholder's equity for the year ended December 31, 1994 and the period from
January 1, 1995 to April 12, 1995 (Predecessor Company) and the statements of
operations, cash flows and stockholder's equity for the period from April 13,
1995 to December 31, 1995 and for the year ended December 29, 1996. These
financial statements are the responsibility of Foamex Fibers' management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Foamex Fibers as of December
31, 1995 and December 29, 1996, and the results of its operations and its cash
flows for the year ended December 31, 1994, the period from January 1, 1995 to
April 12, 1995 (Predecessor Company), the period from April 13, 1995 to December
31, 1995 and for the year ended December 29, 1996, in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Charlotte, North Carolina
June 20, 1997
The accompanying notes are an integral part of the
condensed consolidated financial statements.
F-82
<PAGE>
FOAMEX FIBERS, INC.
BALANCE SHEETS (unaudited)
(thousands)
December 31, December 29,
1995 1996
------ -------
ASSETS:
CURRENT ASSETS:
Cash ........................................... $ 469 $ 156
Accounts receivable, net of
allowance for doubtful
accounts of '41 and '39 ...................... 884 707
Accounts receivable from General Felt .......... 1,389 5,092
Inventories .................................... 1,282 972
Other current assets ........................... 61 181
------ -------
Total current assets .......................... 4,085 7,108
------ -------
PLANT AND EQUIPMENT:
Machinery, equipment and furnishings ........... 2,002 2,666
Less accumulated depreciation and amortization . (131) (340)
------ -------
Plant and equipment, net ....................... 1,871 2,326
COST IN EXCESS OF ASSETS ACQUIRED, NET ........... 3,938 3,880
------ -------
TOTAL ASSETS ..................................... $9,894 $13,314
====== =======
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable ............................... $1,349 $ 1,236
Other accrued liabilities ...................... 160 466
------ -------
Total current liabilities ..................... 1,509 1,702
INCOME TAXES DUE TO GENERAL FELT ................. 410 1,566
------ -------
Total liabilities ............................... 1,919 3,268
------ -------
COMMITMENTS AND CONTINGENCIES -- --
------ -------
STOCKHOLDER'S EQUITY:
Common stock, $.01 par value;
1,000 shares authorized,
issued and outstanding ........................ -- --
Additional paid-in capital ..................... 7,272 7,272
Retained earnings .............................. 703 2,774
------ -------
Total stockholder's equity .................... 7,975 10,046
------ -------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY ....... $9,894 $13,314
====== =======
The accompanying notes are an integral part of the financial statements.
F-83
<PAGE>
FOAMEX FIBERS, INC.
STATEMENTS OF OPERATIONS
for the year ended December 31, 1994, for the period from January 1, 1995
to April 12, 1995 (Predecessor Company), for the period from April 13, 1995
to December 31, 1995 and for the year ended December 29, 1996
(thousands)
<TABLE>
<CAPTION>
Predecessor Company
---------------------------------- April 13, 1995
Year Ended January 1, 1995 to Year Ended
December 31, to December 31, December 29,
1994 April 12, 1995 1995 1996
-------------- ----------------- --------------- -------------
<S> <C> <C> <C> <C>
NET SALES .......................... $16,778 $ 5,577 $14,112 $21,410
COST OF GOODS SOLD ................. 13,565 4,580 11,948 16,843
------- ------- ------- -------
GROSS PROFIT ....................... 3,213 997 2,164 4,567
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES .......... 1,497 336 980 1,257
------- ------- ------- -------
INCOME FROM OPERATIONS ............. 1,716 661 1,184 3,310
OTHER EXPENSE, NET ................. 29 6 12 7
------- ------- ------- -------
INCOME BEFORE PROVISION
FOR INCOME TAXES ................. 1,687 655 1,172 3,303
PROVISION FOR INCOME TAXES ......... -- -- 469 1,232
------- ------- ------- -------
NET INCOME ......................... $ 1,687 $ 655 $ 703 $ 2,071
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-84
<PAGE>
FOAMEX FIBERS, INC.
STATEMENTS OF CASH FLOWS
for the year ended December 31, 1994, for the period from January 1, 1995
to April 12, 1995 (Predecessor Company), for the period from April 13, 1995
to December 31, 1995 and for the year ended December 29, 1996
(thousands)
<TABLE>
<CAPTION>
Predecessor Company
---------------------------------- April 13, 1995
Year Ended January 1, 1995 to Year Ended
December 31, to December 31, December 29,
1994 April 12, 1995 1995 1996
-------------- ----------------- --------------- -------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income ....................................... $1,687 $ 655 $ 703 $ 2,071
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization ................... 528 143 195 314
Income taxes due to General Felt ................ -- -- 410 1,156
Changes in operating assets and
liabilities, net of acquisitions:
Accounts receivable ............................. (520) (210) 573 178
Accounts receivable from General Felt ........... -- -- (837) (3,703)
Inventories ..................................... (439) 106 (117) 310
Other assets and liabilities .................... 148 278 (267) 30
------ -------- -------- --------
Net cash provided by operating
activities .................................... 1,404 972 660 356
------ -------- -------- --------
INVESTING ACTIVITIES:
Capital expenditures ............................. (491) (587) (191) (669)
Acquisition, net of cash acquired ................ -- -- (7,272) --
------ -------- -------- --------
Net cash used for investing activities ......... (491) (587) (7,463) (669)
------ -------- -------- --------
FINANCING ACTIVITIES:
Proceeds from long-term debt ..................... -- 1,000 -- --
Repayment of advances from former
stockholders .................................... (228) (102) -- --
Repayment of long-term debt ...................... (41) (531) -- --
Distribution to former stockholders .............. (94) (150) -- --
Cash retained by former owners ................... -- (1,622) -- --
Capital contributions ............................ -- -- 7,272 --
------ -------- -------- --------
Net cash provided by (used for)
financing activities .......................... (363) (1,405) 7,272 --
------ -------- -------- --------
Net increase (decrease) in cash ................... 550 (1,020) 469 (313)
Cash at beginning of period ....................... 470 1,020 -- 469
------ -------- -------- --------
Cash at end of period ............................. $1,020 $ -- $ 469 $ 156
====== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-85
<PAGE>
FOAMEX FIBERS, INC
STATEMENTS OF STOCKHOLDER'S EQUITY
for the year ended December 31, 1994, for the period from January 1, 1995
to April 12, 1995 (Predecessor Company), for the period from April 13, 1995
to December 31, 1995 and for the year ended December 29, 1996
(thousands)
<TABLE>
<CAPTION>
Retained
Common Stock Additional Earnings
------------------- Paid-In Accumulated
Shares Amount Capital Deficit
-------- -------- ------------ ------------
<S> <C> <C> <C> <C>
Balances at January 1, 1994 .................. 110 $ 200 $ -- $ (829)
Net income ................................... -- -- -- 1,687
Distributions to former stockholders ......... -- -- -- (94)
---- ------ ------ --------
Balances at December 31, 1994 ................ 110 200 -- 764
Net income for the period from
January 1, 1995 to April 12, 1995 ........... -- -- -- 655
Distributions to former stockholders ......... -- -- -- (150)
Acquisition adjustment ....................... (110) (200) -- (1,269)
---- ------ ------ --------
Balances at April 12, 1995 ................... -- -- -- --
Capital Contribution by General Felt ......... 1 -- 7,272 --
Net income for the period from
April 13, 1995 to December 31, 1995 ......... -- -- -- 703
---- ------ ------ --------
Balances at December 31, 1995 ................ 1 -- 7,272 703
Net income ................................... -- -- -- 2,071
---- ------ ------ --------
Balances at December 29, 1996 ................ 1 -- $7,272 $ 2,774
==== ====== ====== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-86
<PAGE>
FOAMEX FIBERS, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
Foamex Fibers, Inc. ("Foamex Fibers") manufactures various nonwoven
textile fiber products used primarily for carpet padding and in the furniture
industry.
Foamex Fibers was formed on March 29, 1995 for the purpose of acquiring
certain assets and assuming certain liabilities of GS Industries, Inc. and
Pontotoc Fibers, Inc. On April 13, 1995, Foamex Fibers acquired such assets and
assumed such liabilities for an aggregate purchase price of approximately $8.0
million. (See Note 3 for further discussion.)
Foamex Fibers is a wholly owned subsidiary of General Felt Industries,
Inc. ("General Felt") which in turn is a wholly owned subsidiary of Foamex L.P.
Foamex L.P. is a 99% owned subsidiary of Foamex International Inc. ("Foamex
International").
The balance sheets as of December 31, 1995 and December 29, 1996 and the
statements of operations, cash flows and stockholder's equity for the period
from April 13, 1995 to December 31, 1995 and for the year ended December 29,
1996 pertain to Foamex Fibers.
The accompanying combined statements of operations, cash flows and
stockholder's equity for the year ended December 31, 1994 and the period from
January 1, 1995 to April 12, 1995 include the combined individual operations of
GS Industries, Inc. and Pontotoc Fibers, Inc. (collectively, the "Predecessor
Company").
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year
Foamex Fibers' fiscal year ends on the Sunday closest to the thirty-first
day of December. Fiscal year 1996 was composed of fifty-two weeks and ended on
December 29, 1996. The Predecessor Company's year end was the thirty-first day
of December.
Accounting Estimates
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 at the
date of the financial statements and reported amounts of revenues and expenses
during the reported period. Actual results could differ from those estimates.
Revenue Recognition
Revenue from sales is recognized when products are shipped.
Discounts and Billing Adjustments
A reduction in sales revenue is recognized for sales discounts when product
is invoiced or for other billing adjustments when authorized.
Inventories
Inventories are stated at the lower of cost or market. The cost of
inventories is determined on a first-in, first-out basis.
Plant and Equipment
Plant and equipment are stated at cost and are depreciated using the
straight-line method over the estimated useful lives of the assets. The range of
useful lives estimated for machinery, equipment and furnishings is five to
twelve years. Leasehold improvements are amortized over the shorter of the terms
of the respective lease or the estimated useful life of the improvement,
whichever is shorter. Depreciation expense for the year ended December 31, 1994,
the period from January 1, 1995 to April 12, 1995, the period from April 13,
1995 to December 31, 1995
F-87
<PAGE>
FOAMEX FIBERS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
and for the year ended December 29, 1996 was $0.5 million, $0.1 million, $0.1
million and $0.2 million, respectively. For income tax purposes, Foamex Fibers
uses accelerated depreciation methods.
Cost of maintenance and repairs is charged to expense as incurred. Renewals
and improvements are capitalized. Upon retirement or other disposition of items
of plant and equipment, the cost and related accumulated depreciation are
removed from the accounts and any gain or loss is included in operations.
Cost in Excess of Net Assets Acquired
The excess of the acquisition cost over the fair value of net assets
acquired in business combinations accounted for by the purchase method is
amortized using the straight-line method over a forty year period. At each
balance sheet date Foamex Fibers evaluates the recoverability of cost in excess
of net assets acquired using certain financial indicators such as historical and
future ability to generate income from operations based on a going concern
basis. Accumulated amortization as of December 31, 1995 and December 29, 1996 is
approximately $0.1 million and $0.2 million, respectively.
Environmental Matters
Environmental expenditures that relate to current operations are expensed
or capitalized as appropriate. Expenditures that relate to an existing condition
caused by past operations, which do not contribute to current or future revenue
generation, are expensed. Liabilities are recorded when environmental
assessments and/or remedial efforts are probable, and the cost can be reasonably
estimated.
Income Taxes
Income taxes are accounted for under the liability method in which deferred
income taxes are provided for temporary differences between the financial
reporting and income tax basis of assets and liabilities using the income tax
rates, under existing legislation, expected to be in effect at the date such
temporary differences are expected to reverse.
Foamex Fibers joins with General Felt in the filing of a consolidated U.S.
Federal income tax return. Foamex Fiber's policy is to provide for Federal and
state income taxes on a separate return basis. As of December 29, 1996, Foamex
Fibers does not have a tax sharing agreement with General Felt therefore current
and deferred Federal income taxes payable are classified as noncurrent and are
included in Income Taxes Due to General Felt. Net deferred Federal income tax
liabilities amounting to approximately $0.3 million at December 29, 1996 are
included in Income Taxes Due to General Felt and consist primarily of
accelerated depreciation for plant and equipment and accelerated amortization
for costs in excess of assets acquired for income tax purposes offset by
deferred tax assets relating to allowance accounts and accrued liabilities not
deductible for income tax purposes.
The stockholders of the Predecessor Company had elected S Corporation
status under the provision of the Internal Revenue Code, which provides that, in
lieu of corporate income taxes, the stockholders are taxed on the Company's
taxable income.
3. ACQUISITIONS
On April 13, 1995, Foamex Fibers acquired certain assets and assumed
certain liabilities of GS Industries, Inc. and Pontotoc Fibers, Inc. for
aggregate consideration of approximately $8.0 million, including related fees
and expenses of approximately $0.3 million, with an initial cash payment of $7.2
million. The purchase price was funded by General Felt in the form of a capital
contribution. The excess of the purchase price over the estimated fair value of
the net assets acquired was approximately $3.9 million. The acquisition was
accounted for as a purchase. The cost of the acquisition has been allocated on
the basis of the fair value of the assets acquired and the liabilities assumed.
The excess of the purchase price over the estimated fair value of the net assets
acquired is being amortized using the straight-line method over forty years.
F-88
<PAGE>
FOAMEX FIBERS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
3. ACQUISITIONS (continued)
The pro forma results listed below are unaudited and assume that the
acquisition of GS Industries, Inc. and Pontotoc Fibers, Inc. occurred at the
beginning of each period presented.
1994 1995
---------- ----------
(thousands)
Net sales ........................................ $16,778 $19,689
======= =======
Income before provision for income taxes ......... $ 1,514 $ 1,777
======= =======
Net income ....................................... $ 908 $ 1,066
======= =======
The pro forma results are not necessarily indicative of what would have
occurred if the acquisition had been in effect for the entire periods presented
nor are they necessarily indicative of future results.
4. INVENTORIES
Inventories consist of:
December 31, December 29,
1995 1996
-------------- -------------
(thousands)
Raw material and supplies ......... $ 846 $700
Finished goods .................... 436 272
------ ----
Total ............................ $1,282 $972
====== ====
5. INCOME TAXES
The components of the provision for income taxes are summarized as follows:
Period from
April 13, 1995 to Year Ended
December 31, December 29,
1995 1996
----------------- ------------
(thousands)
Federal ............................. $410 $1,156
State ............................... 59 76
---- ------
Provision for income taxes ......... $469 $1,232
==== ======
A reconciliation of the statutory federal income tax rate to the effective
income tax rate is as follows:
Period from
April 13, 1995 to Year Ended
December 31, December 29,
1995 1996
------------------ -----------
(thousands)
Statutory income taxes ................. $410 $1,156
State income taxes, net of federal ..... 59 76
---- ------
Provision for income taxes ............ $469 $1,232
==== ======
6. COMMITMENTS AND CONTINGENCIES
Operating Leases
Foamex Fibers is obligated, under various noncancelable lease agreements,
for rental of facilities and machinery and equipment. Many of the leases contain
renewal options with varying terms and escalation clauses that provide for
increased rentals based upon increases in the Consumer Price Index, real estate
taxes and the lessors'
F-89
<PAGE>
FOAMEX FIBERS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
6. COMMITMENTS AND CONTINGENCIES (continued)
operating expenses. Total minimum rentals commitment required under operating
leases at December 29, 1996 (thousands) was:
1997 .................................. $ 338
1998 .................................. 328
1999 .................................. 318
2000 .................................. 318
2001 .................................. 318
Thereafter ............................ 1,050
------
Total minimum lease payments ......... $2,670
======
Total rent expense for all operating leases for the year ended December 31,
1994, for the period from January 1, 1995 to April 12, 1995, the period from
April 13, 1995 to December 31, 1995 and for the year ended December 29, 1996 was
approximately $0.2 million, $0.1 million, $0.2 million and $0.3 million,
respectively,
7. RELATED PARTY TRANSACTIONS AND BALANCES
General Felt purchased $1.2 million, $0.8 million, $6.4 million and $10.1
million of carpet cushion from Foamex Fibers for the year ended December 31,
1994, the period from January 1, 1995 to April 12, 1995, the period from April
13, 1995 to December 31, 1995 and for the year ended December 29, 1996,
respectively. As of December 31, 1995 and December 29, 1996, Foamex Fibers had
accounts receivable from General Felt of approximately $1.4 million and $5.1
million, respectively.
Foamex Fibers leases five facilities from an officer of Foamex Fibers. The
rental expense for the year ended December 31, 1994, the period from January 1,
1995 to April 12, 1995, the period from April 13, 1995 to December 31, 1995 and
for the year ended December 29, 1996 was $0.2 million, $0.1 million, $0.2
million and $0.3 million, respectively.
The Predecessor Company had sales of approximately $1.9 million during the
year ended December 31, 1994 to a company controlled by the former shareholder
of GS Industries, Inc.
F-90
<PAGE>
FOAMEX FIBERS, INC. CONDENSED BALANCE SHEETS (unaudited)
(thousands)
December 29, September 29,
1996 1997
ASSETS: ------------ -------------
CURRENT ASSETS:
Cash ......................................... $ 156 $ 192
Accounts receivable, net ..................... 707 906
Accounts receivable from General Felt ........ 5,092 7,459
Inventories .................................. 972 1,011
Other current assets ......................... 181 236
------- -------
Total current assets ....................... 7,108 9,804
PLANT AND EQUIPMENT, NET ........................ 2,326 2,790
COST IN EXCESS OF ASSETS ACQUIRED, NET .......... 3,880 3,804
------- -------
TOTAL ASSETS .................................... $13,314 $16,398
======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY:
CURRENT LIABILITIES:
Accounts payable ............................. $ 1,236 $ 1,489
Other accrued liabilities .................... 466 443
------- -------
Total current liabilities .................. 1,702 1,932
------- -------
INCOME TAXES DUE TO GENERAL FELT ................ 1,566 2,619
------- -------
COMMITMENTS AND CONTINGENCIES ................... -- --
------- -------
STOCKHOLDER'S EQUITY:
Common stock ................................. -- --
Additional paid-in capital ................... 7,272 7,272
Retained earnings ............................ 2,774 4,575
------- -------
Total stockholder's equity ................. 10,046 11,847
------- -------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY ... $13,314 $16,398
======= =======
The accompanying notes are an integral part of the
condensed financial statements.
F-91
<PAGE>
FOAMEX FIBERS, INC.
CONDENSED STATEMENTS OF OPERATIONS (unaudited)
(thousands)
39-Week Periods Ended
--------------------------------
September 29, September 28,
1996 1997
--------------- --------------
NET SALES .......................... $16,034 $17,627
COST OF GOODS SOLD ................. 12,603 13,834
------- -------
GROSS PROFIT ....................... 3,431 3,793
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES ........... 858 937
------- -------
INCOME FROM OPERATIONS ............. 2,573 2,856
OTHER EXPENSE, NET ................. 8 2
------- -------
INCOME FROM BEFORE PROVISION
FOR INCOME TAXES .................. 2,565 2,854
PROVISION FOR INCOME TAXES ......... 948 1,053
------- -------
NET INCOME ......................... $ 1,617 $ 1,801
======= =======
The accompanying notes are an integral part of the
condensed financial statements.
F-92
<PAGE>
FOAMEX FIBERS, INC.
CONDENSED STATEMENTS OF CASH FLOWS (unaudited)
(thousands)
39-Week Periods Ended
-----------------------------
September 29, September 28,
1996 1997
------------- -------------
OPERATING ACTIVITIES:
Net income ..................................... $ 1,617 $ 1,801
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization ................. 212 278
Changes in operating assets and liabilities ... (1,617) (1,378)
-------- --------
Net cash provided by operating activities .... 212 701
-------- --------
INVESTING ACTIVITIES:
Capital expenditures ........................... (402) (699)
Other investing activities ..................... -- 34
-------- --------
Net cash used for investing activities ....... (402) (665)
-------- --------
Net increase (decrease) in cash ................. (190) 36
Cash at beginning of period ..................... 469 156
-------- --------
Cash at end of period ........................... $ 279 $ 192
======== ========
The accompanying notes are an integral part of the
condensed financial statements.
F-93
<PAGE>
FOAMEX FIBERS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(unaudited)
1. ORGANIZATION AND BASIS OF PRESENTATION
Foamex Fibers, Inc.'s ("Foamex Fibers") condensed balance sheet as of
December 29, 1996 has been condensed from the audited consolidated balance sheet
at that date. The condensed balance sheet as of September 28, 1997 and the
condensed statements of operations and the condensed statements of cash flows
for the thirty-nine week periods ended September 29, 1996 and September 28, 1997
have been prepared by Foamex Fibers and have not been audited by Foamex Fiber's
independent accountants. In the opinion of management, all adjustments,
consisting only of normal recurring adjustments, considered necessary for a fair
presentation of the consolidated financial position, results of operations and
cash flows have been included.
Certain information and note disclosures normally included in the financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted in accordance with the rules and regulations of
the Securities and Exchange Commission. These condensed financial statements
should be read in conjunction with Foamex Fibers 1996 financial statements and
notes thereto as set forth elsewhere in this Prospectus.
2. INVENTORIES
Inventories consist of:
December 29, September 28,
1996 1997
-------------- --------------
(thousands)
Raw material and supplies ......... $700 $ 742
Finished goods .................... 272 269
---- ------
Total ............................. $972 $1,011
==== ======
3. RELATED PARTY TRANSACTIONS
General Felt purchased approximately $7.4 million and $7.9 million of
carpet cushion from Foamex Fibers for the thirty-nine week periods ended
September 29, 1996 and September 28, 1997, respectively.
F-94
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholder of FMXI, Inc.:
We have audited the accompanying consolidated balance sheet of FMXI, Inc. and
subsidiary ("FMXI") (a wholly-owned subsidiary of Foamex International Inc.) as
of December 29, 1996. This balance sheet is the responsibility of FMXI's
management. Our responsibility is to express an opinion on this balance sheet
based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the balance sheet is free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the balance sheet. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall balance sheet presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the consolidated financial position of FMXI at December 29,
1996, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 26, 1997
F-95
<PAGE>
FMXI, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
(thousands)
December 29,
1996
-------------
ASSETS:
CURRENT ASSETS:
Cash and cash equivalents ................................... $ 20,969
Restricted cash ............................................. 12,143
Accounts receivable, net of allowance for
doubtful accounts of $6,328 ............................... 125,847
Inventories ................................................. 102,610
Deferred income taxes ....................................... 6,720
Due from related parties .................................... 1,791
Other current assets ........................................ 18,849
----------
Total current assets ....................................... 288,929
----------
PROPERTY, PLANT AND EQUIPMENT:
Land and land improvements .................................. 9,674
Buildings and leasehold improvements ........................ 78,082
Machinery, equipment and furnishings ........................ 185,348
Construction in progress .................................... 20,784
----------
Total ...................................................... 293,888
Less accumulated depreciation and amortization .............. (111,461)
----------
Property, plant and equipment, net .......................... 182,427
Cost in excess of assets acquired, net ......................... 83,991
Debt issuance costs, net ....................................... 14,902
Other assets ................................................... 15,917
----------
TOTAL ASSETS ................................................... $ 586,166
==========
The accompanying notes are an integral part of the consolidated balance sheet.
F-96
<PAGE>
FMXI, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET--(Continued)
(thousands)
December 29,
1996
------------
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT):
CURRENT LIABILITIES:
Short-term borrowings ........................................ $ 3,692
Current portion of long-term debt--unrelated parties ......... 13,735
Accounts payable ............................................. 75,621
Accounts payable to related parties .......................... 8,894
Accrued employee compensation ................................ 7,302
Accrued interest ............................................. 8,871
Accrued restructuring charges ................................ 6,300
Other accrued liabilities .................................... 27,506
---------
Total current liabilities ................................... 151,921
Long-term debt--unrelated parties ............................... 386,800
Long-term debt--related parties ................................. 5,817
Deferred income taxes ........................................... 4,998
Accrued restructuring charges ................................... 4,043
Other liabilities ............................................... 19,953
---------
Total liabilities ............................................ 573,532
MINORITY INTEREST ............................................... 21,507
---------
Commitments and contingencies ................................... --
---------
Stockholder's equity (deficit)
Common stock, par value $.01 per share; 1,000 shares
authorized, issued and outstanding .......................... --
Additional paid-in capital ................................... 3,697
Retained earnings (deficit) .................................. (296)
Other ........................................................ (12,274)
---------
Total stockholder's equity (deficit) ........................ (8,873)
---------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT) ............ $ 586,166
=========
The accompanying notes are an integral part of the consolidated balance sheet.
F-97
<PAGE>
FMXI, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED BALANCE SHEET
1. ORGANIZATION AND BASIS OF PRESENTATION
FMXI, Inc. ("FMXI"), a Delaware corporation, is a wholly owned subsidiary
of Foamex International Inc. ("Foamex International"). FMXI is a holding company
whose only activity is its 1% managing general partnership interest in Foamex
L.P. FMXI has no employees or operations of its own. Foamex L.P., a Delaware
limited partnership, is a significant manufacturer and marketer of flexible
polyurethane foam and foam products in North America. Foamex L.P.'s products
include (i) foam for carpet cushion and other carpet products, (ii) cushioning
foams for furniture, bedding, packaging and health care, (iii) foams for
automotive trim and accessories and (iv) technical foams for filtration,
consumer products and packaging.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The consolidated balance sheet includes the accounts of FMXI and its
consolidated subsidiary, Foamex L.P. Intercompany accounts and transactions have
been eliminated in consolidation.
Fiscal Year
FMXI's fiscal year ends on the Sunday closest to the thirty-first day of
December. Fiscal year 1996 was composed of fifty-two weeks and ended on December
29, 1996.
Accounting Estimates
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 at the
date of the financial statements and the reported amounts of revenues and
expenses during the reported period. Actual results could differ from those
estimates. (See Notes 3, 7, 8, 12, 13, and 14 and Cost in Excess of Net Assets
Acquired below.)
Cash and Cash Equivalents
All highly liquid investments with an original maturity of three months or
less when purchased are considered to be cash equivalents. On December 29, 1996,
cash and cash equivalents included $18.4 million of repurchase agreements
collateralized by U.S. Government securities.
Restricted Cash
As of December 29, 1996, Foamex L.P. had restricted cash of approximately
$12.1 million. This cash was derived from the net sales proceeds relating to the
sale of Perfect Fit and is restricted by Foamex L.P.'s debt agreements. As of
February 26, 1997, Foamex L.P. has used approximately $8.4 million of the
restricted cash to repurchase approximately $8.0 million of outstanding
indebtedness.
Inventories
Inventories are stated at the lower of cost or market. The cost of the
inventories is determined on a first-in, first-out basis.
Property, Plant and Equipment
Property, plant and equipment are stated at cost and are depreciated using
the straight-line method over the estimated useful lives of the assets. The
range of useful lives estimated for buildings is generally twenty to thirty-five
years and the range for machinery, equipment and furnishings is five to twelve
years. Leasehold improvements are amortized over the shorter of the terms of the
respective leases or the estimated useful lives of the leasehold improvements.
Debt Issuance Costs
Debt issuance costs consist of amounts incurred in obtaining long-term
financing. These costs are being amortized over the term of the related debt
using the interest method. Accumulated amortization as of December 29, 1996 was
approximately $7.5 million.
F-98
<PAGE>
FMXI, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED BALANCE SHEET--(Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Cost in Excess of Net Assets Acquired
The excess of the acquisition cost over the fair value of net assets
acquired in business combinations accounted for as purchases is amortized using
the straight-line method over a forty year period. At each balance sheet date
Foamex L.P. evaluates the recoverability of cost in excess of net assets
acquired using certain financial indicators such as historical and future
ability to generate income from operations based on a going concern basis.
Accumulated amortization as of December 29, 1996 was approximately $11.6
million.
Environmental Matters
Environmental expenditures that relate to current operations are expensed
or capitalized as appropriate. Expenditures that relate to an existing condition
caused by past operations, and which do not contribute to current or future
revenue generation, are expensed. Liabilities are recorded when environmental
assessments and/or remedial efforts are probable and the costs can be reasonably
estimated.
Postretirement and Postemployment Benefits
Foamex L.P. accrues postretirement benefits throughout the employees'
active service periods until they attain full eligibility for those benefits.
Also, Foamex L.P. accrues postemployment benefits when it becomes probable that
such benefits will be paid and when sufficient information exists to make
reasonable estimates of the amounts to be paid.
Foreign Currency Accounting
The financial statements of foreign subsidiaries, except in countries
treated as highly inflationary, have been translated into U.S. dollars by using
the year end exchange rates for assets and liabilities and average exchange
rates for the statements of operations. Currency translation adjustments are
included in other stockholder's equity (deficit) until the entity is
substantially sold or liquidated. For operations in countries treated as highly
inflationary, certain financial statement amounts are translated at historical
exchange rates, with all other assets and liabilities translated at year end
exchange rates. These translation adjustments are reflected in the results of
operations and are insignificant for all periods presented.
Interest Rate Swap Agreement
The differential to be paid or received under an interest rate swap
agreement is recognized as an adjustment to interest and debt issuance expense
in the current period as interest rates change.
Income Taxes
Income taxes are accounted for under the liability method, in which
deferred income taxes are provided for temporary differences between the
financial reporting and income tax basis of assets and liabilities using the
income tax rates, under existing legislation, expected to be in effect at the
date such temporary differences are expected to reverse.
Foamex L.P. has a tax sharing agreement that provides for the payment of
distributions to the partners for amounts that would be required to be paid if
Foamex L.P. was a corporation filing separate tax returns. The ability of
Foamex L.P. to make such distributions is limited by the terms of its credit
agreements and indentures. (See Note 6).
3. RESTRUCTURING AND OTHER CHARGES (CREDITS)
In 1995, Foamex L.P. approved a restructuring plan (the "1995 restructuring
plan") to consolidate thirteen foam production, fabrication or branch locations,
to concentrate resources as a result of industry conditions and to better
position itself to achieve its strategic growth objectives. Foamex L.P. recorded
restructuring and other charges of
F-99
<PAGE>
FMXI, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED BALANCE SHEET--(Continued)
3. RESTRUCTURING AND OTHER CHARGES (CREDITS) (continued)
$39.2 million which was comprised of $35.6 million associated with the
consolidation of the foam production, fabrication or branch locations, $2.2
million associated with the completion of a 1993 restructuring plan and $1.4
million associated with merger and acquisition activities of Foamex L.P. The
components of the $35.6 million restructuring charge include: $16.7 million for
fixed asset writedowns (net of estimated sale proceeds), $15.1 million for plant
closure and operating lease obligations and $3.8 million for personnel
reductions. The $3.8 million cost for personnel reductions primarily represents
severance and employee benefit costs associated with the elimination of
manufacturing and administrative personnel.
In 1996, Foamex L.P. determined to continue to operate one of the
facilities originally identified for closure in the 1995 restructuring plan
because of improved economics and the lack of synergy to be achieved from
relocating the manufacturing process. In addition, Foamex L.P. has approved a
plan to close two facilities that were not originally identified in the 1995
restructuring plan. As a result of these changes to the 1995 restructuring plan
and the favorable termination of certain lease agreements and other matters,
Foamex L.P. recorded a $6.4 million net restructuring credit which included a
restructuring credit of $11.3 million associated with Foamex L.P.'s decision not
to close the facility identified as part of the 1995 restructuring plan and $1.7
million of restructuring credits relating primarily to the favorable termination
of certain lease agreements and other matters relating to the 1995 restructuring
plan, offset by $6.6 million of restructuring charges relating to the closure of
the two facilities during 1997 (the "1996 restructuring plan").
Generally, the 1995 restructuring plan has been implemented as originally
contemplated. The following table sets forth the components of Foamex L.P.'s
restructuring and other charges:
<TABLE>
<CAPTION>
Asset Plant Closure Personnel
Total Writedowns and Leases Reductions Other
---------- --------------- ------------ ------------ ----------
(millions)
<S> <C> <C> <C> <C> <C>
1995 restructuring charge .......................... $ 39.2 $ 16.7 $ 15.1 $ 3.8 $ 3.6
Asset write-off/write-downs ........................ (23.3) (20.9) -- -- ( 2.4)
Cash spending ...................................... ( 0.4) -- ( 0.3) ( 0.1) --
------- ------- ------- ------- -------
Balances at December 31, 1995 ...................... 15.5 ( 4.2) 14.8 3.7 1.2
Cash spending ...................................... ( 9.7) -- ( 6.6) ( 2.0) ( 1.1)
Cash proceeds ...................................... 1.0 1.0 -- -- --
1996 restructuring charge .......................... 6.6 2.4 4.1 0.1 --
Restructuring credits .............................. (13.0) ( 9.7) ( 2.8) ( 0.4) ( 0.1)
Asset adjustment for restructuring credits ......... 8.1 8.7 ( 0.6) -- --
------- ------- ------- ------- -------
Balances at December 29, 1996 ...................... $ 8.5 $ (1.8) $ 8.9 $ 1.4 $ --
======= ======= ======= ======= =======
</TABLE>
As indicated in the table above, the accrued restructuring balance at
December 29, 1996 will be used for payments relating to plant closure and leases
including rundown costs at the facilities. The $1.8 million of asset writedowns
relates to estimated proceeds and is included in noncurrent assets. Foamex L.P.
expects to incur approximately $6.3 million of charges during 1997 with the
remaining $4.0 million to be incurred through 2001. As of December 29, 1996,
Foamex L.P. has terminated approximately 270 employees and notified
approximately 40 employees in the manufacturing and administrative areas of
their impending termination in connection with the 1995 and 1996 restructuring
plans.
F-100
<PAGE>
FMXI, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED BALANCE SHEET--(Continued)
4. INVENTORIES
Inventories consists of:
December 29,
1996
-------------
(thousands)
Raw materials and supplies ......... $ 61,559
Work in process .................... 13,453
Finished goods ..................... 27,598
--------
Total ............................. $102,610
========
5. SHORT-TERM BORROWINGS
Short-term borrowings include borrowings outstanding under a line of credit
facility for Foamex Canada Inc. ("Foamex Canada") bearing interest at the bank's
prime rate (4.75% at December 29, 1996) plus 1/2%. The weighted average interest
rates on Foamex Canada's short-term borrowings outstanding for 1996 was 5.9%.
Borrowings under Foamex Canada's credit facility are due on demand and are
collateralized by accounts receivable, property and inventories of Foamex Canada
having an approximate net carrying value of $17.1 million as of December 29,
1996. The unused amount under this line of credit totaled $0.7 million as of
December 29, 1996.
6. LONG-TERM DEBT
Long-term debt consists of:
December 29,
1996
-------------
(thousands)
Unrelated parties:
9-1/2% Senior Secured Notes due 2000 ........................ $106,793
11-1/4% Senior Notes due 2002 ............................... 141,400
11-7/8% Senior Subordinated Debentures
due 2004 (net of unamortized debt discount
of $769).................................................... 125,056
11-7/8% Senior Subordinated Debentures due 2004, Series B ... 7,000
Industrial revenue bonds .................................... 7,000
Foamex L.P. term loan (8.54% interest rate
as of December 29, 1996) ................................... 11,000
Other ....................................................... 2,286
--------
Total ...................................................... 400,535
Less current portion ........................................ 13,735
--------
Long-term debt--unrelated parties ........................... $386,800
========
Related parties:
Subordinated note payable (net of unamortized
debt discount of $1,198) ................................... $ 5,817
========
9-1/2% Senior Secured Notes due 2000 ("Senior Secured Notes")
The Senior Secured Notes were issued on June 3, 1993 and bear interest at
the rate of 9-1/2% payable semiannually on each June 1 and December 1. The
Senior Secured Notes mature on June 1, 2000. The Senior Secured Notes are
collateralized by a first-priority lien on substantially all of the assets of
Foamex L.P. except for receivables, real estate and fixtures. The Senior Secured
Notes may be redeemed at the option of Foamex L.P., in whole or in part, at any
time on or after June 1, 1998, initially at 101.583% of their principal amount,
plus accrued interest, and declining to 100% on or after June 1, 1999. The
Senior Secured Notes have been guaranteed, on a senior secured basis by General
Felt Industries, Inc. ("General Felt") and on a senior unsecured basis by Foamex
F-101
<PAGE>
FMXI, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED BALANCE SHEET--(Continued)
6. LONG-TERM DEBT (continued)
International. During 1996, Foamex L.P. repurchased $9.9 million of Senior
Secured Notes with the net proceeds from the sale of Perfect Fit.
11-1/4% Senior Notes due 2002 ("Senior Notes")
The Senior Notes bear interest at the rate of 11-1/4% payable semiannually
on each April 1 and October 1. The Senior Notes mature on October 1, 2002. The
Senior Notes may be redeemed at the option of Foamex L.P., in whole or in part,
at any time on or after October 1, 1997, initially at 104.219% of their
principal amount, plus accrued interest, and declining to 100% on or after
October 1, 2000. In October 1994, Foamex L.P. provided certain real property as
collateral for the Senior Notes, with a net book value of $37.8 million at
December 29, 1996. The Senior Notes have been guaranteed, on a senior basis, by
General Felt and Foamex International. During 1996, Foamex L.P. repurchased $8.6
million of Senior Notes with the net proceeds from the sale of Perfect Fit.
11-7/8% Senior Subordinated Debentures ("Subordinated Debentures")
The Subordinated Debentures bear interest at the rate of 11-7/8% payable
semiannually on each April 1 and October 1. The Subordinated Debentures mature
on October 1, 2004. The Subordinated Debentures may be redeemed at the option of
Foamex L.P., in whole or in part, at any time on or after October 1, 1997,
initially at 105.938% of their principal amount, plus accrued interest, and
declining to 100% on or after October 1, 2002. The Subordinated Debentures are
subordinated in right of payment to all senior indebtedness, including the
Senior Secured Notes and the Senior Notes. The Subordinated Debentures have been
guaranteed, on a senior subordinated basis, by General Felt and Foamex
International. During 1996, Foamex L.P. repurchased $0.1 million of Subordinated
Debentures with the net proceeds from the sale of Perfect Fit.
11-7/8% Senior Subordinated Debentures, Series B ("Series B Debentures")
The Series B Debentures were issued July 30, 1993, by Foamex L.P. in an
exchange offer to holders of senior subordinated debentures issued in connection
with the acquisition of General Felt on March 23, 1993. The Series B Debentures
have terms substantially similar to the Subordinated Debentures, except that
holders of the Series B Debentures are entitled to receive proceeds from an
asset sale only if any proceeds remain after an offer to repurchase has been
made to the holders of the Subordinated Debentures. The Series B Debentures have
been guaranteed on a senior subordinated basis by General Felt.
Industrial Revenue Bonds ("IRBs")
Two bond issues in the principal amount of $1.0 million and $6.0 million,
maturing in 2005 and 2013, respectively, are collateralized by certain
properties which have an approximate net carrying value of $11.3 million at
December 29, 1996 and letters of credit approximating $7.3 million. The IRBs
bear interest at a variable rate with options available to Foamex L.P. to
convert to a fixed rate. The interest rates on the IRBs were 4.85% and 4.0% at
December 29, 1996 for the $6.0 million and $1.0 million bond issues,
respectively. The interest rate on the $6.0 million bond issue varies weekly
based on an interest rate that is indicative of current bidside yields on high
quality short-term, tax-exempt obligations, or if such interest rate is not
available, 70.0% of the interest rate for thirteen week United States Treasury
Bills. The maximum interest rate for either of the IRBs is 15.0% per annum. At
the time of a conversion to a fixed interest rate and upon appropriate notice,
the IRBs are redeemable at the option of the bondholders.
Term and Revolving Loans
Foamex L.P. has a credit agreement (the "Foamex L.P. Credit Facility") with
a group of banks that provide for loans of up to $85.0 million of which up to
$40.0 million was available as a term loan payable in twenty equal quarterly
installments commencing October 1994 and up to $45.0 million is available under
a revolving line of credit which expires in June 1999. In 1994, Foamex L.P. and
General Felt entered into a $40.0 million term loan
F-102
<PAGE>
FMXI, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED BALANCE SHEET--(Continued)
6. LONG-TERM DEBT (continued)
under the Foamex L.P. Credit Facility; no further term loan borrowings are
available thereunder. During 1996, Foamex L.P. and General Felt used $12.0
million of net proceeds from the Perfect Fit sale to repay term loan borrowings.
Borrowings under the Foamex L.P. Credit Facility are collateralized by the
accounts receivable of Foamex L.P. and General Felt. Pursuant to the terms of
the Foamex L.P. Credit Facility, borrowed funds will bear interest at a floating
rate equal to 1.0% per annum plus the highest of (i) the base rate of The Bank
of Nova Scotia, as in effect from time to time, (ii) a rate that is, generally,
0.5% per annum plus a fluctuating rate generally equal to the rate on three
month certificates of deposit, subject to certain adjustments, plus a
fluctuating rate generally equal to the annual assessment rate paid by The Bank
of Nova Scotia to the Federal Deposit Insurance Corporation or (iii) 0.5% per
annum plus the federal funds rate in effect from time to time. At the option of
Foamex L.P., portions of the outstanding loan under the Foamex L.P. Credit
Facility will be convertible into Eurodollar rate loans bearing interest at a
rate generally equal to 3.0% per annum above the average LIBOR rate of Citibank,
N.A. and The Bank of Nova Scotia. As of December 29, 1996, there was
approximately $11.7 million in letters of credit outstanding under the Foamex
L.P. Credit Facility. As of December 29, 1996, there was unused availability of
approximately $33.3 million under the Foamex L.P. Credit Facility.
Subordinated Note Payable
This note payable was issued to John Rallis ("Rallis"), the Chief Operating
Officer of Foamex International, on May 6, 1993 by Foamex L.P. in connection
with the acquisition of Great Western Foam Products Corporation and certain
related entities and assets (collectively, "Great Western"). The note bears
interest at a maximum rate of 6% per annum and the principal amount is payable
in three equal annual installments beginning May 6, 1999.
Other
As of December 29, 1996, other debt is comprised primarily of capital lease
obligations and borrowings by Foamex Mexico.
Interest Rate Swap Agreements
Foamex L.P. enters into interest rate swaps to lower funding costs and/or
to manage interest costs and exposure to changing interest rates. Foamex L.P.
does not hold or issue financial instruments for trading purposes. Foamex L.P.
has an interest rate swap agreement, as amended, with a notional amount of
$150.0 million through December 2001. Under the swap agreement, Foamex L.P. has
made variable payments based on LIBOR through December 1996 and is obligated to
make fixed payments at 5.30% per annum for the twelve months ended in December
1997 and variable payments based on LIBOR for the remainder of the agreement, in
exchange for fixed payments by the swap partner at 5.81% per annum through
December 1996, and 6.50% per annum for the remainder of the agreement, payable
semiannually in arrears. The swap partner has the ability to terminate the swap
agreement after the December 1997 payment if the LIBOR rate Foamex L.P. is to
pay for any period thereafter is equal to or less than 4.50% per annum. Interest
expense will be subject to fluctuations in LIBOR during the term of the swap
agreement except during 1997. Foamex L.P. is exposed to credit loss in the event
of nonperformance by the swap partner; however, the occurrence of this event is
not anticipated.
Also, Foamex L.P. has an interest rate swap agreement, as amended, for a
notional amount of $150.0 million through December 2001. Under this swap
agreement, Foamex L.P. has made variable payments based on LIBOR with a cap of
5.50% per annum and a floor of 4.75% per annum for the six months ended in June
1995, variable payments based on LIBOR with a floor of 4.75% per annum for the
six months ended in December 1995, fixed payments at a rate of 5.81% per annum
for the twelve months ended in December 1996 and is obligated to make fixed
payments at a rate of 5.30% per annum for the twelve months in December 1997 and
variable payments based on LIBOR for the remainder of the agreement, in exchange
for variable payments by the swap partner at the rate of LIBOR plus 0.80% per
annum for the six months ended in June 1995, LIBOR plus 0.72% per annum for the
six months ended in December 1995, LIBOR plus 2.45% per annum for the six months
ended in June 1996, LIBOR
F-103
<PAGE>
FMXI, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED BALANCE SHEET--(Continued)
6. LONG-TERM DEBT (continued)
plus 2.39% per annum for the six months ended in December 1996 and fixed
payments at 6.50% per annum for the remainder of the term of the agreement,
payable semiannually in arrears. The swap partner has the ability to terminate
the swap agreement after the December 1997 payment if the LIBOR rate Foamex L.P.
is to pay for any period thereafter is equal to or less than 4.50% per annum.
Foamex L.P. is exposed to credit loss in the event of nonperformance by the swap
partner; however, the occurrence of this event is not anticipated. Interest
expense will be subject to fluctuations in LIBOR during the term of the swap
agreement except during 1997. The effect of the two interest rate swaps
described above was a favorable adjustment to interest expense of $3.7 million
for 1996.
Debt Restrictions and Covenants
The indentures, credit agreement and other indebtedness agreements contain
various covenants, including restrictions on payments of distributions by Foamex
L.P. to its partners, the incurrence of additional indebtedness, the sale of
assets, mergers and consolidations and transactions with affiliates. In
addition, certain agreements contain a provision that, in the event of a defined
change of control, the indebtedness must be repaid, in certain cases at the
option of the holder. Also, Foamex L.P. is required under certain of these
agreements to maintain specified financial ratios of which the most restrictive
is the maintenance of net worth and interest coverage ratios, as defined. Under
the most restrictive of the distribution restrictions, approximately $0.7
million was available to be paid by Foamex L.P. to its partners at December 29,
1996.
As of December 29, 1996, Foamex L.P. was in compliance with the covenants
of the indentures, credit agreements and other indebtedness agreements and
expects to be in compliance with these covenants for the foreseeable future.
Future Obligations on Long-Term Debt
Scheduled maturities of long-term debt are shown below:
Year Ended Long-Term Debt
---------- --------------
(thousands)
1997 .............................. $ 13,490
1998 .............................. 4,000
1999 .............................. 5,338
2000 .............................. 106,631
2001 .............................. 2,339
Thereafter ........................ 275,735
--------
Total ............................ 407,533
Less unamortized discount ......... 1,967
--------
Total ............................. $405,566
========
In addition, Foamex L.P. has approximately $0.8 million of total capital
lease obligations that are payable in 1997 through 2000 in annual amounts of
approximately $0.2 million.
7. EMPLOYEE BENEFIT PLANS
Defined Benefit Pension Plans
Foamex L.P. maintains noncontributory defined benefit pension plans for
salaried and certain hourly employees. The salaried plan provides benefits that
are based principally on years of credited service and level of compensation.
The hourly plans provide benefits that are based principally on stated amounts
for each year of credited service.
Foamex L.P.'s funding policy is to contribute annually an amount that both
satisfies the minimum funding requirements of the Employee Retirement Income
Security Act of 1974 and does not exceed the full funding
F-104
<PAGE>
FMXI, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED BALANCE SHEET--(Continued)
7. EMPLOYEE BENEFIT PLANS (continued)
limitations of the Internal Revenue Code of 1986, as amended (the "Code"). Plan
investments consist primarily of corporate equity and debt securities, mutual
life insurance funds and cash equivalents. During 1996, the discount rate was
adjusted to 7.50%. The following table sets forth the funded status of Foamex
L.P.'s underfunded plans and the amounts recognized in the accompanying
consolidated balance sheet as of December 29, 1996:
December 29,
1996
------------
(thousands)
Actuarial present value of accumulated benefit obligations:
Vested benefits .............................................. $ 55,336
Nonvested benefits ........................................... 2,137
---------
Accumulated benefit obligations .............................. $ 57,473
=========
Total projected benefit obligations .......................... $ 58,775
Fair value of plan assets .................................... 53,734
---------
Projected benefit obligations in excess of plan assets ....... (5,041)
Unrecognized net loss from past experience difference
from that assumed and effect of changes in assumptions ...... 1,099
Additional minimum liability ................................. (2,694)
---------
Accrued pension cost ......................................... $ (6,636)
=========
Significant assumptions used in determining the plans' funded status are as
follows:
December 29,
1996
------------
Expected long-term rates of return on plan assets .............. 9.50%
Discount rates on projected benefit obligations ................ 7.50%
Rates of increase in compensation levels (where applicable) .... 4.00%
Defined Contribution Plan
Foamex L.P. maintains a defined contribution plan which is qualified under
Section 401(k) of the Code and is available for eligible employees who elect to
participate in the plan. Employee contributions are voluntary and subject to
certain limitations as imposed by the Code. During 1996, Foamex L.P. provided
contributions amounting to a 25% match of employees' contributions up to 4% of
eligible compensation. Foamex L.P. also provides an additional 25% match of
employees' contributions up to 4% of eligible compensation made to a fund which
invests in Foamex International common stock. In addition, Foamex L.P. may make
discretionary contributions amounting to a 25% match of employees' contributions
up to 4% of eligible compensation. The expense for these contributions for 1996
was approximately $0.8 million.
Postretirement Benefits
In addition to providing pension benefits, Foamex L.P. provides
postretirement health care and life insurance for eligible employees. During
1996, certain employees accepted an early retirement program resulting in a
special termination loss of $0.6 million. These plans are unfunded and Foamex
L.P. retains the right, subject to existing agreements, to modify or eliminate
these benefits. The accumulated postretirement benefit obligation at December
29, 1996 resulted in an unfunded obligation of $2.1 million.
A 9% annual rate of increase in the per capita costs of covered health care
benefits was assumed for 1996. This rate was assumed to gradually decrease to 5%
by the year 2000. Increasing the weighted average assumed health care cost trend
rates by one percentage point would have an insignificant impact on the
accumulated
F-105
<PAGE>
FMXI, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED BALANCE SHEET--(Continued)
7. EMPLOYEE BENEFIT PLANS (continued)
postretirement benefit obligation and service and interest cost. The discount
rate used was 7.50% as of December 29, 1996.
Postemployment Benefits
Foamex L.P. provides certain postemployment benefits to former or inactive
employees and their dependents during the time period following employment but
before retirement. At December 29, 1996, Foamex L.P.'s liability for
postemployment benefits was insignificant.
8. INCOME TAXES
The tax effects of the temporary differences that give rise to significant
deferred tax assets and liabilities are:
December 29,
1996
------------
(thousands)
Deferred tax assets:
Inventory basis differences .................................. $ 415
Employee benefit accruals .................................... 714
Allowances and contingent liabilities ........................ 2,548
Restructuring and plant closing accruals ..................... 3,632
Other ........................................................ 221
Net operating loss carryforwards ............................. 5,154
Capital loss carryforwards ................................... 14,193
Valuation allowance for deferred tax assets .................. (15,988)
---------
Deferred tax assets .......................................... 10,889
---------
Deferred tax liabilities:
Basis difference in property, plant and equipment ............ 7,644
Basis difference in Foamex L.P. Partnership interest ......... 335
Other ........................................................ 1,188
---------
Deferred tax liabilities ..................................... 9,167
---------
Net deferred tax assets (liabilities) ........................ $ 1,722
=========
Foamex L.P. has determined that taxable capital gains in the foreseeable
future for a subsidiary that files a separate federal income tax return will
likely not be sufficient to recognize the deferred tax asset associated with the
capital loss carryforward of that subsidiary. Accordingly, a valuation allowance
has been provided for the deferred tax asset associated with the capital loss
carryforward and certain other deferred tax assets. During 1996, the valuation
allowance for deferred tax assets increased by $2.5 million which included a
$14.2 million increase for the capital loss carryforward, offset by $6.9 million
decrease due to reversal of General Felt preacquisition temporary differences
and $4.8 million for reversal of General Felt postacquisition temporary
differences which is reflected in the consolidated statement of operations. The
$6.9 million reversal of preacquisition temporary differences was used to reduce
cost in excess of assets acquired. As of December 29, 1996, approximately $1.8
million of deferred tax assets are related to preacquisition activities and if
utilized will further reduce cost in excess of assets acquired. At December 29,
1996, General Felt has $14.7 million of regular tax net operating loss
carryforwards for federal income tax purposes expiring from 2003 to 2010 of
which $7.0 million was acquired in 1993 and is subject to limitations. In
addition, General Felt has $40.6 million of capital loss carryforwards that
expire in 2001.
F-106
<PAGE>
FMXI, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED BALANCE SHEET--(Continued)
9. COMMITMENTS AND CONTINGENCIES
Operating Leases
Foamex L.P. is obligated under various noncancelable lease agreements for
rental of facilities, vehicles and other equipment. Many of the leases contain
renewal options with varying terms and escalation clauses that provide for
increased rentals based upon increases in the Consumer Price Index, real estate
taxes and lessors' operating expenses. Total minimum rental commitments required
under operating leases at December 29, 1996 are:
Third Party Related Party
Leases Leases
----------- -------------
(thousands)
1997 ............... $ 7,874 $ 1,767
1998 ............... 6,164 1,823
1999 ............... 4,866 1,823
2000 ............... 3,812 1,823
2001 ............... 2,883 2,265
Thereafter ......... 4,122 5,800
------- -------
Total ............. $29,721 $15,301
======= =======
Rental expense charged to operations under operating leases approximated
$9.6 million for 1996. Substantially all such rental expense represented the
minimum rental payments under operating leases. In addition, Foamex L.P.
incurred rental expense of approximately $1.7 million for 1996 under leases with
related parties.
10. RELATED PARTY TRANSACTIONS AND BALANCES
Foamex L.P. regularly enters into transactions with its affiliates in the
ordinary course of business.
During April 1996, Foamex International contributed the foam products
operations of Foamex Mexico to Foamex L.P. The contribution was accounted for in
a manner similar to a pooling of interests since the entities were under common
control.
During 1996, Foamex L.P. chartered an aircraft (which is owned by a wholly
owned subsidiary of Foamex International) through a third party and incurred
costs of approximately $1.4 million.
In December 1995, Foamex L.P. entered into a $2.0 million promissory note
with Foamex International. The note bears interest at a rate per annum equal to
six months LIBOR plus 4.0% and is payable semiannually in June and December. The
note matures in December 1997. The note has been classified in the other
component of stockholder's equity (deficit).
On July 7, 1996, Trace International Holdings, Inc. ("Trace Holdings")
issued to Foamex L.P. a promissory note for $4.4 million in principal amount
plus accrued interest of $0.4 million, which is an extension of a promissory
note of Trace Holdings that was due in July 1996. The promissory note is due and
payable on demand or, if no demand is made, July 7, 1997, and bears interest at
9.5%, payable quarterly in arrears commencing October 1, 1996. The promissory
note is included in other stockholder's equity (deficit).
In connection with the acquisition of Great Western, Foamex L.P. issued a
promissory note to Rallis (see Note 6) and entered into lease agreements (see
Note 9) with Rallis and an affiliate of Rallis, for the rental of former Great
Western manufacturing facilities located in Orange, Ontario and Hayward,
California and a warehouse facility in Tigard, Oregon. Foamex L.P. has the
option to purchase each of these properties from Rallis or such affiliate.
Foamex L.P. has a management service agreement with Trace Foam Company,
Inc. ("Trace Foam"), a wholly-owned subsidiary of Trace Holdings, pursuant to
which Trace Foam provides general managerial services of a financial, technical,
legal, commercial, administrative and/or advisory nature to Foamex L.P. for an
annual fee of $1.75 million and reimbursement of expenses incurred. Trace
Holdings rents approximately 5,900 square feet of
F-107
<PAGE>
FMXI, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED BALANCE SHEET--(Continued)
10. RELATED PARTY TRANSACTIONS AND BALANCES (continued)
general, executive, and administrative office space in New York, New York from
Foamex L.P. on substantially the same terms as Foamex L.P. leases such space
from a third party lessor.
In June 1994, Foamex L.P. also entered into a supply agreement with Foamex
International (the "Supply Agreement"). Pursuant to the terms of the Supply
Agreement, at the option of Foamex L.P., Foamex International will purchase
certain raw materials which are necessary for the manufacture of Foamex L.P.'s
products, and resell such materials to Foamex L.P. at a price equal to net cost
plus reasonable out of pocket expenses. Management believes that the terms of
the Supply Agreement are no less favorable than those which Foamex L.P. could
have obtained from an unaffiliated third party. During 1996, Foamex L.P. made
$129.7 million of purchases relating to the Supply Agreement.
As of December 29, 1996, due to related parties amounted to $8.9 million
and represents the net amounts payable to Foamex International and subsidiaries
for purchases under the Supply Agreement and other matters.
Foamex L.P. made charitable contributions to the Trace International
Holdings, Inc. Foundation of approximately $0.2 million in 1996.
On December 11, 1996, Foamex L.P. entered into a Tax Distribution Advance
Agreement with FJPS, pursuant to which FJPS is entitled to obtain advances, in
the aggregate not to exceed $17.0 million, against future distributions under
Foamex L.P.'s tax distribution agreement. As of December 29, 1996, there were no
advances under this agreement.
11. STOCKHOLDER'S EQUITY (DEFICIT)
The other component of stockholder's equity (deficit) consists of the
following:
December 29,
1996
-------------
(thousands)
Foreign currency translation adjustment ........... $ 3,494
Additional pension liability ...................... 2,407
Note receivable from Trace Holdings ............... 4,373
Note receivable from Foamex International ......... 2,000
-------
$12,274
=======
12. ENVIRONMENTAL MATTERS
Foamex L.P. is subject to extensive and changing federal, state, local and
foreign environmental laws and regulations, including those relating to the use,
handling, storage, discharge and disposal of hazardous substances and the
remediation of environmental contamination, and as a result, is from time to
time involved in administrative and judicial proceedings and inquiries relating
to environmental matters. During 1996, expenditures in connection with Foamex
L.P.'s compliance with federal, state, local and foreign environmental laws and
regulations did not have a material adverse effect on Foamex L.P.'s operations,
financial position, capital expenditures or competitive position. As of December
29, 1996, Foamex L.P. has environmental accruals of approximately $4.1 million
for environmental matters. In addition, as of December 29, 1996 Foamex L.P. has
net receivables of approximately $0.9 million relating to indemnification for
environmental liabilities, net of an allowance of approximately $1.0 million
relating to potential disagreements regarding the scope of the indemnification.
Foamex L.P. believes that realization of the net receivables established for
indemnification is probable.
The Clean Air Act Amendments of 1990 (the "1990 CAA Amendments") provide
for the establishment of federal emission standards for hazardous air pollutants
including methylene chloride and TDI, principal raw materials used in the
manufacturing of foam. Foamex L.P. completely eliminated the use of
chlorofluorocarbons
F-108
<PAGE>
FMXI, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED BALANCE SHEET--(Continued)
12. ENVIRONMENTAL MATTERS (continued)
and methylchloroform by the end of 1995. The 1990 CAA Amendments also may result
in the imposition of more stringent standards regulating air emissions from the
use of these chemicals by polyurethane foam manufacturers, but these standards
have not yet been promulgated.
Foamex L.P. has reported to appropriate state authorities that it has found
soil and groundwater contamination in excess of state standards at four
facilities and soil contamination in excess of state standards at three other
facilities. Foamex L.P. has begun remediation and is conducting further
investigations into the extent of the contamination at these facilities and,
accordingly, the extent of the remediation that may ultimately be required. The
actual cost and the timetable of any such remediation cannot be predicted with
any degree of certainty at this time. As of December 29, 1996, Foamex L.P. has
environmental accruals of approximately $3.2 million for the remaining potential
remediation costs for these facilities based on engineering estimates.
Federal regulations require that by the end of 1998 all underground storage
tanks ("USTs") be removed or upgraded in all states to meet applicable
standards. Foamex L.P. has six USTs that will require removal or permanent
in-place closure by the end of 1998. Due to the age of these tanks, leakage may
have occurred resulting in soil and possibly groundwater contamination. Foamex
L.P. has accrued $0.4 million for the estimated removal and remediation, if any,
associated with these USTs. However, the full extent of contamination and,
accordingly, the actual cost of such remediation cannot be predicted with any
degree of certainty at this time. Foamex L.P. believes that its USTs do not pose
a significant risk of environmental liability because of Foamex L.P.'s
monitoring practices for USTs and conditional approval for the permanent
in-place closure for certain USTs. However, there can be no assurance that such
USTs will not result in significant environmental liability in the future.
Foamex L.P. has been designated as a Potentially Responsible Party ("PRP")
by the United States Environmental Protection Agency (the "EPA") with respect to
thirteen sites, with an estimated total liability to Foamex L.P. for the
thirteen sites of less than approximately $0.5 million. Estimates of total
cleanup costs and fractional allocations of liability are generally provided by
the EPA or the committee of PRP's with respect to the specified site. In each
case, the participation of Foamex L.P. is considered to be immaterial.
Although it is possible that new information or future developments could
require Foamex L.P. to reassess its potential exposure relating to all pending
environmental matters, including those described herein, management believes
that, based upon all currently available information, the resolution of such
environmental matters will not have a material adverse effect on Foamex L.P.'s
operations, financial position, capital expenditures or competitive position.
The possibility exists, however, that new environmental legislation and/or
environmental regulations may be adopted, or other environmental conditions may
be found to exist, that may require expenditures not currently anticipated and
that may be material.
13. LITIGATION
As of February 26, 1997, Foamex L.P. and Trace Holdings were two of
multiple defendants in actions filed on behalf of approximately 5,000 recipients
of breast implants in various United States federal and state courts and one
Canadian provincial court, some of which allege substantial damages, but most of
which allege unspecified damages for personal injuries of various types. Five of
these cases seek to allege claims on behalf of all breast implant recipients or
other allegedly affected parties, but no class has been approved or certified by
the court. In addition, three cases have been filed alleging claims on behalf of
approximately 700 residents of Australia, New Zealand, England, and Ireland.
During 1995, Foamex L.P. and Trace Holdings were granted summary judgments and
dismissed as defendants from all cases in the federal courts of the United
States and the state courts of California. ppeals for these decisions were
withdrawn and the decisions are final. In addition, two of the cases filed on
behalf of 903 foreign plaintiffs were dismissed on the grounds that the cases
could not be brought in the United States courts. This decision is subject to
appeal. Foamex L.P. believes that the number of suits and claimants may
increase. Although breast implants do not contain foam, certain silicone gel
implants were produced using a polyurethane
F-109
<PAGE>
FMXI, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED BALANCE SHEET--(Continued)
13. LITIGATION (continued)
foam covering fabricated by independent distributors or fabricators from bulk
foam purchased from Foamex L.P. or Trace Holdings. Neither Foamex L.P. nor Trace
Holdings recommended, authorized or approved the use of its foam for these
purposes. While it is not feasible to predict or determine the outcome of these
actions, based on management's present assessment of the merits of pending
claims, after consultation with the general counsel of Trace Holdings, and
without taking into account potential indemnity from the manufacturers of
polyurethane covered breast implants, management believes that the disposition
of matters that are pending or that may reasonably be anticipated to be asserted
should not have a material adverse effect on either Foamex L.P.'s or Trace
Holdings' consolidated financial position or results of operations. In addition,
Foamex L.P. is also indemnified by Trace Holdings for any such liabilities
relating to foam manufactured prior to October 1990. Although Trace Holdings has
paid Foamex L.P.'s litigation expenses to date pursuant to such indemnification
and management believes Trace Holdings likely will be in a position to continue
to pay such expenses, there can be no absolute assurance that Trace Holdings
will be able to provide such indemnification. Based on information available at
this time with respect to the potential liability, and without taking into
account the indemnification provided by Trace Holdings and the coverage provided
by Trace Holdings' and Foamex L.P.'s liability insurance, Foamex L.P. believes
that the proceedings should not ultimately result in any liability that would
have a material adverse effect on the financial position or results of
operations of Foamex L.P. If management's assessment of Foamex L.P.'s liability
with respect to these actions is incorrect, such actions could have a material
adverse effect on Foamex L.P.
Foamex L.P. is party to various other lawsuits, both as defendant and
plaintiff, arising in the normal course of business. It is the opinion of
management that the disposition of these lawsuits will not individually or in
the aggregate, have a material adverse effect on the financial position or
results of operations of Foamex L.P. If management's assessment of Foamex L.P.'s
liability with respect to these actions is incorrect, such actions could have a
material adverse effect on Foamex L.P.'s consolidated financial position.
14. FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK
Interest Rate Swap Agreements
Foamex L.P. has two interest rate swap agreements involving the exchange of
fixed and floating interest payment obligations without the exchange of the
underlying principal amounts. At December 29, 1996, the total notional principal
amount of these interest rate swap agreements was $300.0 million. The
counterparty to these agreements is a large international financial institution.
The interest rate swap agreements subject Foamex L.P. to financial risk that
will vary during the life of these agreements in relation to market interest
rates.
Concentration of Credit Risk
Financial instruments which potentially subject Foamex L.P. to significant
concentrations of credit risk consist primarily of cash and cash equivalents and
trade accounts receivable. Foamex L.P. maintains cash and cash equivalents and
certain other financial instruments with various large financial institutions.
Foamex L.P.'s periodic evaluation of these financial institutions is considered
in Foamex L.P.'s investment strategy.
Foamex L.P. sells foam products to the automotive, carpet, cushioning and
other industries. Foamex L.P. performs ongoing credit evaluations of its
customers and generally does not require collateral. Foamex L.P. maintains
allowance accounts for potential credit losses and such losses have been within
management's expectations.
Disclosure about Fair Value of Financial Instruments
The following disclosures of the estimated fair value amounts have been
determined based on Foamex L.P.'s assessment of available market information and
appropriate valuation methodologies.
F-110
<PAGE>
FMXI, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED BALANCE SHEET--(Continued)
14. FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK (continued)
The estimated fair values of Foamex L.P.'s financial instruments as of
December 29, 1996 are as follows:
Carrying Amount Fair Value
----------------- -----------
(thousands)
Liabilities:
Long-term debt .............. $406,352 $427,862
======== ========
Interest rate swaps ......... $ -- $ 3,160
======== ========
Carrying amounts reported in the consolidated balance sheet for cash and
cash equivalents, accounts receivable, accounts payable, accrued liabilities and
short-term borrowings approximates fair value due to the short-term nature of
these instruments.
The fair value of long-term debt is estimated using quoted market prices,
where available, or discounted cash flows.
The fair value of interest rate swaps is based on the amount at which
Foamex L.P. would pay if the swaps were settled, as determined by estimates
obtained from dealers.
Fair value estimates are made at a specific point in time, based on
relevant market information about the financial instruments. These estimates are
subjective in nature and involve uncertainties and matters of significant
judgment and, therefore, cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.
F-111
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholder of Trace Foam Company, Inc.:
We have audited the accompanying consolidated balance sheet of Trace Foam
Company, Inc. and subsidiary ("Trace Foam") as of December 31, 1996. This
balance sheet is the responsibility of Trace Foam's management. Our
responsibility is to express an opinion on this balance sheet based on our
audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the balance sheet is free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the balance sheet. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall balance sheet presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the consolidated financial position of Trace Foam at December
31, 1996, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Princeton, New Jersey
February 26, 1997
F-112
<PAGE>
TRACE FOAM COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
(thousands)
December 31,
1996
-------------
ASSETS:
CURRENT ASSETS:
Cash and cash equivalents ................................... $ 502
Other current assets ........................................ 7
----------
Total current assets ...................................... 509
DUE FROM PARENT ............................................ 393
----------
Total Assets .............................................. $ 902
==========
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT):
CURRENT LIABILITIES:
Short-term debt ............................................ $ 29,224
LONG-TERM LIABILITIES:
Negative investments in affiliates ......................... 29,078
Deferred income taxes ...................................... 53,139
----------
Total long-term liabilities ............................... 82,217
----------
STOCKHOLDER'S EQUITY (DEFICIT):
Common stock, par value $.01 per share; 1,000 shares
issued and outstanding .................................... 29,078
Accumulated deficit ........................................ (110,539)
----------
Total stockholder's equity (deficit) ...................... (110,539)
----------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT) ......... $ 902
==========
The accompanying notes are an integral part of the balance sheets.
F-113
<PAGE>
TRACE FOAM COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED BALANCE SHEET
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated balance sheet includes the accounts of Trace Foam Company,
Inc. and subsidiary ("Trace Foam"). Trace Foam has approximately a 28% ownership
interest in Foamex International Inc. ("Foamex International") and a 1%
non-managing general partnership interest in Foamex L.P. Foamex International
indirectly owns the remaining 99% of Foamex L.P. through Foamex-JPS Automotive
L.P., which has a 98% limited partnership interest in Foamex L.P. and through
FMXI, Inc., which has a 1% managing general partnership interest in Foamex L.P.
Foamex L.P. is a significant manufacturer and marketer of flexible polyurethane
foam and foam products in North America. Foamex L.P.'s products include (i) foam
for carpet cushion and other carpet products, (ii) cushioning foams for
furniture, bedding, packaging and health care, (iii) foam for automotive trim
and accessories and (iv) technical foams for filtration, consumer products and
packaging.
All significant intercompany accounts and transactions have been eliminated
in consolidation.
Accounting Estimates
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 at the
date of the financial statements and the reported amounts of revenues and
expenses during the reported period. Actual results could differ from those
estimates.
Cash and Cash Equivalents
All highly liquid instruments with original maturities of three months or
less when purchased are considered to be cash equivalents.
Income Taxes
Income taxes are accounted for under the liability method, in which
deferred income taxes are provided for temporary differences between the
financial reporting and income tax basis of assets and liabilities using the
income tax rates, under existing legislation, expected to be in effect at the
date such temporary differences are expected to reverse.
2. INVESTMENT IN AFFILIATES
The investment in affiliates consists of Trace Foam's investments in Foamex
International and Foamex L.P. which are accounted for on the equity method.
Summarized consolidated financial information of Foamex International as of
December 31, 1996 is as follows:
December 31, 1996
-----------------
(thousands)
Balance sheet data:
Current assets ................. $307,104
Noncurrent assets .............. 312,742
Current liabilities ............ 170,523
Noncurrent liabilities ......... 507,426
At December 31, 1996, the quoted market value of Trace Foam's investment in
Foamex International was $115,504. The valuation represents a mathematical
calculation based on a quotation published by Dow Jones and is not necessarily
indicative of the amount that could be realized upon the sale.
Foamex International Inc. is subject to extensive and changing
environmental laws and regulations. Expenditures to date in connection with
Foamex International's compliance with such laws and regulations did not have a
material adverse effect on its operations, financial position or competitive
position. Although it is possible that new information or future developments
could require Foamex International to reassess its potential exposure
F-114
<PAGE>
TRACE FOAM COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED BALANCE SHEET
2. INVESTMENT IN AFFILIATES (continued)
to all pending environmental matters, management of Foamex International
believes that based upon all currently available information, the resolution of
all pending environmental matters will not have a material adverse effect on its
operations, financial position or competitive position.
Foamex International is a defendant in various actions filed on behalf of
recipients of breast implants, some of which allege substantial damages, but
most of which allege unspecified damages for personal injuries of various types.
While it is not feasible to predict or determine the outcome of these actions,
management of Foamex International believes that the disposition of matters that
are pending or that may reasonably be anticipated to be asserted should not have
a material adverse effect on its financial position of results of operations. If
Foamex International management's assessment of its liability with respect to
these actions is incorrect, such actions could have a material adverse effect on
its financial position and results of operation.
3. SHORT-TERM DEBT
Trace Foam was obligated for $29,224 which represents borrowings
outstanding under secured margin loans. The interest rate on the outstanding
balances was $8.0% on December 31, 1996. Borrowing are due on demand and
collateralized by the common stock of Foamex International owned by Trace Foam.
4. INCOME TAXES
Deferred income taxes arise from temporary differences between the tax
basis of assets and liabilities and their reported amounts in the financial
statements and will result in differences between income for tax purposes and
income for financial statement purposes in future years. The temporary
differences that give rise to deferred income taxes and liabilities are as
follows:
Assets (liabilities):
Net operating loss carryforward ......... $ 4,060
Basis difference in investments ......... (57,199)
--------
Net liability .......................... $(53,139)
========
At December 31, 1996, Trace Foam has net operating loss carryforwards for
federal income tax purposes of approximately $11,500, which will expire during
2008 through 2011.
F-115
<PAGE>
======================================== =====================================
No dealer, salesperson or other
individual has been authorized to give
any information or to make any
representations not contained in this
Prospectus in connection with the
Exchange Offer covered by this
Prospectus. If given or made such
information or representations must
not be relied upon as having been
authorized by the Issuers or the
Subsidiary Guarantors. This Prospectus
does not constitute an offer to sell,
or a solicitation of an offer to buy,
the New Notes in any jurisdiction
where, or to any person to whom, it is
unlawful to make such offer or
solicitation. Neither the delivery of
this Prospectus nor any sale made
hereunder shall, under any
circumstances, create any implications
that there has not been any change in
the facts set forth in this Prospectus -------------------------------------
or in the affairs of the Issuers or
the Subsidiary Guarantors since the PROSPECTUS
date hereof.
-------------------------------------
TABLE OF CONTENTS
Page $98,000,000
-----
Incorporation of Certain
Documents by Reference ........... iii Foamex L.P.
Available Information .............. iii and
Prospectus Summary ................. 1 Foamex Capital Corporation
Risk Factors ....................... 11
The Crain Acquisition .............. 17 13-1/2% Senior Subordinated Notes
Use of Proceeds .................... 17 due 2005
Capitalization ..................... 18
Pro forma Condensed Combined
Financial Information ............ 19
Selected Historical Consolidated
Financial Information
of Foamex ........................ 25
Selected Historical Consolidated
Financial Information of
General Felt ..................... 27
Selected Historical Consolidated
Financial Information of
Foamex Fibers .................... 29
Selected Historical Consolidated
Financial Information of Crain ... 31
Management's Discussion and
Analysis of Financial Condition
and Results of Operations ........ 33
Business ........................... 47
The Exchange Offer ................. 58
Management ......................... 66
Security Ownership of Certain
Beneficial Owners ................ 70
Certain Relationships and
Related Transactions ............. 71
Description of Certain
Debt Instruments ................. 75
Description of Notes ............... 78
Description of the
Partnership Agreement ............ 106
Certain Federal Income Tax
Considerations ................... 108
Plan of Distribution ............... 110
Legal Matters ...................... 110
Experts ............................ 111
Forward-Looking Statements ......... 111
Index to Financial Statements ...... F-1
UNTIL , 1998 (90 DAYS
AFTER THE DATE OF THIS PROSPECTUS),
ALL DEALERS EFFECTING TRANSACTIONS IN
THE NEW NOTES OFFERED HEREBY, WHETHER ---------------------- , 1998
OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS
TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
======================================== =====================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
The Fourth Amended and Restated Agreement of Limited Partnership of Foamex
dated as of December 14, 1993 and amended as of June 28, 1994, June 12, 1997
and December 23, 1997 (the "Partnership Agreement") generally provides that, to
the fullest extent permitted by law, Foamex will indemnify the partners, their
respective affiliates, officers, directors, stockholders, employees and agents,
and any employee, agent and officer of Foamex, against all expenses actually
and reasonably incurred by it or them in connection with any threatened,
pending or completed action, suit or proceeding against it or them or by,
against or in the right of Foamex to which it or them is or was a party, or is
threatened to be made a party, involving an alleged cause of action for damages
arising out of, or in any way related to or connected with, the business or
internal affairs of Foamex, if, in the transaction giving rise to such action,
suit, or proceeding, such person acted in good faith, without gross negligence
or willful misconduct or the willful breach of the Partnership Agreement and in
a manner such person reasonably believed to be within the scope of its
authority under the Partnership Agreement.
The Certificate of Incorporation and Bylaws of FCC, General Felt and
Foamex Fibers provide that each such corporation shall indemnify any person who
was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding (other than an action by or in
the right of such corporation), by reason of the fact that he is or was a
director, officer, employee or agent of such corporation, or is or was serving
at the request of such corporation as a director, officer, employee or agent of
another corporation, partnership or other enterprise, against expenses actually
and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of such corporation, and, with
respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful.
The Bylaws of FCC, General Felt and Foamex Fibers further provide that for
actions by or in the right of each of such corporation, similar indemnification
exists, except that no indemnification shall be made in respect of any claim,
issue or matter as to which such person shall have been adjudged to be liable
to such corporation unless and only to the extent that the court in which such
action or suit was brought shall determine that such person is fairly and
reasonably entitled to indemnity for such expenses which such court shall deem
proper.
The Certificates of Incorporation of FCC, General Felt and Foamex Fibers
also provide that a director of any such corporation shall not be personally
liable to such corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director, except for liability (1) for any breach of the
director's duty of loyalty to the corporation or its stockholders; (2) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law; (3) under Section 174 of the General Corporation Law
of the State of Delaware; or (4) for any transaction from which the director
derived an improper personal benefit. Additionally, the Certificates of
Incorporation of FCC, General Felt and Foamex Fibers provide that to the
fullest extent permitted by Delaware Law, a director of such corporation shall
not be liable to the corporation or its stockholders for monetary damages for
breach of fiduciary duty as a director.
The Operating Agreement of FLLC (the "Operating Agreement") provides that
FLLC shall indemnify any person made, or threatened to be made, a party to any
action or proceeding, whether civil, criminal, administrative or investigative,
by reason of the fact that such person is or was (i) a member, or (ii) an
employee, officer, director, shareholder or partner of a member, or (iii) such
other persons (including employees of FLLC) as the majority-in-interest members
may designate from time to time, in their sole and absolute discretion, for any
losses or damage sustained with respect to such action or proceeding, and FLLC
shall advance such person's reasonable related expenses to the fullest extent
permitted by law. The duty of FLLC to indemnify such persons shall not extend
to actions or omissions of any person which are grossly negligent or which
involve fraud, misrepresentation, bad faith, or other willful misconduct by
such person or which are in material breach or violation by such person of the
Operating Agreement or which are in derogation of the fiduciary duties owed by
such person to FLLC and the members, in each case as determined by a court of
competent jurisdiction. No person shall be liable to FLLC or any other member
for actions taken in good faith. The duty of FLLC to indemnify such persons
shall be limited to the assets of FLLC, and no recourse shall be available
against any member for satisfaction of such indemnification obligations of
FLLC.
II-1
<PAGE>
The directors and officers of Foamex International and its subsidiaries
are covered in their capacities as such under a Directors and Officers
insurance policy.
Item 21. Exhibits and Financial Statement Schedules.
(a) Exhibits
3.1(a) --Certificate of Limited Partnership of Foamex L.P.
("Foamex").
3.2.1(a) --Fourth Amended and Restated Agreement of Limited
Partnership of Foamex L.P., dated as of December 14,
1993, by and among FMXI Inc. ("FMXI") and Trace Foam
Company, Inc. ("Trace Foam"), as general partners, and
Foamex International Inc. ("Foamex International"), as
a limited partner (the "Partnership Agreement").
3.2.2(b) --First Amendment to the Partnership Agreement, dated
June 28, 1994.
3.2.3(c) --Second Amendment to the Partnership Agreement, dated
June 12, 1997.
3.2.4(s) --Third Amendment to the Partnership Agreement, dated
December 23, 1997.
3.3(a) --Certificate of Incorporation of FMXI.
3.4(a) --By-laws of FMXI.
3.5(k) --Certificate of Incorporation of Foamex Capital
Corporation ("FCC").
3.6(k) --By-laws of FCC.
3.7(g) --Certificate of Incorporation of General Felt
Industries, Inc. ("General Felt").
3.8(g) --By-laws of General Felt.
3.9(r) --Certificate of Incorporation of Foamex Fibers, Inc.
("Foamex Fibers").
3.10(r) --By-laws of Foamex Fibers.
3.11*** --Certificate of Limited Liability Company of Foamex LLC
("FLLC").
3.12*** --Amended and restated Operating Agreement of FLLC.
4.1.1(d) --Indenture, dated as of June 12, 1997, by and among
Foamex L.P., FCC, the Subsidiary Guarantors and The
Bank of New York, as Trustee, relating to $150,000,000
principal amount of 9-7/8% Senior Subordinated Notes
due 2007 (the 9-7/8% Notes"), including form of Senior
Subordinated Note and Subsidiary Guarantee.
4.1.2(s) --First Supplemental Indenture, dated as of December 23,
1997, between FLLC and The Bank of New York, as
trustee, relating to the 9-7/8% Notes.
4.2.1(e) --Indenture, dated as of June 3, 1993, among Foamex and
FCC, as joint and several obligors, General Felt, as
Guarantor, and Shawmut Bank, National Association
("Shawmut"), as trustee, relating to $160,000,000
principal amount of 9-1/2% Senior Secured Notes due
2000 (the "Senior Secured Notes"), including form of
Senior Secured Note.
4.2.2(a) --First Supplemental Indenture, dated as of November 18,
1993, among Foamex and FCC, as Issuers, General Felt
and Perfect Fit Industries, Inc. ("Perfect Fit"), as
Guarantors and Shawmut, as trustee, relating to the
Senior Secured Notes.
4.2.3(a) --Second Supplemental Indenture, dated as of December
14, 1993, among Foamex and FCC, as Issuers, Foamex
International, General Felt and Perfect Fit, as
Guarantors and Shawmut, as trustee, relating to the
Senior Secured Notes.
4.2.4(f) --Third Supplemental Indenture, dated as of August 1,
1996, by and among Foamex and FCC, as Issuers, Foamex
International, as parent guarantor, General Felt, as
guarantor, Perfect Fit, as withdrawing guarantor, and
Fleet National Bank ("Fleet"), as trustee relating to
the Senior Secured Notes.
4.2.5(c) --Fourth Supplemental Indenture, dated as of May 28,
1997, by and among Foamex and FCC, as Issuers, Foamex
International, as Parent Guarantor, General Felt, as
Guarantor, and Fleet, as Trustee.
4.2.6(e) --Company Pledge Agreement, dated as of June 3, 1993, by
Foamex in favor of Shawmut, as trustee for the holders
of the Senior Secured Notes.
4.2.7(r) --Amendment No. 1 to Company (Foamex L.P.) Pledge
Agreement, dated June 12, 1997.
4.2.8(e) --Company Pledge Agreement, dated as of June 3, 1993, by
FCC in favor of Shawmut, as trustee for the holders of
the Senior Secured Notes.
4.2.9(r) --Amendment No. 1 to Company (FCC) Pledge Agreement,
dated June 12, 1997.
II-2
<PAGE>
4.2.10(e) --Subsidiary Pledge Agreement, dated as of June 3, 1993,
by General Felt in favor of Shawmut, as trustee for
the holders of the Senior Secured Notes.
4.2.11(r) --Amendment No. 1 to Subsidiary (General Felt) Pledge
Agreement, dated June 12, 1997.
4.2.12(e) --Company Security Agreement, dated as of June 3, 1993,
by Foamex and FCC in favor of Shawmut, as trustee for
the holders of the Senior Secured Notes.
4.2.1(r) --Amendment No. 1 to Company Security Agreement, dated
June 12, 1997 (Foamex and FCC).
4.2.14(e) --Subsidiary Security Agreement, dated as of June 3,
1993, by General Felt in favor of Shawmut, as trustee
for the holders of the Senior Secured Notes.
4.2.15(r) --Amendment No. 1 to Subsidiary Security Agreement,
dated June 12, 1997 (General Felt).
4.2.16(e) --Collateral Assignment of Patents and Trademarks, dated
as of June 3, 1993, by Foamex in favor of Shawmut, as
trustee for the holders of the Senior Secured Notes.
4.2.17(r) --Amendment No. 1 to Collateral Assignment of Patents
and Trademarks (Foamex), dated June 12, 1997.
4.2.18(e) --Collateral Assignment of Patents and Trademarks, dated
as of June 3, 1993, by FCC in favor of Shawmut, as
trustee for the holders of the Senior Secured Notes.
4.2.19(r) --Amendment No. 1 to Collateral Assignment of Patents
and Trademarks (FCC), dated June 12, 1997.
4.2.20(e) --Collateral Assignment of Patents and Trademarks, dated
as of June 3, 1993, by General Felt in favor of
Shawmut, as trustee for the holders of the Senior
Secured Notes.
4.2.21(r) --Amendment No. 1 to Collateral Assignment of Patents
and Trademarks (General Felt), dated June 12, 1997.
4.2.22(r) --Amended and Restated Receivables Security Agreement,
by and among Fleet, Citicorp USA, Inc. and The Bank of
Nova Scotia, dated as of June 12, 1997.
4.2.23(r) --Intercreditor Agreement, by and among, Fleet, Citicorp
USA, Inc. and The Bank of Nova Scotia, dated as of
June 12, 1997 (re: Senior Secured Notes).
4.3.1(s) --Indenture, dated as of December 23, 1997, by and among
Foamex and FCC as issuers, Foamex Fibers, FLLC and
General Felt as guarantors and The Bank of New York,
as trustee, relating to 13-1/2% Senior Subordinated
Notes due 2005.
4.4.1 (d) --Credit Agreement, dated as of June 12, 1997, by and
among Foamex, General Felt, Trace Foam, FMXI, the
institutions from time to time party thereto as
lenders, the institutions from time to time party
thereto as issuing banks, and Citicorp USA, Inc. and
The Bank of Nova Scotia, as Administrative Agents.
4.4.2(r) --Foamex International Guaranty, dated as of June 12,
1997, made by Trace Foam and FMXI in favor of Citicorp
USA, Inc., as Collateral Agent.
4.4.3(r) --Partnership Guaranty, dated as of June 12, 1997, made
by Trace Foam and FMXI in favor of Citicorp USA, Inc.,
as Collateral Agent.
4.4.4(r) --Foamex Guaranty, dated as June 12, 1997, made by
Foamex in favor of Citicorp USA, Inc., as Collateral
Agent.
4.4.5(r) --General Felt Guaranty, dated as of June 12, 1997, made
by General Felt in favor of Citicorp USA, Inc., as
Collateral Agent.
4.4.6(r) --Subsidiary Guaranty, dated as of June 12, 1997, made
by Foamex Fibers in favor of Citicorp USA, Inc., as
Collateral Agent.
4.4.7(r) --Subsidiary Guaranty, dated as of June 12, 1997, made
by Foamex Latin America, Inc. in favor of Citicorp
USA, Inc., as Collateral Agent.
4.4.8(r) --Subsidiary Guaranty, dated as of June 12, 1997, made
by Foamex Mexico, Inc. in favor of Citicorp USA, Inc.,
as Collateral Agent.
4.4.9(r) --Subsidiary Guaranty, dated as of June 12, 1997, made
by FCC in favor of Citicorp USA, Inc., as Collateral
Agent.
4.4.10(r) --Subsidiary Guaranty, dated as of June 12, 1997, made
by Foamex Mexico II, Inc. in favor of Citicorp USA,
Inc., as Collateral Agent.
4.4.11(r) --Subsidiary Guaranty, dated as of June 12, 1997, made
by Foamex Asia, Inc. in favor of Citicorp USA, Inc.,
as Collateral Agent.
4.4.12(r) --Partnership Pledge Agreement, dated as of June 12,
1997, made by Trace Foam, FMXI and Foamex
International in favor of Citicorp USA, Inc., as
Collateral Agent.
II-3
<PAGE>
4.4.13(r) --Foamex Pledge Agreement, dated as June 12, 1997, made
by Foamex in favor of Citicorp USA, Inc., as
Collateral Agent.
4.4.14(r) --General Felt Pledge Agreement, dated as of June 12,
1997, made by General Felt in favor of Citicorp USA,
Inc., as Collateral Agent.
4.4.15(r) --Subsidiary Pledge Agreement, dated as of June 12,
1997, made by FCC in favor of Citicorp USA, Inc., as
Collateral Agent.
4.4.16(r) --Subsidiary Pledge Agreement, dated as of June 12,
1997, made by Foamex Fibers in favor of Citicorp USA,
Inc., as Collateral Agent.
4.4.17(r) --Subsidiary Pledge Agreement, dated as of June 12,
1997, made by Foamex Latin America, Inc. in favor of
Citicorp USA, Inc., as Collateral Agent.
4.4.18(r) --Subsidiary Pledge Agreement, dated as of June 12,
1997, made by Foamex Asia, Inc. in favor of Citicorp
USA, Inc., as Collateral Agent.
4.4.19(r) --Subsidiary Pledge Agreement, dated as of June 12,
1997, made by Foamex Mexico, Inc. in favor of Citicorp
USA, Inc., as Collateral Agent.
4.4.20(r) --Subsidiary Pledge Agreement, dated as of June 12,
1997, made by Foamex Mexico II, Inc. in favor of
Citicorp USA, Inc., as Collateral Agent.
4.4.21(r) --Foamex Security Agreement, dated as of June 12, 1997,
made by Foamex in favor of Citicorp USA, Inc., as
Collateral Agent.
4.4.22(r) --General Felt Security Agreement, dated as of June 12,
1997, made by General Felt in favor of Citicorp USA,
Inc., as Collateral Agent.
4.4.23(r) --Subsidiary Security Agreement, dated as of June 12,
1997, made by Foamex Fibers in favor of Citicorp USA,
Inc., as Collateral Agent.
4.4.24(r) --Subsidiary Security Agreement, dated as of June 12,
1997, made by Foamex Latin America, Inc. in favor of
Citicorp USA, Inc., as Collateral Agent.
4.4.25(r) --Subsidiary Security Agreement, dated as of June 12,
1997, made by Foamex Mexico, Inc. in favor of Citicorp
USA, Inc., as Collateral Agent.
4.4.26(r) --Subsidiary Security Agreement, dated as of June 12,
1997, made by Foamex Mexico II, Inc. in favor of
Citicorp USA, Inc., as Collateral Agent.
4.4.27(r) --Subsidiary Security Agreement, dated as of June 12,
1997, made by Foamex Asia, Inc. in favor of Citicorp
USA, Inc., as Collateral Agent.
4.4.28(r) --Subsidiary Security Agreement, dated as of June 12,
1997, made by FCC in favor of Citicorp USA, Inc., as
Collateral Agent.
4.4.29(s) --First Amendment to Credit Agreement, dated December
23, 1997.
4.4.30*** --Amended and Restated Foamex International Guaranty,
dated as of December 23, 1997, made by Foamex
International in favor of Citicorp USA, Inc., as
Collateral Agent.
4.4.31*** --First Amendment to Foamex Pledge Agreement, dated as
of December 23, 1997, by Foamex in favor of Citicorp
USA, Inc. as Collateral Agent.
4.4.32*** --First Amendment to Foamex Security Agreement, dated as
of December 23, 1997, by Foamex in favor of Citicorp
USA, Inc., as Collateral Agent.
4.4.33*** --First Amendment to Foamex Patent Agreement, dated as
of December 23, 1997, by Foamex in favor of Citicorp
USA, Inc., as Collateral Agent.
4.4.34*** --First Amendment to Trademark Security Agreement, dated
as of December 23, 1997, by Foamex in favor of
Citicorp USA, Inc., as Collateral Agent.
4.4.35*** --Acknowledgement of Guaranty by each of the guarantors
to a Guaranty dated June 12, 1997 in favor of Citicorp
USA, Inc.
4.4.36*** --Crain LLC Security Agreement, dated as of December 23,
1997, made by FLLC in favor of Citicorp USA, Inc.
4.4.37*** --Crain LLC Guaranty, dated as of December 23, 1997,
made by FLLC in favor of Citicorp USA, Inc.
4.4.38*** --First Amendment to Pledge Agreement, dated as of
December 23, 1997, by pledgors in favor of Citicorp
USA, Inc.
4.4.39*** --Crain Industries Guaranty, dated as of December 23,
1997, made by Crain in favor of Citicorp USA, Inc.
4.4.40*** --First Amendment to Partnership Pledge Agreement, dated
as of December 23, 1997, among Trace Foam, FMXI and
Foamex International in favor of Citicorp USA, Inc.
II-4
<PAGE>
4.4.41*** --First Amendment to Credit Agreement, dated as of
December 23, 1997, among Foamex, General Felt, Trace
Foam, FMXI, the institutions from time to time party
thereto as Lenders, the institutions from time to time
party thereto as Issuing Banks and Citicorp USA, Inc.,
as Collateral Agent and The Bank of Nova Scotia, as
Funding Agent.
4.5(j) --Commitment Letter, dated July 9, 1996, from The Bank
of Nova Scotia to Foamex Canada Inc.
4.6(a) --Subordinated Promissory Note, dated as of May 6, 1993,
in the original principal amount of $7,014,864
executed by Foamex to John Rallis ("Rallis").
4.7(a) --Marely Loan Commitment Agreement, dated as of
December 14, 1993, by and between Foamex International and
Marely s.a. ("Marely").
4.8(a) --DLJ Loan Commitment Agreement, dated as of December
14, 1993, by and between Foamex International and DLJ
Funding, Inc. ("DLJ Funding").
4.9.1(r) --Promissory Note, dated July 12, 1997, in the aggregate
principal amount of $5,000,000, executed by Trace
Holdings to Foamex.
4.9.2(r) --Promissory Note, dated July 12, 1997, in the aggregate
principal amount of $4,794,828, executed by Trace
Holdings to Foamex.
5.1*** --Opinion of Willkie Farr & Gallagher.
8.1*** --Opinion of Willkie Farr & Gallagher, as to tax
matters.
10.1.1(r) --Amendment to Master Agreement, dated as of
June 5, 1997, between Citibank, N.A. and Foamex.
10.1.2(r) --Amended confirmation, dated as of June 13, 1997,
between Citibank, N.A. and Foamex.
10.2(h) --Reimbursement Agreement, dated as of March 23, 1993,
between Trace Holdings and General Felt.
10.3(h) --Shareholder Agreement, dated December 31, 1992, among
Recticel, S.A. ("Recticel"), Recticel Holding Noord
B.V., Foamex, Beamech Group Limited, LME-Beamech,
Inc., James Brian Blackell and Prefoam AG relating to
foam technology sharing arrangement.
10.4.1(k) --Asset Transfer Agreement, dated as of October 2, 1990,
between Trace Holdings and Foamex (the "Trace Holdings
Asset Transfer Agreement").
10.4.2(k) --First Amendment, dated as of December 19, 1991, to the
Trace Holdings Asset Transfer Agreement.
10.4.3(k) --Amended and Restated Guaranty, dated as of December
19, 1991, made by Trace Foam in favor of Foamex.
10.5.1(k) --Asset Transfer Agreement, dated as of October 2, 1990,
between RFC and Foamex (the "RFC Asset Transfer
Agreement").
10.5.2(k) --First Amendment, dated as of December 19, 1991, to the
RFC Asset Transfer Agreement.
10.5.3(k) --Schedule 5.03 to the RFC Asset Transfer Agreement (the
"5.03 Protocol").
10.5.4(h) --The 5.03 Protocol Assumption Agreement, dated as of
October 13, 1992, between RFC and Foamex.
10.5.5(h) --Letter Agreement between Trace Holdings and Recticel
regarding the Recticel Guaranty, dated as of July 22,
1992.
10.6 (l) --Supply Agreement, dated June 28, 1994, between Foamex
and Foamex International.
10.7.1(l) --First Amended and Restated Tax Sharing Agreement,
dated as of December 14, 1993, among Foamex, Trace
Foam, FMXI and Foamex International.
10.7.2(d) --First Amendment to Amended and Restated Tax Sharing
Agreement of Foamex, dated as of June 12, 1997, by and
among Foamex, Foamex International, FMXI, Inc. and
Trace Foam.
10.7.3*** --Second Amendment to Amended and Restated Tax Sharing
Agreement of Foamex, dated as of December 23, 1997, by
and among Foamex, Foamex International, FMXI, Inc. and
Trace Foam.
10.8.1(m) --Tax Distribution Advance Agreement, dated as of
December 11, 1996, by and between Foamex and
Foamex-JPS Automotive L.P.
10.8.2(d) --Amendment No. 1 to Tax Distribution Advance Agreement,
dated as of June 12, 1997, by and between Foamex
International and Foamex.
10.9.1(h) --Trace Foam Management Agreement between Foamex and
Trace Foam, dated as of October 13, 1992.
II-5
<PAGE>
10.9.2(l) --Affirmation Agreement re: Management Agreement, dated
as of December 14, 1993, between Foamex and Trace
Foam.
10.9.3(d) --First Amendment to Management Agreement, dated as of
June 12, 1997, by and between Foamex and Trace Foam.
10.10.1(k) --Salaried Incentive Plan of Foamex and Subsidiaries.
10.10.2(k) --Trace Holdings 1987 Nonqualified Stock Option Plan.
10.10.3(k) --Equity Growth Participation Program.
10.10.4(o) --General Felt Industries, Inc. Retirement Plan for
Salaried Employees, effective as of January 1, 1995.
10.10.5(o) --Foamex L.P. Salaried Retirement Plan (formerly known
as the Foamex L.P. Products, Inc.Salaried Employee
Retirement Plan), as amended, effective July 1, 1984.
10.10.6(n) --Foamex/General Felt 401(k) Savings Plan dated July 1,
1995.
10.10.7(a) --Foamex International's 1993 Stock Option Plan.
10.10.8(a) --Foamex International's Non-Employee Director
Compensation Plan.
10.11.1(o) --Employment Agreement, dated as of February 1, 1994, by
and between Foamex and William H. Bundy.
10.11.2(p) --Employment Agreement, dated as of July 26, 1995, by
and between Foamex and Salvatore J. Bonanno.
10.12(a) --Warrant Exchange Agreement, dated as of December 14,
1993, by and between Foamex International and Marely.
10.13(a) --Warrant Exchange Agreement, dated as of December 14,
1993, by and between Foamex International and DLJ
Funding.
10.14(o) --Stock Purchase Agreement, dated as of December 23,
1993, by and between Transformacion de Espumas y
Fieltros, S.A., the stockholders which are parties
thereto, and Foamex.
10.15(q) --Asset Purchase Agreement, dated as of August 29, 1997,
by and among General Felt, Foamex, Bretlin, Inc. and
The Dixie Group, Inc.
12.1*** --Computation of Ratios of Earnings to Fixed Charges
(Foamex).
12.2*** --Computation of Ratios of Earnings to Fixed Charges
(General Felt).
12.3*** --Computation of Ratios of Earnings to Fixed Charges
(Crain).
21.1*** --Subsidiaries of the Registrants.
23.1*** --Consent of Coopers & Lybrand, L.L.P. independent
accountants, to Foamex L.P.
23.2*** --Consent of Coopers & Lybrand, L.L.P. independent
accountants, to General Felt Industries, Inc.
23.3*** --Consent of Coopers & Lybrand, L.L.P. independent
accountants, to Foamex Capital Corporation.
23.4*** --Consent of Coopers & Lybrand, L.L.P. independent
accountants, to Foamex Fibers, Inc.
23.5*** --Consent of Coopers & Lybrand, L.L.P. independent
accountants, to FMXI, Inc.
23.6*** --Consent of Coopers & Lybrand, L.L.P. independent
accountants, to Trace Foam Company, Inc.
23.7*** --Consent of Arthur Andersen independent accountants, to
Crain Industries, Inc.
23.8*** --Consent of Willkie Farr & Gallagher included in
Exhibit 5.1.
25*** --Form T-1 Statement of Eligibility and Qualification
under the Trust Indenture Act of 1939 of The Bank of
New York, as Trustee under the Indenture.
27.1*** --Financial Data Schedule (Foamex Fibers).
27.2*** --Financial Data Schedule (General Felt).
99.1*** --Form of Letter of Transmittal.
99.2*** --Form of Notice of Guaranteed Delivery.
- - --------
** To be filed by amendment.
*** Filed herewith.
(a) Incorporated herein by reference to the Exhibit to Foamex International's
Registration Statement on Form S-1, Registration No. 33-69606.
(b) Incorporated herein by reference to the Exhibit to the Annual Report on Form
10-K of Foamex L.P. for the fiscal year ended January 1, 1995.
(c) Incorporated herein by reference to the Exhibit to the Current Report on
Form 8-K of Foamex L.P. reporting an event that occurred May 28, 1997.
II-6
<PAGE>
(d) Incorporated herein by reference to the Exhibit to the Current Report on
Form 8-K of Foamex L.P.reporting an event that occurred June 12, 1997.
(e) Incorporated herein by reference to the Exhibit to the Registration
Statement of Foamex L.P. and Foamex Capital Corporation on Form S-4,
Registration No. 33-65158.
(f) Incorporated herein by reference to the Exhibit to the Quarterly Report on
Form 10-Q of Foamex L.P. for the quarterly period ended June 30, 1996.
(g) Incorporated herein by reference to the Exhibit to the Registration
Statement of Foamex L.P., Foamex Capital Corporation and General Felt on
Form S-1, Registration Nos. 33-60888, 33-60888-01 and 33-60888-02.
(h) Incorporated herein by reference to the Exhibit to the Annual Report on Form
10-K of Foamex L.P. and Foamex Capital Corporation for the fiscal year ended
January 3, 1993.
(i) Incorporated herein by reference to the Exhibit to the Annual Report on Form
10-K of Foamex International for the fiscal year ended January 1, 1995.
(j) Incorporated herein by reference to the Exhibit to the Quarterly Report on
Form 10-Q of Foamex L.P. for the quarterly period ended September 30, 1996.
(k) Incorporated herein by reference to the Exhibit to the Registration
Statement of Foamex L.P. and Foamex Capital Corporation on Form S-1,
Registration Nos. 33-49976 and 33-49976-01.
(l) Incorporated herein by reference to the Exhibit to the Registration
Statement of FJPS, FJCC and Foamex International on Form S-4, Registration
No. 33-82028.
(m) Incorporated herein by reference to the Exhibit to the Annual Report on Form
10-K of Foamex L.P. for the fiscal year ended December 29, 1996.
(n) Incorporated herein by reference to the Exhibit to the Quarterly Report on
Form 10-Q of Foamex L.P. for the quarterly period ended July 2, 1995.
(o) Incorporated herein by reference to the Exhibit to the Annual Report on Form
10-K of Foamex International for the fiscal year ended January 2, 1994.
(p) Incorporated herein by reference to the Exhibit to the Annual Report on Form
10-K of Foamex L.P. for the fiscal year ended December 31, 1995.
(q) Incorporated herein by reference to the Exhibit to the Current Report of
Form 8-K of Foamex L.P. reporting an event that occurred August 29, 1997.
(r) Incorporated herein by reference to the Exhibit to the registration
Statement of Foamex L.P. and Foamex capital Corporation on Form S-4,
Registration No. 333-30291.
(s) Incorporated herein by reference to the Exhibit to the Current Report on
Form 8-K of Foamex L.P., Foamex Capital Corporation and Foamex International
reporting an event that occurred December 23, 1997.
Certain instruments defining the rights of security holders have been
excluded herefrom in accordance with Item 601(b)(4)(iii) of Regulation S-K. The
Registrant hereby agrees to furnish a copy of any such instrument to the
Commission upon request.
(d) Schedules
None.
Item 22. Undertakings.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of
Registrants pursuant to the provisions described under Item 20 above, or
otherwise, the Registrants have been advised that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrants of expenses incurred or paid by a director,
officer or controlling person of the Registrants in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrants will, unless in the opinion of their counsel the matter has been
settled by controlling precedent, submit to court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
The undersigned Registrants hereby undertake to respond to requests for
information that is incorporated by reference into the Prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through
the date of responding to the request.
II-7
<PAGE>
The undersigned Registrants hereby undertake to supply by means of a
post-effective amendment all information concerning a transaction, and the
Issuers being acquired involved therein, that was not the subject of and
included in this Registration Statement when it became effective.
The undersigned Registrants hereby undertake that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrants' annual reports pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
The undersigned Registrants hereby undertake as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuers undertake that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
The Registrants undertake that every prospectus (i) that is filed pursuant
to the immediately preceding paragraph, or (ii) that purports to meet the
requirements of section 10(a)(3) of the Securities Act of 1933 and is used in
connection with an offering of securities subject to Rule 415 will be filed as
a part of an amendment to the registration statement and will not be used until
such amendment is effective, and that, for purposes of determining any
liability under the Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of New York,
State of New York, on the 6th day of February, 1998.
FOAMEX L.P.
By: FMXI, Inc.,
Its Managing General Partner
By: /s/ Andrea Farace
------------------------------------
Name: Andrea Farace
Title: Chairman and Chief Executive
Officer of FMXI, Inc. and
Foamex L.P.
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Philip
N. Smith, Jr. as his true and lawful attorney-in-fact and agent, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments to this
Registration Statement, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent, full power and
authority to do and perform each and every act and thing requisite and
necessary fully to all intents and purposes as he might or could do in person
thereby ratifying and confirming all that said attorney-in-fact and agent, or
his substitute, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, each thereunto duly authorized in the City of New
York, State of New York, on the 6th day of February, 1998.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ Andrea Farace Chairman and Chief Executive Officer of FMXI, Inc.
- - ------------------------------------- and Foamex L.P. (principal executive officer)
Andrea Farace
/s/ Salvatore J. Bonanno President and Chief Operating Officer of Foamex L.P.
- - ------------------------------------- and FMXI, Inc. (principal executive officer)
Salvatore J. Bonanno
/s/ Kenneth R. Fuette Senior Vice President of Finance and Chief Financial
- - ------------------------------------- Officer of Foamex L.P. and Senior Vice President
Kenneth R. Fuette of Finance and a director of FMXI, Inc.
(principal financial and accounting officer)
/s/ Marshall S. Cogan Vice Chairman of Foamex L.P. and FMXI, Inc.
- - -------------------------------------
Marshall S. Cogan
/s/ Salvatore J. Bonanno Director of FMXI, Inc.
- - -------------------------------------
Salvatore J. Bonanno
/s/ Andrea Farace Director of FMXI, Inc.
- - -------------------------------------
Andrea Farace
/s/ Kenneth R. Fuette Director of FMXI, Inc.
- - -------------------------------------
Kenneth R. Fuette
/s/ Marshall S. Cogan Director of FMXI, Inc.
- - -------------------------------------
Marshall S. Cogan
/s/ Philip N. Smith, Jr. Director of FMXI, Inc.
- - -------------------------------------
Philip N. Smith, Jr.
</TABLE>
II-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of New York,
State of New York, on the 6th day of February, 1998.
FOAMEX CAPITAL CORPORATION
By: /s/ Andrea Farace
------------------------------------
Name: Andrea Farace
Title: Chairman and Chief Executive
Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Philip
N. Smith, Jr. as his true and lawful attorney-in-fact and agent, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments to this
Registration Statement, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent, full power and
authority to do and perform each and every act and thing requisite and
necessary fully to all intents and purposes as he might or could do in person
thereby ratifying and confirming all that said attorney-in-fact and agent, or
his substitute, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, each thereunto duly authorized in the City of New
York, State of New York, on the 6th day of February, 1998.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ Andrea Farace Chairman and Chief Executive Officer
- - ---------------------------------------- (principal executive officer)
Andrea Farace
/s/ Robert H. Nelson Vice President (principal executive officer)
- - ----------------------------------------
Robert H. Nelson
/s/ Kenneth R. Fuette Senior Vice President of Finance and
- - ---------------------------------------- Chief Financial Officer
Kenneth R. Fuette (principal financial and accounting officer)
/s/ Marshall S. Cogan Director
- - ----------------------------------------
Marshall S. Cogan
/s/ Andrea Farace Director
- - ----------------------------------------
Andrea Farace
/s/ Kenneth R. Fuette Director
- - ----------------------------------------
Kenneth R. Fuette
/s/ Robert H. Nelson Director
- - ----------------------------------------
Robert H. Nelson
/s/ Barry Zimmerman Director
- - ----------------------------------------
Barry Zimmerman
</TABLE>
II-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of New York,
State of New York, on the 6th day of February, 1998.
GENERAL FELT INDUSTRIES, INC.
By: /s/ Theodore J. Kall
------------------------------------
Name: Theodore J. Kall
Title: President
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Philip
N. Smith, Jr. as his true and lawful attorney-in-fact and agent, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments to this
Registration Statement, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent, full power and
authority to do and perform each and every act and thing requisite and
necessary fully to all intents and purposes as he might or could do in person
thereby ratifying and confirming all that said attorney-in-fact and agent, or
his substitute, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, each thereunto duly authorized in the City of New
York, State of New York, on the 6th day of February, 1998.
Signature Title
--------- -----
/s/ Andrea Farace Chairman
- - ------------------------------- (principal executive officer)
Andrea Farace
/s/ Theodore J. Kall President and a director
- - ------------------------------- (principal executive officer)
Theodore J. Kall
/s/ Kenneth R. Fuette Vice President, Treasurer and
- - ------------------------------- Chief Financial Officer
Kenneth R. Fuette (principal financial and accounting officer)
/s/ Marshall S. Cogan Director
- - -------------------------------
Marshall S. Cogan
/s/ Kenneth R. Fuette Director
- - -------------------------------
Kenneth R. Fuette
/s/ Andrea Farace Director
- - -------------------------------
Andrea Farace
/s/ Theodore J. Kall Director
- - -------------------------------
Theodore J. Kall
II-11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of New York,
State of New York, on the 6th day of February, 1998.
FOAMEX FIBERS, INC.
By: /s/ Andrea Farace
------------------------------------
Name: Andrea Farace
Title: Chairman and Chief Executive
Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Philip
N. Smith, Jr. as his true and lawful attorney-in-fact and agent, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments to this
Registration Statement, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent, full power and
authority to do and perform each and every act and thing requisite and
necessary fully to all intents and purposes as he might or could do in person
thereby ratifying and confirming all that said attorney-in-fact and agent, or
his substitute, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, each thereunto duly authorized in the City of New
York, State of New York, on the 6th day of February, 1998.
Signature Title
--------- -----
/s/ Andrea Farace Chairman and Chief Executive
- - ---------------------------------- Officer (principal executive officer)
Andrea Farace
/s/ Robert H. Nelson Vice President
- - ---------------------------------- (principal executive officer)
Robert H. Nelson
/s/ Kenneth R. Fuette Treasurer (principal financial and
- - ---------------------------------- accounting officer)
Kenneth R. Fuette
/s/ Salvatore J. Bonanno Director
- - ----------------------------------
Salvatore J. Bonanno
/s/ Marshall S. Cogan Director
- - ----------------------------------
Marshall S. Cogan
/s/ Andrea Farace Director
- - ----------------------------------
Andrea Farace
II-12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of New York,
State of New York, on the 6th day of February, 1998.
FOAMEX LLC
By: Foamex L.P., its Member
By: FMXI, Inc.,
Its Managing General Partner
By: /s/ Andrea Farace
------------------------------------
Name: Andrea Farace
Title: Chairman and Chief Executive
Officer of FMXI, Inc. and
Foamex L.P.
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Philip
N. Smith, Jr. as his true and lawful attorney-in-fact and agent, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments to this
Registration Statement, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent, full power and
authority to do and perform each and every act and thing requisite and
necessary fully to all intents and purposes as he might or could do in person
thereby ratifying and confirming all that said attorney-in-fact and agent, or
his substitute, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, each thereunto duly authorized in the City of New
York, State of New York, on the 6th day of February, 1998.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ Andrea Farace Chairman and Chief Executive Officer of FMXI,
- - ----------------------------------- Inc. and Foamex L.P. (principal executive officer)
Andrea Farace
/s/ Salvatore J. Bonanno President and Chief Operating Officer of Foamex
- - ----------------------------------- L.P. and FMXI, Inc. (principal executive officer)
Salvatore J. Bonanno
/s/ Kenneth R. Fuette Senior Vice President of Finance and Chief
- - ----------------------------------- Financial Officer of Foamex L.P. and Senior Vice
Kenneth R. Fuette President of Finance and a director of FMXI, Inc.
(principal financial and accounting officer)
/s/ Marshall S. Cogan Vice Chairman of Foamex L.P. and FMXI, Inc.
- - -----------------------------------
Marshall S. Cogan
/s/ Salvatore J. Bonanno Director of FMXI, Inc.
- - -----------------------------------
Salvatore J. Bonanno
/s/ Andrea Farace Director of FMXI, Inc.
- - -----------------------------------
Andrea Farace
/s/ Kenneth R. Fuette Director of FMXI, Inc.
- - -----------------------------------
Kenneth R. Fuette
</TABLE>
II-13
<PAGE>
EXHIBIT INDEX
Page Number in
Sequential
Exhibit Numbering
Number Description System
- - ---------- ----------- ----------
3.1(a) --Certificate of Limited Partnership of Foamex L.P.
("Foamex").
3.2.1(a) --Fourth Amended and Restated Agreement of Limited
Partnership of Foamex L.P., dated as of December 14,
1993, by and among FMXI Inc. ("FMXI") and Trace Foam
Company, Inc. ("Trace Foam"), as general partners, and
Foamex International Inc. ("Foamex International"), as
a limited partner (the "Partnership Agreement").
3.2.2(b) --First Amendment to the Partnership Agreement, dated
June 28, 1994.
3.2.3(c) --Second Amendment to the Partnership Agreement, dated
June 12, 1997.
3.2.4(s) --Third Amendment to the Partnership Agreement, dated
December 23, 1997.
3.3(a) --Certificate of Incorporation of FMXI.
3.4(a) --By-laws of FMXI.
3.5(k) --Certificate of Incorporation of Foamex Capital
Corporation ("FCC").
3.6(k) --By-laws of FCC.
3.7(g) --Certificate of Incorporation of General Felt
Industries, Inc. ("General Felt").
3.8(g) --By-laws of General Felt.
3.9(r) --Certificate of Incorporation of Foamex Fibers, Inc.
("Foamex Fibers").
3.10(r) --By-laws of Foamex Fibers.
3.11*** --Certificate of Limited Liability Company of Foamex LLC
("FLLC").
3.12*** --Amended and restated Operating Agreement of FLLC.
4.1.1(d) --Indenture, dated as of June 12, 1997, by and among
Foamex L.P., FCC, the Subsidiary Guarantors and The
Bank of New York, as Trustee, relating to $150,000,000
principal amount of 9-7/8% Senior Subordinated Notes
due 2007 (the 9-7/8% Notes"), including form of Senior
Subordinated Note and Subsidiary Guarantee.
4.1.2(s) --First Supplemental Indenture, dated as of December 23,
1997, between FLLC and The Bank of New York, as
trustee, relating to the 9-7/8% Notes.
4.2.1(e) --Indenture, dated as of June 3, 1993, among Foamex and
FCC, as joint and several obligors, General Felt, as
Guarantor, and Shawmut Bank, National Association
("Shawmut"), as trustee, relating to $160,000,000
principal amount of 9-1/2% Senior Secured Notes due
2000 (the "Senior Secured Notes"), including form of
Senior Secured Note.
4.2.2(a) --First Supplemental Indenture, dated as of November 18,
1993, among Foamex and FCC, as Issuers, General Felt
and Perfect Fit Industries, Inc. ("Perfect Fit"), as
Guarantors and Shawmut, as trustee, relating to the
Senior Secured Notes.
4.2.3(a) --Second Supplemental Indenture, dated as of December
14, 1993, among Foamex and FCC, as Issuers, Foamex
International, General Felt and Perfect Fit, as
Guarantors and Shawmut, as trustee, relating to the
Senior Secured Notes.
4.2.4(f) --Third Supplemental Indenture, dated as of August 1,
1996, by and among Foamex and FCC, as Issuers, Foamex
International, as parent guarantor, General Felt, as
guarantor, Perfect Fit, as withdrawing guarantor, and
Fleet National Bank ("Fleet"), as trustee relating to
the Senior Secured Notes.
4.2.5(c) --Fourth Supplemental Indenture, dated as of May 28,
1997, by and among Foamex and FCC, as Issuers, Foamex
International, as Parent Guarantor, General Felt, as
Guarantor, and Fleet, as Trustee.
4.2.6(e) --Company Pledge Agreement, dated as of June 3, 1993, by
Foamex in favor of Shawmut, as trustee for the holders
of the Senior Secured Notes.
4.2.7(r) --Amendment No. 1 to Company (Foamex L.P.) Pledge
Agreement, dated June 12, 1997.
4.2.8(e) --Company Pledge Agreement, dated as of June 3, 1993, by
FCC in favor of Shawmut, as trustee for the holders of
the Senior Secured Notes.
4.2.9(r) --Amendment No. 1 to Company (FCC) Pledge Agreement,
dated June 12, 1997.
<PAGE>
4.2.10(e) --Subsidiary Pledge Agreement, dated as of June 3, 1993,
by General Felt in favor of Shawmut, as trustee for
the holders of the Senior Secured Notes.
4.2.11(r) --Amendment No. 1 to Subsidiary (General Felt) Pledge
Agreement, dated June 12, 1997.
4.2.12(e) --Company Security Agreement, dated as of June 3, 1993,
by Foamex and FCC in favor of Shawmut, as trustee for
the holders of the Senior Secured Notes.
4.2.1(r) --Amendment No. 1 to Company Security Agreement, dated
June 12, 1997 (Foamex and FCC).
4.2.14(e) --Subsidiary Security Agreement, dated as of June 3,
1993, by General Felt in favor of Shawmut, as trustee
for the holders of the Senior Secured Notes.
4.2.15(r) --Amendment No. 1 to Subsidiary Security Agreement,
dated June 12, 1997 (General Felt).
4.2.16(e) --Collateral Assignment of Patents and Trademarks, dated
as of June 3, 1993, by Foamex in favor of Shawmut, as
trustee for the holders of the Senior Secured Notes.
4.2.17(r) --Amendment No. 1 to Collateral Assignment of Patents
and Trademarks (Foamex), dated June 12, 1997.
4.2.18(e) --Collateral Assignment of Patents and Trademarks, dated
as of June 3, 1993, by FCC in favor of Shawmut, as
trustee for the holders of the Senior Secured Notes.
4.2.19(r) --Amendment No. 1 to Collateral Assignment of Patents
and Trademarks (FCC), dated June 12, 1997.
4.2.20(e) --Collateral Assignment of Patents and Trademarks, dated
as of June 3, 1993, by General Felt in favor of
Shawmut, as trustee for the holders of the Senior
Secured Notes.
4.2.21(r) --Amendment No. 1 to Collateral Assignment of Patents
and Trademarks (General Felt), dated June 12, 1997.
4.2.22(r) --Amended and Restated Receivables Security Agreement,
by and among Fleet, Citicorp USA, Inc. and The Bank of
Nova Scotia, dated as of June 12, 1997.
4.2.23(r) --Intercreditor Agreement, by and among, Fleet, Citicorp
USA, Inc. and The Bank of Nova Scotia, dated as of
June 12, 1997 (re: Senior Secured Notes).
4.3.1(s) --Indenture, dated as of December 23, 1997, by and among
Foamex and FCC as issuers, Foamex Fibers, FLLC and
General Felt as guarantors and The Bank of New York,
as trustee, relating to 13-1/2% Senior Subordinated
Notes due 2005.
4.4.1(d) --Credit Agreement, dated as of June 12, 1997, by and
among Foamex, General Felt, Trace Foam, FMXI, the
institutions from time to time party thereto as
lenders, the institutions from time to time party
thereto as issuing banks, and Citicorp USA, Inc. and
The Bank of Nova Scotia, as Administrative Agents.
4.4.2(r) --Foamex International Guaranty, dated as of June 12,
1997, made by Trace Foam and FMXI in favor of Citicorp
USA, Inc., as Collateral Agent.
4.4.3(r) --Partnership Guaranty, dated as of June 12, 1997, made
by Trace Foam and FMXI in favor of Citicorp USA, Inc.,
as Collateral Agent.
4.4.4(r) --Foamex Guaranty, dated as June 12, 1997, made by
Foamex in favor of Citicorp USA, Inc., as Collateral
Agent.
4.4.5(r) --General Felt Guaranty, dated as of June 12, 1997, made
by General Felt in favor of Citicorp USA, Inc., as
Collateral Agent.
4.4.6(r) --Subsidiary Guaranty, dated as of June 12, 1997, made
by Foamex Fibers in favor of Citicorp USA, Inc., as
Collateral Agent.
4.4.7(r) --Subsidiary Guaranty, dated as of June 12, 1997, made
by Foamex Latin America, Inc. in favor of Citicorp
USA, Inc., as Collateral Agent.
4.4.8(r) --Subsidiary Guaranty, dated as of June 12, 1997, made
by Foamex Mexico, Inc. in favor of Citicorp USA, Inc.,
as Collateral Agent.
4.4.9(r) --Subsidiary Guaranty, dated as of June 12, 1997, made
by FCC in favor of Citicorp USA, Inc., as Collateral
Agent.
4.4.10(r) --Subsidiary Guaranty, dated as of June 12, 1997, made
by Foamex Mexico II, Inc. in favor of Citicorp USA,
Inc., as Collateral Agent.
4.4.11(r) --Subsidiary Guaranty, dated as of June 12, 1997, made
by Foamex Asia, Inc. in favor of Citicorp USA, Inc.,
as Collateral Agent.
4.4.12(r) --Partnership Pledge Agreement, dated as of June 12,
1997, made by Trace Foam, FMXI and Foamex
International in favor of Citicorp USA, Inc., as
Collateral Agent.
<PAGE>
4.4.13(r) --Foamex Pledge Agreement, dated as June 12, 1997, made
by Foamex in favor of Citicorp USA, Inc., as
Collateral Agent.
4.4.14(r) --General Felt Pledge Agreement, dated as of June 12,
1997, made by General Felt in favor of Citicorp USA,
Inc., as Collateral Agent.
4.4.15(r) --Subsidiary Pledge Agreement, dated as of June 12,
1997, made by FCC in favor of Citicorp USA, Inc., as
Collateral Agent.
4.4.16(r) --Subsidiary Pledge Agreement, dated as of June 12,
1997, made by Foamex Fibers in favor of Citicorp USA,
Inc., as Collateral Agent.
4.4.17(r) --Subsidiary Pledge Agreement, dated as of June 12,
1997, made by Foamex Latin America, Inc. in favor of
Citicorp USA, Inc., as Collateral Agent.
4.4.18(r) --Subsidiary Pledge Agreement, dated as of June 12,
1997, made by Foamex Asia, Inc. in favor of Citicorp
USA, Inc., as Collateral Agent.
4.4.19(r) --Subsidiary Pledge Agreement, dated as of June 12,
1997, made by Foamex Mexico, Inc. in favor of Citicorp
USA, Inc., as Collateral Agent.
4.4.20(r) --Subsidiary Pledge Agreement, dated as of June 12,
1997, made by Foamex Mexico II, Inc. in favor of
Citicorp USA, Inc., as Collateral Agent.
4.4.21(r) --Foamex Security Agreement, dated as of June 12, 1997,
made by Foamex in favor of Citicorp USA, Inc., as
Collateral Agent.
4.4.22(r) --General Felt Security Agreement, dated as of June 12,
1997, made by General Felt in favor of Citicorp USA,
Inc., as Collateral Agent.
4.4.23(r) --Subsidiary Security Agreement, dated as of June 12,
1997, made by Foamex Fibers in favor of Citicorp USA,
Inc., as Collateral Agent.
4.4.24(r) --Subsidiary Security Agreement, dated as of June 12,
1997, made by Foamex Latin America, Inc. in favor of
Citicorp USA, Inc., as Collateral Agent.
4.4.25(r) --Subsidiary Security Agreement, dated as of June 12,
1997, made by Foamex Mexico, Inc. in favor of Citicorp
USA, Inc., as Collateral Agent.
4.4.26(r) --Subsidiary Security Agreement, dated as of June 12,
1997, made by Foamex Mexico II, Inc. in favor of
Citicorp USA, Inc., as Collateral Agent.
4.4.27(r) --Subsidiary Security Agreement, dated as of June 12,
1997, made by Foamex Asia, Inc. in favor of Citicorp
USA, Inc., as Collateral Agent.
4.4.28(r) --Subsidiary Security Agreement, dated as of June 12,
1997, made by FCC in favor of Citicorp USA, Inc., as
Collateral Agent.
4.4.29(s) --First Amendment to Credit Agreement, dated December
23, 1997.
4.4.30*** --Amended and Restated Foamex International Guaranty,
dated as of December 23, 1997, made by Foamex
International in favor of Citicorp USA, Inc., as
Collateral Agent.
4.4.31*** --First Amendment to Foamex Pledge Agreement, dated as
of December 23, 1997, by Foamex in favor of Citicorp
USA, Inc. as Collateral Agent.
4.4.32*** --First Amendment to Foamex Security Agreement, dated as
of December 23, 1997, by Foamex in favor of Citicorp
USA, Inc., as Collateral Agent.
4.4.33*** --First Amendment to Foamex Patent Agreement, dated as
of December 23, 1997, by Foamex in favor of Citicorp
USA, Inc., as Collateral Agent.
4.4.34*** --First Amendment to Trademark Security Agreement, dated
as of December 23, 1997, by Foamex in favor of
Citicorp USA, Inc., as Collateral Agent.
4.4.35*** --Acknowledgement of Guaranty by each of the guarantors
to a Guaranty dated June 12, 1997 in favor of Citicorp
USA, Inc.
4.4.36*** --Crain LLC Security Agreement, dated as of December 23,
1997, made by FLLC in favor of Citicorp USA, Inc.
4.4.37*** --Crain LLC Guaranty, dated as of December 23, 1997,
made by FLLC in favor of Citicorp USA, Inc.
4.4.38*** --First Amendment to Pledge Agreement, dated as of
December 23, 1997, by pledgors in favor of Citicorp
USA, Inc.
4.4.39*** --Crain Industries Guaranty, dated as of December 23,
1997, made by Crain in favor of Citicorp USA, Inc.
4.4.40*** --First Amendment to Partnership Pledge Agreement, dated
as of December 23, 1997, among Trace Foam, FMXI and
Foamex International in favor of Citicorp USA, Inc.
<PAGE>
4.4.41*** --First Amendment to Credit Agreement, dated as of
December 23, 1997, among Foamex, General Felt, Trace
Foam, FMXI, the institutions from time to time party
thereto as Lenders, the institutions from time to time
party thereto as Issuing Banks and Citicorp USA, Inc.,
as Collateral Agent and The Bank of Nova Scotia, as
Funding Agent.
4.5(j) --Commitment Letter, dated July 9, 1996, from The Bank
of Nova Scotia to Foamex Canada Inc.
4.6(a) --Subordinated Promissory Note, dated as of May 6, 1993,
in the original principal amount of $7,014,864
executed by Foamex to John Rallis ("Rallis").
4.7(a) --Marely Loan Commitment Agreement, dated as of
December 14, 1993, by and between Foamex International and
Marely s.a. ("Marely").
4.8(a) --DLJ Loan Commitment Agreement, dated as of December
14, 1993, by and between Foamex International and DLJ
Funding, Inc. ("DLJ Funding").
4.9.1(r) --Promissory Note, dated July 12, 1997, in the aggregate
principal amount of $5,000,000, executed by Trace
Holdings to Foamex.
4.9.2(r) --Promissory Note, dated July 12, 1997, in the aggregate
principal amount of $4,794,828, executed by Trace
Holdings to Foamex.
5.1*** --Opinion of Willkie Farr & Gallagher.
8.1*** --Opinion of Willkie Farr & Gallagher, as to tax
matters.
10.1.1(r) --Amendment to Master Agreement, dated as of
June 5, 1997, between Citibank, N.A. and Foamex.
10.1.2(r) --Amended confirmation, dated as of June 13, 1997,
between Citibank, N.A. and Foamex.
10.2(h) --Reimbursement Agreement, dated as of March 23, 1993,
between Trace Holdings and General Felt.
10.3(h) --Shareholder Agreement, dated December 31, 1992, among
Recticel, S.A. ("Recticel"), Recticel Holding Noord
B.V., Foamex, Beamech Group Limited, LME-Beamech,
Inc., James Brian Blackell and Prefoam AG relating to
foam technology sharing arrangement.
10.4.1(k) --Asset Transfer Agreement, dated as of October 2, 1990,
between Trace Holdings and Foamex (the "Trace Holdings
Asset Transfer Agreement").
10.4.2(k) --First Amendment, dated as of December 19, 1991, to the
Trace Holdings Asset Transfer Agreement.
10.4.3(k) --Amended and Restated Guaranty, dated as of December
19, 1991, made by Trace Foam in favor of Foamex.
10.5.1(k) --Asset Transfer Agreement, dated as of October 2, 1990,
between RFC and Foamex (the "RFC Asset Transfer
Agreement").
10.5.2(k) --First Amendment, dated as of December 19, 1991, to the
RFC Asset Transfer Agreement.
10.5.3(k) --Schedule 5.03 to the RFC Asset Transfer Agreement (the
"5.03 Protocol").
10.5.4(h) --The 5.03 Protocol Assumption Agreement, dated as of
October 13, 1992, between RFC and Foamex.
10.5.5(h) --Letter Agreement between Trace Holdings and Recticel
regarding the Recticel Guaranty, dated as of July 22,
1992.
10.6(l) --Supply Agreement, dated June 28, 1994, between Foamex
and Foamex International.
10.7.1(l) --First Amended and Restated Tax Sharing Agreement,
dated as of December 14, 1993, among Foamex, Trace
Foam, FMXI and Foamex International.
10.7.2(d) --First Amendment to Amended and Restated Tax Sharing
Agreement of Foamex, dated as of June 12, 1997, by and
among Foamex, Foamex International, FMXI, Inc. and
Trace Foam.
10.7.3*** --Second Amendment to Amended and Restated Tax Sharing
Agreement of Foamex, dated as of December 23, 1997, by
and among Foamex, Foamex International, FMXI, Inc. and
Trace Foam.
10.8.1(m) --Tax Distribution Advance Agreement, dated as of
December 11, 1996, by and between Foamex and
Foamex-JPS Automotive L.P.
10.8.2(d) --Amendment No. 1 to Tax Distribution Advance Agreement,
dated as of June 12, 1997, by and between Foamex
International and Foamex.
10.9.1(h) --Trace Foam Management Agreement between Foamex and
Trace Foam, dated as of October 13, 1992.
<PAGE>
10.9.2(l) --Affirmation Agreement re: Management Agreement, dated
as of December 14, 1993, between Foamex and Trace
Foam.
10.9.3(d) --First Amendment to Management Agreement, dated as of
June 12, 1997, by and between Foamex and Trace Foam.
10.10.1(k) --Salaried Incentive Plan of Foamex and Subsidiaries.
10.10.2(k) --Trace Holdings 1987 Nonqualified Stock Option Plan.
10.10.3(k) --Equity Growth Participation Program.
10.10.4(o) --General Felt Industries, Inc. Retirement Plan for
Salaried Employees, effective as of January 1, 1995.
10.10.5(o) --Foamex L.P. Salaried Retirement Plan (formerly known
as the Foamex L.P. Products, Inc.Salaried Employee
Retirement Plan), as amended, effective July 1, 1984.
10.10.6(n) --Foamex/General Felt 401(k) Savings Plan dated July 1,
1995.
10.10.7(a) --Foamex International's 1993 Stock Option Plan.
10.10.8(a) --Foamex International's Non-Employee Director
Compensation Plan.
10.11.1(o) --Employment Agreement, dated as of February 1, 1994, by
and between Foamex and William H. Bundy.
10.11.2(p) --Employment Agreement, dated as of July 26, 1995, by
and between Foamex and Salvatore J. Bonanno.
10.12(a) --Warrant Exchange Agreement, dated as of December 14,
1993, by and between Foamex International and Marely.
10.13(a) --Warrant Exchange Agreement, dated as of December 14,
1993, by and between Foamex International and DLJ
Funding.
10.14(o) --Stock Purchase Agreement, dated as of December 23,
1993, by and between Transformacion de Espumas y
Fieltros, S.A., the stockholders which are parties
thereto, and Foamex.
10.15(q) --Asset Purchase Agreement, dated as of August 29, 1997,
by and among General Felt, Foamex, Bretlin, Inc. and
The Dixie Group, Inc.
12.1*** --Computation of Ratios of Earnings to Fixed Charges
(Foamex).
12.2*** --Computation of Ratios of Earnings to Fixed Charges
(General Felt).
12.3*** --Computation of Ratios of Earnings to Fixed Charges
(Crain).
21.1*** --Subsidiaries of the Registrants.
23.1*** --Consent of Coopers & Lybrand, L.L.P. independent
accountants, to Foamex L.P.
23.2*** --Consent of Coopers & Lybrand, L.L.P. independent
accountants, to General Felt Industries, Inc.
23.3*** --Consent of Coopers & Lybrand, L.L.P. independent
accountants, to Foamex Capital Corporation.
23.4*** --Consent of Coopers & Lybrand, L.L.P. independent
accountants, to Foamex Fibers, Inc.
23.5*** --Consent of Coopers & Lybrand, L.L.P. independent
accountants, to FMXI, Inc.
23.6*** --Consent of Coopers & Lybrand, L.L.P. independent
accountants, to Trace Foam Company, Inc.
23.7*** --Consent of Arthur Andersen independent accountants, to
Crain Industries, Inc.
23.8*** --Consent of Willkie Farr & Gallagher included in
Exhibit 5.1.
25*** --Form T-1 Statement of Eligibility and Qualification
under the Trust Indenture Act of 1939 of The Bank of
New York, as Trustee under the Indenture.
27.1*** --Financial Data Schedule (Foamex Fibers).
27.2*** --Financial Data Schedule (General Felt).
99.1*** --Form of Letter of Transmittal.
99.2*** --Form of Notice of Guaranteed Delivery.
- - --------
** To be filed by amendment.
*** Filed herewith.
(a) Incorporated herein by reference to the Exhibit to Foamex International's
Registration Statement on Form S-1, Registration No. 33-69606.
(b) Incorporated herein by reference to the Exhibit to the Annual Report on Form
10-K of Foamex L.P. for the fiscal year ended January 1, 1995.
(c) Incorporated herein by reference to the Exhibit to the Current Report on
Form 8-K of Foamex L.P. reporting an event that occurred May 28, 1997.
<PAGE>
(d) Incorporated herein by reference to the Exhibit to the Current Report on
Form 8-K of Foamex L.P. reporting an event that occurred June 12, 1997.
(e) Incorporated herein by reference to the Exhibit to the Registration
Statement of Foamex L.P. and Foamex Capital Corporation on Form S-4,
Registration No. 33-65158.
(f) Incorporated herein by reference to the Exhibit to the Quarterly Report on
Form 10-Q of Foamex L.P. for the quarterly period ended June 30, 1996.
(g) Incorporated herein by reference to the Exhibit to the Registration
Statement of Foamex L.P., Foamex Capital Corporation and General Felt on
Form S-1, Registration Nos. 33-60888, 33-60888-01 and 33-60888-02.
(h) Incorporated herein by reference to the Exhibit to the Annual Report on Form
10-K of Foamex L.P. and Foamex Capital Corporation for the fiscal year ended
January 3, 1993.
(i) Incorporated herein by reference to the Exhibit to the Annual Report on Form
10-K of Foamex International for the fiscal year ended January 1, 1995.
(j) Incorporated herein by reference to the Exhibit to the Quarterly Report on
Form 10-Q of Foamex L.P. for the quarterly period ended September 30, 1996.
(k) Incorporated herein by reference to the Exhibit to the Registration
Statement of Foamex L.P. and Foamex Capital Corporation on Form S-1,
Registration Nos. 33-49976 and 33-49976-01.
(l) Incorporated herein by reference to the Exhibit to the Registration
Statement of FJPS, FJCC and Foamex International on Form S-4, Registration
No. 33-82028.
(m) Incorporated herein by reference to the Exhibit to the Annual Report on Form
10-K of Foamex L.P. for the fiscal year ended December 29, 1996.
(n) Incorporated herein by reference to the Exhibit to the Quarterly Report on
Form 10-Q of Foamex L.P. for the quarterly period ended July 2, 1995.
(o) Incorporated herein by reference to the Exhibit to the Annual Report on Form
10-K of Foamex International for the fiscal year ended January 2, 1994.
(p) Incorporated herein by reference to the Exhibit to the Annual Report on Form
10-K of Foamex L.P. for the fiscal year ended December 31, 1995.
(q) Incorporated herein by reference to the Exhibit to the Current Report of
Form 8-K of Foamex L.P. reporting an event that occurred August 29, 1997.
(r) Incorporated herein by reference to the Exhibit to the registration
Statement of Foamex L.P. and Foamex capital Corporation on Form S-4,
Registration No. 333-30291.
(s) Incorporated herein by reference to the Exhibit to the Current Report on
Form 8-K of Foamex L.P., Foamex Capital Corporation and Foamex International
reporting an event that occurred December 23, 1997.
CERTIFICATE OF FORMATION
OF
FOAMEX LLC
This Certificate of Formation of FOAMEX LLC (the "LLC"), dated as of
December 19, 1997, is being duly executed and filed by the undersigned, as an
authorized person, to form a limited liability company under the Delaware
Limited Liability Company Act (6 Del.C. ss. 18-101, et seq.)
FIRST. The name of the limited liability company formed hereby is
FOAMEX LLC
SECOND. The address of its registered office in the State of Delaware is
1013 Centre Road, in the city of Wilmington, County of New Castle. The name of
its registered agent at such address is Corporation Service Company.
IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Formation as of the date first above written.
/s/ Joshua J. Feldman
--------------------------
Joshua J. Feldman
Authorized Person
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 12/22/1997
971441449 - 2836485
AMENDED AND RESTATED OPERATING AGREEMENT
OF
FOAMEX LLC
A DELAWARE LIMITED LIABILITY COMPANY
AMENDED AND RESTATED OPERATING AGREEMENT of FOAMEX LLC, a Delaware
limited liability company (the "Company"), dated as of December 23, 1997, by
and among the persons and entities listed on Exhibit A hereto (the "Members").
W I T N E S S E T H:
WHEREAS, Crain Industries, Inc. previously formed a limited
liability company pursuant to the provisions of the Limited Liability Company
Act of the State of Delaware, as amended from time to time (the "Act");
WHEREAS, Crain Industries, Inc. has assigned all of its right, title
and interest as a member to Foamex L.P., and Foamex L.P. desires to amend and
restate the Operating Agreement to reflect such assignement.
NOW, THEREFORE, in consideration of the premises, and for other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I.
INTRODUCTORY PROVISIONS
Section 1.1. Certain Definitions. As used herein:
"Act" shall have the meaning set forth in the recitals hereto.
"Affiliate" shall mean, with respect to any Person, any other Person
who controls, is controlled by or is under common control with such Person.
"Book Value" shall have the meaning given to it in Section 2.2.
"Capital Account" has the meaning specified in Section 4.1.
"Capital Contribution" means a contribution by a Member to the
capital of the Company pursuant to this Agreement.
<PAGE>
"Certificate" means the Certificate of Formation of the Company as
filed with the Secretary of State of Delaware, as it shall be amended from time
to time.
"Code" means the Internal Revenue Code of 1986, as amended. Any
reference to a section of the Code shall include a reference to any amendatory
or successor provision thereto.
"Contribution Percentage" means the percentage that is equal to the
Capital Contribution made by a Member expressed as a percentage of all the
Capital Contributions made by the Members, or such percentages as specified in
Exhibit A hereto, as such Exhibit may be amended from time to time.
"Fiscal Year" has the meaning specified in Section 4.4.
"Indemnified Persons" has the meaning specified in Section 3.3.
"Interest" means the proportionate interest of a Member in the
Company based on such Member's Capital Account relative to the Capital Accounts
of all Members.
"Majority-in-Interest of the Members" means any one or more Members
having more than fifty percent (50%) in the aggregate of the Interests of all
Members.
"Net Profits" and "Net Losses" means the income and loss of the
Company as determined in accordance with the accounting methods followed by the
Company for Federal income tax purposes including income exempt from tax and
described in Code Section 705(a)(1)(B), treating as deductions items of
expenditure described in, or under Treasury Regulations deemed described in,
Code Section 705(a)(2)(B) and treating as an item of gain (or loss) the excess
(deficit), if any, of the fair market value of distributed property over (under)
its Book Value. Depreciation, depletion, amortization, income and gain (or loss)
with respect to Company assets shall be computed with reference to their Book
Value rather than to their adjusted bases.
"Notices" has the meaning specified in Section 8.2(a).
"Person" means an individual, corporation, association, limited
liability company, limited liability partnership, partnership, estate, trust,
unincorporated organization or a government or any agency or political
subdivision thereof.
"Transfer" means any direct or indirect sale, assignment, gift,
hypothecation, pledge or other disposition, whether voluntary or by operation of
law, by sale of stock or partnership interests, or otherwise, of an Interest or
of any entity which directly or indirectly through one or more intermediaries
holds an Interest.
2
<PAGE>
"Treasury Regulations" means the regulations promulgated by the U.S.
Department of the Treasury under the Code.
Section 1.2. Name. The name of the Company shall be "FOAMEX LLC"
Section 1.3. Principal Place of Business. The Company's principal
place of business shall be at such place as a Majority-In-Interest of the
Members shall designate from time to time.
Section 1.4. Purposes. The purposes of the Company shall be to
conduct any lawful business, purpose or activity; provided, however, the Company
shall not engage in any act or activity requiring the consent or approval of any
state official, department, board, agency or other body, without such consent or
approval first being obtained. The Company shall have the power to do any and
all acts and things necessary, appropriate, proper, advisable, incidental to or
convenient for the furtherance and accomplishment of such purposes, and for the
protection and benefit of its business.
Section 1.5. Duration. The Company shall be formed upon the filing
of the Certificate with the Office of the Secretary of State of Delaware
pursuant to the Act and shall continue until dissolved pursuant to Section 7.1.
Section 1.6. Limitation of Liability. The liability of each Member
and each employee of the Company to third parties for obligations of the Company
shall be limited to the fullest extent provided in the Act and other applicable
law.
ARTICLE II.
CAPITAL CONTRIBUTIONS; OTHER FINANCING;
INTERESTS IN THE COMPANY
Section 2.1. Capital Contributions. Each Member has made a Capital
Contribution as of the date hereof in the respective amount specified opposite
its name on Exhibit A and shall have Contribution Percentages as set forth in
such Exhibit A, which Contribution Percentages shall be adjusted in Exhibit A
from time to time to properly reflect the admission of new Members or any other
event having an effect on a Member's Contribution Percentage. Subsequent
contributions, if any, to the Company by the Members shall be made in accordance
with the Members' Contribution Percentages.
3
<PAGE>
Section 2.2. Determination of Book Value of Company Assets.
(a) Book Value. Except as set forth below, Book Value of any
Company asset is its adjusted basis for federal income tax purposes.
(b) Initial Book Value. The initial Book Value of any assets
contributed by a Member to the Company shall be the gross fair market
value of such assets at the time of such contribution.
(c) Adjustments. The Book Values of all of the Company's assets
may be adjusted by the Company to equal their respective gross fair market
values, as determined by the Members, as of the following times: (a) the
admission of a new Member to the Company or the acquisition by an existing
Member of an additional interest in the Company from the Company; (b) the
distribution by the Company of money or property to a retiring or
continuing Member in consideration for the retirement of all or a portion
of such Member's interest in the Company; (c) the termination of the
Company for Federal income tax purposes pursuant to Section 708(b)(1)(B)
of the Code; and (d) such other times as determined by the Members.
(d) Depreciation and Amortization. The Book Value of a Company
asset shall be adjusted for the depreciation and amortization of such
asset taken into account in computing Net Profits and Net Losses and for
Company expenditures and transactions that increase or decrease the
asset's Federal income tax basis.
Section 2.3. Withdrawal of Capital; Limitation on Distributions. No
Member shall be entitled to withdraw any part of its Capital Contributions to,
or to receive any distributions from, the Company except as provided in Section
6.1 and Section 7.2. No Member shall be entitled to demand or receive (i)
interest on its Capital Contributions or (ii) any property from the Company
other than cash except as provided in Section 7.2 (a)
Section 2.4. Allocation of Net Profits and Net Losses.
(a) (i) Net Profits shall first be allocated in proportion, to and
to the extent of, the excess of prior allocations of Net Losses under
Section 2.4 (b) (ii) below over prior allocations of Net Profits under
this Section 2.4(a) (i) and, then, (ii) among the Members in proportion to
their Contribution Percentages.
(b) (i) Net Losses shall first be allocated among the members in
proportion to their Contribution Percentages until the Capital Account
of any Member is reduced to zero, then (ii) among the Members in
proportion to, and to the
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extent of, their positive Capital Account balances and, finally, (iii) to
the Members in proportion to their Contribution Percentages.
(c) Tax credits shall be allocated among the Members in proportion
to their Contribution Percentages.
(d) When the Book Value of a Company asset differs from its basis
for Federal or other income tax purposes, solely for purposes of the
relevant tax and not for purposes of computing Capital Account balances,
income, gain, loss, deduction and credit shall be allocated among the
Members under the traditional method with curative allocations under
Treasury Regulation Section 1.704-3(c).
Section 2.5. Restrictions on Transfers. No Member may Transfer any
Interest without the prior written consent of all Members (excluding the
proposed Transferor and Transferee). Upon any approved transfer, Exhibit A
hereto shall be amended accordingly.
ARTICLE III.
MANAGEMENT
Section 3.1. Management by the Members.
(a) General Provisions. The management of the Company shall be
vested in its Members. The decision of a Majority-In-Interest of the
Members shall be controlling. The Members shall have all authority, rights
and powers in the management of the Company business to do any and all
acts and things necessary, proper, appropriate, advisable, incidental or
convenient to effectuate the purposes of this Agreement. Any action taken
by the Members on behalf of the Company in accordance with the foregoing
provisions shall constitute the act of and shall serve to bind the
Company.
(b) Delegation of Powers. The Members may by instrument in writing
delegate their powers, but not their responsibilities, to officers or
agents or employees of the Company or of any Member or to any other
Person.
(c) Bank Accounts. The Members shall cause the Company to open and
maintain bank accounts, and all funds of every kind and nature received by
the Company shall be deposited in such accounts. Signatories for such
accounts shall be authorized from time to time by the Members.
Section 3.2. Admission of New Members. New or additional Members may
be admitted to the Company at any time upon the affirmative vote or consent of
all the Members. In the event of the admission of new or additional Members,
Exhibit A hereto shall be amended accordingly.
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Section 3.3. Indemnification. Any Person made, or threatened to be
made, a party to any action or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that such Person is or
was (i) a Member, or (ii) an employee, officer, director, shareholder or partner
of a Member, or (iii) such other Persons (including employees of the Company) as
the Majority-in-Interest Members may designate from time to time, in their sole
and absolute discretion (collectively, the "Indemnified Persons"), shall be
indemnified by the Company for any losses or damage sustained with respect to
such action or proceeding, and the Company shall advance such Indemnified
Person's reasonable related expenses to the fullest extent permitted by law. The
Company shall have the power to purchase and maintain insurance on behalf of the
Indemnified Persons against any liability asserted against or incurred by them.
The duty of the Company to indemnify the Indemnified Persons under this Section
3.3 shall not extend to actions or omissions of any Indemnified Person which are
grossly negligent or which involve fraud, misrepresentation, bad faith, or other
willful misconduct by such Indemnified Person or which are in material breach or
violation by such Indemnified Person of this Agreement or which are in
derogation of the fiduciary duties owed by such Indemnified Person to the
Company and the Members, in each case as determined by a court of competent
jurisdiction. No Indemnified Person shall be liable to the Company or any other
Member for actions taken in good faith. The duty of the Company to indemnify the
Indemnified Persons under this Section 3.3 shall be limited to the assets of the
Company, and no recourse shall be available against any Member for satisfaction
of such indemnification obligations of the Company.
ARTICLE IV.
BOOKS; ELECTIONS; BUDGETS; FISCAL YEAR
Section 4.1. Administrative Services, Books, Records and Reports.
The Members shall cause to be performed all general and administrative services
on behalf of the Company in order to assure that complete and accurate books and
records of the Company are maintained at the Company's principal place of
business showing the names, addresses and Interests of each of the Members, all
receipts and expenditures, assets and liabilities, profits and losses, and all
other records necessary for recording the Company's business and affairs,
including a capital account for each Member (a "Capital Account").
Section 4.2. Adjustment of Capital Accounts.
(a) Each Member's Capital Account shall be increased by:
(i) the amount of any money contributed by the Member to the
Company;
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(ii) the fair market value of any property contributed by the
Member to the Company;
(iii) the amount of Net Profits allocated to the Member; and
(iv) the amount of any Company liabilities assumed by such
Member (or taken subject to) if property is distributed to the
Member by the Company.
(b) Each Member's Capital Account shall be decreased by:
(i) the amount of any money distributed to the Member by the
Company;
(ii) the fair market value of any property distributed to the
Member by the Company;
(iii) the amount of Net Losses allocated to the Member; and
(iv) the amount of any Member liabilities assumed by the
Company (or taken subject to) if property is contributed to the
Company by the Member.
(c) The foregoing provisions and the other provisions of this
Agreement relating to the maintenance of Capital Accounts are intended to
comply with Treasury Regulations under Section 704(b) of the Code and, to
the extent not inconsistent with the provisions of this Agreement, shall
be interpreted and applied in a manner consistent with such Treasury
Regulations.
Section 4.3. Federal Income Tax Elections; Method of Depreciation.
The Members shall determine the method of depreciation to be utilized by the
Company for tax purposes and all elections to be made by the Company for tax
purposes. The Members shall designate one Member to be the "tax matters partner"
for all purposes of the Code.
Section 4.4. Fiscal Year. The fiscal year of the Company (the
"Fiscal Year") shall end on Sunday closest to December 31.
ARTICLE V.
EMPLOYMENT OF AFFILIATES
Section 5.1. Parties Employed. Subject to the approval of a
Majority-in-Interest of the Members, the Company may contract for services to be
performed for the Company by Members or Affiliates of any Member. In the case of
the employment of a Member or of Affiliates of a Member, the
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compensation to be paid by the Company to such Member or Affiliates shall be not
greater than the compensation generally paid to third parties for comparable
services in comparable locations.
ARTICLE VI.
DISTRIBUTIONS
Section 6.1. Distributions. Distributions shall be made at such time and in
such amounts as determined by a Majority-In-Interest of the Members and shall be
made among the Members in cash or other property (a) first, in proportion to,
and to the extent of, the excess of each Member's Capital Contributions over
prior distributions to that Member under this Section 6.1(a) and, then, (b) in
proportion to their Contribution Percentages.
Section 6.2. Restoration of Funds. Except as otherwise provided by law, no
Member shall be required to restore to the Company any funds properly
distributed to it pursuant to Section 6.1.
ARTICLE VII.
DISSOLUTION AND LIQUIDATION
Section 7.1. Dissolution. The Company shall be dissolved upon the
occurrence of any of the following:
(a) The unanimous decision of the Members to dissolve the Company;
(b) the bankruptcy, death, dissolution, expulsion, incapacity, or
withdrawal of any Member, unless within ninety (90) days after such event
the Company is continued by the vote or written consent of a majority in
Interest of the Members; or
(c) the entry of a decree of judicial dissolution under Section
18-802 of the Act.
Section 7.2. Winding up Affairs and Distribution of Assets.
(a) Upon dissolution of the Company, and in the absence of an
election to continue the business of the Company pursuant to Section
7.1(b), one or more Members elected by a Majority-in-Interest of the
Members shall be the liquidating Member(s) (the "Liquidating Member") and
shall proceed to wind up the affairs of the Company, liquidate the
remaining property and assets of the Company and wind-up and terminate the
business of the Company. The Liquidating Member shall cause a full
accounting of the
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assets and liabilities of the Company to be taken and shall cause the
assets to be liquidated and the business to be wound up as promptly as
possible by either or both of the following methods: (1) selling the
Company assets and distributing the net proceeds therefrom (after the
payment of Company liabilities) to each Member in satisfaction of its
Capital Account; or (2) if all Members shall agree, distributing the
Company assets to the Members in kind and debiting the Capital Account of
each Member with the fair market value of such assets, each Member
accepting an undivided interest in the Company assets (subject to their
liabilities) in proportion to and to the extent of each Member's positive
Capital Account balance after allocating and crediting to the Capital
Accounts the unrealized gain or loss to the Members as if such gain or
loss had been recognized and allocated pursuant to Section 2.4.
(b) If the Company shall employ method (1) as set forth in Section
7.2(a) in whole or part as a means of liquidation, then the proceeds of
such liquidation shall be applied in the following order of priority: (i)
first, to the expenses of such liquidation; (ii) second, to the debts and
liabilities of the Company (including debts of the Company to the Members
or their Affiliates and any fees and reimbursements payable under this
Agreement), in the order of priority provided by law; (iii) third, a
reasonable reserve shall be set up to provide for any contingent or
unforeseen liabilities or obligations of the Company to third parties (to
be held and disbursed, at the discretion of the Liquidating Member or
Members, by an escrow agent selected by the Liquidating Member or Members)
and at the expiration of such period as the Liquidating Member or Members
may deem advisable, the balance remaining in such reserve shall be
distributed as provided herein; (iv) fourth, to the Members in accordance
with Section 6.1.
(c) In connection with the liquidation of the Company, the Members
severally, jointly, or in any combination upon which they may agree, shall
have the first opportunity to make bids or tenders for all or any portion
of the assets of the Company, and such assets shall not be sold to an
outsider except only for a price higher than the highest and best bid of a
single Member, the Members jointly, or a combination of Members.
ARTICLE VIII.
MISCELLANEOUS
Section 8.1. Certificate Requirements. From time to time the Members
shall sign and acknowledge all such writings as are required to amend the
Certificate or for the carrying out of the terms of this Agreement or, upon
dissolution of the Company, to cancel such Certificate. Each Member is hereby
designated as
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an authorized person to sign the Company's Certificate and any other documents
that are appropriate and necessary to effectuate the purpose of this Agreement.
Section 8.2. Notices.
(a) All Notices, consents, approvals, reports, designations,
requests, waivers, elections and other communications (collectively,
"Notices") authorized or required to be given pursuant to this Agreement
shall be given in writing and either personally delivered to the Member to
whom it is given or delivered by an established delivery service by which
receipts are given or mailed by registered or certified mail, postage
prepaid, or sent by telex or telegram or electronic telecopier, addressed
to the Member at its address listed on Exhibit A hereto.
(b) All Notices shall be deemed given (i) when delivered personally
to the recipient, (ii) when sent to the recipient (with receipt confirmed
by sender's machine) by telecopy if during normal business hours of the
recipient, otherwise on the next business day, or (iii) one (1) business
day after the date sent to the recipient (three (3) business days in the
case of international delivery) by reputable express courier service
(charges prepaid). Any Member may change its address for the receipt of
Notices at any time by giving Notice thereof to all of the other Members,
in which event Exhibit A hereto shall be amended accordingly.
Notwithstanding the requirement in Section 8.2(a) as to the use of
registered or certified mail, any routine reports required by this
Agreement to be submitted to Members at specified times may be sent by
first-class mail.
Section 8.3. Parties in Interest; Third-Party Beneficiaries.
(a) Neither this Agreement nor any of the rights, duties, or
obligations of any party hereunder may be transferred or assigned by a
party hereto, except in connection with a Transfer of Interests as
specified in Section 2.5 Subject to the foregoing, this Agreement shall be
binding upon, and inure to the benefit of the parties hereto and their
respective successors and assigns.
(b) This Agreement shall not confer any rights or remedies upon
any person or entity other than the parties hereto, the Indemnified
Persons, and their respective permitted successors and assigns.
Section 8.4. Entire Agreement. This Agreement constitutes the entire
agreement between the parties hereto with respect to the subject matter hereof,
and supersedes all prior
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agreements and understandings among the Members with respect to the subject
matter hereof.
Section 8.5. Modification. No change or modification of this
Agreement shall be of any force unless such change or modification is in writing
and has been signed by all of the Members. No waiver of any breach of any of the
terms of this Agreement shall be effective unless such waiver is in writing and
signed by the Member against whom such waiver is claimed. No waiver of any
breach shall be deemed to be a waiver of any other or subsequent breach.
Section 8.6. Severability. If any provision of this Agreement shall
be held to be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby. Furthermore, in lieu of any such invalid, illegal or
unenforceable term or provision, the parties hereto intend that there shall be
added as a part of this Agreement a provision as similar in terms to such
invalid, illegal or unenforceable provision as may be possible and be valid,
legal and enforceable.
Section 8.7. Further Assurances. Each Member shall execute such
deeds, assignments, endorsements, evidences of Transfer and other instruments
and documents and shall give such further assurances as shall be necessary to
perform its obligations hereunder.
Section 8.8. Governing Law. This Agreement shall be governed by and
be construed in accordance with the laws of the State of Delaware.
Section 8.9. Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, but all of
which shall constitute one and the same instrument.
Section 8.10. Waiver of Partition. Each Member hereby waives its
right to bring an action for partition of any of the property owned by the
Company.
Section 8.11. Certificated Interest. The Interest of the Member in
the Company shall be represented by a certificate setting forth the name of the
Company, its state and year of organization and the percentage of the Interests
in the Company owned by the Member. The certificate shall be signed by the
Member or a duly authorized officer of the Company. The certificate shall be in
such form as shall be approved by the Member. The Interest shall be a "security"
governed by Article 8 of the New York Uniform Commercial Code.
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IN WITNESS WHEREOF, the undersigned have duly executed this
Agreement as of the day and date first set forth above.
FOAMEX L.P.
By: FMXI, Inc.
Its: Managing General Partner
BY: /s/ George L. Karpinski
--------------------------
Name: George L. Karpinski
Title: Vice President
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EXHIBIT A
Members Contribution Contribution
Percentage
Foamex L.P. Transferred Assets 100%
1000 Columbia Avenue pursuant to the
Linwood, PA 19061 Assignment and
Assumption Agreement,
of Crain Industries,
Inc., dated December
23, 1997
[Execution Copy]
AMENDED AND RESTATED FOAMEX INTERNATIONAL GUARANTY
This AMENDED AND RESTATED FOAMEX INTERNATIONAL GUARANTY (as amended,
supplemented, amended and restated or otherwise modified from time to time, this
"Guaranty"), dated as of December 23, 1997, is made by Foamex International
Inc., a Delaware corporation (the "Guarantor"), in favor of Citicorp USA, Inc.,
as Collateral Agent (together with any successor(s) thereto in such capacity,
the "Collateral Agent") for each of the Secured Parties, for the benefit of the
Secured Parties.
W I T N E S S E T H:
WHEREAS, pursuant to a Credit Agreement, dated as of June 12, 1997 (the
"Existing Credit Agreement"), among Foamex L.P., a Delaware limited partnership
("Foamex" or a "Borrower"), General Felt Industries, Inc., a Delaware
corporation (a "Borrower"; and, if together with Foamex, the "Borrowers"), Trace
Foam Company, Inc., a Delaware corporation and general partner of Foamex ("Trace
Foam"), FMXI, Inc., a Delaware corporation and managing general partner of
Foamex ("FMXI"), the Lenders, the Issuing Banks and Citicorp USA, Inc., as
Collateral Agent for the Lenders and the Issuing Banks and The Bank of Nova
Scotia, as Funding Agent for the Lenders and the Issuing Banks (together with
the Collateral Agent, the "Administrative Agents"), the Lenders and the Issuing
Banks have extended Commitments to make Credit Extensions to the Borrowers;
WHEREAS, the Existing Credit Agreement is to be amended by the First
Amendment to Credit Agreement, dated December 23, 1997 (the "First Amendment to
Credit Agreement", the Existing Credit Agreement as amended by the First
Amendment to Credit Agreement and as further amended, supplemented, amended and
restated or modified from time to time, being the "Credit Agreement"), among the
Borrowers, Trace Foam, FMXI, the Lenders, the Issuing Banks and the
Administrative Agents.
WHEREAS, as a condition precedent to the effectiveness of the First
Amendment to Credit Agreement, the Guarantor is required to execute and deliver
this Guaranty.
WHEREAS, the Guarantor has duly authorized the execution, delivery and
performance of this Guaranty; and
WHEREAS, it is in the best interests of the Guarantor to execute this
Guaranty inasmuch as the Guarantor will derive substantial direct and indirect
benefits from the Credit Extensions made from time to time to the Borrowers by
the Lenders and the Issuing Banks pursuant to the Credit Agreement;
<PAGE>
NOW THEREFORE, for good and valuable consideration the receipt of which is
hereby acknowledged, and in order to induce the Lenders and the Issuing Banks to
make Credit Extensions (including the initial Credit Extension) to the Borrowers
pursuant to the Credit Agreement, the Guarantor agrees, for the benefit of each
Secured Party, as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. Certain Terms. The following terms (whether or not
underscored) when used in this Guaranty, including its preamble and recitals,
shall have the following meanings (such definitions to be equally applicable to
the singular and plural forms thereof):
"Administrative Agents" is defined in the first recital.
"Borrower" and "Borrowers" is defined in the first recital.
"Collateral Agent" is defined in the preamble.
"Credit Agreement" is defined in the first recital.
"Credit Extensions" means the Loans and the Letters of Credit.
"First Amendment to Credit Agreement" is defined in the second recital.
"FMXI" is defined in the first recital.
"Foamex" is defined in the first recital.
"Guarantor" is defined in the preamble.
"Guaranty" is defined in the preamble.
"Obligations" means all Obligations (as defined in the Credit Agreement)
of the Borrowers and all obligations (monetary or otherwise) of each other
Obligor arising under or in connection with the Credit Agreement or any other
Loan Document.
"Process Agent" is defined in Section 3.9.1.
"Secured Parties" means, collectively, the Lenders, the Issuing Banks, the
Collateral Agent, the Funding Agent and the Administrative Agents, and any
Lender in its capacity as a counterparty to a Hedging Obligation.
"Trace Foam" is defined in the first recital.
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SECTION 1.2. Credit Agreement Definitions. Unless otherwise defined herein
or the context otherwise requires, terms used in this Guaranty, including its
preamble and recitals, have the meanings provided in the Credit Agreement.
ARTICLE II
GUARANTY PROVISIONS
SECTION 2.1. Guaranty. The Guarantor hereby absolutely, unconditionally
and irrevocably
(a) guarantees the full and punctual payment when due, whether at
stated maturity, by required prepayment, declaration, acceleration, demand
or otherwise, of all Obligations of each Borrower under the Credit
Agreement, the Notes and the other Loan Documents to which it is a party
and all Obligations by each other Obligor (other than Crain Industries)
under the Loan Documents to which it is a party now or hereafter existing,
whether for principal, interest, fees, expenses or otherwise (including
all such amounts which would become due but for the operation of the
automatic stay under Section 362(a) of the United States Bankruptcy Code,
11 U.S.C. ss.362(a), and the operation of Sections 502(b) and 506(b) of
the United States Bankruptcy Code, 11 U.S.C. ss.502(b) and ss.506(b)), and
(b) indemnifies and holds harmless each Secured Party and each
holder of a Note for any and all costs and expenses (including reasonable
attorney's fees and expenses) incurred by such Secured Party or such
holder, as the case may be, in enforcing any rights under this Guaranty;
This Guaranty constitutes a guaranty of payment when due and not of collection,
and the Guarantor specifically agrees that it shall not be necessary or required
that any Secured Party or any holder of any Note exercise any right, assert any
claim or demand or enforce any remedy whatsoever against a Borrower or any other
Obligor (or any other Person) before or as a condition to the obligations of the
Guarantor hereunder.
SECTION 2.2. Acceleration of Guaranty. The Guarantor agrees that, in the
event of the dissolution or insolvency of a Borrower, any other Obligor or the
Guarantor, or the inability or failure of a Borrower, any other Obligor or the
Guarantor to pay debts as they become due, or an assignment by a Borrower, any
other Obligor or the Guarantor for the benefit of creditors, or the commencement
of any case or proceeding in respect of a Borrower, any other Obligor or the
Guarantor under any bankruptcy, insolvency or similar laws, and if such event
shall occur at a time when any of the Obligations of each Borrower and each
other Obligor may not then be due and payable, the Guarantor agrees that it will
pay to the Lenders forthwith the full amount
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which would be payable hereunder by the Guarantor if all such Obligations were
then due and payable.
SECTION 2.3. Guaranty Absolute, etc. This Guaranty shall in all respects
be a continuing, absolute, unconditional and irrevocable guaranty of payment,
and shall remain in full force and effect until all Obligations of each Borrower
and each other Obligor have been paid in full in cash, all obligations of the
Guarantor hereunder shall have been paid in full in cash, all Letters of Credit
have been terminated or expired and all Commitments shall have terminated. The
Guarantor guarantees that the Obligations of each Borrower and each other
Obligor will be paid strictly in accordance with the terms of the Credit
Agreement and each other Loan Document under which they arise, regardless of any
law, regulation or order now or hereafter in effect in any jurisdiction
affecting any of such terms or the rights of any Secured Party or any holder of
any Note with respect thereto. The liability of the Guarantor under this
Guaranty shall be absolute, unconditional and irrevocable irrespective of:
(a) any lack of validity, legality or enforceability of the Credit
Agreement, any Note or any other Loan Document;
(b) the failure of any Secured Party or any holder of any Note
(i) to assert any claim or demand or to enforce any right or
remedy against a Borrower, any other Obligor or any other Person
(including any other guarantor (including the Guarantor)) under the
provisions of the Credit Agreement, any Note, any other Loan
Document or otherwise, or
(ii) to exercise any right or remedy against any other
guarantor (including the Guarantor) of, or collateral securing, any
Obligations of a Borrower or any other Obligor;
(c) any change in the time, manner or place of payment of, or in
any other term of, all or any of the Obligations of a Borrower or any
other Obligor, or any other extension, compromise or renewal of any
Obligation of a Borrower or any other Obligor;
(d) any reduction, limitation, impairment or termination of any
Obligations of a Borrower or any other Obligor for any reason, including
any claim of waiver, release, surrender, alteration or compromise, and
shall not be subject to (and the Guarantor hereby waives any right to or
claim of) any defense or setoff, counterclaim, recoupment or termination
whatsoever by reason of the invalidity, illegality, nongenuineness,
irregularity, compromise,
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unenforceability of, or any other event or occurrence affecting, any
Obligations of a Borrower, any other Obligor or otherwise;
(e) any amendment to, rescission, waiver, or other modification
of, or any consent to departure from, any of the terms of the Credit
Agreement, any Note or any other Loan Document;
(f) any addition, exchange, release, surrender or non-perfection
of any collateral, or any amendment to or waiver or release or addition
of, or consent to departure from, any other guaranty, held by any Secured
Party or any holder of any Note securing any of the Obligations of a
Borrower or any other Obligor; or
(g) any other circumstance which might otherwise constitute a
defense available to, or a legal or equitable discharge of, a Borrower,
any other Obligor, any surety or any guarantor.
SECTION 2.4. Reinstatement, etc. The Guarantor agrees that this Guaranty
shall continue to be effective or be reinstated, as the case may be, if at any
time any payment (in whole or in part) of any of the Obligations is rescinded or
must otherwise be restored by any Secured Party or any holder of any Note, upon
the insolvency, bankruptcy or reorganization of a Borrower, any other Obligor or
otherwise, all as though such payment had not been made.
SECTION 2.5. Waiver, etc. The Guarantor hereby waives promptness,
diligence, notice of acceptance and any other notice with respect to any of the
Obligations of a Borrower or any other Obligor and this Guaranty and any
requirement that the Collateral Agent, any other Secured Party or any holder of
any Note protect, secure, perfect or insure any security interest or Lien, or
any property subject thereto, or exhaust any right or take any action against a
Borrower, any other Obligor or any other Person (including any other guarantor)
or entity or any collateral securing the Obligations of a Borrower or any other
Obligor, as the case may be.
SECTION 2.6. Postponement of Subrogation, etc. The Guarantor agrees that
it will not exercise any rights which it may acquire by way of rights of
subrogation under this Guaranty, by any payment made hereunder or otherwise,
until the prior payment in full in cash of all Obligations of each Borrower and
each other Obligor, the termination or expiration of all Letters of Credit and
the termination of all Commitments. Any amount paid to the Guarantor on account
of any such subrogation rights prior to the payment in full in cash of all
Obligations of each Borrower and each other Obligor shall be held in trust for
the benefit of the Secured Parties and each holder of a Note and shall
immediately be paid to the Collateral Agent for the benefit
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<PAGE>
of the Secured Parties and each holder of a Note and credited and applied
against the Obligations each Borrower and each other Obligor, whether matured or
unmatured, in accordance with the terms of the Credit Agreement; provided,
however, that if
(a) the Guarantor has made payment to the Secured Parties and each
holder of a Note of all or any part of the Obligations of a Borrower or
any other Obligor, and
(b) all Obligations of each Borrower and each other Obligor have
been paid in full in cash, all Letters of Credit have been terminated or
expired and all Commitments have been permanently terminated,
each Secured Party and each holder of a Note agrees that, at the Guarantor's
request, the Collateral Agent, on behalf of the Secured Parties and the holders
of the Notes, will execute and deliver to the Guarantor appropriate documents
(without recourse and without representation or warranty) necessary to evidence
the transfer by subrogation to the Guarantor of an interest in the Obligations
of each Borrower and each other Obligor resulting from such payment by the
Guarantor. In furtherance of the foregoing, for so long as any Obligations or
Commitments remain outstanding, the Guarantor shall refrain from taking any
action or commencing any proceeding against a Borrower or any other Obligor (or
its successors or assigns, whether in connection with a bankruptcy proceeding or
otherwise) to recover any amounts in the respect of payments made under this
Guaranty to any Secured Party or any holder of a Note.
SECTION 2.7. Successors, Transferees and Assigns; Transfers of Notes, etc.
This Guaranty shall:
(a) be binding upon the Guarantor, and its successors, transferees
and assigns; and
(b) inure to the benefit of and be enforceable by the Collateral
Agent and each other Secured Party.
Without limiting the generality of the foregoing clause (b), any Lender may
assign or otherwise transfer (in whole or in part) any Note or Credit Extension
held by it to any other Person or entity, and such other Person or entity shall
thereupon become vested with all rights and benefits in respect thereof granted
to such Lender under any Loan Document (including this Guaranty) or otherwise,
subject, however, to any contrary provisions in such assignment or transfer, and
to the provisions of Article XIII of the Credit Agreement.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1. Representations and Warranties. The Guarantor hereby
represents and warrants unto the Collateral Agent as set forth in this Article
III acknowledging that the Collateral Agent is relying thereon without
independent inquiry.
SECTION 3.1.1. Corporate Existence; Compliance with Law. The Guarantor (i)
is a corporation duly organized, validly existing and in good standing under the
laws of the state of Delaware; (ii) has the requisite corporate power and
authority and the legal right to own, pledge, mortgage or otherwise encumber its
properties and to conduct its business as now and heretofore conducted; (iii) is
in compliance with its Constituent Documents; and (iv) is in compliance with all
material Requirements of Law.
SECTION 3.1.2. Corporate Power; Authorization. The execution and delivery
by the Guarantor of the Loan Documents and the Transaction Documents to which it
is a party and all instruments and documents to be delivered by the Guarantor
thereunder, and the performance of its obligations thereunder: (i) are within
the Guarantor's corporate power; (ii) have been duly authorized by all necessary
or proper corporate action; (iii) are not in contravention of any provision of
the Guarantor's Constituent Documents; (iv) will not violate any law or
regulation, or any order or decree of any court or Governmental Authority; (v)
will not conflict with or result in the breach or termination of, constitute a
default under (with or without the giving of notice, the lapse of time or both)
or a tortious interference with or accelerate any performance required by, any
material indenture, mortgage, deed of trust, lease, agreement or other
instrument to which the Guarantor is a party or by which the Guarantor or any of
its property is bound; (vi) will not result in the creation or imposition of any
Lien upon any of the property of the Guarantor; and (vii) do not require the
consent or approval of any Governmental Authority, or any other Person which has
not been obtained.
SECTION 3.1.3. No Adverse Condition. No action has been taken by any
competent authority which restrains, prevents or imposes material adverse
conditions upon, or seeks to restrain, prevent or impose material adverse
conditions upon, the consummation of any of the transactions contemplated by the
Loan Documents or the Transaction Documents.
SECTION 3.1.4. Enforceability. The obligations of the Guarantor under this
Guaranty are enforceable against the Guarantor in accordance with their terms.
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ARTICLE IV
COVENANTS, ETC.
SECTION 4.1. Covenants. The Guarantor covenants and agrees that the
Guarantor will perform the obligations set forth in this Article IV until all
Obligations of each Borrower and each other Obligor have been paid in full in
cash, all obligations of the Guarantor hereunder shall have been paid in full in
cash, all Letters of Credit have been terminated or expired and all Commitments
shall have terminated. The Guarantor shall comply with the following covenants
unless the Requisite Lenders shall otherwise give their prior written consent
thereto.
SECTION 4.1.1. Sale of Assets; Liens. The Guarantor shall not (A) sell,
assign, transfer, lease, convey or otherwise dispose of any Property, whether
now owned or hereafter acquired, or any income or profits therefrom, or enter
into any agreement to do so, except (i) as contemplated in the Foamex
International Supply Agreement, (ii) sales of assets for Fair Market Value,
(iii) that certain Canadair Challenger Model CL600-2B16, or any replacement
thereof (the "Aircraft"), which Aircraft is currently leased to the Guarantor
pursuant to that certain Aircraft Lease and Operating Agreement, dated August
17, 1995, by and between Foamex Aviation, Inc. and Jet Solutions LLC, the
proceeds of which shall be retained by the Guarantor and (iv) in connection with
the Contribution and the transactions contemplated by the Crain Transaction
Documents or (B) directly or indirectly create, incur, assume or permit to exist
any Lien on or with respect to any of its Property except (i) Liens securing the
Obligations, (ii) Liens permitted by the Credit Agreement and (iii) Liens
securing the Aircraft.
SECTION 4.1.2. Conduct of Business. The Guarantor shall not engage in any
business other than acting as a holding company and holding the Investments of
the Guarantor permitted under Section 4.1.6 hereto.
SECTION 4.1.3. Transactions with Affiliates. Except in respect of
transactions (i) described in the New Foamex Subordinated Debenture Offering
Memorandum under the heading "Certain Relationships and Related Transactions" or
Schedule 6.01-Z of the Credit Agreement and (ii) contemplated by the Crain
Transaction Documents, the Guarantor shall not directly or indirectly enter into
any transactions (including, without limitation, the purchase, sale, lease or
exchange of any property or the rendering of any service), with any holder or
holders of more than five percent (5%) of any class of Equity Interests in the
Guarantor or with any of the Guarantor's Affiliates (other than Foamex and its
Subsidiaries) on terms that are less favorable to it than terms that could be
obtained in an arm's length transaction with an unrelated party at that time.
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SECTION 4.1.4. Indebtedness. Neither the Guarantor nor any of its
Subsidiaries (other than Foamex and its Subsidiaries) shall directly or
indirectly create, incur, assume or otherwise become or remain directly or
indirectly liable with respect to, any Indebtedness, except (A) Indebtedness in
respect of the Guaranty or the Obligations, (B) Indebtedness in respect of
Transaction Costs, (C) Indebtedness in respect of guaranties of the Senior
Secured Notes, the Senior Notes, the Subordinated Debentures or the Discount
Debentures, (D) Indebtedness in respect of loans constituting Investments of
Foamex permitted under Section 9.04 of the Credit Agreement, (E) Indebtedness in
respect of loans to the Guarantor from Persons other than Foamex and its
Subsidiaries for the purposes of funding taxes and ordinary operating and
general administrative expenses of the Guarantor and funding loan commitments to
DLJ Funding, Inc. under the DLJ Loan Commitment Agreement dated as of December
14, 1993 between the Guarantor and DLJ Funding, Inc. and to Marely I s.a. under
the Marely Loan Commitment Agreement dated as of December 14, 1993 between the
Guarantor and Marely I s.a., (F) other unsecured Indebtedness of the Guarantor
in an aggregate principal amount not to exceed $50,000,000 at any time,(G)
Indebtedness of the Foamex Mexico Group and its Subsidiaries, (H) Indebtedness
of the Guarantor to The CIT Group Equipment Financing, Inc. with respect to the
Aircraft and (I) Indebtedness to The Bank of Nova Scotia arising under or as
contemplated by the Crain Transaction Documents.
SECTION 4.1.5. Restriction on Fundamental Changes. The Guarantor shall not
enter into any merger or consolidation, or liquidate, wind-up or dissolve (or
suffer any liquidation or dissolution), purchase or otherwise acquire, in one
transaction or series of transactions, all or substantially all of the Equity
Interests in, or other evidence of beneficial ownership of, or the business,
property or assets of, any Person except (i) the merger of Foamex-JPS Capital
Corporation, New Partners and FJGP Inc. (the "Merger") with and into the
Guarantor and (ii) in connection with the Contribution and the transactions
contemplated by the Crain Transaction Documents.
SECTION 4.1.6. Investments. The Guarantor shall not directly or indirectly
make or own any Investment, except (i) Investments in cash and Cash Equivalents,
(ii) Investments held by the Guarantor set forth on Schedule I hereto, (iii)
other Investments in existence on the date hereof in an aggregate amount not to
exceed $1 million, (iv) direct cash Investments in any Borrower or Subsidiary
Guarantor,(v) other Investments in any Fiscal Year not in excess of $25,000,000
and (vi) Investments contemplated by the Contribution and the Crain Transaction
Documents.
SECTION 4.1.7. Constituent Documents. Neither the Guarantor nor any of its
Subsidiaries (other than Foamex and its Subsidiaries) shall amend, modify or
otherwise change any of the terms or provisions in any of its Constituent
Documents as in
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effect on the date hereof other than amendments or modifications deemed
immaterial by the Administrative Agents or in order to effect the Merger.
SECTION 4.1.8. Transaction Documents. Neither the Guarantor nor any of its
Subsidiaries (other than Foamex and its Subsidiaries) shall amend, supplement or
otherwise modify any of the terms or provisions in any of the Transaction
Documents to which it is a party other than amendments, supplements or
modifications deemed immaterial by the Administrative Agents.
ARTICLE V
SUBORDINATION
The Guarantor hereby agrees that any Indebtedness of the Borrowers now or
hereafter owing to the Guarantor (the "Guarantor Subordinated Debt") is hereby
subordinated to all of the Obligations and to all "Senior Indebtedness" as
defined in the Subordinated Debenture Indenture and the New Foamex Subordinated
Indenture, as the case may be, in each case whether heretofore, now or hereafter
created, on the terms set forth in Article 10 of the Subordinated Debenture
Indenture to the same extent as if such Indebtedness constituted Indebtedness
evidenced by the Subordinated Debentures and the New Foamex Subordinated
Indenture, as the case may be, and to the extent necessary to comply with
Section 4.15 of the Subordinated Debenture Indenture and the New Foamex
Subordinated Indenture, as the case may be, the terms of which section are
incorporated herein by reference. In addition, the Guarantor Subordinated Debt
is subordinated on the following terms: The Guarantor Subordinated Debt shall
not be paid in whole or in part except as otherwise permitted under the terms of
the Credit Agreement. The Guarantor will not accept any payment of or on account
of any Guarantor Subordinated Debt at any time in contravention of the
foregoing. The Guarantor agrees to file all claims against the Borrowers in any
bankruptcy or other proceeding in which the filing of claims is required by law
in respect of any Guarantor Subordinated Debt, and the Collateral Agent shall be
entitled to all of the Guarantor's rights thereunder. If for any reason the
Guarantor fails to file such claim at least thirty (30) days prior to the last
date on which such claim should be filed, the Collateral Agent, as the
Guarantor's attorney-in-fact, is hereby authorized to do so in the Guarantor's
name or, in the Collateral Agent's discretion, to assign such claim to and cause
proof of claim to be filed in the name of the Collateral Agent or its nominee.
In all such cases, whether in administration, bankruptcy or otherwise, the
person or persons authorized to pay such claim shall pay to the Collateral Agent
the full amount payable on the claim in the proceeding, and, to the full extent
necessary for that purpose, the Guarantor hereby assigns to the Collateral Agent
all the Guarantor's rights to any payments or distributions to which the
Guarantor otherwise would be entitled. If the amount so paid is greater than the
Guarantor's liability hereunder, the Collateral Agent will pay
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the excess amount to the party entitled thereto. In addition, the Guarantor
hereby appoints the Collateral Agent as its attorney-in-fact to exercise all of
the Guarantor's voting rights with respect to the Guarantor Subordinated Debt in
connection with any bankruptcy proceeding or any plan for the reorganization of
the Borrowers.
ARTICLE VI
MISCELLANEOUS PROVISIONS
SECTION 6.1. Loan Document. This Guaranty is a Loan Document executed
pursuant to the Credit Agreement and shall (unless otherwise expressly indicated
herein) be construed, administered and applied in accordance with the terms and
provisions thereof, including Article XIII thereof.
SECTION 6.2. Binding on Successors, Transferees and Assigns; Assignment.
In addition to, and not in limitation of, Section 2.7, this Guaranty shall be
binding upon the Guarantor and the Guarantor's successors, transferees and
assigns and shall inure to the benefit of and be enforceable by each Secured
Party and each holder of a Note and their respective successors, transferees and
assigns (to the full extent provided pursuant to Section 2.7); provided,
however, that the Guarantor may not assign any of its obligations hereunder
without the prior written consent of all Lenders.
SECTION 6.3. Amendments, etc. No amendment to or waiver of any provision
of this Guaranty, nor consent to any departure by the Guarantor herefrom, shall
in any event be effective unless the same shall be in writing and signed by the
Collateral Agent (on behalf of the Lenders or the Requisite Lenders, as the case
may be) and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
SECTION 6.4. Notices. All notices and other communications provided for
hereunder shall be in writing and may be personally served, telecopied, telexed
or sent by courier service or United States certified mail and shall be deemed
to have been given when delivered in person or by courier service, upon receipt
of a telecopy or telex or four (4) Business Days after deposit in the United
States mail with postage prepaid and properly addressed. For the purposes
hereof, the address of the Guarantor shall be the address specified on the
signature page hereof, or at such other address as may be designated by the
Guarantor in a written notice to the Collateral Agent.
SECTION 6.5. No Waiver; Remedies. In addition to, and not in limitation
of, Section 2.3 and Section 2.5, no failure on the part of any Secured Party or
any holder of a Note to exercise, and no delay in exercising, any right
hereunder shall operate as a waiver thereof; nor shall any single or partial
exercise of any
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right hereunder preclude any other or further exercise thereof or the exercise
of any other right. The remedies herein provided are cumulative and not
exclusive of any remedies provided by law.
SECTION 6.6. Captions. Section captions used in this Guaranty are for
convenience of reference only, and shall not affect the construction of this
Guaranty.
SECTION 6.7. Setoff. In addition to, and not in limitation of, any rights
of any Secured Party or any holder of a Note under applicable law, each Secured
Party and each such holder shall, upon the occurrence of any Default described
in any Section 11.01(f) or 11.01(g) of the Credit Agreement or with the consent
of the Requisite Lenders, any Event of Default, have the right to appropriate
and apply to the payment of the obligations of the Guarantor owing to it
hereunder, whether or not then due, and the Guarantor hereby grants to each
Secured Party and each such holder a continuing security interest in, any and
all balances, credits, deposits, accounts or moneys of the Guarantor then or
thereafter maintained with such Secured Party, or such holder or any agent or
bailee for such Secured Party or such holder; provided, however, that any such
appropriation and application shall be subject to the provisions of Section
13.06 of the Credit Agreement.
SECTION 6.8. Severability. Wherever possible each provision of this
Guaranty shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Guaranty shall be prohibited by or
invalid under such 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 Guaranty.
SECTION 6.9. Senior Indebtedness. The parties hereto acknowledge that the
obligations owing under this Agreement constitute "Obligations" owing under the
"Credit Agreement" and "Parent Guarantor Senior Indebtedness" (as each term is
defined in the Subordinated Debenture Indenture).
SECTION 6.10. Certain Consents and Waivers of the Guarantor.
SECTION 6.10.1. Personal Jurisdiction. (i) THE GUARANTOR IRREVOCABLY AND
UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE NONEXCLUSIVE
JURISDICTION OF ANY NEW YORK STATE COURT OR FEDERAL COURT SITTING IN NEW YORK,
NEW YORK, AND ANY COURT HAVING JURISDICTION OVER APPEALS OF MATTERS HEARD IN
SUCH COURTS, IN ANY
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ACTION OR PROCEEDING ARISING OUT OF, CONNECTED WITH, RELATED TO OR INCIDENTAL TO
THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH THIS GUARANTY,
WHETHER ARISING IN CONTRACT, TORT, EQUITY OR OTHERWISE, OR FOR RECOGNITION OR
ENFORCEMENT OF ANY AGREEMENT, AND THE GUARANTOR IRREVOCABLY AND UNCONDITIONALLY
AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD
AND DETERMINED IN SUCH STATE COURT OR, TO THE EXTENT PERMITTED BY LAW, IN SUCH
FEDERAL COURT. THE GUARANTOR IRREVOCABLY DESIGNATES AND APPOINTS CORPORATION
SERVICE COMPANY, 15 COLUMBUS CIRCLE, NEW YORK, NEW YORK 10023, AS ITS AGENT (THE
"PROCESS AGENT") FOR SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN ANY SUCH
COURT, SUCH SERVICE BEING ACKNOWLEDGED TO BE EFFECTIVE AND BINDING SERVICE IN
EVERY RESPECT. THE GUARANTOR AGREES THAT A FINAL JUDGMENT ACTION OR PROCEEDING
SHALL BE CONCLUSIVE AND MAY OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN
ANY OTHER MANNER PROVIDED BY LAW. THE GUARANTOR WAIVES IN ALL DISPUTES ANY
OBJECTION THAT THEY MAY HAVE TO THE LOCATION OF THE COURT CONSIDERING THE
DISPUTE.
(ii) THE GUARANTOR AGREES THAT THE COLLATERAL AGENT SHALL HAVE THE RIGHT
TO PROCEED AGAINST EACH BORROWER OR ITS PROPERTY IN A COURT IN ANY LOCATION TO
ENABLE THE ADMINISTRATIVE AGENTS, THE LENDERS AND THE ISSUING BANKS TO ENFORCE A
JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF THE ADMINISTRATIVE AGENTS, ANY
LENDER OR ANY ISSUING BANK. EACH BORROWER WAIVES ANY OBJECTION THAT IT MAY HAVE
TO THE LOCATION OF THE COURT IN WHICH THE ADMINISTRATIVE AGENTS, ANY LENDER OR
ANY ISSUING BANK MAY COMMENCE A PROCEEDING DESCRIBED IN THIS SECTION.
SECTION 6.10.2. Service of Process. THE GUARANTOR IRREVOCABLY CONSENTS
TO THE SERVICE OF PROCESS OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION
OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL,
POSTAGE PREPAID, TO THE PROCESS AGENT OR THE GUARANTOR'S NOTICE ADDRESS
SPECIFIED BELOW, SUCH SERVICE TO BECOME EFFECTIVE (5) FIVE DAYS AFTER SUCH
MAILING. THE GUARANTOR IRREVOCABLY WAIVES ANY OBJECTION (INCLUDING WITHOUT
LIMITATION, ANY OBJECTION OF THE LAYING OF VENUE OR BASED ON THE GROUNDS OF
FORUM NON CONVENIENS) WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY
SUCH ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT TO WHICH IT IS A PARTY IN ANY JURISDICTION SET FORTH ABOVE. NOTHING
HEREIN SHALL AFFECT THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY
LAW OR SHALL LIMIT THE RIGHT OF THE COLLATERAL AGENT TO BRING PROCEEDINGS
AGAINST THE GUARANTOR IN THE COURTS OF ANY OTHER JURISDICTION.
SECTION 6.11. Governing Law, Entire Agreement, etc. THIS GUARANTY
SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF
THE STATE OF NEW YORK (INCLUDING FOR SUCH PURPOSE SECTIONS 5-1401 AND 5-1402 OF
THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK). THIS GUARANTY AND THE
OTHER LOAN DOCUMENTS CONSTITUTE THE ENTIRE UNDERSTANDING AMONG THE PARTIES
HERETO WITH RESPECT TO THE SUBJECT MATTER HEREOF AND SUPERSEDE ANY PRIOR
AGREEMENTS, WRITTEN OR ORAL, WITH RESPECT THERETO.
SECTION 6.12. Waiver of Jury Trial. THE GUARANTOR HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURY
IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN
CONNECTION WITH, THIS
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GUARANTY OR ANY OTHER LOAN DOCUMENT OR ANY COURSE OF CONDUCT, COURSE OF DEALING,
STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF THE SECURED PARTIES OR SUCH
GUARANTOR. THE GUARANTOR ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND
SUFFICIENT CONSIDERATION FOR THIS PROVISION AND THAT THIS PROVISION IS A
MATERIAL INDUCEMENT FOR THE LENDERS ENTERING INTO THE CREDIT AGREEMENT.
SECTION 6.13. Counterparts. This Guaranty may be executed by the parties
hereto in several counterparts, each of which shall be deemed to be an original
and all of which shall constitute together but one and the same agreement.
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IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be duly
executed and delivered by its officer thereunto duly authorized as of the date
first above written.
Foamex International Inc.
By: /s/ George L. Karpinski
-----------------------
Name: George L. Karpinski
Title: Senior Vice President
Notice address:
1000 Columbia Avenue
Linwood, Pennsylvania 19061
Attn: Kenneth R. Fuette
Telecopier No.: 610-859-3085
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SCHEDULE I
to
Foamex International Inc. Guaranty
1,000 shares (100% of the outstanding common stock) of Foamex Delaware, Inc., a
Delaware corporation
1,000 shares (100% of the outstanding common stock) of FMXI, Inc., a Delaware
corporation
1,000 shares (100% of the outstanding common stock) of Foamex Aviation, Inc., A
Delaware corporation
1,000 shares (100% of the outstanding common stock) of JPSGP, Inc., a Delaware
corporation
1,000 shares (100% of the outstanding common stock) of Merger Acquisition Corp.,
a Delaware corporation
Investment in Trace Global Opportunities Fund, L.P. in the amount of $2,000,000
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[Execution Copy]
FIRST AMENDMENT TO FOAMEX PLEDGE AGREEMENT
FIRST AMENDMENT TO FOAMEX PLEDGE AGREEMENT, dated as of December 23, 1997
(the "Amendment") by FOAMEX L.P., a Delaware limited partnership (the
"Pledgor"), in favor of CITICORP USA, INC., as collateral agent (together with
any successor(s) thereto in such capacity, the "Collateral Agent") for each of
the Secured Parties.
WHEREAS, the Pledgor and the Collateral Agent are parties to a Foamex
Pledge Agreement dated as of June 12, 1997 (as amended, supplemented, amended
and restated or modified from time to time, the "Pledge Agreement")
WHEREAS, pursuant to a Credit Agreement, dated as of June 12, 1997 (as
amended, supplemented, amended and restated or modified from time to time, the
"Existing Credit Agreement"), among the Pledgor, General Felt Industries, Inc.,
a Delaware corporation ("GFI"; and if together with the Pledgor, the
"Borrowers"), Trace Foam Company, Inc., a Delaware corporation and general
partner of the Pledgor ("Trace Foam"), FMXI, Inc., a Delaware corporation and
managing general partner of the Pledgor ("FMXI"), the Lenders, the Issuing Banks
and Citicorp USA, Inc., as Collateral Agent for the Lenders and the Issuing
Banks and The Bank of Nova Scotia, as Funding Agent for the Lenders and the
Issuing Banks (together with the Collateral Agent, the "Administrative Agents"),
the Lenders and the Issuing Banks have extended Commitments to make Credit
Extensions to the Borrowers;
WHEREAS, the Existing Credit Agreement is to be amended by the First
Amendment to Credit Agreement, dated as of December 23, 1997 (the "First
Amendment to Credit Agreement", the Existing Credit Agreement as amended by the
First Amendment to Credit Agreement and as further amended, supplemented,
amended and restated or otherwise modified from time to time being the "Credit
Agreement"), among the Pledgor, GFI, Trace Foam, FMXI, the Lenders, the Issuing
Banks and the Administrative Agents;
WHEREAS, as a condition precedent to the effectiveness of the First
Amendment to Credit Agreement, the Pledgor is required to execute and deliver
this Amendment;
WHEREAS, the Pledgor has duly authorized the execution, delivery and
performance of this Amendment; and
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and in order to induce the Lenders
and the Issuer to make Credit Extensions to the Borrowers pursuant to the Credit
Agreement, the Pledgor agrees, for the benefit of each Secured Party, as
follows:
<PAGE>
Section 1. Definitions. Except as otherwise defined in this Amendment,
terms defined in the Pledge Agreement are used herein as defined therein.
Section 2. Amendments. Subject to the satisfaction of the conditions
precedent specified in Section 3 below, but effective as of the date hereof, the
Pledge Agreement is hereby amended as follows:
(a) Section 2.1 of the Pledge Agreement is amended as follows:
(i) Clause (f) is hereby amended by deleting the "and" that appears
after the semi-colon at the end of the clause;
(ii) Clause (g) is hereby redesignated as clause (h); and
(iii) A new Section 2.1(g) is hereby added to read as follows:
(g) all financial assets and investment property of the
Pledgor; and"
(b) Attachment 1 of the Pledge Agreement is hereby amended by adding the
information set forth in Attachment 1 hereto.
Section 3. Conditions Precedent. As provided in Section 2 above, the
amendments set forth in Section 2 shall become effective, as of the date hereof,
upon the due execution and delivery of this Amendment by the Pledgor and the
Collateral Agent.
Section 4. Miscellaneous. Except as herein provided, the Pledge Agreement
shall remain unchanged and in full force and effect. This Amendment may be
executed in any number of counterparts, all of which taken together shall
constitute one and the same amendatory instrument and any of the parties hereto
may execute this Amendment by signing any such counterpart. This Amendment shall
be governed by, and construed in accordance with, the internal laws of the State
of New York.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered as of the day and year first above written.
FOAMEX L.P.
By FMXI, INC., the Managing General Partner
By: /s/ George L. Karpinski
----------------------------
Name: George L. Karpinski
Title: Senior Vice President
CITICORP USA, INC.,
as Collateral Agent
By: /s/ Timothy L. Freeman
----------------------------
Name: Timothy L. Freeman
Title: Attorney-in-Fact
3
[Execution Copy]
FIRST AMENDMENT TO FOAMEX SECURITY AGREEMENT
FIRST AMENDMENT TO FOAMEX SECURITY AGREEMENT, dated as of December 23,
1997 (the "Amendment") by FOAMEX L.P., a Delaware limited partnership (the
"Grantor"), in favor of CITICORP USA, INC., as collateral agent (together with
any successor(s) thereto in such capacity, the "Collateral Agent") for each of
the Secured Parties.
WHEREAS, the Grantor and the Collateral Agent are parties to a Foamex
Security Agreement dated as of June 12, 1997 (as amended, supplemented, amended
and restated or modified from time to time, the "Security Agreement")
WHEREAS, pursuant to a Credit Agreement, dated as of June 12, 1997 (as
amended, supplemented, amended and restated or modified from time to time, the
"Existing Credit Agreement"), among the Grantor, General Felt Industries, Inc.,
a Delaware corporation ("GFI"; and if together with the Grantor, the
"Borrowers"), Trace Foam Company, Inc., a Delaware corporation and general
partner of the Grantor ("Trace Foam"), FMXI, Inc., a Delaware corporation and
managing general partner of the Grantor ("FMXI"), the Lenders, the Issuing Banks
and Citicorp USA, Inc., as Collateral Agent for the Lenders and the Issuing
Banks and The Bank of Nova Scotia, as Funding Agent for the Lenders and the
Issuing Banks (together with the Collateral Agent, the "Administrative Agents"),
the Lenders and the Issuing Banks have extended Commitments to make Credit
Extensions to the Borrowers;
WHEREAS, the Existing Credit Agreement is to be amended by the First
Amendment to Credit Agreement, dated as of December 23, 1997 (the "First
Amendment to Credit Agreement", the Existing Credit Agreement as amended by the
First Amendment to Credit Agreement and as further amended, supplemented,
amended and restated or otherwise modified from time to time being the "Credit
Agreement"), among the Grantor, GFI, Trace Foam, FMXI, the Lenders, the Issuing
Banks and the Administrative Agents;
WHEREAS, as a condition precedent to the effectiveness of the First
Amendment to Credit Agreement, the Grantor is required to execute and deliver
this Amendment;
WHEREAS, the Grantor has duly authorized the execution, delivery and
performance of this Amendment; and
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and in order to induce the Lenders
and the Issuer to make Credit Extensions to the Borrowers pursuant to the Credit
Agreement, the Grantor agrees, for the benefit of each Secured Party, as
follows:
<PAGE>
Section 1. Definitions. Except as otherwise defined in this Amendment,
terms defined in the Security Agreement are used herein as defined therein.
Section 2. Amendments. Subject to the satisfaction of the conditions
precedent specified in Section 3 below, but effective as of the date hereof, the
Schedules of the Security Agreement is hereby amended by adding the information
set forth in Schedules I, II, III, IV and V hereto.
Section 3. Conditions Precedent. As provided in Section 2 above, the
amendments set forth in Section 2 shall become effective, as of the date hereof,
upon the due execution and delivery of this Amendment by the Grantor and the
Collateral Agent.
Section 4. Miscellaneous. Except as herein provided, the Security
Agreement shall remain unchanged and in full force and effect. This Amendment
may be executed in any number of counterparts, all of which taken together shall
constitute one and the same amendatory instrument and any of the parties hereto
may execute this Amendment by signing any such counterpart. This Amendment shall
be governed by, and construed in accordance with, the internal laws of the State
of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered as of the day and year first above written.
FOAMEX L.P.
By FMXI, INC., the Managing General Partner
By: /s/ George L. Karpinski
----------------------------
Name: George L. Karpinski
Title: Senior Vice President
CITICORP USA, INC.,
as Collateral Agent
By: /s/ Timothy L. Freeman
----------------------------
Name: Timothy L. Freeman
Title: Attorney-in-Fact
2
<PAGE>
SCHEDULE I
Item A. Location of Equipment
---------------------
Description Location
----------- --------
1.
2.
3.
Item B. Location of Inventory
---------------------
Description Location
----------- --------
1.
2.
3.
Item C. Location of Lock Boxes
----------------------
Contact
Bank Name and Address Account Number
--------------------- --------------
Person
- - ------
1.
2.
3.
Item D. Place(s) of Business and Chief Executive Office
-----------------------------------------------
Item E. Trade Names
-----------
Item F. Merger or Other Corporate Reorganization
----------------------------------------
Item G. Government Contracts
--------------------
3
[Execution Copy]
FIRST AMENDMENT TO PATENT SECURITY AGREEMENT
FIRST AMENDMENT TO PATENT SECURITY AGREEMENT, dated as of December 23,
1997 (the "Amendment") by FOAMEX L.P., a Delaware limited partnership (the
"Grantor"), in favor of CITICORP USA, INC., as collateral agent (together with
any successor(s) thereto in such capacity, the "Collateral Agent") for each of
the Secured Parties.
WHEREAS, the Grantor and the Collateral Agent are parties to a Patent
Security Agreement dated as of June 12, 1997 (as amended, supplemented, amended
and restated or modified from time to time, the "Patent Security Agreement") and
a Foamex Security Agreement dated as of June 12, 1997 (as amended, supplemented,
amended and restated or modified from time to time, the "Security Agreement").
WHEREAS, pursuant to a Credit Agreement, dated as of June 12, 1997 (as
amended, supplemented, amended and restated or modified from time to time, the
"Existing Credit Agreement"), among the Grantor, General Felt Industries, Inc.,
a Delaware corporation ("GFI"; and if together with the Grantor, the
"Borrowers"), Trace Foam Company, Inc., a Delaware corporation and general
partner of the Grantor ("Trace Foam"), FMXI, Inc., a Delaware corporation and
managing general partner of the Grantor ("FMXI"), the Lenders, the Issuing Banks
and Citicorp USA, Inc., as Collateral Agent for the Lenders and the Issuing
Banks and The Bank of Nova Scotia, as Funding Agent for the Lenders and the
Issuing Banks (together with the Collateral Agent, the "Administrative Agents"),
the Lenders and the Issuing Banks have extended Commitments to make Credit
Extensions to the Borrowers;
WHEREAS, the Existing Credit Agreement is to be amended by the First
Amendment to Credit Agreement, dated as of December 23, 1997 (the "First
Amendment to Credit Agreement", the Existing Credit Agreement as amended by the
First Amendment to Credit Agreement and as further amended, supplemented,
amended and restated or otherwise modified from time to time being the "Credit
Agreement"), among the Grantor, GFI, Trace Foam, FMXI, the Lenders, the Issuing
Banks and the Administrative Agents;
WHEREAS, as a condition precedent to the effectiveness of the First
Amendment to Credit Agreement, the Grantor is required to execute and deliver
this Amendment;
WHEREAS, the Grantor has duly authorized the execution, delivery and
performance of this Amendment; and
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and in order to induce the Lenders
and the Issuer to make Credit
<PAGE>
Extensions to the Borrowers pursuant to the Credit Agreement, the Grantor
agrees, for the benefit of each Secured Party, as follows:
Section 1. Definitions. Except as otherwise defined in this Amendment,
terms defined in the Security Agreement are used herein as defined therein.
Section 2. Amendments. Subject to the satisfaction of the conditions
precedent specified in Section 3 below, but effective as of the date hereof,
Attachment 1 of the Patent Security Agreement is hereby amended by adding the
information set forth in Attachment 1 hereto.
Section 3. Conditions Precedent. As provided in Section 2 above, the
amendments set forth in Section 2 shall become effective, as of the date hereof,
upon the due execution and delivery of this Amendment by the Grantor and the
Collateral Agent.
Section 4. Miscellaneous. Except as herein provided, the Patent Security
Agreement shall remain unchanged and in full force and effect. This Amendment
may be executed in any number of counterparts, all of which taken together shall
constitute one and the same amendatory instrument and any of the parties hereto
may execute this Amendment by signing any such counterpart. This Amendment shall
be governed by, and construed in accordance with, the internal laws of the State
of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered as of the day and year first above written.
FOAMEX L.P.
By FMXI, INC., the Managing General Partner
By: /s/ George L. Karpinski
----------------------------
Name: George L. Karpinski
Title: Senior Vice President
CITICORP USA, INC.,
as Collateral Agent
By: /s/ Timothy L. Freeman
----------------------------
Name: Timothy L. Freeman
Title: Attorney-in-Fact
[Execution Copy]
FIRST AMENDMENT TO TRADEMARK SECURITY AGREEMENT
FIRST AMENDMENT TO TRADEMARK SECURITY AGREEMENT, dated as of December 23,
1997 (the "Amendment") by FOAMEX L.P., a Delaware limited partnership (the
"Grantor"), in favor of CITICORP USA, INC., as collateral agent (together with
any successor(s) thereto in such capacity, the "Collateral Agent") for each of
the Secured Parties.
WHEREAS, the Grantor and the Collateral Agent are parties to a Trademark
Security Agreement dated as of June 12, 1997 (as amended, supplemented, amended
and restated or modified from time to time, the "Trademark Security Agreement")
and a Foamex Security Agreement dated as of June 12, 1997 (as amended,
supplemented, amended and restated or modified from time to time, the "Security
Agreement").
WHEREAS, pursuant to a Credit Agreement, dated as of June 12, 1997 (as
amended, supplemented, amended and restated or modified from time to time, the
"Existing Credit Agreement"), among the Grantor, General Felt Industries, Inc.,
a Delaware corporation ("GFI"; and if together with the Grantor, the
"Borrowers"), Trace Foam Company, Inc., a Delaware corporation and general
partner of the Grantor ("Trace Foam"), FMXI, Inc., a Delaware corporation and
managing general partner of the Grantor ("FMXI"), the Lenders, the Issuing Banks
and Citicorp USA, Inc., as Collateral Agent for the Lenders and the Issuing
Banks and The Bank of Nova Scotia, as Funding Agent for the Lenders and the
Issuing Banks (together with the Collateral Agent, the "Administrative Agents"),
the Lenders and the Issuing Banks have extended Commitments to make Credit
Extensions to the Borrowers;
WHEREAS, the Existing Credit Agreement is to be amended by the First
Amendment to Credit Agreement, dated as of December 23, 1997 (the "First
Amendment to Credit Agreement", the Existing Credit Agreement as amended by the
First Amendment to Credit Agreement and as further amended, supplemented,
amended and restated or otherwise modified from time to time being the "Credit
Agreement"), among the Grantor, GFI, Trace Foam, FMXI, the Lenders, the Issuing
Banks and the Administrative Agents;
WHEREAS, as a condition precedent to the effectiveness of the First
Amendment to Credit Agreement, the Grantor is required to execute and deliver
this Amendment;
WHEREAS, the Grantor has duly authorized the execution, delivery and
performance of this Amendment; and
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and in order to induce the Lenders
and the Issuer to make Credit
<PAGE>
Extensions to the Borrowers pursuant to the Credit Agreement, the Grantor
agrees, for the benefit of each Secured Party, as follows:
Section 1. Definitions. Except as otherwise defined in this Amendment,
terms defined in the Security Agreement are used herein as defined therein.
Section 2. Amendments. Subject to the satisfaction of the conditions
precedent specified in Section 3 below, but effective as of the date hereof,
Attachment 1 of the Trademark Security Agreement is hereby amended by adding the
information set forth in Attachment 1 hereto.
Section 3. Conditions Precedent. As provided in Section 2 above, the
amendments set forth in Section 2 shall become effective, as of the date hereof,
upon the due execution and delivery of this Amendment by the Grantor and the
Collateral Agent.
Section 4. Miscellaneous. Except as herein provided, the Trademark
Security Agreement shall remain unchanged and in full force and effect. This
Amendment may be executed in any number of counterparts, all of which taken
together shall constitute one and the same amendatory instrument and any of the
parties hereto may execute this Amendment by signing any such counterpart. This
Amendment shall be governed by, and construed in accordance with, the internal
laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered as of the day and year first above written.
FOAMEX L.P.
By FMXI, INC., the Managing General Partner
By: /s/ George L. Karpinski
----------------------------
Name: George L. Karpinski
Title: Senior Vice President
CITICORP USA, INC.,
as Collateral Agent
By: /s/ Timothy L. Freeman
----------------------------
Name: Timothy L. Freeman
Title: Attorney-in-Fact
ACKNOWLEDGMENT OF GUARANTY
Each Person listed on the signature pages hereof under GUARANTORS (each, a
Guarantor), acknowledges that (i) such Guarantor entered into a Guaranty dated
June 12, 1997 (the Guaranty) in favor of Citicorp USA, Inc., as Collateral
Agent, for the benefit of the Secured Parties, (ii) that each reference to
Credit Agreement in such Guaranty shall be deemed to be a reference to the
Credit Agreement, dated as of June 12, 1997 (the Existing Credit Agreement),
among Foamex L.P., a Delaware limited partnership (Foamex), General Felt
Industries, Inc., a Delaware corporation (GFI) , Trace Foam Company, Inc., a
Delaware corporation and general partner of Foamex (Trace Foam), FMXI, Inc., a
Delaware corporation and managing general partner of Foamex (FMXI), the Lenders,
the Issuing Banks and Citicorp USA, Inc., as Collateral Agent for the Lenders
and the Issuing Banks and The Bank of Nova Scotia, as Funding Agent for the
Lenders and the Issuing Banks (together with the Collateral Agent, the
Administrative Agents), as amended by the First Amendment to Credit Agreement,
dated as of December 23, 1997 (the First Amendment to Credit Agreement, the
Existing Credit Agreement as amended by the First Amendment to Credit Agreement
and as further amended, supplemented, amended and restated or modified from time
to time, being the Credit Agreement), among Foamex, GFI, Trace Foam, FMXI, the
Lenders, the Issuing Banks and the Administrative Agents and (iii) that such
Guarantors Guaranty remains in full force and effect.
Unless otherwise defined herein or the context otherwise requires, terms
used herein have the meanings provided in the Credit Agreement.
<PAGE>
GUARANTORS
FOAMEX CAPITAL CORPORATION
By: /s/ George L. Karpinski
----------------------------
Name: George L. Karpinski
Title: Senior Vice President
FOAMEX FIBERS, INC.
By: /s/ George L. Karpinski
----------------------------
Name: George L. Karpinski
Title: Senior Vice President
FOAMEX LATIN AMERICA, INC.
By: /s/ George L. Karpinski
----------------------------
Name: George L. Karpinski
Title: Senior Vice President
FOAMEX MEXICO, INC.
By: /s/ George L. Karpinski
----------------------------
Name: George L. Karpinski
Title: Senior Vice President
FOAMEX MEXICO II, INC.
By: /s/ George L. Karpinski
----------------------------
Name: George L. Karpinski
Title: Senior Vice President
FOAMEX ASIA, INC.
By: /s/ George L. Karpinski
----------------------------
Name: George L. Karpinski
Title: Senior Vice President
2
<PAGE>
GENERAL FELT INDUSTRIES, INC.
By: /s/ George L. Karpinski
----------------------------
Name: George L. Karpinski
Title: Senior Vice President
FOAMEX L.P.
By FMXI, INC., the Managing General Partner
By: /s/ George L. Karpinski
----------------------------
Name: George L. Karpinski
Title: Senior Vice President
[Execution Copy]
CRAIN LLC SECURITY AGREEMENT
This CRAIN LLC SECURITY AGREEMENT (as amended, supplemented, amended and
restated or otherwise modified from time to time, this "Security Agreement"),
dated as of December 23, 1997, is made by Foamex LLC, a Delaware limited
liability company (the "Grantor"), in favor of CITICORP USA, INC., as collateral
agent (together with any successor(s) thereto in such capacity, the "Collateral
Agent") for each of the Secured Parties.
W I T N E S S E T H:
WHEREAS, pursuant to a Credit Agreement, dated as of June 12, 1997 (as
amended, supplemented, amended and restated or modified from time to time, the
"Existing Credit Agreement"), among Foamex L.P., a Delaware limited partnership
("Foamex" or a "Borrower"), General Felt Industries, Inc., a Delaware
corporation ("GFI" or a "Borrower"; and, if together with Foamex, the
"Borrowers"), Trace Foam Company, Inc., a Delaware corporation and general
partner of Foamex ("Trace Foam"), FMXI, Inc., a Delaware corporation and
managing general partner of Foamex ("FMXI"), the Lenders, the Issuing Banks and
Citicorp USA, Inc., as Collateral Agent for the Lenders and the Issuing Banks
and The Bank of Nova Scotia, as Funding Agent for the Lenders and the Issuing
Banks (together with the Collateral Agent, the "Administrative Agents"), the
Lenders and the Issuing Banks have extended Commitments to make Credit
Extensions to the Borrowers;
WHEREAS, the Existing Credit Agreement is to be amended by the First
Amendment to Credit Agreement, dated as of December 23, 1997 (the "First
Amendment to Credit Agreement", the Existing Credit Agreement as amended by the
First Amendment to Credit Agreement and as further amended, supplemented,
amended and restated or otherwise modified from time to time being the "Credit
Agreement"), among the Borrowers, Trace Foam, FMXI, the Lenders, the Issuing
Banks and the Administrative Agents;
WHEREAS, as a condition precedent to the effectiveness of the First
Amendment to Credit Agreement, the Grantor is required to execute and deliver
this Security Agreement;
WHEREAS, the Grantor has duly authorized the execution, delivery and
performance of this Security Agreement; and
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and in order to induce the Lenders
and the Issuer to make Credit Extensions to the Borrowers pursuant to the Credit
Agreement, the Grantor agrees, for the benefit of each Secured Party, as
follows:
<PAGE>
ARTICLE I
DEFINITIONS
SECTION 1.1. Certain Terms. The following terms (whether or not
underscored) when used in this Security Agreement, including its preamble and
recitals, shall have the following meanings (such definitions to be equally
applicable to the singular and plural forms thereof):
"Administrative Agent" is defined in the first recital.
"Borrower" and "Borrowers" are defined in the first recital.
"Collateral" is defined in Section 2.1.
"Collateral Account" is defined in Section 4.1.2(b).
"Collateral Agent" is defined in the preamble.
"Computer Hardware and Software Collateral" means:
(a) all computer and other electronic data processing hardware,
integrated computer systems, central processing units, memory units,
display terminals, printers, features, computer elements, card readers,
tape drives, hard and soft disk drives, cables, electrical supply
hardware, generators, power equalizers, accessories and all peripheral
devices and other related computer hardware;
(b) all software programs (including both source code, object code
and all related applications and data files), whether now owned, licensed
or leased or hereafter acquired by the Grantor, designed for use on the
computers and electronic data processing hardware described in clause (a)
above;
(c) all firmware associated therewith;
(d) all documentation (including flow charts, logic diagrams,
manuals, guides and specifications) with respect to such hardware,
software and firmware described in the preceding clauses (a) through (c);
and
(e) all rights with respect to all of the foregoing, including any
and all copyrights, licenses, options, warranties, service contracts,
program services, test rights, maintenance rights, support rights,
improvement rights, renewal rights and indemnifications and any
substitutions, replacements, additions or model conversions of any of the
foregoing.
"Copyright Collateral" means all copyrights (including all copyrights for
semi-conductor chip product mask works) of the
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<PAGE>
Grantor, whether statutory or common law, registered or unregistered, now or
hereafter in force throughout the world including all of the Grantor's right,
title and interest in and to all copyrights registered in the United States
Copyright Office or anywhere else in the world and also including the copyrights
referred to in Item A of Schedule IV attached hereto, and all applications for
registration thereof, whether pending or in preparation, all copyright licenses,
including each copyright license referred to in Item B of Schedule IV attached
hereto, the right to sue for past, present and future infringements of any
thereof, all rights corresponding thereto throughout the world, all extensions
and renewals of any thereof and all proceeds of the foregoing, including
licenses, royalties, income, payments, claims, damages and proceeds of suit.
"Credit Agreement" is defined in the second recital.
"Credit Extensions" means the Loans and the Letters of Credit.
"Equipment" is defined in clause (a) of Section 2.1.
"Existing Credit Agreement" is defined in the first recital.
"First Amendment to Credit Agreement" is defined in the second recital.
"Foamex" is defined in the first recital.
"FMXI" is defined in the first recital.
"Grantor" is defined in the preamble.
"Intellectual Property Collateral" means, collectively, the Computer
Hardware and Software Collateral, the Copyright Collateral, the Patent
Collateral, the Trademark Collateral and the Trade Secrets Collateral.
"Inventory" is defined in clause (b) of Section 2.1
"Lender" and "Lenders" are defined in the first recital.
"Patent Collateral" means:
(a) all letters patent and applications for letters patent
throughout the world, including all patent applications in preparation for
filing anywhere in the world and including each patent and patent
application referred to in Item A of Schedule II attached hereto;
(b) all reissues, divisions, continuations, continuations-in-part,
extensions, renewals and reexaminations of any of the items described in
clause (a);
-3-
<PAGE>
(c) all patent licenses, including each patent license referred to
in Item B of Schedule II attached hereto; and
(d) all proceeds of, and rights associated with, the foregoing
(including license royalties and proceeds of infringement suits), the
right to sue third parties for past, present or future infringements of
any patent or patent application, including any patent or patent
application referred to in Item A of Schedule II attached hereto, and for
breach or enforcement of any patent license, including any patent license
referred to in Item B of Schedule II attached hereto, and all rights
corresponding thereto throughout the world.
"Receivables" is defined in clause (c) of Section 2.1.
"Related Contracts" is defined in clause (c) of Section 2.1.
"Secured Obligations" is defined in Section 2.2.
"Secured Parties" means, collectively, the Lenders, the Issuing Banks, the
Administrative Agents, the Collateral Agent and the Funding Agent, and any
Lender in its capacity as a counterparty to a Hedging Obligation.
"Security Agreement" is defined in the preamble.
"Trace Foam" is defined in the first recital.
"Trademark Collateral" means:
(a) all trademarks, trade names, corporate names, company names,
business names, fictitious business names, trade styles, service marks,
certification marks, collective marks, logos, other source of business
identifiers, prints and labels on which any of the foregoing have appeared
or appear, designs and general intangibles of a like nature (all of the
foregoing items in this clause (a) being collectively called a
"Trademark"), now existing anywhere in the world or hereafter adopted or
acquired, whether currently in use or not, all registrations and
recordings thereof and all applications in connection therewith, whether
pending or in preparation for filing, including registrations, recordings
and applications in the United States Patent and Trademark Office or in
any office or agency of the United States of America or any State thereof
or any foreign country, including those referred to in Item A of Schedule
III attached hereto;
(b) all Trademark licenses, including each Trademark license
referred to in Item B of Schedule III attached hereto;
-4-
<PAGE>
(c) all reissues, extensions or renewals of any of the items
described in clauses (a) and (b);
(d) all of the goodwill of the business connected with the use of,
and symbolized by the items described in, clauses (a) and (b); and
(e) all proceeds of, and rights associated with, the foregoing,
including any claim by the Grantor against third parties for past, present
or future infringement or dilution of any Trademark, Trademark
registration or Trademark license, including any Trademark, Trademark
registration or Trademark license referred to in Item A and Item B of
Schedule III attached hereto, or for any injury to the goodwill associated
with the use of any such Trademark or for breach or enforcement of any
Trademark license.
"Trade Secrets Collateral" means all common law and statutory trade
secrets and all other confidential or proprietary or useful information and all
know-how obtained by or used in or contemplated at any time for use in the
business of the Grantor (all of the foregoing being collectively called a "Trade
Secret"), whether or not such Trade Secret has been reduced to a writing or
other tangible form, including all documents and things embodying, incorporating
or referring in any way to such Trade Secret, all Trade Secret licenses,
including each Trade Secret license referred to in Schedule V attached hereto,
and including the right to sue for and to enjoin and to collect damages for the
actual or threatened misappropriation of any Trade Secret and for the breach or
enforcement of any such Trade Secret license.
"U.C.C." means the Uniform Commercial Code, as in effect from time to time
in the State of New York.
SECTION 1.2. Credit Agreement Definitions. Unless otherwise defined
herein or the context otherwise requires, terms used in this Security Agreement,
including its preamble and recitals, have the meanings provided in the Credit
Agreement.
SECTION 1.3. U.C.C. Definitions. Unless otherwise defined herein or
in the Credit Agreement or the context otherwise requires, terms for which
meanings are provided in the U.C.C. are used in this Security Agreement,
including its preamble and recitals, with such meanings.
ARTICLE II
SECURITY INTEREST
SECTION 2.1. Grant of Security. The Grantor hereby assigns and
pledges to the Collateral Agent for its benefit and the ratable benefit of each
of the Secured Parties, and hereby grants to the Collateral Agent for its
benefit and the ratable benefit
-5-
<PAGE>
of each of the Secured Parties, a security interest in all of the following,
whether now or hereafter existing or acquired by the Grantor (the "Collateral"):
(a) all equipment in all of its forms of the Grantor, wherever
located, including all parts thereof and all accessions, additions,
attachments, improvements, substitutions and replacements thereto and
therefor and all accessories related thereto (any and all of the foregoing
being the "Equipment");
(b) all inventory in all of its forms of the Grantor, wherever
located, including
(i) all raw materials and work in process therefor, finished
goods thereof, and materials used or consumed in the manufacture or
production thereof,
(ii) all goods in which the Grantor has an interest in mass
or a joint or other interest or right of any kind (including goods
in which the Grantor has an interest or right as consignee), and
(iii) all goods which are returned to or repossessed by the
Grantor,
and all accessions thereto, products thereof and documents therefor (any
and all such inventory, materials, goods, accessions, products and
documents being the "Inventory");
(c) all accounts, contracts, contract rights, chattel paper,
documents, instruments, and general intangibles (including tax refunds) of
the Grantor, whether or not arising out of or in connection with the sale
or lease of goods or the rendering of services, and all rights of the
Grantor now or hereafter existing in and to all security agreements,
guaranties, leases and other contracts securing or otherwise relating to
any such accounts, contracts, contract rights, chattel paper, documents,
instruments, and general intangibles (any and all such accounts,
contracts, contract rights, chattel paper, documents, instruments, and
general intangibles being the "Receivables", and any and all such security
agreements, guaranties, leases and other contracts being the "Related
Contracts");
(d) all Intellectual Property Collateral of the Grantor;
(e) all books, records, writings, data bases, information and
other property relating to, used or useful in connection with, evidencing,
embodying, incorporating or referring to, any of the foregoing in this
Section 2.1;
-6-
<PAGE>
(f) all of the Grantor's other property and rights of every kind
and description and interests therein; and
(g) all products, offspring, rents, issues, profits, returns,
income and proceeds of and from any and all of the foregoing Collateral
(including proceeds which constitute property of the types described in
clauses (a), (b), (c), (d), (e) and (f), proceeds deposited from time to
time in the Concentration Account, the Cash Collateral Account and in any
lock boxes or any Lockbox Account of the Grantor, and, to the extent not
otherwise included, all payments under insurance (whether or not the
Collateral Agent is the loss payee thereof), or any indemnity, warranty or
guaranty, payable by reason of loss or damage to or otherwise with respect
to any of the foregoing Collateral).
Notwithstanding the foregoing, "Collateral" shall not include any general
intangibles or other rights arising under any contracts, instruments, licenses
or other documents as to which the grant of a security interest would constitute
a violation of a valid and enforceable restriction in favor of a third party on
such grant, unless and until any required consents shall have been obtained. The
Grantor agrees to use its best efforts to obtain any such required consent.
SECTION 2.2. Security for Obligations. This Security Agreement
secures the payment of all Obligations of each Borrower now or hereafter
existing under the Credit Agreement, the Notes and each other Loan Document to
which such Borrower is or may become a party, whether for principal, interest,
costs, fees, expenses or otherwise, and all obligations of the Grantor and each
other Obligor now or hereafter existing under each Loan Document to which the
Grantor or such other Obligor is or may become a party (all such Obligations of
such Borrower and all such obligations of the Grantor and such other Obligor
being the "Secured Obligations").
SECTION 2.3. Continuing Security Interest; Transfer of Notes. This
Security Agreement shall create a continuing security interest in the Collateral
and shall
(a) remain in full force and effect until payment in full in cash
of all Secured Obligations, the termination or expiration of all Letters
of Credit and the termination of all Commitments,
(b) be binding upon the Grantor, its successors, transferees and
assigns, and
(c) inure, together with the rights and remedies of the Collateral
Agent hereunder, to the benefit of the Collateral Agent and each other
Secured Party.
-7-
<PAGE>
Without limiting the generality of the foregoing clause (c), any Lender may
assign or otherwise transfer (in whole or in part) any Note or Credit Extension
held by it to any other Person or entity, and such other Person or entity shall
thereupon become vested with all the rights and benefits in respect thereof
granted to such Lender under any Loan Document (including this Security
Agreement) or otherwise, subject, however, to any contrary provisions in such
assignment or transfer, and to the provisions of Article XIII of the Credit
Agreement. Upon the payment in full in cash of all Secured Obligations, the
termination or expiration of all Letters of Credit and the termination of all
Commitments, the security interest granted herein shall terminate and all rights
to the Collateral shall revert to the Grantor. Upon any such termination, the
Collateral Agent will, at the Grantor's sole expense, execute and deliver to the
Grantor such documents as the Grantor shall reasonably request to evidence such
termination. Upon any sale or other transfer of Collateral permitted by the
terms of the Credit Agreement, the security interest created hereunder in such
Collateral (but not in the proceeds thereof) shall be deemed to be automatically
released and the Collateral Agent will, at the Grantor's sole expense, execute
and deliver to the Grantor such documents as the Grantor shall reasonably
request to evidence such release.
SECTION 2.4. Grantor Remains Liable. Anything herein to the
contrary notwithstanding
(a) the Grantor shall remain liable under the contracts and
agreements included in the Collateral to the extent set forth therein, and
shall perform all of its duties and obligations under such contracts and
agreements to the same extent as if this Security Agreement had not been
executed,
(b) the exercise by the Collateral Agent of any of its rights
hereunder shall not release the Grantor from any of its duties or
obligations under any such contracts or agreements included in the
Collateral, and
(c) neither the Collateral Agent nor any other Secured Party shall
have any obligation or liability under any such contracts or agreements
included in the Collateral by reason of this Security Agreement, nor shall
the Collateral Agent or any other Secured Party be obligated to perform
any of the obligations or duties of the Grantor thereunder or to take any
action to collect or enforce any claim for payment assigned hereunder.
SECTION 2.5. Security Interest Absolute. All rights of the Collateral
Agent and the security interests granted to the Collateral Agent hereunder, and
all obligations of the Pledgor hereunder, shall be absolute and unconditional
with respect to the Secured Obligations, irrespective of
-8-
<PAGE>
(a) any lack of validity or enforceability of the Credit
Agreement, any Note or any other Loan Document,
(b) the failure of any Secured Party or any holder of any Note
(i) to assert any claim or demand or to enforce any right or
remedy against the Grantor, any other Obligor or any other Person
under the provisions of the Credit Agreement, any Note, any other
Loan Document or otherwise, or
(ii) to exercise any right or remedy against any other
guarantor of, or collateral securing, any Secured Obligations,
(c) any change in the time, manner or place of payment of, or in
any other term of, all or any of the Secured Obligations or any other
extension, compromise or renewal of any Secured Obligation,
(d) any reduction, limitation, impairment or termination of any
Secured Obligations for any reason, including any claim of waiver,
release, surrender, alteration or compromise, and shall not be subject to
(and the Pledgor hereby waives any right to or claim of) any defense or
setoff, counterclaim, recoupment or termination whatsoever by reason of
the invalidity, illegality, nongenuineness, irregularity, compromise,
unenforceability of, or any other event or occurrence affecting, any
Secured Obligations or otherwise,
(e) any amendment to, rescission, waiver, or other modification
of, or any consent to departure from, any of the terms of the Credit
Agreement, any Note or any other Loan Document,
(f) any addition, exchange, release, surrender or non-perfection
of any collateral (including the Collateral), or any amendment to or
waiver or release of or addition to or consent to departure from any
guaranty, for any of the Secured Obligations, or
(g) any other circumstances which might otherwise constitute a
defense available to, or a legal or equitable discharge of, the Grantor,
any other Obligor, any surety or any guarantor.
SECTION 2.6. Postponement of Subrogation, etc. The Grantor will not
exercise any rights which it may acquire by reason of any payment made
hereunder, whether by way of subrogation, reimbursement or otherwise, until the
prior payment, in full and in cash, of all Secured Obligations, the termination
or expiration of all Letters of Credit, and the termination of all
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Commitments. Any amount paid to the Grantor on account of any payment made
hereunder prior to the payment in full of all Secured Obligations shall be held
in trust for the benefit of the Secured Parties and each holder of a Note and
shall immediately be paid to the Secured Parties and each holder of a Note and
credited and applied against the Secured Obligations, whether matured or
unmatured, in accordance with the terms of the Credit Agreement; provided,
however, that if
(a) the Grantor has made payment to the Secured Parties and each
holder of a Note of all or any part of the Secured Obligations, and
(b) all Secured Obligations have been paid in full, all Letters of
Credit have been terminated or expired and all Commitments have been
permanently terminated,
each Secured Party and each holder of a Note agrees that, at the Grantor's
request, the Secured Parties and the holders of the Notes will execute and
deliver to the Grantor appropriate documents (without recourse and without
representation or warranty) necessary to evidence the transfer by subrogation to
the Grantor of an interest in the Secured Obligations resulting from such
payment by the Grantor. In furtherance of the foregoing, for so long as any
Secured Obligations, Letters of Credit or Commitments remain outstanding, the
Grantor shall refrain from taking any action or commencing any proceeding
against a Borrower or any other Obligor (or its successors or assigns, whether
in connection with a bankruptcy proceeding or otherwise) to recover any amounts
in respect of payments made under this Security Agreement to any Secured Party
or any holder of a Note.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1. Representations and Warranties. The Grantor represents
and warrants to each Secured Party as set forth in this Section.
SECTION 3.1.1. Location of Collateral, etc. All of the Equipment,
Inventory and lock boxes of the Grantor are located at the places specified in
Item A, Item B and Item C, respectively, of Schedule I hereto. None of the
Equipment and Inventory has, within the four months preceding the date of this
Security Agreement, been located at any place other than the places specified in
Item A and Item B, respectively, of Schedule I hereto except as set forth in a
footnote thereto. The place(s) of business and chief executive office of the
Grantor and the office(s) where the Grantor keeps its records concerning the
Receivables, and all originals of all chattel paper which evidence Receivables,
are located at the address set forth in Item D of Schedule I hereto. The Grantor
has no trade names
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other than those set forth in Item E of Schedule I hereto. During the four
months preceding the date hereof, the Grantor has not been known by any legal
name different from the one set forth on the signature page hereto, nor has the
Grantor been the subject of any merger or other corporate reorganization, except
as set forth in Item F of Schedule I hereto. All Receivables having a value of
at least $500,000 evidenced by a promissory note or other instrument, negotiable
document or chattel paper have been duly endorsed and accompanied by duly
executed instruments of transfer or assignment, all in form and substance
satisfactory to the Collateral Agent and delivered and pledged to the Collateral
Agent pursuant to Section 4.1.7. As of the Effective Date, the Grantor is not a
party to any Federal, state or local government contract having value in excess
of $500,000 except as set forth in Item G of Schedule I hereto.
SECTION 3.1.2. Ownership, No Liens, etc. The Grantor owns its
Collateral free and clear of any Lien, security interest, charge or encumbrance
except for the security interest created by this Security Agreement and except
as permitted by the Credit Agreement. No effective financing statement or other
instrument similar in effect covering all or any part of the Collateral is on
file in any recording office, except such as may have been filed in favor of the
Collateral Agent relating to this Security Agreement or as have been filed in
connection with Liens permitted pursuant to Section 9.03 of the Credit
Agreement.
SECTION 3.1.3. Possession and Control. The Grantor has exclusive
possession and control of its Equipment and Inventory.
SECTION 3.1.4. Negotiable Documents, Instruments and Chattel Paper. The
Grantor has, contemporaneously herewith, delivered to the Collateral Agent
possession of all originals of all negotiable documents, instruments and chattel
paper currently owned or held by the Grantor (duly endorsed in blank, if
requested by the Collateral Agent) having a value of at least $500,000.
SECTION 3.1.5. Intellectual Property Collateral. With respect to any
Intellectual Property Collateral the loss, impairment or infringement of which
might have a Material Adverse Effect:
(a) such Intellectual Property Collateral is subsisting and has
not been adjudged invalid or unenforceable, in whole or in part;
(b) such Intellectual Property Collateral is valid and
enforceable;
(c) the Grantor has made all necessary filings and recordations to
protect its interest in such Intellectual Property Collateral, including
recordations of all of its interests in the Patent Collateral and
Trademark Collateral
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in the United States Patent and Trademark Office and in corresponding
offices throughout the world and its claims to the Copyright Collateral in
the United States Copyright Office and in corresponding offices throughout
the world;
(d) the Grantor is the exclusive owner of the entire and
unencumbered right, title and interest in and to such Intellectual
Property Collateral and no claim has been made that the use of such
Intellectual Property Collateral does or may violate the asserted rights
of any third party; and
(e) the Grantor has performed and will continue to perform all
acts and has paid and will continue to pay all required fees and taxes to
maintain each and every item of Intellectual Property Collateral in full
force and effect throughout the world, as applicable.
The Grantor owns directly or is entitled to use by license or otherwise, all
patents, Trademarks, Trade Secrets, copyrights, mask works, licenses,
technology, know-how, processes and rights with respect to any of the foregoing
used in, necessary for or of importance to the conduct of the Grantor's
business.
SECTION 3.1.6. Validity, etc. This Security Agreement creates a valid
first priority security interest in the Collateral, securing the payment of the
Secured Obligations, and all filings and other actions necessary or desirable to
perfect and protect such security interest have been duly taken.
SECTION 3.1.7. Authorization, Approval, etc. Except as have been
obtained or made and are in full force and effect, no authorization, approval or
other action by, and no notice to or filing with, any governmental authority or
regulatory body is required either
(a) for the grant by the Grantor of the security interest granted
hereby or for the execution, delivery and performance of this Security
Agreement by the Grantor, or
(b) for the perfection of or the exercise by the Collateral Agent
of its rights and remedies hereunder.
SECTION 3.1.8. Compliance with Laws. The Grantor is in compliance with
the requirements of all applicable laws (including the provisions of the Fair
Labor Standards Act), rules, regulations and orders of every governmental
authority, the non-compliance with which might have a Material Adverse Effect.
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ARTICLE IV
COVENANTS
SECTION 4.1. Certain Covenants. The Grantor covenants and agrees
that, so long as any portion of the Secured Obligations shall remain unpaid, any
Letters of Credit shall be outstanding or any Lender shall have any outstanding
Commitment, the Grantor will, unless the Requisite Lenders shall otherwise
consent in writing, perform, comply with and be bound by the obligations set
forth in this Section.
SECTION 4.1.1. As to Equipment and Inventory. The Grantor hereby agrees
that it shall
(a) keep all the Equipment and Inventory (other than Inventory
sold in the ordinary course of business) at the places therefor specified
in Section 3.1.1 or, upon 30 days' prior written notice to the Collateral
Agent, at such other places in a jurisdiction where all representations
and warranties set forth in Article III (including Section 3.1.6) shall be
true and correct, and all action required pursuant to the first sentence
of Section 4.1.7 shall have been taken with respect to the Equipment and
Inventory;
(b) cause the Equipment to be maintained and preserved in the same
condition, repair and working order as when new, ordinary wear and tear
excepted, and in accordance with any manufacturer's manual; and forthwith,
or in the case of any loss or damage to any of the Equipment, as quickly
as practicable after the occurrence thereof, make or cause to be made all
repairs, replacements, and other improvements in connection therewith
which are necessary or desirable to such end; and promptly furnish to the
Collateral Agent a statement respecting any loss or damage to any of the
Equipment; and
(c) pay promptly when due all property and other taxes,
assessments and governmental charges or levies imposed upon, and all
claims (including claims for labor, materials and supplies) against, the
Equipment and Inventory, except to the extent the validity thereof is
being contested in good faith by appropriate proceedings and for which
adequate reserves in accordance with GAAP have been set aside.
SECTION 4.1.2. As to Receivables.
(a) The Grantor shall keep its place(s) of business and chief
executive office and the office(s) where it keeps its records concerning
the Receivables, and all originals of all chattel paper which evidenced
Receivables, located at the address(es) set forth in Item D of Schedule I
hereto,
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or, upon 30 days' prior written notice to the Collateral Agent, at such
other locations in a jurisdiction where all actions required by the first
sentence of Section 4.1.7 shall have been taken with respect to the
Receivables; not change its name except upon 30 days' prior written notice
to the Collateral Agent; hold and preserve such records and chattel paper;
and permit representatives of the Collateral Agent at any time during
normal business hours to inspect and make abstracts from such records and
chattel paper. In addition, the Grantor shall give the Collateral Agent a
supplement to Schedule I hereto on each date a Compliance Certificate is
required to be delivered to the Collateral Agent under the Credit
Agreement, which shall set forth any changes to the information set forth
in Section 3.1.1.
(b) Upon written notice by the Collateral Agent to the Grantor
pursuant to this Section 4.1.2(b), all proceeds of Collateral received by
the Grantor shall be delivered in kind to the Collateral Agent for deposit
to a deposit account (the "Collateral Account") of the Grantor maintained
with the Collateral Agent, and the Grantor shall not commingle any such
proceeds, and shall hold separate and apart from all other property, all
such proceeds in express trust for the benefit of the Collateral Agent
until delivery thereof is made to the Collateral Agent. The Collateral
Agent will not give the notice referred to in the preceding sentence
unless there shall have occurred and be continuing a Default of the nature
set forth in Section 11.01(f) or 11.01(g) of the Credit Agreement or an
Event of Default.
(c) The Collateral Agent shall have the right to apply any amount
in the Collateral Account to the payment of any Secured Obligations which
are due and payable or payable upon demand, or to the payment of any
Secured Obligations at any time that an Event of Default shall exist.
SECTION 4.1.3. As to Collateral.
(a) The Collateral Agent, however, may, at any time following a
Default of the nature set forth in Section 11.01(f) or 11.01(g) of the
Credit Agreement or an Event of Default, notify any parties obligated on
any of the Collateral to make payments to the Collateral Agent of any
amounts due or to become due thereunder and enforce collection of any of
the Collateral by suit or otherwise and surrender, release, or exchange
all or any part thereof, or compromise or extend or renew for any period
(whether or not longer than the original period) any indebtedness
thereunder or evidenced thereby. Upon request of the Collateral Agent
following a Default of the nature set forth in Section 11.01(f) or
11.01(g) of the Credit Agreement or an Event of Default, the Grantor will,
at its own expense, notify any parties obligated on any of the Collateral
to
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make payment to the Collateral Agent of any amounts due or to become due
thereunder.
(b) The Collateral Agent is authorized to endorse, in the name of
the Grantor, any item, howsoever received by the Collateral Agent,
representing any payment on or other proceeds of any of the Collateral.
SECTION 4.1.4. As to Intellectual Property Collateral. The Grantor
covenants and agrees to comply with the following provisions as such provisions
relate to any Intellectual Property Collateral of the Grantor that:
(a) the Grantor shall not, unless the Grantor shall either (i)
reasonably and in good faith determine (and notice of such determination
shall have been delivered to the Collateral Agent) that any of the Patent
Collateral is of negligible economic value to the Grantor, or (ii) have a
valid business purpose to do otherwise, do any act, or omit to do any act,
whereby any of the Patent Collateral may lapse or become abandoned or
dedicated to the public or unenforceable.
(b) the Grantor shall not, and the Grantor shall not permit any of
its licensees to, unless the Grantor shall either (i) reasonably and in
good faith determine (and notice of such determination shall have been
delivered to the Collateral Agent) that any of the Trademark Collateral is
of negligible economic value to the Grantor, or (ii) have a valid business
purpose to do otherwise,
(i) fail to continue to use any of the Trademark Collateral
in order to maintain all of the Trademark Collateral in full force
free from any claim of abandonment for non-use,
(ii) fail to maintain as in the past the quality of products
and services offered under all of the Trademark Collateral,
(iii) fail to employ all of the Trademark Collateral
registered with any Federal or state or foreign authority with an
appropriate notice of such registration,
(iv) adopt or use any other Trademark which is confusingly
similar or a colorable imitation of any of the Trademark Collateral,
(v) use any of the Trademark Collateral registered with any
Federal or state or foreign authority except for the uses for which
registration or application for registration of all of the Trademark
Collateral has been made, and
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(vi) do or permit any act or knowingly omit to do any act
whereby any of the Trademark Collateral may lapse or become invalid
or unenforceable.
(c) the Grantor shall not, unless the Grantor shall either
(i) reasonably and in good faith determine (and notice of
such determination shall have been delivered to the Collateral
Agent) that any of the Copyright Collateral or any of the Trade
Secrets Collateral is of negligible economic value to the Grantor,
or
(ii) have a valid business purpose to do otherwise, do or
permit any act or knowingly omit to do any act whereby any of the
Copyright Collateral or any of the Trade Secrets Collateral may
lapse or become invalid or unenforceable or placed in the public
domain except upon expiration of the end of an unrenewable term of a
registration thereof.
(d) the Grantor shall notify the Collateral Agent immediately if
it knows, or has reason to know, that any application or registration
relating to any material item of the Intellectual Property Collateral may
become abandoned or dedicated to the public or placed in the public domain
or invalid or unenforceable, or of any adverse determination or
development (including the institution of, or any such determination or
development in, any proceeding in the United States Patent and Trademark
Office, the United States Copyright Office or any foreign counterpart
thereof or any court) regarding the Grantor's ownership of any of the
Intellectual Property Collateral, its right to register the same or to
keep and maintain and enforce the same.
(e) in no event shall the Grantor or any of its agents, employees,
designees or licensees file an application for the registration of any
Intellectual Property Collateral with the United States Patent and
Trademark Office, the United States Copyright Office or any similar office
or agency in any other country or any political subdivision thereof,
unless it promptly informs the Collateral Agent, and upon request of the
Collateral Agent, executes and delivers any and all agreements,
instruments, documents and papers as the Collateral Agent may reasonably
request to evidence the Collateral Agent's security interest in such
Intellectual Property Collateral and the goodwill and general intangibles
of the Grantor relating thereto or represented thereby.
(f) the Grantor shall take all necessary steps, including in any
proceeding before the United States Patent and Trademark Office, the
United States Copyright Office or any similar office or agency in any
other country or any
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political subdivision thereof, to maintain and pursue any application (and
to obtain the relevant registration) filed with respect to, and to
maintain any registration of, the Intellectual Property Collateral,
including the filing of applications for renewal, affidavits of use,
affidavits of incontestability and opposition, interference and
cancellation proceedings and the payment of fees and taxes (except to the
extent that dedication, abandonment or invalidation is permitted under the
foregoing clauses (a), (b) and (c)).
(g) the Grantor shall, contemporaneously herewith, execute and
deliver to the Collateral Agent a Patent Security Agreement, a Trademark
Security Agreement and a Copyright Security Agreement in the forms of
Exhibit A, Exhibit B and Exhibit C hereto, respectively, and shall execute
and deliver to the Collateral Agent any other document required to
acknowledge or register or perfect the Collateral Agent's interest in any
part of the Intellectual Property Collateral.
SECTION 4.1.5. Insurance. The Grantor will maintain or cause to be
maintained with responsible insurance companies insurance with respect to its
business and properties (including the Equipment and Inventory) against such
casualties and contingencies and of such types and in such amounts as is
required pursuant to the Credit Agreement and will, upon the request of the
Collateral Agent, furnish a certificate of a reputable insurance broker setting
forth the nature and extent of all insurance maintained by the Grantor in
accordance with this Section. Without limiting the foregoing, the Grantor
further agrees as follows:
(a) Each policy for property insurance shall show the Collateral
Agent as loss payee.
(b) Each policy for liability insurance shall show the Collateral
Agent as an additional insured.
(c) With respect to each life insurance policy, the Grantor shall
execute and deliver to the Collateral Agent a collateral assignment,
notice of which has been acknowledged in writing by the insurer.
(d) Each insurance policy shall provide that at least 30 days'
prior written notice of cancellation or of lapse shall be given to the
Collateral Agent by the insured.
(e) The Grantor shall, if so requested by the Collateral Agent,
deliver to the Collateral Agent a copy of each insurance policy.
(f) All payments in respect of property insurance and life
insurance shall be deposited to the Collateral Account
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and if there shall be no Collateral Account shall be paid to the Grantor.
SECTION 4.1.6. Transfers and Other Liens. The Grantor shall not:
(a) sell, assign (by operation of law or otherwise) or otherwise
dispose of any of the Collateral, except Inventory in the ordinary course
of business or as permitted by the Credit Agreement; or
(b) create or suffer to exist any Lien or other charge or
encumbrance upon or with respect to any of the Collateral to secure
Indebtedness of any Person or entity, except for the security interest
created by this Security Agreement and except as permitted by the Credit
Agreement.
SECTION 4.1.7. Further Assurances, etc. The Grantor agrees that, from
time to time at its own expense, it will promptly execute and deliver all
further instruments and documents, and take all further action, that may be
necessary or desirable, or that the Collateral Agent may request, in order to
perfect, preserve and protect any security interest granted or purported to be
granted hereby or to enable the Collateral Agent to exercise and enforce its
rights and remedies hereunder with respect to any Collateral. Without limiting
the generality of the foregoing, the Grantor will
(a) at the request of the Collateral Agent, mark conspicuously
each document included in the Inventory, each chattel paper included in
the Receivables and each Related Contract and, at the request of the
Collateral Agent, each of its records pertaining to the Collateral with a
legend, in form and substance satisfactory to the Collateral Agent,
indicating that such document, chattel paper, Related Contract or
Collateral is subject to the security interest granted hereby;
(b) if any Receivable having a value of at least $500,000 shall be
evidenced by a promissory note or other instrument, negotiable document or
chattel paper, deliver and pledge to the Collateral Agent hereunder such
promissory note, instrument, negotiable document or chattel paper duly
endorsed and accompanied by duly executed instruments of transfer or
assignment, all in form and substance satisfactory to the Collateral
Agent;
(c) execute and file such financing or continuation statements, or
amendments thereto, and such other instruments or notices (including any
assignment of claim form under or pursuant to the federal assignment of
claims statute, 31 U.S.C. ss. 3726, any successor or amended version
thereof or any regulation promulgated under or pursuant to any version
thereof), as may be necessary or desirable, or
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as the Collateral Agent may request, in order to perfect and preserve the
security interests and other rights granted or purported to be granted to
the Collateral Agent hereby; and
(d) furnish to the Collateral Agent, from time to time at the
Collateral Agent's request, statements and schedules further identifying
and describing the Collateral and such other reports in connection with
the Collateral as the Collateral Agent may reasonably request, all in
reasonable detail.
With respect to the foregoing and the grant of the security interest hereunder,
the Grantor hereby authorizes the Collateral Agent to file one or more financing
or continuation statements, and amendments thereto, relative to all or any part
of the Collateral without the signature of the Grantor where permitted by law. A
carbon, photographic or other reproduction of this Security Agreement or any
financing statement covering the Collateral or any part thereof shall be
sufficient as a financing statement where permitted by law.
ARTICLE V
THE COLLATERAL AGENT
SECTION 5.1. Collateral Agent Appointed Attorney-in-Fact. The Grantor
hereby irrevocably appoints the Collateral Agent the Grantor's attorney-in-fact,
with full authority in the place and stead of the Grantor and in the name of the
Grantor or otherwise, from time to time in the Collateral Agent's discretion,
following the occurrence and continuation of a Default of the nature set forth
in Section 11.01(f) or 11.01(g) of the Credit Agreement or an Event of Default,
to take any action and to execute any instrument which the Collateral Agent may
deem necessary or advisable to accomplish the purposes of this Security
Agreement, including:
(a) to ask, demand, collect, sue for, recover, compromise, receive
and give acquittance and receipts for moneys due and to become due under
or in respect of any of the Collateral;
(b) to receive, endorse, and collect any drafts or other
instruments, documents and chattel paper, in connection with clause (a)
above;
(c) to file any claims or take any action or institute any
proceedings which the Collateral Agent may deem necessary or desirable for
the collection of any of the Collateral or otherwise to enforce the rights
of the Collateral Agent with respect to any of the Collateral; and
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(d) to perform the affirmative obligations of the Grantor
hereunder (including all obligations of the Grantor pursuant to Section
4.1.7).
The Grantor hereby acknowledges, consents and agrees that the power of attorney
granted pursuant to this Section is irrevocable and coupled with an interest.
SECTION 5.2. Collateral Agent May Perform. If the Grantor fails to
perform any agreement contained herein, the Collateral Agent may itself perform,
or cause performance of, such agreement, and the expenses of the Collateral
Agent incurred in connection therewith shall be payable by the Grantor pursuant
to Section 6.2.
SECTION 5.3. Collateral Agent Has No Duty. In addition to, and not in
limitation of, Section 2.4, the powers conferred on the Collateral Agent
hereunder are solely to protect its interest (on behalf of the Secured Parties)
in the Collateral and shall not impose any duty on it to exercise any such
powers. Except for reasonable care of any Collateral in its possession and the
accounting for moneys actually received by it hereunder, the Collateral Agent
shall have no duty as to any Collateral or as to the taking of any necessary
steps to preserve rights against prior parties or any other rights pertaining to
any Collateral.
SECTION 5.4. Reasonable Care. The Collateral Agent is required to
exercise reasonable care in the custody and preservation of any of the
Collateral in its possession; provided, however, the Collateral Agent shall be
deemed to have exercised reasonable care in the custody and preservation of any
of the Collateral, if it takes such action for that purpose as the Grantor
reasonably requests in writing at times other than upon the occurrence and
during the continuance of any Event of Default, but failure of the Collateral
Agent to comply with any such request at any time shall not in itself be deemed
a failure to exercise reasonable care.
ARTICLE VI
REMEDIES
SECTION 6.1. Certain Remedies. If any Event of Default shall have
occurred and be continuing:
(a) The Collateral Agent may exercise in respect of the
Collateral, in addition to other rights and remedies provided for herein
or otherwise available to it, all the rights and remedies of a secured
party on default under the U.C.C. (whether or not the U.C.C. applies to
the affected Collateral) and also may
(i) require the Grantor to, and the Grantor hereby agrees
that it will, at its expense and upon
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request of the Collateral Agent forthwith, assemble all or part of
the Collateral as directed by the Collateral Agent and make it
available to the Collateral Agent at a place to be designated by the
Collateral Agent which is reasonably convenient to both parties, and
(ii) without notice except as specified below, sell the
Collateral or any part thereof in one or more parcels at public or
private sale, at any of the Collateral Agent's offices or elsewhere,
for cash, on credit or for future delivery, and upon such other
terms as the Collateral Agent may deem commercially reasonable. The
Grantor agrees that, to the extent notice of sale shall be required
by law, at least ten days' prior notice to the Grantor of the time
and place of any public sale or the time after which any private
sale is to be made shall constitute reasonable notification. The
Collateral Agent shall not be obligated to make any sale of
Collateral regardless of notice of sale having been given. The
Collateral Agent may adjourn any public or private sale from time to
time by announcement at the time and place fixed therefor, and such
sale may, without further notice, be made at the time and place to
which it was so adjourned.
(b) All cash proceeds received by the Collateral Agent in respect
of any sale of, collection from, or other realization upon all or any part
of the Collateral shall be applied (after payment of any amounts payable
to the Collateral Agent pursuant to Section 6.2) pursuant to Section
3.02(b)(iii) of the Credit Agreement.
SECTION 6.2. Indemnity and Expenses.
(a) The Grantor agrees to indemnify the Collateral Agent from and
against any and all claims, losses and liabilities arising out of or
resulting from this Security Agreement (including enforcement of this
Security Agreement), except claims, losses or liabilities resulting from
the Collateral Agent's gross negligence or wilful misconduct.
(b) The Grantor will upon demand pay to the Collateral Agent the
amount of any and all reasonable expenses, including the reasonable fees
and disbursements of its counsel and of any experts and agents, which the
Collateral Agent may incur in connection with
(i) the administration of this Security Agreement,
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(ii) the custody, preservation, use or operation of, or the
sale of, collection from, or other realization upon, any of the
Collateral, and
(iii) the exercise or enforcement of any of the rights of the
Collateral Agent or the Secured Parties hereunder, or (iv) the
failure by the Grantor to perform or observe any of the provisions
hereof.
ARTICLE VII
MISCELLANEOUS PROVISIONS
SECTION 7.1. Loan Document. This Security Agreement is a Loan
Document executed pursuant to the Credit Agreement and shall (unless otherwise
expressly indicated herein) be construed, administered and applied in accordance
with the terms and provisions thereof.
SECTION 7.2. Amendments; etc. No amendment to or waiver of any
provision of this Security Agreement nor consent to any departure by the Grantor
herefrom, shall in any event be effective unless the same shall be in writing
and signed by the Collateral Agent (on behalf of the Lenders or the Requisite
Lenders, as the case may be), and then such waiver or consent shall be effective
only in the specific instance and for the specific purpose for which given.
SECTION 7.3. Addresses for Notices. All notices and other
communications provided for hereunder shall be made in accordance with Section
13.08 of the Credit Agreement.
SECTION 7.4. Section Captions. Section captions used in this Security
Agreement are for convenience of reference only, and shall not affect the
construction of this Security Agreement.
SECTION 7.5. Severability. Wherever possible each provision of this
Security Agreement shall be interpreted in such manner as to be effective and
valid under applicable law, but if any provision of this Security Agreement
shall be prohibited by or invalid under such 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
Security Agreement.
SECTION 7.6. Counterparts. This Security Agreement may be executed by
the parties hereto in several counterparts, each of which shall be deemed an
original and all of which shall constitute together but one and the same
agreement.
SECTION 7.7. Notices. Unless otherwise specifically provided herein,
any notice or other communication herein required or permitted to be given shall
be in writing and may be personally served, telecopied, telexed or sent by
courier service
-22-
<PAGE>
or United States certified mail and shall be deemed to have been given when
delivered in person or by courier service, upon receipt of a telecopy or telex
or four (4) Business Days after deposit in the United States mail with postage
prepaid and properly addressed. Notices to the Collateral Agent shall not be
effective until received by the Collateral Agent. For the purposes hereof, the
addresses of the parties hereto (until notice of a change thereof is delivered
as provided in this Section 7.7) shall be as set forth below each party's name
on the signature pages hereof, or, as to each party, at such other address as
may be designated by such party in a written notice to the other party to this
Security Agreement.
SECTION 7.8. Certain Consents and Waivers of the Grantor.
SECTION 7.8.1. Personal Jurisdiction. THE GRANTOR IRREVOCABLY AND
UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE NONEXCLUSIVE
JURISDICTION OF ANY NEW YORK STATE COURT OR FEDERAL COURT SITTING IN NEW YORK,
NEW YORK, AND ANY COURT HAVING JURISDICTION OVER APPEALS OF MATTERS HEARD IN
SUCH COURTS, IN ANY ACTION OR PROCEEDING ARISING OUT OF, CONNECTED WITH, RELATED
TO OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED IN CONNECTION WITH THIS
SECURITY AGREEMENT OR ANY OTHER LOAN DOCUMENT TO WHICH THE GRANTOR IS A PARTY,
WHETHER ARISING IN CONTRACT, TORT, EQUITY OR OTHERWISE, OR FOR RECOGNITION OR
ENFORCEMENT OF ANY JUDGMENT, AND THE GRANTOR IRREVOCABLY AND UNCONDITIONALLY
AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD
AND DETERMINED IN SUCH STATE COURT OR, TO THE EXTENT PERMITTED BY LAW, IN SUCH
FEDERAL COURT. THE GRANTOR IRREVOCABLY DESIGNATES AND APPOINTS CORPORATION
SERVICE COMPANY, 15 COLUMBUS CIRCLE, NEW YORK, NEW YORK 10023, AS ITS AGENT (THE
"PROCESS AGENT") FOR SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN ANY SUCH
COURT, SUCH SERVICE BEING HEREBY ACKNOWLEDGED TO BE EFFECTIVE AND BINDING
SERVICE IN EVERY RESPECT. THE GRANTOR AGREES THAT A FINAL JUDGMENT IN ANY SUCH
ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER
JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW.
THE GRANTOR WAIVES IN ALL DISPUTES ANY OBJECTION THAT IT MAY HAVE TO THE
LOCATION OF THE COURT CONSIDERING THE DISPUTE.
THE GRANTOR AGREES THAT THE COLLATERAL AGENT SHALL HAVE THE RIGHT TO
PROCEED AGAINST THE GRANTOR OR ITS PROPERTY IN A COURT IN ANY LOCATION TO ENABLE
THE ADMINISTRATIVE AGENTS, THE LENDERS AND THE ISSUING BANKS TO REALIZE ON THE
COLLATERAL OR ANY OTHER SECURITY FOR THE SECURED OBLIGATIONS, OR TO ENFORCE A
JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF THE ADMINISTRATIVE AGENTS, ANY
LENDER OR ANY ISSUING BANK. THE GRANTOR WAIVES ANY OBJECTION THAT IT MAY HAVE TO
THE LOCATION OF THE COURT IN WHICH THE COLLATERAL AGENT MAY COMMENCE A
PROCEEDING DESCRIBED IN THIS SECTION.
SECTION 7.8.2. Service of Process. THE GRANTOR IRREVOCABLY CONSENTS TO
THE SERVICE OF PROCESS OF ANY OF THE AFOREMENTIONED
-23-
<PAGE>
COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY
REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE PROCESS AGENT OR THE
GRANTOR'S NOTICE ADDRESS SPECIFIED BELOW, SUCH SERVICE TO BECOME EFFECTIVE FIVE
(5) DAYS AFTER SUCH MAILING. THE GRANTOR IRREVOCABLY WAIVES ANY OBJECTION
(INCLUDING, WITHOUT LIMITATION, ANY OBJECTION OF THE LAYING OF VENUE OR BASED ON
THE GROUNDS OF FORUM NON CONVENIENS) WHICH IT MAY NOW OR HEREAFTER HAVE TO THE
BRINGING OF ANY SUCH ACTION OR PROCEEDING WITH RESPECT TO THIS SECURITY
AGREEMENT OR ANY OTHER LOAN DOCUMENT IN ANY JURISDICTION SET FORTH ABOVE.
NOTHING HEREIN SHALL AFFECT THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF THE ADMINISTRATIVE AGENTS, THE
LENDERS AND ISSUING BANKS TO BRING PROCEEDINGS AGAINST THE GRANTOR IN THE COURTS
OF ANY OTHER JURISDICTION.
SECTION 7.9. Governing Law, Entire Agreement, etc. THIS SECURITY
AGREEMENT SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE
INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING FOR SUCH PURPOSE SECTIONS
5-1401 AND 5-1402 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK),
EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE SECURITY INTEREST
HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE
GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK. THIS
SECURITY AGREEMENT AND THE OTHER LOAN DOCUMENTS CONSTITUTE THE ENTIRE
UNDERSTANDING AMONG THE PARTIES HERETO WITH RESPECT TO THE SUBJECT MATTER HEREOF
AND THEREOF AND SUPERSEDE ANY PRIOR AGREEMENTS, WRITTEN OR ORAL, WITH RESPECT
THERETO.
-24-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Security Agreement
to be duly executed and delivered by their respective officers thereunto duly
authorized as of the day and year first above written.
FOAMEX LLC
By: Foamex L.P., its sole member
By: FMXI, INC., the Managing
General Partner of Foamex L.P.
By: /s/ George L. Karpinski
------------------------
Name: George L. Karpinski
Title: Senior Vice President
Notice address
c/o Foamex International Inc.
1000 Columbia Avenue
Linwood, Pennsylvania 19061
Attn.: Kenneth R. Fuette
Telecopier No.: 610-859-3085
CITICORP USA, INC., as Collateral Agent
By: /s/ Timothy L. Freeman
------------------------
Name: Timothy L. Freeman
Title: Attorney-in-Fact
Notice address:
Citicorp USA, Inc.
399 Park Avenue
New York, New York 10043
Attn: Timothy L. Freeman
Telecopier No.: (212) 793-1290
-25-
<PAGE>
SCHEDULE I
to Crain LLC
Security Agreement
Item A. Location of Equipment
---------------------
Description Location
----------- --------
1.
2.
3.
Item B. Location of Inventory
---------------------
Description Location
----------- --------
1.
2.
3.
Item C. Location of Lock Boxes
---------------------
Contact
Bank Name and Address Account Number Person
--------------------- -------------- ------
1.
2.
3.
Item D. Place(s) of Business and Chief Executive Office
-----------------------------------------------
Item E. Trade Names
-----------
Item F. Merger or Other Corporate Reorganization
----------------------------------------
Item G. Government Contracts
--------------------
<PAGE>
SCHEDULE II
to Crain LLC
Security Agreement
Item A. Patents
-------
Issued Patents
--------------
*(1)Country Patent No. Issue Date Inventor(s) Title
- - ----------- ---------- ---------- ----------- -----
Pending Patent Applications
---------------------------
*Country Serial No. Filing Date Inventor(s) Title
- - -------- ---------- ----------- ----------- -----
Patent Applications in Preparation
----------------------------------
Expected
*Country Docket No. Filing Date Inventor(s) Title
- - -------- ---------- ----------- ----------- -----
Item B. Patent Licenses
---------------
*Country or Effective Expiration Subject
Territory Licensor Licensee Date Date Matter
--------- -------- -------- --------- ---------- -------
- - -------------------
* List items related to the United States first for ease of
recordation. List items related to other countries next, grouped by
country and in alphabetical order by country name.
<PAGE>
SCHEDULE III
to Crain LLC
Security Agreement
Item A. Trademarks
----------
Registered Trademarks
---------------------
(2)Country Trademark Registration No. Registration Date
- - ---------- --------- ---------------- -----------------
Pending Trademark Applications
------------------------------
*Country Trademark Serial No. Filing Date
- - -------- --------- ---------- -----------
Trademark Applications in Preparation
-------------------------------------
Expected Products/
*Country Trademark Docket No. Filing Date Services
- - -------- --------- ---------- ----------- --------
Item B. Trademark Licenses
------------------
*Country or Effective Expiration
Territory Trademark Licensor Licensee Date Date
--------- --------- -------- -------- --------- ----------
- - -------------------
* List items related to the United States first for ease of
recordation. List items related to other countries next, grouped by
country and in alphabetical order by country name.
<PAGE>
SCHEDULE IV
to Crain LLC
Security Agreement
Item A. Copyrights/Mask Works
---------------------
Registered Copyrights/Mask Works
--------------------------------
(3)Country Registration No. Registration Date Author(s) Title
- - ---------- ---------------- ----------------- --------- -----
Copyright/Mask Work Pending Registration Applications
-----------------------------------------------------
*Country Serial No. Filing Date Author(s) Title
- - -------- ---------- ----------- --------- -----
Copyright/Mask Work Registration Applications in Preparation
------------------------------------------------------------
Expected
*Country Docket No. Filing Date Author(s) Title
- - -------- ---------- ----------- --------- -----
Item B. Copyright/Mask Work Licenses
----------------------------
*Country or Effective Expiration Subject
Territory Licensor Licensee Date Date Matter
--------- -------- -------- --------- ---------- ------
- - -------------------
* List items related to the United States first for ease of
recordation. List items related to other countries next, grouped by
country and in alphabetical order by country name.
<PAGE>
SCHEDULE V
to Crain LLC
Security Agreement
Trade Secret or Know-How Licenses
---------------------------------
(4)Country or Effective Expiration Subject
Territory Licensor Licensee Date Date Matter
---------- -------- -------- --------- ---------- -------
- - -------------------
* List items related to the United States first for ease of
recordation. List items related to other countries next, grouped by
country and in alphabetical order by country name.
<PAGE>
EXHIBIT A
to Crain LLC
Security Agreement
CRAIN LLC PATENT SECURITY AGREEMENT
This CRAIN LLC PATENT SECURITY AGREEMENT (this "Agreement"), dated as of
December 23, 1997, is made between Foamex LLC, a Delaware limited liability
company (the "Grantor"), and Citicorp USA, Inc., as collateral agent (together
with any successor(s) thereto in such capacity, the "Collateral Agent") for each
of the Secured Parties;
W I T N E S S E T H :
WHEREAS, pursuant to a Credit Agreement, dated as of June 12, 1997 (as
amended, supplemented, amended and restated or modified from time to time, the
"Existing Credit Agreement"), among Foamex L.P., a Delaware limited partnership
("Foamex" or a "Borrower"), General Felt Industries, Inc., a Delaware
corporation ("GFI" or a "Borrower"; and, if together with Foamex, the
"Borrowers"), Trace Foam Company, Inc., a Delaware corporation and general
partner of Foamex ("Trace Foam"), FMXI, Inc., a Delaware corporation and
managing general partner of Foamex ("FMXI"), the Lenders, the Issuing Banks and
Citicorp USA, Inc., as Collateral Agent for the Lenders and the Issuing Banks
and The Bank of Nova Scotia, as Funding Agent for the Lenders and the Issuing
Banks (together with the Collateral Agent, the "Administrative Agents"), the
Lenders and the Issuing Banks have extended Commitments to make Credit
Extensions to the Borrowers;
WHEREAS, the Existing Credit Agreement is to be amended by the First
Amendment to Credit Agreement, dated as of December 23, 1997 (the "First
Amendment to Credit Agreement", the Existing Credit Agreement as amended by the
First Amendment to Credit Agreement and as further amended, supplemented,
amended and restated or otherwise modified from time to time being the "Credit
Agreement"), among the Borrowers, Trace Foam, FMXI, the Lenders, the Issuing
Banks and the Administrative Agents;
WHEREAS, in connection with the Credit Agreement, the Grantor has executed
and delivered the Crain LLC Security Agreement, dated as of December 23, 1997
(as amended, supplemented, amended and restated or otherwise modified from time
to time, the "Security Agreement");
WHEREAS, as a condition precedent to the effectiveness of the First
Amendment to Credit Agreement, the Grantor is required to execute and deliver
this Agreement; and
WHEREAS, the Grantor has duly authorized the execution, delivery and
performance of this Agreement.
<PAGE>
NOW, THEREFORE, for good and valuable consideration, the receipt of which
is hereby acknowledged, and in order to induce the Lenders and the Issuer to
make Credit Extensions to the Borrowers pursuant to the Credit Agreement, the
Grantor agrees, for the benefit of each Secured Party, as follows:
SECTION 1. Definitions. Unless otherwise defined herein or the context
otherwise requires, terms used in this Agreement, including its preamble and
recitals, have the meanings provided (or incorporated by reference) in the
Security Agreement.
SECTION 2. Grant of Security Interest. For good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, to
secure all of the Secured Obligations, the Grantor does hereby mortgage, pledge
and hypothecate to the Collateral Agent, and grant to the Collateral Agent a
security interest in, for its benefit and the benefit of each Secured Party, all
of the following property (the "Patent Collateral"), whether now owned or
hereafter acquired or existing by it:
(a) all letters patent and applications for letters patent
throughout the world, including all patent applications in preparation for
filing anywhere in the world and including each patent and patent
application referred to in Item A of Attachment 1 attached hereto;
(b) all reissues, divisions, continuations, continuations-in-part,
extensions, renewals and reexaminations of any of the items described in
clause (a);
(c) all patent licenses, including each patent license referred to
in Item B of Attachment 1 attached hereto; and
(d) all proceeds of, and rights associated with, the foregoing
(including license royalties and proceeds of infringement suits), the
right to sue third parties for past, present or future infringements of
any patent or patent application, including any patent or patent
application referred to in Item A of Attachment 1 attached hereto, and for
breach or enforcement of any patent license, including any patent license
referred to in Item B of Attachment 1 attached hereto, and all rights
corresponding thereto throughout the world.
SECTION 3. Security Agreement. This Agreement has been executed and
delivered by the Grantor for the purpose of registering the security interest of
the Collateral Agent in the Patent Collateral with the United States Patent and
Trademark Office and corresponding offices in other countries of the world. The
security interest granted hereby has been granted as a supplement to, and not in
limitation of, the security interest granted to the Collateral Agent for its
benefit and the benefit of each Secured Party under the Security Agreement. The
Security Agreement (and all rights and remedies of the Collateral Agent
-2-
<PAGE>
and each Secured Party thereunder) shall remain in full force and effect in
accordance with its terms.
SECTION 4. Release of Security Interest. Upon payment in full in cash of
all Secured Obligations, the termination or expiry of all Letters of Credit and
the termination of all Commitments, the Collateral Agent shall, at the Grantor's
expense, execute and deliver to the Grantor all instruments and other documents
as may be necessary or proper to release the lien on and security interest in
the Patent Collateral which has been granted hereunder.
SECTION 5. Acknowledgment. The Grantor does hereby further acknowledge
and affirm that the rights and remedies of the Collateral Agent with respect to
the security interest in the Patent Collateral granted hereby are more fully set
forth in the Security Agreement, the terms and provisions of which (including
the remedies provided for therein) are incorporated by reference herein as if
fully set forth herein.
SECTION 6. Loan Document, etc. This Agreement is a Loan Document executed
pursuant to the Credit Agreement and shall (unless otherwise expressly indicated
herein) be construed, administered and applied in accordance with the terms and
provisions of the Credit Agreement.
SECTION 7. Counterparts. This Agreement may be executed by the parties
hereto in several counterparts, each of which shall be deemed to be an original
and all of which shall constitute together but one and the same agreement.
-3-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their respective officers thereunto duly
authorized as of the day and year first above written.
FOAMEX LLC
By
-------------------------------------
Name: George L. Karpinski
Title: Senior Vice President
CITICORP USA, INC., as Collateral Agent
By
-------------------------------------
Name: Timothy L. Freeman
Title: Attorney-in-Fact
-4-
<PAGE>
ATTACHMENT 1
to Crain LLC Patent
Security Agreement
Item A. Patents
-------
Issued Patents
--------------
*(5)Country Patent No. Issue Date Inventor(s) Title
- - ----------- ---------- ---------- ------------ -----
Pending Patent Applications
---------------------------
*Country Serial No. Filing Date Inventor(s) Title
- - -------- ---------- ----------- ------------ -----
Patent Applications in Preparation
----------------------------------
Expected
*Country Docket No. Filing Date Inventor(s) Title
- - -------- ---------- ----------- ------------ -----
Item B. Patent Licenses
---------------
*Country or Effective Expiration Subject
Territory Licensor Licensee Date Date Matter
--------- -------- -------- --------- ---------- -------
- - -------------------
* List items related to the United States first for ease of
recordation. List items related to other countries next, grouped by
country and in alphabetical order by country name.
<PAGE>
EXHIBIT B
to Crain LLC
Security Agreement
CRAIN LLC TRADEMARK SECURITY AGREEMENT
This CRAIN LLC TRADEMARK SECURITY AGREEMENT (this "Agreement"), dated as
of December 23, 1997, is made between Foamex LLC, a Delaware limited liability
company (the "Grantor"), and Citicorp USA, Inc., as collateral agent (together
with any successor(s) thereto in such capacity, the "Collateral Agent") for each
of the Secured Parties;
W I T N E S S E T H :
WHEREAS, pursuant to a Credit Agreement, dated as of June 12, 1997 (as
amended, supplemented, amended and restated or modified from time to time, the
"Existing Credit Agreement"), among Foamex L.P., a Delaware limited partnership
("Foamex" or a "Borrower"), General Felt Industries, Inc., a Delaware
corporation ("GFI" or a "Borrower"; and, if together with Foamex, the
"Borrowers"), Trace Foam Company, Inc., a Delaware corporation and general
partner of Foamex ("Trace Foam"), FMXI, Inc., a Delaware corporation and
managing general partner of Foamex ("FMXI"), the Lenders, the Issuing Banks and
Citicorp USA, Inc., as Collateral Agent for the Lenders and the Issuing Banks
and The Bank of Nova Scotia, as Funding Agent for the Lenders and the Issuing
Banks (together with the Collateral Agent, the "Administrative Agents"), the
Lenders and the Issuing Banks have extended Commitments to make Credit
Extensions to the Borrowers;
WHEREAS, the Existing Credit Agreement is to be amended by the First
Amendment to Credit Agreement, dated as of December 23, 1997 (the "First
Amendment to Credit Agreement", the Existing Credit Agreement as amended by the
First Amendment to Credit Agreement and as further amended, supplemented,
amended and restated or otherwise modified from time to time being the "Credit
Agreement"), among the Borrowers, Trace Foam, FMXI, the Lenders, the Issuing
Banks and the Administrative Agents;
WHEREAS, in connection with the Credit Agreement, the Grantor has executed
and delivered the Crain LLC Security Agreement, dated as of December 23, 1997
(as amended, supplemented, amended and restated or otherwise modified from time
to time, the "Security Agreement");
WHEREAS, as a condition precedent to the effectiveness of the First
Amendment to Credit Agreement, the Grantor is required to execute and deliver
this Agreement; and
WHEREAS, the Grantor has duly authorized the execution, delivery and
performance of this Agreement.
<PAGE>
NOW, THEREFORE, for good and valuable consideration, the receipt of which
is hereby acknowledged, and in order to induce the Lenders and the Issuer to
make Credit Extensions to the Borrowers pursuant to the Credit Agreement, the
Grantor agrees, for the benefit of each Secured Party, as follows:
SECTION 1. Definitions. Unless otherwise defined herein or the context
otherwise requires, terms used in this Agreement, including its preamble and
recitals, have the meanings provided (or incorporated by reference) in the
Security Agreement.
SECTION 2. Grant of Security Interest. For good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, to
secure all of the Secured Obligations, the Grantor does hereby mortgage, pledge
and hypothecate to the Collateral Agent, and grant to the Collateral Agent a
security interest in, for its benefit and the benefit of each Secured Party, all
of the following property (the "Trademark Collateral"), whether now owned or
hereafter acquired or existing by it:
(a) all trademarks, trade names, corporate names, company names,
business names, fictitious business names, trade styles, service marks,
certification marks, collective marks, logos, other source of business
identifiers, prints and labels on which any of the foregoing have appeared
or appear, designs and general intangibles of a like nature (all of the
foregoing items in this clause (a) being collectively called a
"Trademark"), now existing anywhere in the world or hereafter adopted or
acquired, whether currently in use or not, all registrations and
recordings thereof and all applications in connection therewith, whether
pending or in preparation for filing, including registrations, recordings
and applications in the United States Patent and Trademark Office or in
any office or agency of the United States of America or any State thereof
or any foreign country, including those referred to in Item A of
Attachment 1 attached hereto;
(b) all Trademark licenses, including each Trademark license
referred to in Item B of Attachment 1 attached hereto;
(c) all reissues, extensions or renewals of any of the items
described in clauses (a) and (b);
(d) all of the goodwill of the business connected with the use of,
and symbolized by the items described in, clauses (a) and (b); and
(e) all proceeds of, and rights associated with, the foregoing,
including any claim by the Grantor against third parties for past, present
or future infringement or dilution of any Trademark, Trademark
registration or Trademark
-2-
<PAGE>
license, including any Trademark, Trademark registration or Trademark
license referred to in Item A and Item B of Attachment 1 attached hereto,
or for any injury to the goodwill associated with the use of any such
Trademark or for breach or enforcement of any Trademark license.
SECTION 3. Security Agreement. This Agreement has been executed and
delivered by the Grantor for the purpose of registering the security interest of
the Collateral Agent in the Trademark Collateral with the United States Patent
and Trademark Office and corresponding offices in other countries of the world.
The security interest granted hereby has been granted as a supplement to, and
not in limitation of, the security interest granted to the Collateral Agent for
its benefit and the benefit of each Secured Party under the Security Agreement.
The Security Agreement (and all rights and remedies of the Collateral Agent and
each Secured Party thereunder) shall remain in full force and effect in
accordance with its terms.
SECTION 4. Release of Security Interest. Upon payment in full in cash of
all Secured Obligations, the termination or expiry of all Letters of Credit and
the termination of all Commitments, the Collateral Agent shall, at the Grantor's
expense, execute and deliver to the Grantor all instruments and other documents
as may be necessary or proper to release the lien on and security interest in
the Trademark Collateral which has been granted hereunder.
SECTION 5. Acknowledgment. The Grantor does hereby further acknowledge
and affirm that the rights and remedies of the Collateral Agent with respect to
the security interest in the Trademark Collateral granted hereby are more fully
set forth in the Security Agreement, the terms and provisions of which
(including the remedies provided for therein) are incorporated by reference
herein as if fully set forth herein.
SECTION 6. Loan Document, etc. This Agreement is a Loan Document executed
pursuant to the Credit Agreement and shall (unless otherwise expressly indicated
herein) be construed, administered and applied in accordance with the terms and
provisions of the Credit Agreement.
SECTION 7. Counterparts. This Agreement may be executed by the parties
hereto in several counterparts, each of which shall be deemed to be an original
and all of which shall constitute together but one and the same agreement.
-3-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their respective officers thereunto duly
authorized as of the day and year first above written.
FOAMEX LLC
By
-------------------------------------
Name: George L. Karpinski
Title: Senior Vice President
CITICORP USA, INC., as Collateral Agent
By
-------------------------------------
Name: Timothy L. Freeman
Title: Attorney-in-Fact
-4-
<PAGE>
ATTACHMENT 1
to Crain LLC Trademark
Security Agreement
Item A. Trademarks
----------
Registered Trademarks
---------------------
(6)Country Trademark Registration No. Registration Date
- - ---------- --------- ---------------- -----------------
Pending Trademark Applications
------------------------------
*Country Trademark Serial No. Filing Date
- - -------- --------- ---------- -----------
Trademark Applications in Preparation
-------------------------------------
Expected Products/
*Country Trademark Docket No. Filing Date Services
- - -------- --------- ---------- ----------- --------
Item B. Trademark Licenses
------------------
*Country or Effective Expiration
Territory Trademark Licensor Licensee Date Date
--------- --------- -------- -------- --------- ----------
- - -------------------
* List items related to the United States first for ease of
recordation. List items related to other countries next, grouped by
country and in alphabetical order by country name.
<PAGE>
EXHIBIT C
to Crain LLC
Security Agreement
CRAIN LLC COPYRIGHT SECURITY AGREEMENT
This COPYRIGHT SECURITY AGREEMENT (this "Agreement"), dated as of December
23, 1997, is made between Foamex LLC, a Delaware limited liability company (the
"Grantor"), and Citicorp USA, Inc., as collateral agent (together with any
successor(s) thereto in such capacity, the "Collateral Agent") for each of the
Secured Parties;
W I T N E S S E T H :
WHEREAS, pursuant to a Credit Agreement, dated as of June 12, 1997 (as
amended, supplemented, amended and restated or modified from time to time, the
"Existing Credit Agreement"), among Foamex L.P., a Delaware limited partnership
("Foamex" or a "Borrower"), General Felt Industries, Inc., a Delaware
corporation ("GFI" or a "Borrower"; and, if together with Foamex, the
"Borrowers"), Trace Foam Company, Inc., a Delaware corporation and general
partner of Foamex ("Trace Foam"), FMXI, Inc., a Delaware corporation and
managing general partner of Foamex ("FMXI"), the Lenders, the Issuing Banks and
Citicorp USA, Inc., as Collateral Agent for the Lenders and the Issuing Banks
and The Bank of Nova Scotia, as Funding Agent for the Lenders and the Issuing
Banks (together with the Collateral Agent, the "Administrative Agents"), the
Lenders and the Issuing Banks have extended Commitments to make Credit
Extensions to the Borrowers;
WHEREAS, the Existing Credit Agreement is to be amended by the First
Amendment to Credit Agreement, dated as of December 23, 1997 (the "First
Amendment to Credit Agreement", the Existing Credit Agreement as amended by the
First Amendment to Credit Agreement and as further amended, supplemented,
amended and restated or otherwise modified from time to time being the "Credit
Agreement"), among the Borrowers, Trace Foam, FMXI, the Lenders, the Issuing
Banks and the Administrative Agents;
WHEREAS, in connection with the Credit Agreement, the Grantor has executed
and delivered the Crain LLC Security Agreement, dated as of December 23, 1997
(as amended, supplemented, amended and restated or otherwise modified from time
to time, the "Security Agreement");
WHEREAS, as a condition precedent to the effectiveness of the First
Amendment to Credit Agreement, the Grantor is required to execute and deliver
this Agreement; and
WHEREAS, the Grantor has duly authorized the execution, delivery and
performance of this Agreement.
<PAGE>
NOW, THEREFORE, for good and valuable consideration, the receipt of which
is hereby acknowledged, and in order to induce the Lenders and the Issuer to
make Credit Extensions to the Borrowers pursuant to the Credit Agreement, the
Grantor agrees, for the benefit of each Secured Party, as follows:
SECTION 1. Definitions. Unless otherwise defined herein or the context
otherwise requires, terms used in this Agreement, including its preamble and
recitals, have the meanings provided (or incorporated by reference) in the
Security Agreement.
SECTION 2. Grant of Security Interest. For good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, to
secure all of the Secured Obligations, the Grantor does hereby mortgage, pledge
and hypothecate to the Collateral Agent, and grant to the Collateral Agent a
security interest in, for its benefit and the benefit of each Secured Party, all
of the following property (the "Copyright Collateral"), whether now owned or
hereafter acquired or existing by it, being all copyrights (including all
copyrights for semi-conductor chip product mask works) of the Grantor, whether
statutory or common law, registered or unregistered, now or hereafter in force
throughout the world including all of the Grantor's right, title and interest in
and to all copyrights registered in the United States Copyright Office or
anywhere else in the world and also including the copyrights referred to in Item
A of Attachment 1 attached hereto, and all applications for registration
thereof, whether pending or in preparation, all copyright licenses, including
each copyright license referred to in Item B of Attachment 1 attached hereto,
the right to sue for past, present and future infringements of any thereof, all
rights corresponding thereto throughout the world, all extensions and renewals
of any thereof and all proceeds of the foregoing, including licenses, royalties,
income, payments, claims, damages and proceeds of suit.
SECTION 3. Security Agreement. This Agreement has been executed and
delivered by the Grantor for the purpose of registering the security interest of
the Collateral Agent in the Copyright Collateral with the United States
Copyright Office and corresponding offices in other countries of the world. The
security interest granted hereby has been granted as a supplement to, and not in
limitation of, the security interest granted to the Collateral Agent for its
benefit and the benefit of each Secured Party under the Security Agreement. The
Security Agreement (and all rights and remedies of the Collateral Agent and each
Secured Party thereunder) shall remain in full force and effect in accordance
with its terms.
SECTION 4. Release of Security Interest. Upon payment in full in cash of
all Secured Obligations, the termination or expiry of all Letters of Credit and
the termination of all Commitments, the Collateral Agent shall, at the Grantor's
expense, execute and deliver to the Grantor all instruments and
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<PAGE>
other documents as may be necessary or proper to release the lien on and
security interest in the Copyright Collateral which has been granted hereunder.
SECTION 5. Acknowledgment. The Grantor does hereby further acknowledge
and affirm that the rights and remedies of the Collateral Agent with respect to
the security interest in the Copyright Collateral granted hereby are more fully
set forth in the Security Agreement, the terms and provisions of which
(including the remedies provided for therein) are incorporated by reference
herein as if fully set forth herein.
SECTION 6. Loan Document, etc. This Agreement is a Loan Document executed
pursuant to the Credit Agreement and shall (unless otherwise expressly indicated
herein) be construed, administered and applied in accordance with the terms and
provisions of the Credit Agreement.
SECTION 7. Counterparts. This Agreement may be executed by the parties
hereto in several counterparts, each of which shall be deemed to be an original
and all of which shall constitute together but one and the same agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their respective officers thereunto duly
authorized as of the day and year first above written.
FOAMEX LLC
By
-------------------------------------
Name: George L. Karpinski
Title: Senior Vice President
CITICORP USA, INC., as Collateral Agent
By
-------------------------------------
Name: Timothy L. Freeman
Title: Attorney-in-Fact
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<PAGE>
ATTACHMENT 1
to Crain LLC Copyright
Security Agreement
Item A. Copyrights/Mask Works
---------------------
Registered Copyrights/Mask Works
--------------------------------
(7)Country Registration No. Registration Date Author(s) Title
- - ---------- ---------------- ----------------- --------- -----
Copyright/Mask Work Pending Registration Applications
-----------------------------------------------------
*Country Serial No. Filing Date Author(s) Title
- - -------- ---------- ----------- --------- -----
Copyright/Mask Work Registration Applications in Preparation
------------------------------------------------------------
Expected
*Country Docket No. Filing Date Author(s) Title
- - -------- ---------- ----------- --------- -----
Item B. Copyright/Mask Work Licenses
----------------------------
*Country or Effective Expiration Subject
Territory Licensor Licensee Date Date Matter
--------- -------- -------- --------- ---------- ------
- - -------------------
* List items related to the United States first for ease of
recordation. List items related to other countries next, grouped by
country and in alphabetical order by country name.
[Execution Copy]
Crain LLC GUARANTY
This CRAIN LLC GUARANTY (as amended, supplemented, amended and restated
or otherwise modified from time to time, this "Guaranty"), dated as of December
23, 1997, is made by Foamex LLC, a Delaware limited liability company (the
"Guarantor"), in favor of Citicorp USA, Inc., as Collateral Agent (together with
any successor(s) thereto in such capacity, the "Collateral Agent"), for the
benefit of the Secured Parties.
W I T N E S S E T H:
WHEREAS, pursuant to a Credit Agreement, dated as of June 12, 1997 (as
amended, supplemented, amended and restated or modified from time to time, the
"Existing Credit Agreement"), among Foamex L.P., a Delaware limited partnership
("Foamex" or a "Borrower"), General Felt Industries, Inc., a Delaware
corporation ("GFI" or a "Borrower"; and, if together with Foamex, the
"Borrowers"), Trace Foam Company, Inc., a Delaware corporation and general
partner of Foamex ("Trace Foam"), FMXI, Inc., a Delaware corporation and
managing general partner of Foamex ("FMXI"), the Lenders, the Issuing Banks and
Citicorp USA, Inc., as Collateral Agent for the Lenders and the Issuing Banks
and The Bank of Nova Scotia, as Funding Agent for the Lenders and the Issuing
Banks (together with the Collateral Agent, the "Administrative Agents"), the
Lenders and the Issuing Banks have extended Commitments to make Credit
Extensions to the Borrowers;
WHEREAS, the Existing Credit Agreement is to be amended by the First
Amendment to Credit Agreement, dated as of December 23, 1997 (the "First
Amendment to Credit Agreement", the Existing Credit Agreement as amended by the
First Amendment to Credit Agreement and as further amended, supplemented,
amended and restated or otherwise modified from time to time being the "Credit
Agreement"), among the Borrowers, Trace Foam, FMXI, the Lenders, the Issuing
Banks and the Administrative Agents;
WHEREAS, as a condition precedent to the effectiveness of the First
Amendment to Credit Agreement, the Guarantor is required to execute and deliver
this Guaranty;
WHEREAS, the Guarantor has duly authorized the execution, delivery and
performance of this Guaranty; and
WHEREAS, it is in the best interests of the Guarantor to execute this
Guaranty inasmuch as the Guarantor will derive substantial direct and indirect
benefits from the Credit Extensions made from time to time to the Borrowers by
the Lenders and the Issuing Banks pursuant to the Credit Agreement;
<PAGE>
NOW THEREFORE, for good and valuable consideration the receipt of which
is hereby acknowledged, and in order to induce the Lenders and the Issuing Banks
to make Credit Extensions to the Borrowers pursuant to the Credit Agreement, the
Guarantor agrees, for the benefit of each Secured Party, as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. Certain Terms. The following terms (whether or not
underscored) when used in this Guaranty, including its preamble and recitals,
shall have the following meanings (such definitions to be equally applicable to
the singular and plural forms thereof):
"Administrative Agents" is defined in the first recital.
"Borrower" and "Borrowers" is defined in the first recital.
"Collateral Agent" is defined in the preamble.
"Credit Agreement" is defined in the second recital.
"Credit Extensions" means the Loans and the Letters of Credit.
"Existing Credit Agreement" is defined in the first recital.
"First Amendment to Credit Agreement" is defined in the second recital.
"FMXI" is defined in the first recital.
"Foamex" is defined in the first recital.
"Guarantor" is defined in the preamble.
"Guaranty" is defined in the preamble.
"Obligations" means all Obligations (as defined in the Credit
Agreement) of the Borrowers and all obligations (monetary or otherwise) of each
other Obligor arising under or in connection with the Credit Agreement or any
other Loan Document.
"Process Agent" is defined in Section 3.9.1.
"Secured Parties" means, collectively, the Lenders, the Issuing Banks,
the Collateral Agent, the Funding Agent and the Administrative Agents, and any
Lender in its capacity as a counterparty to a Hedging Obligation.
"Trace Foam" is defined in the first recital.
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<PAGE>
SECTION 1.2. Credit Agreement Definitions. Unless otherwise defined
herein or the context otherwise requires, terms used in this Guaranty, including
its preamble and recitals, have the meanings provided in the Credit Agreement.
ARTICLE II
GUARANTY PROVISIONS
SECTION 2.1. Guaranty. The Guarantor hereby absolutely, unconditionally
and irrevocably
(a) guarantees the full and punctual payment when due, whether
at stated maturity, by required prepayment, declaration, acceleration,
demand or otherwise, of all Obligations of each Borrower under the
Credit Agreement, the Notes and the other Loan Documents to which it is
a party and all Obligations of each other Obligor under the Loan
Documents to which it is a party now or hereafter existing, whether for
principal, interest, fees, expenses or otherwise (including all such
amounts which would become due but for the operation of the automatic
stay under Section 362(a) of the United States Bankruptcy Code, 11
U.S.C. ss.362(a), and the operation of Sections 502(b) and 506(b) of
the United States Bankruptcy Code, 11 U.S.C. ss.502(b) and ss.506(b)),
and
(b) indemnifies and holds harmless each Secured Party and each
holder of a Note for any and all costs and expenses (including
reasonable attorney'S fees and expenses) incurred by such Secured Party
or such holder, as the case may be, in enforcing any rights under this
Guaranty;
provided, however, that the Guarantor shall be liable under this Guaranty for
the maximum amount of such liability that can be hereby incurred without
rendering this Guaranty, as it relates to the Guarantor, voidable under
applicable law relating to fraudulent conveyance or fraudulent transfer, and not
for any greater amount. This Guaranty constitutes a guaranty of payment when due
and not of collection, and the Guarantor specifically agrees that it shall not
be necessary or required that any Secured Party or any holder of any Note
exercise any right, assert any claim or demand or enforce any remedy whatsoever
against a Borrower or any other Obligor (or any other Person) before or as a
condition to the obligations of the Guarantor hereunder.
SECTION 2.2. Acceleration of Guaranty. The Guarantor agrees that, in
the event of the dissolution or insolvency of a Borrower, any other Obligor or
the Guarantor, or the inability or failure of a Borrower, any other Obligor or
the Guarantor to pay debts as they become due, or an assignment by a Borrower,
any other Obligor or the Guarantor for the benefit of creditors, or the
commencement of any case or proceeding in respect of a
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<PAGE>
Borrower, any other Obligor or the Guarantor under any bankruptcy, insolvency or
similar laws, and if such event shall occur at a time when any of the
Obligations of each Borrower and each other Obligor may not then be due and
payable, the Guarantor agrees that it will pay to the Lenders forthwith the full
amount which would be payable hereunder by the Guarantor if all such Obligations
were then due and payable.
SECTION 2.3. Guaranty Absolute, etc. This Guaranty shall in all
respects be a continuing, absolute, unconditional and irrevocable guaranty of
payment, and shall remain in full force and effect until all Obligations of each
Borrower and each other Obligor have been paid in full in cash, all obligations
of the Guarantor hereunder shall have been paid in full in cash, all Letters of
Credit have been terminated or expired and all Commitments shall have
terminated. The Guarantor guarantees that the Obligations of each Borrower and
each other Obligor will be paid strictly in accordance with the terms of the
Credit Agreement and each other Loan Document under which they arise, regardless
of any law, regulation or order now or hereafter in effect in any jurisdiction
affecting any of such terms or the rights of any Secured Party or any holder of
any Note with respect thereto. The liability of the Guarantor under this
Guaranty shall be absolute, unconditional and irrevocable irrespective of:
(a) any lack of validity, legality or enforceability of the
Credit Agreement, any Note or any other Loan Document;
(b) the failure of any Secured Party or any holder of any Note
(i) to assert any claim or demand or to enforce any
right or remedy against a Borrower, any other Obligor or any
other Person (including any other guarantor (including the
Guarantor)) under the provisions of the Credit Agreement, any
Note, any other Loan Document or otherwise, or
(ii) to exercise any right or remedy against any
other guarantor (including the Guarantor) of, or collateral
securing, any Obligations of a Borrower or any other Obligor;
(c) any change in the time, manner or place of payment of, or
in any other term of, all or any of the Obligations of a Borrower or
any other Obligor, or any other extension, compromise or renewal of any
Obligation of a Borrower or any other Obligor;
(d) any reduction, limitation, impairment or termination of
any Obligations of a Borrower or any other Obligor for any reason,
including any claim of waiver,
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<PAGE>
release, surrender, alteration or compromise, and shall not be subject
to (and the Guarantor hereby waives any right to or claim of) any
defense or setoff, counterclaim, recoupment or termination whatsoever
by reason of the invalidity, illegality, nongenuineness, irregularity,
compromise, unenforceability of, or any other event or occurrence
affecting, any Obligations of a Borrower, the Guarantor, any other
Obligor or otherwise;
(e) any amendment to, rescission, waiver, or other
modification of, or any consent to departure from, any of the terms of
the Credit Agreement, any Note or any other Loan Document;
(f) any addition, exchange, release, surrender or
non-perfection of any collateral, or any amendment to or waiver or
release or addition of, or consent to departure from, any other
guaranty, held by any Secured Party or any holder of any Note securing
any of the Obligations of a Borrower or any other Obligor; or
(g) any other circumstance which might otherwise constitute a
defense available to, or a legal or equitable discharge of, a Borrower,
any other Obligor, any surety or any guarantor.
SECTION 2.4. Reinstatement, etc. The Guarantor agrees that this
Guaranty shall continue to be effective or be reinstated, as the case may be, if
at any time any payment (in whole or in part) of any of the Obligations is
rescinded or must otherwise be restored by any Secured Party or any holder of
any Note, upon the insolvency, bankruptcy or reorganization of a Borrower, any
other Obligor or otherwise, all as though such payment had not been made.
SECTION 2.5. Waiver, etc. The Guarantor hereby waives promptness,
diligence, notice of acceptance and any other notice with respect to any of the
Obligations of a Borrower or any other Obligor and this Guaranty and any
requirement that the Collateral Agent, any other Secured Party or any holder of
any Note protect, secure, perfect or insure any security interest or Lien, or
any property subject thereto, or exhaust any right or take any action against a
Borrower, any other Obligor or any other Person (including any other guarantor)
or entity or any collateral securing the Obligations of a Borrower or any other
Obligor, as the case may be.
SECTION 2.6. Postponement of Subrogation, etc. The Guarantor agrees
that it will not exercise any rights which it may acquire by way of rights of
subrogation under this Guaranty, by any payment made hereunder or otherwise,
until the prior payment in full in cash of all Obligations of each Borrower and
each other Obligor, the termination or expiration of all Letters of Credit and
the termination of all Commitments. Any amount paid to the Guarantor on account
of any such subrogation rights
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<PAGE>
prior to the payment in full in cash of all Obligations of each Borrower and
each other Obligor shall be held in trust for the benefit of the Secured Parties
and each holder of a Note and shall immediately be paid to the Collateral Agent
for the benefit of the Secured Parties and each holder of a Note and credited
and applied against the Obligations of each Borrower and each other Obligor,
whether matured or unmatured, in accordance with the terms of the Credit
Agreement; provided, however, that if
(a) the Guarantor has made payment to the Secured Parties and
each holder of a Note of all or any part of the Obligations of a
Borrower or any other Obligor, and
(b) all Obligations of each Borrower and each other Obligor
have been paid in full in cash, all Letters of Credit have been
terminated or expired and all Commitments have been permanently
terminated,
each Secured Party and each holder of a Note agrees that, at the Guarantor'S
request, the Collateral Agent, on behalf of the Secured Parties and the holders
of the Notes, will execute and deliver to the Guarantor appropriate documents
(without recourse and without representation or warranty) necessary to evidence
the transfer by subrogation to the Guarantor of an interest in the Obligations
of each Borrower and each other Obligor resulting from such payment by the
Guarantor. In furtherance of the foregoing, for so long as any Obligations or
Commitments remain outstanding, the Guarantor shall refrain from taking any
action or commencing any proceeding against a Borrower or any other Obligor (or
its successors or assigns, whether in connection with a bankruptcy proceeding or
otherwise) to recover any amounts in the respect of payments made under this
Guaranty to any Secured Party or any holder of a Note.
SECTION 2.7. Successors, Transferees and Assigns; Transfers of Notes,
etc. This Guaranty shall:
(a) be binding upon the Guarantor, and its successors,
transferees and assigns; and
(b) inure to the benefit of and be enforceable by the
Collateral Agent and each other Secured Party.
Without limiting the generality of the foregoing clause (b), any Lender may
assign or otherwise transfer (in whole or in part) any Note or Credit Extension
held by it to any other Person or entity, and such other Person or entity shall
thereupon become vested with all rights and benefits in respect thereof granted
to such Lender under any Loan Document (including this Guaranty) or otherwise,
subject, however, to any contrary provisions in such assignment or transfer, and
to the provisions of Article XIII of the Credit Agreement.
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<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES
The Guarantor hereby represents and warrants unto the Collateral Agent
as set forth in this Article III, acknowledging that the Collateral Agent is
relying thereon without independent inquiry, that to all matters contained in
Article VI of the Credit Agreement (or other article in any successor agreement
which shall principally relate to representations and warranties made by such
Guarantor), insofar as applicable to the Guarantor, the Guarantor'S properties
or the Guarantor'S obligations under any Loan Document to which it is a party,
each such representation and warranty set forth in such Article (insofar as so
applicable) and all other terms of the Credit Agreement to which reference is
made therein, together with all related definitions and ancillary provisions,
are hereby incorporated into this Guaranty by reference with respect to such
Guarantor as though specifically set forth in this Article III.
ARTICLE IV
COVENANTS, ETC.
The Guarantor covenants and agrees that the Guarantor will perform the
obligations set forth in this Article IV until all Obligations of each Borrower
and each other Obligor have been paid in full in cash, all obligations of the
Guarantor hereunder shall have been paid in full in cash, all Letters of Credit
have been terminated or expired and all Commitments shall have terminated. The
Guarantor shall cause its Subsidiaries to comply with and be bound by all of the
agreements, covenants and obligations contained in the Credit Agreement (or
other sections in any successor agreement which shall principally relate to
covenants binding on such Guarantor). Except as specifically limited hereby,
each such agreement, covenant and obligation contained in such Sections and all
other terms of the Credit Agreement and the documents executed in connection
therewith to which reference is made therein, together with all related
definitions and ancillary provisions, is hereby incorporated into this Guaranty
by reference as though specifically set forth in this Article IV, and each such
agreement, covenant and obligation shall, for purposes hereof, survive the
termination of the Credit Agreement.
ARTICLE V
MISCELLANEOUS PROVISIONS
SECTION 5.1. Loan Document. This Guaranty is a Loan Document executed
pursuant to the Credit Agreement and shall (unless otherwise expressly indicated
herein) be construed,
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<PAGE>
administered and applied in accordance with the terms and provisions thereof,
including Article XIII thereof.
SECTION 5.2. Binding on Successors, Transferees and Assigns;
Assignment. In addition to, and not in limitation of, Section 2.7, this Guaranty
shall be binding upon the Guarantor and its successors, transferees and assigns
and shall inure to the benefit of and be enforceable by each Secured Party and
each holder of a Note and their respective successors, transferees and assigns
(to the full extent provided pursuant to Section 2.7); provided, however, that
the Guarantor may not assign any of its obligations hereunder without the prior
written consent of all Lenders.
SECTION 5.3. Amendments, etc. No amendment to or waiver of any
provision of this Guaranty, nor consent to any departure by the Guarantor
herefrom, shall in any event be effective unless the same shall be in writing
and signed by the Collateral Agent (on behalf of the Lenders or the Requisite
Lenders, as the case may be) and then such waiver or consent shall be effective
only in the specific instance and for the specific purpose for which given.
SECTION 5.4. Notices. All notices and other communications provided for
hereunder shall be in writing and may be personally served, telecopied, telexed
or sent by courier service or United States certified mail and shall be deemed
to have been given when delivered in person or by courier service, upon receipt
of a telecopy or telex or four (4) Business Days after deposit in the United
States mail with postage prepaid and properly addressed. For the purposes
hereof, the address of the Guarantor shall be as set forth below the Guarantor'S
name on the signature page hereof or at such other address as may be designated
by the Guarantor in a written notice to the Collateral Agent.
SECTION 5.5. No Waiver; Remedies. In addition to, and not in limitation
of, Section 2.3 and Section 2.5, no failure on the part of any Secured Party or
any holder of a Note to exercise, and no delay in exercising, any right
hereunder shall operate as a waiver thereof; nor shall any single or partial
exercise of any right hereunder preclude any other or further exercise thereof
or the exercise of any other right. The remedies herein provided are cumulative
and not exclusive of any remedies provided by law.
SECTION 5.6. Captions. Section captions used in this Guaranty are for
convenience of reference only, and shall not affect the construction of this
Guaranty.
SECTION 5.7. Setoff. In addition to, and not in limitation of, any
rights of any Secured Party or any holder of a Note under applicable law, each
Secured Party and each such holder shall, upon the occurrence of any Default
described in any Section 11.01(f) or 11.01(g) of the Credit Agreement or with
the consent of the Requisite Lenders, any Event of Default, have the right to
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<PAGE>
appropriate and apply to the payment of the obligations of the Guarantor owing
to it hereunder, whether or not then due, and the Guarantor hereby grants to
each Secured Party and each such holder a continuing security interest in, any
and all balances, credits, deposits, accounts or moneys of the Guarantor then or
thereafter maintained with such Secured Party, or such holder or any agent or
bailee for such Secured Party or such holder; provided, however, that any such
appropriation and application shall be subject to the provisions of Section
13.06 of the Credit Agreement.
SECTION 5.8. Severability. Wherever possible each provision of this
Guaranty shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Guaranty shall be prohibited by or
invalid under such 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 Guaranty.
SECTION 5.9. Certain Consents and Waivers of the Guarantor.
SECTION 5.9.1. Personal Jurisdiction. THE GUARANTOR IRREVOCABLY AND
UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE NONEXCLUSIVE
JURISDICTION OF ANY NEW YORK STATE COURT OR FEDERAL COURT SITTING IN NEW YORK,
NEW YORK, AND ANY COURT HAVING JURISDICTION OVER APPEALS OF MATTERS HEARD IN
SUCH COURTS, IN ANY ACTION OR PROCEEDING ARISING OUT OF, CONNECTED WITH, RELATED
TO OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED IN CONNECTION WITH THIS
GUARANTY OR ANY OTHER LOAN DOCUMENT TO WHICH THE GUARANTOR IS A PARTY, WHETHER
ARISING IN CONTRACT, TORT, EQUITY OR OTHERWISE, OR FOR RECOGNITION OR
ENFORCEMENT OF ANY JUDGMENT, AND THE GUARANTOR IRREVOCABLY AND UNCONDITIONALLY
AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD
AND DETERMINED IN SUCH STATE COURT OR, TO THE EXTENT PERMITTED BY LAW, IN SUCH
FEDERAL COURT. THE GUARANTOR IRREVOCABLY DESIGNATES AND APPOINTS CORPORATION
SERVICE COMPANY, 15 COLUMBUS CIRCLE, NEW YORK, NEW YORK 10023, AS ITS AGENT (THE
"PROCESS AGENT") FOR SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN ANY SUCH
COURT, SUCH SERVICE BEING HEREBY ACKNOWLEDGED TO BE EFFECTIVE AND BINDING
SERVICE IN EVERY RESPECT. THE GUARANTOR AGREES THAT A FINAL JUDGMENT IN ANY SUCH
ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER
JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW.
THE GUARANTOR WAIVES IN ALL DISPUTES ANY OBJECTION THAT IT MAY HAVE TO THE
LOCATION OF THE COURT CONSIDERING THE DISPUTE.
THE GUARANTOR AGREES THAT THE COLLATERAL AGENT SHALL HAVE THE RIGHT TO
PROCEED AGAINST THE GUARANTOR OR ITS PROPERTY IN A COURT IN ANY LOCATION TO
ENABLE THE ADMINISTRATIVE AGENTS, THE LENDERS AND THE ISSUING BANKS TO REALIZE
ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE A
JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF THE ADMINISTRATIVE AGENTS,
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<PAGE>
ANY LENDER OR ANY ISSUING BANK. THE GUARANTOR WAIVES ANY OBJECTION THAT IT MAY
HAVE TO THE LOCATION OF THE COURT IN WHICH THE COLLATERAL AGENT MAY COMMENCE A
PROCEEDING DESCRIBED IN THIS SECTION.
SECTION 5.9.2. Service of Process. THE GUARANTOR IRREVOCABLY CONSENTS
TO THE SERVICE OF PROCESS OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION
OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL,
POSTAGE PREPAID, TO THE PROCESS AGENT OR THE GUARANTOR'S NOTICE ADDRESS
SPECIFIED HEREIN, SUCH SERVICE TO BECOME EFFECTIVE FIVE (5) DAYS AFTER SUCH
MAILING. THE GUARANTOR IRREVOCABLY WAIVES ANY OBJECTION (INCLUDING, WITHOUT
LIMITATION, ANY OBJECTION OF THE LAYING OF VENUE OR BASED ON THE GROUNDS OF
FORUM NON CONVENIENS) WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY
SUCH ACTION OR PROCEEDING WITH RESPECT TO THIS GUARANTY OR ANY OTHER LOAN
DOCUMENT IN ANY JURISDICTION SET FORTH ABOVE. NOTHING HEREIN SHALL AFFECT THE
RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE
RIGHT OF THE ADMINISTRATIVE AGENTS, THE LENDERS AND ISSUING BANKS TO BRING
PROCEEDINGS AGAINST THE GUARANTOR IN THE COURTS OF ANY OTHER JURISDICTION.
SECTION 5.10. Governing Law, Entire Agreement, etc. THIS GUARANTY SHALL
BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE
STATE OF NEW YORK (INCLUDING FOR SUCH PURPOSE SECTIONS 5-1401 AND 5-1402 OF THE
GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK). THIS GUARANTY AND THE OTHER
LOAN DOCUMENTS CONSTITUTE THE ENTIRE UNDERSTANDING AMONG THE PARTIES HERETO WITH
RESPECT TO THE SUBJECT MATTER HEREOF AND SUPERSEDE ANY PRIOR AGREEMENTS, WRITTEN
OR ORAL, WITH RESPECT THERETO.
SECTION 5.11. Waiver of Jury Trial. THE GUARANTOR HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURY
IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN
CONNECTION WITH, THIS GUARANTY OR ANY OTHER LOAN DOCUMENT OR ANY COURSE OF
CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF
THE SECURED PARTIES OR THE GUARANTOR. THE GUARANTOR ACKNOWLEDGES AND AGREES THAT
IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION AND THAT
THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE LENDERS ENTERING INTO THE CREDIT
AGREEMENT.
SECTION 5.12. Counterparts. This Guaranty may be executed by the
parties hereto in several counterparts, each of which shall be deemed to be an
original and all of which shall constitute together but one and the same
agreement.
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<PAGE>
IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be duly
executed and delivered by its officer thereunto duly authorized as of the date
first above written.
FOAMEX LLC
By: Foamex L.P., its sole member
By: FMXI, INC., the Managing
General Partner of Foamex L.P.
By: /s/ George L. Karpinski
-----------------------
Name: George L. Karpinski
Title: Senior Vice President
Notice address
c/o Foamex International Inc.
1000 Columbia Avenue
Linwood, Pennsylvania 19061
Attn.: Kenneth R. Fuette
Telecopier No.: 610-859-3085
CITICORP USA, INC., as Collateral Agent
By: /s/ Timothy L. Freeman
-----------------------
Name: Timothy L. Freeman
Title: Attorney-in-Fact
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[Execution Copy]
FIRST AMENDMENT TO PLEDGE AGREEMENT
FIRST AMENDMENT TO PLEDGE AGREEMENT, dated as of December 23, 1997 (the
"Amendment") by the Persons listed on the signature pages hereto under PLEDGORS,
each a Delaware corporation (each, a "Pledgor"), in favor of CITICORP USA, INC.,
as collateral agent (together with any successor(s) thereto in such capacity,
the "Collateral Agent") for each of the Secured Parties.
WHEREAS, each Pledgor, on the one hand, and the Collateral Agent, on
the other hand, are party to a Pledge Agreement dated as of June 12, 1997 (as
amended, supplemented, amended and restated or modified from time to time, and
with respect to any Pledgor, the "Pledge Agreement")
WHEREAS, pursuant to a Credit Agreement, dated as of June 12, 1997 (as
amended, supplemented, amended and restated or modified from time to time, the
"Existing Credit Agreement"), among Foamex L.P., a Delaware limited partnership
("Foamex"), General Felt Industries, Inc., a Delaware corporation ("GFI"), Trace
Foam Company, Inc., a Delaware corporation and general partner of Foamex ("Trace
Foam"), FMXI, Inc., a Delaware corporation and managing general partner of
Foamex ("FMXI"), the Lenders, the Issuing Banks and Citicorp USA, Inc., as
Collateral Agent for the Lenders and the Issuing Banks and The Bank of Nova
Scotia, as Funding Agent for the Lenders and the Issuing Banks (together with
the Collateral Agent, the "Administrative Agents"), the Lenders and the Issuing
Banks have extended Commitments to make Credit Extensions to the Borrowers;
WHEREAS, the Existing Credit Agreement is to be amended by the First
Amendment to Credit Agreement, dated as of December 23, 1997 (the "First
Amendment to Credit Agreement", the Existing Credit Agreement as amended by the
First Amendment to Credit Agreement and as further amended, supplemented,
amended and restated or otherwise modified from time to time being the "Credit
Agreement"), among Foamex, GFI, Trace Foam, FMXI, the Lenders, the Issuing Banks
and the Administrative Agents;
WHEREAS, as a condition precedent to the effectiveness of the First
Amendment to Credit Agreement, each Pledgor is required to execute and deliver
this Amendment; and
WHEREAS, each Pledgor has duly authorized the execution, delivery and
performance of this Amendment.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and in order to induce the Lenders
and the Issuer to make Credit Extensions to the Borrowers pursuant to the Credit
Agreement,
<PAGE>
each Pledgor agrees, for the benefit of each Secured Party, as follows:
Section 1. Definitions. Except as otherwise defined in this Amendment,
terms defined in the Pledge Agreement to which such Pledgor is a party are used
herein as defined therein.
Section 2. Amendments. Subject to the satisfaction of the conditions
precedent specified in Section 3 below, but effective as of the date hereof, and
with respect to the Pledge Agreement to which such Pledgor is a party, Section
2.1 of such Pledge Agreement is hereby amended as follows:
(i) Clause (f) is hereby amended by deleting the and that appears after
the semi-colon at the end of the clause;
(ii) Clause (g) is hereby redesignated as clause (h); and
(iii) A new Section 2.1(g) is hereby added to read as follows:
(g) all financial assets and investment property of the Pledgor;
and
Section 3. Conditions Precedent. As provided in Section 2 above, the
amendments set forth in Section 2 shall become effective, as of the date hereof,
upon the due execution and delivery of this Amendment by each Pledgor and the
Collateral Agent.
Section 4. Miscellaneous. Except as herein provided, the Pledge
Agreement to which such Pledgor is a party shall remain unchanged and in full
force and effect. This Amendment may be executed in any number of counterparts,
all of which taken together shall constitute one and the same amendatory
instrument and any of the parties hereto may execute this Amendment by signing
any such counterpart. This Amendment shall be governed by, and construed in
accordance with, the internal laws of the State of New York.
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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered as of the day and year first above written.
PLEDGORS
FOAMEX CAPITAL CORPORATION
FOAMEX FIBERS, INC.
FOAMEX LATIN AMERICA, INC.
FOAMEX MEXICO, INC.
FOAMEX MEXICO II, INC.
By
------------------------
Name: George L. Karpinski
Title: Vice President
FOAMEX ASIA, INC.
By
------------------------
Name: George L. Karpinski
Title: Senior Vice President
GENERAL FELT INDUSTRIES, INC.
By: /s/ George L. Karpinski
------------------------
Name: George L. Karpinski
Title: Senior Vice President
COLLATERAL AGENT
CITICORP USA, INC.,
as Collateral Agent
By: /s/ Timothy L. Freeman
------------------------
Name: Timothy L. Freeman
Title: Attorney-in-Fact
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[Execution Copy]
CRAIN INDUSTRIES GUARANTY
This CRAIN INDUSTRIES GUARANTY (as amended, supplemented, amended and
restated or otherwise modified from time to time, this "Guaranty"), dated as of
December 23, 1997, is made by Crain Industries, Inc., a Delaware corporation
(the "Guarantor"), in favor of Citicorp USA, Inc., as Collateral Agent (together
with any successor(s) thereto in such capacity, the "Collateral Agent") for each
of the Secured Parties, for the benefit of the Secured Parties.
W I T N E S S E T H:
WHEREAS, pursuant to a Credit Agreement, dated as of June 12, 1997 (the
"Existing Credit Agreement"), among Foamex L.P., a Delaware limited partnership
("Foamex" or a "Borrower"), General Felt Industries, Inc., a Delaware
corporation (a "Borrower"; and, if together with Foamex, the "Borrowers"), Trace
Foam Company, Inc., a Delaware corporation and general partner of Foamex ("Trace
Foam"), FMXI, Inc., a Delaware corporation and managing general partner of
Foamex ("FMXI"), the Lenders, the Issuing Banks and Citicorp USA, Inc., as
Collateral Agent for the Lenders and the Issuing Banks and The Bank of Nova
Scotia, as Funding Agent for the Lenders and the Issuing Banks (together with
the Collateral Agent, the "Administrative Agents"), the Lenders and the Issuing
Banks have extended Commitments to make Credit Extensions to the Borrowers;
WHEREAS, the Existing Credit Agreement is to be amended by the First
Amendment to Credit Agreement, dated December 23, 1997 (the "First Amendment to
Credit Agreement", the Existing Credit Agreement as amended by the First
Amendment to Credit Agreement and as further amended, supplemented, amended and
restated or modified from time to time, being the "Credit Agreement"), among the
Borrowers, Trace Foam, FMXI, the Lenders, the Issuing Banks and the
Administrative Agents.
WHEREAS, as a condition precedent to the effectiveness of the First
Amendment to Credit Agreement, the Guarantor is required to execute and deliver
this Guaranty.
WHEREAS, the Guarantor has duly authorized the execution, delivery and
performance of this Guaranty; and
WHEREAS, it is in the best interests of the Guarantor to execute this
Guaranty inasmuch as the Guarantor will derive substantial direct and indirect
benefits from the Credit
<PAGE>
Extensions made from time to time to the Borrowers by the Lenders and the
Issuing Banks pursuant to the Credit Agreement;
NOW THEREFORE, for good and valuable consideration the receipt of which
is hereby acknowledged, and in order to induce the Lenders and the Issuing Banks
to make Credit Extensions (including the initial Credit Extension) to the
Borrowers pursuant to the Credit Agreement, the Guarantor agrees, for the
benefit of each Secured Party, as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. Certain Terms. The following terms (whether or not
underscored) when used in this Guaranty, including its preamble and recitals,
shall have the following meanings (such definitions to be equally applicable to
the singular and plural forms thereof):
"Administrative Agents" is defined in the first recital.
"Borrower" and "Borrowers" is defined in the first recital.
"Collateral Agent" is defined in the preamble.
"Credit Agreement" is defined in the first recital.
"Credit Extensions" means the Loans and the Letters of Credit.
"First Amendment to Credit Agreement" is defined in the second recital.
"FMXI" is defined in the first recital.
"Foamex" is defined in the first recital.
"Guarantor" is defined in the preamble.
"Guaranty" is defined in the preamble.
"Obligations" means all Obligations (as defined in the Credit
Agreement) of the Borrowers and all obligations (monetary or otherwise) of each
other Obligor arising under or in connection with the Credit Agreement or any
other Loan Document.
"Process Agent" is defined in Section 3.9.1.
"Secured Parties" means, collectively, the Lenders, the Issuing Banks,
the Collateral Agent, the Funding Agent and the Administrative Agents, and any
Lender in its capacity as a counterparty to a Hedging Obligation.
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"Trace Foam" is defined in the first recital.
SECTION 1.2. Credit Agreement Definitions. Unless otherwise defined
herein or the context otherwise requires, terms used in this Guaranty, including
its preamble and recitals, have the meanings provided in the Credit Agreement.
ARTICLE II
GUARANTY PROVISIONS
SECTION 2.1. Guaranty. The Guarantor hereby absolutely, unconditionally
and irrevocably
(a) guarantees the full and punctual payment when due, whether at
stated maturity, by required prepayment, declaration, acceleration,
demand or otherwise, of all Obligations of each Borrower under the
Credit Agreement, the Notes and the other Loan Documents to which it is
a party and all Obligations by each other Obligor under the Loan
Documents to which it is a party now or hereafter existing, whether for
principal, interest, fees, expenses or otherwise (including all such
amounts which would become due but for the operation of the automatic
stay under Section 362(a) of the United States Bankruptcy Code, 11
U.S.C. ss.362(a), and the operation of Sections 502(b) and 506(b) of
the United States Bankruptcy Code, 11 U.S.C. ss.502(b) and ss.506(b)),
and
(b) indemnifies and holds harmless each Secured Party and each
holder of a Note for any and all costs and expenses (including
reasonable attorney's fees and expenses) incurred by such Secured Party
or such holder, as the case may be, in enforcing any rights under this
Guaranty;
This Guaranty constitutes a guaranty of payment when due and not of collection,
and the Guarantor specifically agrees that it shall not be necessary or required
that any Secured Party or any holder of any Note exercise any right, assert any
claim or demand or enforce any remedy whatsoever against a Borrower or any other
Obligor (or any other Person) before or as a condition to the obligations of the
Guarantor hereunder.
SECTION 2.2. Acceleration of Guaranty. The Guarantor agrees that, in
the event of the dissolution or insolvency of a Borrower, any other Obligor or
the Guarantor, or the inability or failure of a Borrower, any other Obligor or
the Guarantor to pay debts as they become due, or an assignment by a Borrower,
any other Obligor or the Guarantor for the benefit of creditors, or the
commencement of any case or proceeding in respect of a Borrower, any other
Obligor or the Guarantor under any bankruptcy, insolvency or similar laws, and
if such event shall occur at a time when any of the Obligations of each Borrower
and each other Obligor may not then be due and payable, the Guarantor
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agrees that it will pay to the Lenders forthwith the full amount which would be
payable hereunder by the Guarantor if all such Obligations were then due and
payable.
SECTION 2.3. Guaranty Absolute, etc. This Guaranty shall in all
respects be a continuing, absolute, unconditional and irrevocable guaranty of
payment, and shall remain in full force and effect until all Obligations of each
Borrower and each other Obligor have been paid in full in cash, all obligations
of the Guarantor hereunder shall have been paid in full in cash, all Letters of
Credit have been terminated or expired and all Commitments shall have
terminated. The Guarantor guarantees that the Obligations of each Borrower and
each other Obligor will be paid strictly in accordance with the terms of the
Credit Agreement and each other Loan Document under which they arise, regardless
of any law, regulation or order now or hereafter in effect in any jurisdiction
affecting any of such terms or the rights of any Secured Party or any holder of
any Note with respect thereto. The liability of the Guarantor under this
Guaranty shall be absolute, unconditional and irrevocable irrespective of:
(a) any lack of validity, legality or enforceability of the Credit
Agreement, any Note or any other Loan Document;
(b) the failure of any Secured Party or any holder of any Note
(i) to assert any claim or demand or to enforce any right or
remedy against a Borrower, any other Obligor or any other Person
(including any other guarantor (including the Guarantor)) under
the provisions of the Credit Agreement, any Note, any other Loan
Document or otherwise, or
(ii) to exercise any right or remedy against any other
guarantor (including the Guarantor) of, or collateral securing,
any Obligations of a Borrower or any other Obligor;
(c) any change in the time, manner or place of payment of, or in
any other term of, all or any of the Obligations of a Borrower or any
other Obligor, or any other extension, compromise or renewal of any
Obligation of a Borrower or any other Obligor;
(d) any reduction, limitation, impairment or termination of any
Obligations of a Borrower or any other Obligor for any reason,
including any claim of waiver, release, surrender, alteration or
compromise, and shall not be subject to (and the Guarantor hereby
waives any right to or claim of) any defense or setoff, counterclaim,
recoupment or termination whatsoever by reason of the invalidity,
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<PAGE>
illegality, nongenuineness, irregularity, compromise, unenforceability
of, or any other event or occurrence affecting, any Obligations of a
Borrower, any other Obligor or otherwise;
(e) any amendment to, rescission, waiver, or other modification
of, or any consent to departure from, any of the terms of the Credit
Agreement, any Note or any other Loan Document;
(f) any addition, exchange, release, surrender or non-perfection
of any collateral, or any amendment to or waiver or release or addition
of, or consent to departure from, any other guaranty, held by any
Secured Party or any holder of any Note securing any of the Obligations
of a Borrower or any other Obligor; or
(g) any other circumstance which might otherwise constitute a
defense available to, or a legal or equitable discharge of, a Borrower,
any other Obligor, any surety or any guarantor.
SECTION 2.4. Reinstatement, etc. The Guarantor agrees that this
Guaranty shall continue to be effective or be reinstated, as the case may be, if
at any time any payment (in whole or in part) of any of the Obligations is
rescinded or must otherwise be restored by any Secured Party or any holder of
any Note, upon the insolvency, bankruptcy or reorganization of a Borrower, any
other Obligor or otherwise, all as though such payment had not been made.
SECTION 2.5. Waiver, etc. The Guarantor hereby waives promptness,
diligence, notice of acceptance and any other notice with respect to any of the
Obligations of a Borrower or any other Obligor and this Guaranty and any
requirement that the Collateral Agent, any other Secured Party or any holder of
any Note protect, secure, perfect or insure any security interest or Lien, or
any property subject thereto, or exhaust any right or take any action against a
Borrower, any other Obligor or any other Person (including any other guarantor)
or entity or any collateral securing the Obligations of a Borrower or any other
Obligor, as the case may be.
SECTION 2.6. Postponement of Subrogation, etc. The Guarantor agrees
that it will not exercise any rights which it may acquire by way of rights of
subrogation under this Guaranty, by any payment made hereunder or otherwise,
until the prior payment in full in cash of all Obligations of each Borrower and
each other Obligor, the termination or expiration of all Letters of Credit and
the termination of all Commitments. Any amount paid to the Guarantor on account
of any such subrogation rights prior to the payment in full in cash of all
Obligations of each Borrower and each other Obligor shall be held in trust for
the benefit of the Secured Parties and each holder of a Note and
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<PAGE>
shall immediately be paid to the Collateral Agent for the benefit of the Secured
Parties and each holder of a Note and credited and applied against the
Obligations each Borrower and each other Obligor, whether matured or unmatured,
in accordance with the terms of the Credit Agreement; provided, however, that if
(a) the Guarantor has made payment to the Secured Parties and each
holder of a Note of all or any part of the Obligations of a Borrower or
any other Obligor, and
(b) all Obligations of each Borrower and each other Obligor have
been paid in full in cash, all Letters of Credit have been terminated
or expired and all Commitments have been permanently terminated,
each Secured Party and each holder of a Note agrees that, at the Guarantor's
request, the Collateral Agent, on behalf of the Secured Parties and the holders
of the Notes, will execute and deliver to the Guarantor appropriate documents
(without recourse and without representation or warranty) necessary to evidence
the transfer by subrogation to the Guarantor of an interest in the Obligations
of each Borrower and each other Obligor resulting from such payment by the
Guarantor. In furtherance of the foregoing, for so long as any Obligations or
Commitments remain outstanding, the Guarantor shall refrain from taking any
action or commencing any proceeding against a Borrower or any other Obligor (or
its successors or assigns, whether in connection with a bankruptcy proceeding or
otherwise) to recover any amounts in the respect of payments made under this
Guaranty to any Secured Party or any holder of a Note.
SECTION 2.7. Successors, Transferees and Assigns; Transfers of Notes,
etc. This Guaranty shall:
(a) be binding upon the Guarantor, and its successors, transferees
and assigns; and
(b) inure to the benefit of and be enforceable by the Collateral
Agent and each other Secured Party.
Without limiting the generality of the foregoing clause (b), any Lender may
assign or otherwise transfer (in whole or in part) any Note or Credit Extension
held by it to any other Person or entity, and such other Person or entity shall
thereupon become vested with all rights and benefits in respect thereof granted
to such Lender under any Loan Document (including this Guaranty) or otherwise,
subject, however, to any contrary provisions in such assignment or transfer, and
to the provisions of Article XIII of the Credit Agreement.
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<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1. Representations and Warranties. The Guarantor hereby
represents and warrants unto the Collateral Agent as set forth in this Article
III acknowledging that the Collateral Agent is relying thereon without
independent inquiry.
SECTION 3.1.1 Corporate Existence; Compliance with Law. The Guarantor
(i) is a corporation duly organized, validly existing and in good standing under
the laws of the state of Delaware; (ii) has the requisite corporate power and
authority and the legal right to own, pledge, mortgage or otherwise encumber its
properties and to conduct its business as now and heretofore conducted; (iii) is
in compliance with its Constituent Documents; and (iv) is in compliance with all
material Requirements of Law.
SECTION 3.1.2 Corporate Power; Authorization. The execution and
delivery by the Guarantor of the Loan Documents and the Transaction Documents to
which it is a party and all instruments and documents to be delivered by the
Guarantor thereunder, and the performance of its obligations thereunder: (i) are
within the Guarantor's corporate power; (ii) have been duly authorized by all
necessary or proper corporate action; (iii) are not in contravention of any
provision of the Guarantor's Constituent Documents; (iv) will not violate any
law or regulation, or any order or decree of any court or Governmental
Authority; (v) will not conflict with or result in the breach or termination of,
constitute a default under (with or without the giving of notice, the lapse of
time or both) or a tortious interference with or accelerate any performance
required by, any material indenture, mortgage, deed of trust, lease, agreement
or other instrument to which the Guarantor is a party or by which the Guarantor
or any of its property is bound; (vi) will not result in the creation or
imposition of any Lien upon any of the property of the Guarantor; and (vii) do
not require the consent or approval of any Governmental Authority, or any other
Person which has not been obtained.
SECTION 3.1.3 No Adverse Condition. No action has been taken by any
competent authority which restrains, prevents or imposes material adverse
conditions upon, or seeks to restrain, prevent or impose material adverse
conditions upon, the consummation of any of the transactions contemplated by the
Loan Documents or the Transaction Documents.
SECTION 3.1.4 Enforceability. The obligations of the Guarantor under
this Guaranty are enforceable against the Guarantor in accordance with their
terms.
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<PAGE>
ARTICLE IV
COVENANTS, ETC.
SECTION 4.1. Covenants. The Guarantor covenants and agrees that the
Guarantor will perform the obligations set forth in this Article IV until all
Obligations of each Borrower and each other Obligor have been paid in full in
cash, all obligations of the Guarantor hereunder shall have been paid in full in
cash, all Letters of Credit have been terminated or expired and all Commitments
shall have terminated. The Guarantor shall comply with the following covenants
unless the Requisite Lenders shall otherwise give their prior written consent
thereto.
SECTION 4.1.1 Sale of Assets; Liens. The Guarantor shall not (A) sell,
assign, transfer, lease, convey or otherwise dispose of any Property, whether
now owned or hereafter acquired, or any income or profits therefrom, or enter
into any agreement to do so, except in connection with the Contribution and the
transactions contemplated by the Crain Transaction Documents or (B) directly or
indirectly create, incur, assume or permit to exist any Lien on or with respect
to any of its Property except (i) Liens securing the Obligations and (ii) Liens
permitted by the Credit Agreement.
SECTION 4.1.2 Conduct of Business. The Guarantor shall not engage in
any business other than acting as a non-managing general partner of Foamex.
SECTION 4.1.3 Transactions with Affiliates. Except in respect of
transactions contemplated by the Crain Transaction Documents, the Guarantor
shall not directly or indirectly enter into any transactions (including, without
limitation, the purchase, sale, lease or exchange of any property or the
rendering of any service), with any holder or holders of more than five percent
(5%) of any class of Equity Interests in the Guarantor or with any of the
Guarantor's Affiliates (other than Foamex and its Subsidiaries) on terms that
are less favorable to it than terms that could be obtained in an arm's length
transaction with an unrelated party at that time.
SECTION 4.1.4 Indebtedness. Neither the Guarantor nor any of its
Subsidiaries (other than Foamex and its Subsidiaries) shall directly or
indirectly create, incur, assume or otherwise become or remain directly or
indirectly liable with respect to, any Indebtedness, except (A) Indebtedness in
respect of the Guaranty or the Obligations, (B) Indebtedness in respect of
Transaction Costs, (C) Indebtedness in respect of certain existing obligations
set forth on Annex I hereto, and (D) Indebtedness to The Bank of Nova Scotia
arising under or as contemplated by the Crain Transaction Documents.
SECTION 4.1.5 Restriction on Fundamental Changes. The Guarantor shall
not enter into any merger or consolidation, or
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liquidate, wind-up or dissolve (or suffer any liquidation or dissolution),
purchase or otherwise acquire, in one transaction or series of transactions, all
or substantially all of the Equity Interests in, or other evidence of beneficial
ownership of, or the business, property or assets of, any Person except in
connection with the Contribution and the transactions contemplated by the Crain
Transaction Documents.
SECTION 4.1.6 Investments. The Guarantor shall not directly or
indirectly make or own any Investment or any other asset, except (i) Investments
in cash and Cash Equivalents and (ii) Investments contemplated by the
Contribution and the Crain Transaction Documents.
SECTION 4.1.7 Constituent Documents. Neither the Guarantor nor any of
its Subsidiaries (other than Foamex and its Subsidiaries) shall amend, modify or
otherwise change any of the terms or provisions in any of its Constituent
Documents as in effect on the date hereof other than amendments or modifications
deemed immaterial by the Administrative Agents or in order to effect the Merger.
SECTION 4.1.8 Transaction Documents. Neither the Guarantor nor any of
its Subsidiaries (other than Foamex and its Subsidiaries) shall amend,
supplement or otherwise modify any of the terms or provisions in any of the
Transaction Documents to which it is a party other than amendments, supplements
or modifications deemed immaterial by the Administrative Agents.
ARTICLE V
SUBORDINATION
The Guarantor hereby agrees that any Indebtedness of the Borrowers now
or hereafter owing to the Guarantor (the "Guarantor Subordinated Debt") is
hereby subordinated to all of the Obligations on the terms set forth in Article
10 of the Subordinated Debenture Indenture to the same extent as if such
Indebtedness constituted Indebtedness evidenced by the Subordinated Debentures,
the New Foamex Subordinated Indenture and the New Foamex Notes, as the case may
be. In addition, the Guarantor Subordinated Debt is subordinated on the
following terms: The Guarantor Subordinated Debt shall not be paid in whole or
in part except as otherwise permitted under the terms of the Credit Agreement.
The Guarantor will not accept any payment of or on account of any Guarantor
Subordinated Debt at any time in contravention of the foregoing. The Guarantor
agrees to file all claims against the Borrowers in any bankruptcy or other
proceeding in which the filing of claims is required by law in respect of any
Guarantor Subordinated Debt, and the Collateral Agent shall be entitled to all
of the Guarantor's rights thereunder. If for any reason the Guarantor fails to
file such claim at least thirty (30) days prior to the last date on which
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such claim should be filed, the Collateral Agent, as the Guarantor's
attorney-in-fact, is hereby authorized to do so in the Guarantor's name or, in
the Collateral Agent's discretion, to assign such claim to and cause proof of
claim to be filed in the name of the Collateral Agent or its nominee. In all
such cases, whether in administration, bankruptcy or otherwise, the person or
persons authorized to pay such claim shall pay to the Collateral Agent the full
amount payable on the claim in the proceeding, and, to the full extent necessary
for that purpose, the Guarantor hereby assigns to the Collateral Agent all the
Guarantor's rights to any payments or distributions to which the Guarantor
otherwise would be entitled. If the amount so paid is greater than the
Guarantor's liability hereunder, the Collateral Agent will pay the excess amount
to the party entitled thereto. In addition, the Guarantor hereby appoints the
Collateral Agent as its attorney-in-fact to exercise all of the Guarantor's
voting rights with respect to the Guarantor Subordinated Debt in connection with
any bankruptcy proceeding or any plan for the reorganization of the Borrowers.
ARTICLE VI
MISCELLANEOUS PROVISIONS
SECTION 6.1. Loan Document. This Guaranty is a Loan Document executed
pursuant to the Credit Agreement and shall (unless otherwise expressly indicated
herein) be construed, administered and applied in accordance with the terms and
provisions thereof, including Article XIII thereof.
SECTION 6.2. Binding on Successors, Transferees and Assigns;
Assignment. In addition to, and not in limitation of, Section 2.7, this Guaranty
shall be binding upon the Guarantor and the Guarantor's successors, transferees
and assigns and shall inure to the benefit of and be enforceable by each Secured
Party and each holder of a Note and their respective successors, transferees and
assigns (to the full extent provided pursuant to Section 2.7); provided,
however, that the Guarantor may not assign any of its obligations hereunder
without the prior written consent of all Lenders.
SECTION 6.3. Amendments, etc. No amendment to or waiver of any
provision of this Guaranty, nor consent to any departure by the Guarantor
herefrom, shall in any event be effective unless the same shall be in writing
and signed by the Collateral Agent (on behalf of the Lenders or the Requisite
Lenders, as the case may be) and then such waiver or consent shall be effective
only in the specific instance and for the specific purpose for which given.
SECTION 6.4. Notices. All notices and other communications provided for
hereunder shall be in writing and may be personally served, telecopied, telexed
or sent by courier service or United
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States certified mail and shall be deemed to have been given when delivered in
person or by courier service, upon receipt of a telecopy or telex or four (4)
Business Days after deposit in the United States mail with postage prepaid and
properly addressed. For the purposes hereof, the address of the Guarantor shall
be the address specified on the signature page hereof, or at such other address
as may be designated by the Guarantor in a written notice to the Collateral
Agent.
SECTION 6.5. No Waiver; Remedies. In addition to, and not in limitation
of, Section 2.3 and Section 2.5, no failure on the part of any Secured Party or
any holder of a Note to exercise, and no delay in exercising, any right
hereunder shall operate as a waiver thereof; nor shall any single or partial
exercise of any right hereunder preclude any other or further exercise thereof
or the exercise of any other right. The remedies herein provided are cumulative
and not exclusive of any remedies provided by law.
SECTION 6.6. Captions. Section captions used in this Guaranty are for
convenience of reference only, and shall not affect the construction of this
Guaranty.
SECTION 6.7. Setoff. In addition to, and not in limitation of, any
rights of any Secured Party or any holder of a Note under applicable law, each
Secured Party and each such holder shall, upon the occurrence of any Default
described in any Section 11.01(f) or 11.01(g) of the Credit Agreement or with
the consent of the Requisite Lenders, any Event of Default, have the right to
appropriate and apply to the payment of the obligations of the Guarantor owing
to it hereunder, whether or not then due, and the Guarantor hereby grants to
each Secured Party and each such holder a continuing security interest in, any
and all balances, credits, deposits, accounts or moneys of the Guarantor then or
thereafter maintained with such Secured Party, or such holder or any agent or
bailee for such Secured Party or such holder; provided, however, that any such
appropriation and application shall be subject to the provisions of Section
13.06 of the Credit Agreement.
SECTION 6.8. Severability. Wherever possible each provision of this
Guaranty shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Guaranty shall be prohibited by or
invalid under such 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 Guaranty.
SECTION 6.9. Certain Consents and Waivers of the Guarantor.
SECTION 6.9.1 Personal Jurisdiction. (i) THE GUARANTOR IRREVOCABLY AND
UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE NONEXCLUSIVE
JURISDICTION OF ANY NEW YORK STATE
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<PAGE>
COURT OR FEDERAL COURT SITTING IN NEW YORK, NEW YORK, AND ANY COURT HAVING
JURISDICTION OVER APPEALS OF MATTERS HEARD IN SUCH COURTS, IN ANY ACTION OR
PROCEEDING ARISING OUT OF, CONNECTED WITH, RELATED TO OR INCIDENTAL TO THE
RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH THIS GUARANTY, WHETHER
ARISING IN CONTRACT, TORT, EQUITY OR OTHERWISE, OR FOR RECOGNITION OR
ENFORCEMENT OF ANY AGREEMENT, AND THE GUARANTOR IRREVOCABLY AND UNCONDITIONALLY
AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD
AND DETERMINED IN SUCH STATE COURT OR, TO THE EXTENT PERMITTED BY LAW, IN SUCH
FEDERAL COURT. THE GUARANTOR IRREVOCABLY DESIGNATES AND APPOINTS CORPORATION
SERVICE COMPANY, 15 COLUMBUS CIRCLE, NEW YORK, NEW YORK 10023, AS ITS AGENT (THE
"PROCESS AGENT") FOR SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN ANY SUCH
COURT, SUCH SERVICE BEING ACKNOWLEDGED TO BE EFFECTIVE AND BINDING SERVICE IN
EVERY RESPECT. THE GUARANTOR AGREES THAT A FINAL JUDGEMENT ACTION OR PROCEEDING
SHALL BE CONCLUSIVE AND MAY OTHER JURISDICTIONS BY SUIT ON THE JUDGEMENT OR IN
ANY OTHER MANNER PROVIDED BY LAW. THE GUARANTOR WAIVES IN ALL DISPUTES ANY
OBJECTION THAT THEY MAY HAVE TO THE LOCATION OF THE COURT CONSIDERING THE
DISPUTE.
(ii) THE GUARANTOR AGREES THAT THE COLLATERAL AGENT SHALL HAVE THE
RIGHT TO PROCEED AGAINST EACH BORROWER OR ITS PROPERTY IN A COURT IN ANY
LOCATION TO ENABLE THE ADMINISTRATIVE AGENTS, THE LENDERS AND THE ISSUING BANKS
TO ENFORCE A JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF THE
ADMINISTRATIVE AGENTS, ANY LENDER OR ANY ISSUING BANK. EACH BORROWER WAIVES ANY
OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT IN WHICH THE
ADMINISTRATIVE AGENTS, ANY LENDER OR ANY ISSUING BANK MAY COMMENCE A PROCEEDING
DESCRIBED IN THIS SECTION.
SECTION 6.9.2 Service of Process. THE GUARANTOR IRREVOCABLY CONSENTS TO
THE SERVICE OF PROCESS OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR
PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL,
POSTAGE PREPAID, TO THE PROCESS AGENT OR THE GUARANTOR'S NOTICE ADDRESS
SPECIFIED BELOW, SUCH SERVICE TO BECOME EFFECTIVE (5) FIVE DAYS AFTER SUCH
MAILING. THE GUARANTOR IRREVOCABLY WAIVES ANY OBJECTION (INCLUDING WITHOUT
LIMITATION, ANY OBJECTION OF THE LAYING OF VENUE OR BASED ON THE GROUNDS OF
FORUM NON CONVENIENS) WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY
SUCH ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT TO WHICH IT IS A PARTY IN ANY JURISDICTION SET FORTH ABOVE. NOTHING
HEREIN SHALL AFFECT THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY
LAW OR SHALL LIMIT THE RIGHT OF THE COLLATERAL AGENT TO BRING PROCEEDINGS
AGAINST THE GUARANTOR IN THE COURTS OF ANY OTHER JURISDICTION.
SECTION 6.10. Governing Law, Entire Agreement, etc. THIS GUARANTY SHALL
BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE
STATE OF NEW YORK (INCLUDING FOR SUCH PURPOSE SECTIONS 5-1401 AND 5-1402 OF THE
GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK). THIS GUARANTY AND THE OTHER
LOAN DOCUMENTS CONSTITUTE THE ENTIRE UNDERSTANDING AMONG THE PARTIES
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<PAGE>
HERETO WITH RESPECT TO THE SUBJECT MATTER HEREOF AND SUPERSEDE ANY PRIOR
AGREEMENTS, WRITTEN OR ORAL, WITH RESPECT THERETO.
SECTION 6.11. Waiver of Jury Trial. THE GUARANTOR HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURY
IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN
CONNECTION WITH, THIS GUARANTY OR ANY OTHER LOAN DOCUMENT OR ANY COURSE OF
CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF
THE SECURED PARTIES OR SUCH GUARANTOR. THE GUARANTOR ACKNOWLEDGES AND AGREES
THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION AND
THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE LENDERS ENTERING INTO THE
CREDIT AGREEMENT.
SECTION 6.12. Counterparts. This Guaranty may be executed by the
parties hereto in several counterparts, each of which shall be deemed to be an
original and all of which shall constitute together but one and the same
agreement.
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<PAGE>
IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be duly
executed and delivered by its officer thereunto duly authorized as of the date
first above written.
CRAIN INDUSTRIES, INC.
By: /s/ George L. Karpinski
-----------------------
Name: George L. Karpinski
Title: Senior Vice President
Notice address:
1000 Columbia Avenue
Linwood, Pennsylvania 19061
Attn: Kenneth R. Fuette
Telecopier No.: 610-859-3085
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<PAGE>
ANNEX I
to
Crain Industries Guaranty
Certain Obligations
[Execution Copy]
FIRST AMENDMENT TO PARTNERSHIP PLEDGE AGREEMENT
This FIRST AMENDMENT TO PARTNERSHIP PLEDGE AGREEMENT (this
"Amendment"), dated as of December 23, 1997, amending in certain respects the
Partnership Pledge Agreement dated June 12, 1997 (as amended by this Amendment,
and as further amended, supplemented, amended and restated or modified from time
to time, being the "Partnership Pledge Agreement"), among Trace Foam Company,
Inc., a Delaware corporation ("Trace Foam"), FMXI, Inc., a Delaware corporation
("FMXI"), and Foamex International Inc., a Delaware corporation ("FII"; and if
together with Trace Foam and FMXI, the "Grantors"), in favor of Citicorp USA,
Inc., as collateral agent (together with any successor(s) thereto in such
capacity, the "Collateral Agent") for each of the Secured Parties.
WHEREAS, pursuant to a Credit Agreement, dated as of June 12, 1997 (the
"Existing Credit Agreement"), among Foamex L.P., a Delaware limited partnership
("Foamex" or a "Borrower"), General Felt Industries, Inc., a Delaware
corporation (a "Borrower"; and, if together with Foamex, the "Borrowers"), Trace
Foam, a general partner of Foamex, FMXI, managing general partner of Foamex, the
Lenders, the Issuing Banks and Citicorp USA, Inc., as Collateral Agent for the
Lenders and the Issuing Banks and The Bank of Nova Scotia, as Funding Agent for
the Lenders and the Issuing Banks (together with the Collateral Agent, the
"Administrative Agents"), the Lenders and the Issuing Banks have extended
Commitments to make Credit Extensions to the Borrowers;
WHEREAS, the Existing Credit Agreement is to be amended by the First
Amendment to Credit Agreement, dated as of December 23, 1997 (the "First
Amendment to Credit Agreement", the Existing Credit Agreement as amended by the
First Amendment to Credit Agreement and as further amended, supplemented,
amended and restated or modified from time to time, being the "Credit
Agreement"), among the Borrowers, Trace Foam, FMXI, the Lenders, the Issuing
Banks and the Administrative Agents;
WHEREAS, as a condition precedent to the effectiveness of the First
Amendment to Credit Agreement, Crain Industries, Inc., a Delaware corporation
("Crain"), is required to execute and deliver this Amendment;
WHEREAS, Crain has duly authorized the execution, delivery and
performance of this Amendment;
WHEREAS, it is in the best interests of Crain to execute this Amendment
inasmuch as Crain will derive substantial direct and indirect benefits from the
Credit Extensions made from time to time to the Borrowers by the Lenders and the
Issuing Banks pursuant to the Credit Agreement; and
NOW THEREFORE, for good and valuable consideration the receipt of which
is hereby acknowledged, and in order to induce the Lenders and the Issuing Banks
to make Credit
<PAGE>
Extensions to the Borrowers pursuant to the Credit Agreement, Crain agrees, for
the benefit of each Secured Party, as follows:
Section 1. Definitions. Except as otherwise defined in this Amendment,
terms defined in the Partnership Pledge Agreement are used herein as defined
therein.
Section 2. Amendments. Subject to the satisfaction of the conditions
precedent specified in Section 3 below, but effective as of the date hereof, the
Partnership Pledge Agreement shall be amended as follows:
a. Addition of Parties. Crain hereby becomes a "Grantor" under the
Partnership Pledge Agreement, thereby consenting to, among other things
and in accordance with the Partnership Pledge Agreement, the granting of a
security interest to the Collateral Agent for its benefit and the benefit
of each of the other Secured Parties in all right, title and interest of
Crain in, to and under the Partnership Agreement.
b. Schedule I. Schedule I to the Partnership Pledge Agreement shall
be amended by adding the ownership information contain in Schedule I
hereto.
c. Schedule II. Schedule II to the Partnership Pledge Agreement
shall be amended by adding the locations set forth in Schedule II hereto.
Section 3. Conditions Precedent. As provided in Section 2 above, the
amendments set forth in Section 2 shall become effective, as of the date hereof,
upon the due execution and delivery of this Amendment by Crain, the Grantors and
the Collateral Agent.
Section 4. Miscellaneous. Except as herein provided, the Partnership
Pledge Agreement shall remain unchanged and in full force and effect. This
Amendment may be executed in any number of counterparts, all of which taken
together shall constitute one and the same amendatory instrument and any of the
parties hereto may execute this Amendment by signing any such counterpart. This
Amendment shall be governed by, and construed in accordance with, the internal
laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered as of the day and year first above written.
CRAIN INDUSTRIES, INC.
By: /s/ George L. Karpinski
-------------------------
Name: George L. Karpinski
Title: Vice President
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<PAGE>
TRACE FOAM COMPANY, INC.
By: /s/ Barry Zimmerman
-------------------------
Name: Barry Zimmerman
Title: Executive Vice President
FMXI, INC.
By: /s/ George L. Karpinski
-------------------------
Name: George L. Karpinski
Title: Vice President
FOAMEX INTERNATIONAL INC.
By: /s/ George L. Karpinski
-------------------------
Name: George L. Karpinski
Title: Senior Vice President
CITICORP USA, INC., as
Collateral Agent
By: /s/ Timothy L. Freeman
-------------------------
Name: Timothy L. Freeman
Title: Attorney-in-Fact
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<PAGE>
SCHEDULE I
Grantor's Interest in
Grantor the Partnership
- - ------------------- -------------------------------
Percentage Type
---------- ----
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<PAGE>
SCHEDULE II
Address of Address of
Chief Executive Office location of records
Grantor's Name and Place(s) of Business concerning Collateral
- - -------------- ------------------------ ---------------------
[Execution Form]
FIRST AMENDMENT TO CREDIT AGREEMENT
This FIRST AMENDMENT TO CREDIT AGREEMENT, dated as of December 23, 1997
(the "First Amendment"), amends in certain respects the Credit Agreement dated
as of June 12, 1997 (the "Credit Agreement"), among Foamex L.P. ("Foamex"),
General Felt Industries, Inc. ("GFI"; and together with Foamex, the
"Borrowers"), Trace Foam Company, Inc. ("Trace Foam"), FMXI, Inc. ("FMXI"), the
institutions from time to time party thereto as Lenders, the institutions from
time to time party thereto as Issuing Banks and Citicorp USA, Inc., as
collateral agent for the Lenders and the Issuing Banks (the "Collateral Agent")
and The Bank of Nova Scotia, as funding agent for the Lenders and the Issuing
Banks (the "Funding Agent"; together with the Collateral Agent, the
"Administrative Agents").
R E C I T A L S:
WHEREAS, in connection with the contribution of the assets of Crain
Holdings Corp. and certain of its subsidiaries to (and the assumption of the
liabilities of Crain Holdings Corp. and certain of its subsidiaries by) Foamex,
the Borrowers have requested the undersigned, which constitute the Requisite
Lenders, to amend the Credit Agreement as set forth herein. The Lenders party
hereto have agreed to amend the Credit Agreement to accommodate the request of
the Borrowers contained herein, subject to the terms set forth herein.
NOW, THEREFORE, in consideration of the above recitals each of the
Borrowers, Trace Foam, FMXI, the Lenders party hereto and the Administrative
Agents agree as follows:
SECTION 1. Defined Terms. Terms defined in the Credit Agreement and not
otherwise defined herein have the meanings given such terms in the Credit
Agreement.
SECTION 2. Amendments to the Credit Agreement. The Credit Agreement is
hereby amended as follows:
2.1. Section 1.01 of the Credit Agreement is amended by adding the
following definitions to such section in alphabetical order:
"Bridge Financing" means the up to $180 million in principal amount of
bridge loans made by the Bridge Financing Lender to Crain Acquisition Subsidiary
to pay in part the merger consideration for Crain Holdings pursuant to the Crain
Merger Agreement and to provide funds for the Defeasance of the Existing Crain
Notes not exchanged for New Foamex Notes.
"Bridge Financing Lender" means Scotiabank, in its individual capacity.
"Contribution" means the contribution (including all of the membership
interests in Crain LLC) of all of the assets of Crain Holdings by Foamex
International and Crain Holdings to Foamex in exchange for a non-managing
general partnership Equity Interest of Foamex issued to Foamex International or
Crain Industries.
<PAGE>
"Crain Acquisition Subsidiary" means Merger Acquisition Corp., a
Delaware corporation and a wholly-owned Subsidiary of Foamex International.
"Crain Guaranty" means the Guaranty, dated as of December 23, 1997,
executed by Crain Industries in favor of the Administrative Agents, the Lenders
and Issuing Banks pursuant to which Crain Industries guarantees all of the
Obligations of the Borrowers, as the same may be amended, supplemented or
modified from time to time.
"Crain Holdings" means Crain Holdings Corp., a Delaware corporation.
"Crain Indenture Trustee" means IBJ Schroeder Bank & Trust Company.
"Crain Industries" means Crain Industries, Inc., a Delaware
corporation.
"Crain LLC" means Foamex LLC, a Delaware limited liability company, and
(i) prior to the Contribution, a wholly-owned Subsidiary of Crain Industries and
(ii) after giving effect to the Contribution, a wholly-owned Subsidiary of
Foamex.
"Crain Merger Agreement" means the Agreement and Plan of Merger
Agreement, dated as of December 8, 1997 among Crain Holdings, Foamex
International and Crain Acquisition Subsidiary providing for the merger of Crain
Holdings and Crain Acquisition Subsidiary.
"Crain Restructuring" means the proposed plan of consolidation of plant
operations and administrative functions of Crain Industries and Foamex, all as
more fully described on page 12 of the financial information in the memorandum
dated December, 1997 relating to Foamex delivered to the Lenders.
"Crain Transaction Documents" means (i) the Crain Merger Agreement,
(ii) the Exchange Offer Documents and (iii) all agreements, notes and other
documents relating to the Bridge Financing.
"Defeasance" means with respect to the Existing Crain Notes, either (i)
the Existing Crain Indenture shall cease to be of further effect, whether by
virtue of the fact that all of such securities have been called for redemption,
and the redemption price and all accrued and unpaid interest to the redemption
date shall have been deposited with the Crain Indenture Trustee, or otherwise,
or (ii) all obligations of Crain Industries under the Existing Crain Indenture
shall have been terminated as a result of a legal defeasance, in each case other
than certain provisions relating to registration and transfer of securities and
the Crain Indenture Trustee.
"Exchange Offer" means the private placement exchange offer of Foamex
pursuant to the Exchange Offer Documents pursuant to which the consenting
holders of the Existing Crain Notes will, on the First Amendment Date, exchange
such Existing Crain Notes for an equal principal amount of New Foamex Notes.
"Exchange Offer Documents" means the New Foamex Indenture and the New
Foamex Registration Rights Agreement.
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<PAGE>
"Existing Crain Indenture" means the Indenture, dated as of August 29,
1995, between Crain Industries and the Crain Indenture Trustee, as in effect on
the First Amendment Date.
"Existing Crain Notes" means the 13 1/2 % Senior Subordinated Notes due
2005 issued by Crain Industries and governed by the terms of the Existing Crain
Indenture.
"First Amendment" means the First Amendment to Credit Agreement, dated
as of December 23, 1997, among the Borrowers, the Lenders party thereto, the
Collateral Agent and the Funding Agent.
"First Amendment Date" means the Effective Date (as such term is
defined in the First Amendment).
"New Foamex Notes" means the 13 1/2 % Senior Subordinated Notes due
2005 issued by Foamex pursuant to the terms of the New Foamex Indenture, as such
notes may be amended, supplemented or otherwise modified from time to time.
"New Foamex Indenture" means the indenture, dated as of the First
Amendment Date, pursuant to which the New Foamex Notes were issued, as such
agreement may be amended, supplemented or otherwise modified from time to time.
"New Foamex Registration Rights Agreement" means the Registration
Rights Agreement dated December 23, 1997 between Foamex and FCC, as issuers,
entered into for the benefit of the holders of the New Foamex Notes and
providing for the registration thereof under the Securities Act.
"Term D Loans" is defined in Section 2.04(e).
"Term D Note" means a promissory note of Foamex payable to any Lender,
in the form of Exhibit A-6 hereto (as such promissory note may be amended,
endorsed or otherwise modified from time to time), evidencing the aggregate
Indebtedness of Foamex to such Lender resulting from outstanding Term D Loans,
and also means all other promissory notes accepted from time to time in
substitution therefor or renewal thereof.
2.2. The following definitions contained in Section 1.01 of the Credit
Agreement are hereby amended as follows:
(a) The definition of "Applicable Margin" is hereby amended by (i)
deleting the "and" at the end of clause (a) thereof, (ii) changing the "." at
the end of clause (b) (iii) thereof to "; and" and (iii) adding a new clause (c)
at the end of clause (b) thereto to read as follows:
"(c) with respect to the unpaid principal amount of each Term D Loan
maintained as a LIBO Rate Loan, the applicable percentage set forth below
under the column entitled "Applicable Margin for Term D LIBO Rate Loans",
and with respect to the unpaid principal amount of each Term D Loan
maintained as a Base Rate Loan, the applicable percentage below under the
column entitled "Applicable Margin for Term D Base Rate Loans":
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<PAGE>
Total Net Debt Applicable Applicable
to EBDAIT Margin For Term D Margin For Term D
Ratio Base Rate Loans LIBO Rate Loans
- - ------------------- ----------------- -------------------
Less than 4.0:1 1.25 2.25
Greater than or equal to 1.50 2.50
4.00:1 and less than
4.50:1
Greater than or equal to 1.75 2.75%"
4.50:1
(b) The definition of "Change of Control" is amended by adding the
phrase ", Crain Industries" after the term "FMXI" in clauses (b) and (c) of the
definition thereof.
(c) The definition of "EBDAIT" is amended by adding the following
proviso to the end thereof to read as follows: "provided, however, that there
shall be excluded from the computation of EBDAIT (i) gains and/or losses
incurred in the fourth Fiscal Quarter of Fiscal Year 1997 in connection with the
disposition of GFI's Dalton, Georgia Facility not to exceed $500,000, (ii)
non-recurring charges incurred in connection with the acquisition of the assets
and liabilities of Crain Holdings and its Subsidiaries in an aggregate amount
not to exceed $27,500,000, (iii) other non-recurring charges incurred during the
fourth Fiscal Quarter of Fiscal Year 1997 in an aggregate amount not to exceed
$17,500,000 and (iv) the redemption premium paid on the Existing Crain Notes".
(d) The definition of "Foamex Mexico Group" is amended by (i) deleting
the "and" at the end of clause (c) thereof, (ii) amending clause (b) thereof to
read "(b) Foamex de Cuautitlan S.A. de C.V.," (iii) adding a new clause (e)
thereto to read as follows: "and (e) any other direct or indirect wholly owned
Subsidiary of any such Mexican Subsidiary permitted to be created or acquired
hereunder".
(e) The definition of "Funded Debt" is amended by adding a new last
sentence thereto to read as follows:
"For purposes of calculating Funded Debt, only the face amount of the
New Foamex Notes shall be included therein."
(f) The definition of "General Partners" is amended and restated in its
entirety to read as follows:
"General Partners" means collectively, each of Trace Foam and Crain
Industries, as general partners, and the Managing General Partner.
(g) The definition of "L/C Sublimit" is amended and restated in its
entirety to read as follows:
" 'L/C Sublimit' means $50,000,000."
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<PAGE>
(h) The definition of "Loan Documents" is hereby amended by adding the
phrase ", the Crain Guaranty," after the term "Partnership Pledge Agreement"
contained therein.
(i) The definition of "Net Worth" is amended by amending and restating
clause (a) thereof in its entirety to read as follows:
"(a) the sum of (i) total consolidated assets of such Person
plus (ii) non-recurring charges incurred in connection with the
acquisition of the assets and liabilities of Crain Holdings and its
Subsidiaries in an aggregate amount not to exceed $27,500,000, plus
(iii) the redemption premium paid on the Existing Crain Notes".
(j) The definition of "Permitted Subordinated Indebtedness" is amended
by (i) changing the word "and" before clause (f) thereof to "," and (ii) adding
new clauses (g), (h) and (i) immediately prior to the period at the end thereof
to read as follows:
"(g) the New Foamex Notes in a principal amount not to exceed
a principal amount equal to $100,000,000 minus the principal amount of
Existing Crain Notes redeemed or defeased pursuant to the Defeasance,
(h) other subordinated Indebtedness of Foamex having terms no
more disadvantageous to the Borrowers and the Lenders than those terms
set forth in the New Foamex Subordinated Notes and incurred in
connection with the Contribution and Assumption, and
(i) other subordinated Indebtedness of Foamex satisfying the
requirements of Section 11.01(s) in an amount not to exceed the
principal amount of New Foamex Notes so refinanced, transaction costs
associated therewith and associated redemption premiums."
(k) The definition of "Proceeds of Issuance of Equity Interests or
Indebtedness" is amended by adding the following proviso to the end thereof to
read as follows: "provided, however, that (i) the issuance by Foamex
International of Equity Interests pursuant to the Merger Agreement, (ii) the
issuance by Foamex of Equity Interests to Crain Industries and/or Foamex
International in consideration of the Contribution, (iii) the issuance of the
New Foamex Notes or (iv) the issuance of Permitted Subordinated Indebtedness
described in clauses (h) and (i) of the definition thereof, in each such case,
shall not constitute Proceeds of Issuance of Equity Interests or Indebtedness."
(l) The definition of "Pro Rata Share" is amended (i) by replacing the
"and" at the end of clause (c) thereto and replacing it with a "," and (ii) by
adding a new clause (e) thereto immediately prior to the period at the end
thereof to read as follows: "and (e) with respect to Term D Loans, the
percentage obtained by dividing (i) such Lender's Term D Loans by (ii) the
aggregate amount of all Term D Loans".
(m) The definition of "Permitted Businesses" is amended by adding a new
clause (c) thereto to read as follows:
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<PAGE>
and "(c) the businesses engaged in by Crain Industries and its
Subsidiaries on the First Amendment Date and similar lines of business
engaged in by Crain Industries and its Subsidiaries on the First
Amendment Date."
(n) The definition of "TEFSA" is amended and restated in its entirety
to read as follows:
"TEFSA" means Foamex de Cuautitlan S.A. de C.V.
(o) The definition of "Term Loans" is amended and restated in its
entirety to read as follows:
"'Term Loans' means, collectively, the Term A Loans, the Term B Loans,
the Term C Loans and the Term D Loans."
(p) The definition of "Term Notes" is amended and restated in its
entirety to read as follows:
" 'Term Notes' means, collectively, the Term A Notes, the Term
B Notes, the Term C Notes and the Term D Notes."
(q) The definition of "Transaction Costs" is hereby amended by adding
the phrase "and the Crain Transaction Documents" after the term "Loan Documents"
contained therein.
(r) The definition of "Transaction Documents" is hereby amended by
adding the phrase ", the New Foamex Notes, the New Foamex Indenture, the New
Foamex Registration Rights Agreement, the Crain Transaction Documents, the
documents, agreements and other writings related to the Crain Restructuring and"
after the term "Tax Advance Agreement" contained therein.
2.3. Section 1.03 of the Credit Agreement is amended by adding the
following sentences thereto:
"For purposes of calculating (a) the Total Net Debt to EBDAIT Ratio,
Crain Holdings and its Subsidiaries (including the results of
operations of SIMCO Corporation for the full Fiscal Year 1997) shall be
deemed to have become Subsidiaries of Foamex on the first day of Fiscal
Year 1997 and (b) the amount of Excess Cash Flow in respect of Fiscal
Year 1997 shall be calculated as if Crain Holdings and its Subsidiaries
had become Subsidiaries of Foamex on the first day of fiscal year
1998."
2.4. Section 2.01(d) of the Credit Agreement is amended by adding a new
clause (v) thereto to read as follows:
"and (v) and up to $40,000,000 in principal amount of Revolving Loans
may be utilized on the First Amendment Date to repay in part the Bridge
Financing."
2.5. Section 2.02(a) of the Credit Agreement is amended by changing the
amount of $10,000,000" therein to "$15,000,000".
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<PAGE>
2.6. Section 2.03(a)(iv) of the Credit Agreement is amended and
restated in its entirety to read as follows:
"(iv) which is in a currency other than Dollars unless otherwise agreed
to by the Issuing Bank and the Administrative Agents."
2.7. Section 2.04(d) of the Credit Agreement is amended and restated to
read as follows:
"(d) Use of Proceeds of Term Loans. The proceeds of the Term
Loans shall be used solely (i) in the case of all Term Loans, to fund
the Refinancing (other than Term D Loans) and to pay Transaction Costs,
(ii) in the case of Term A Loans made after the Effective Date, to fund
the Delayed Purchases or to refund Swing Loans or Revolving Loans used
to fund Delayed Purchases and (iii) in the case of Term D Loans to pay
in part the cash merger consideration under the Crain Merger Agreement
and the Defeasance."
2.8. A new Section 2.04(e) is hereby added to the Credit Agreement to
read as follows:
"(e) Term D Loans. (i) As of the First Amendment Date, the
loans made pursuant to the Bridge Financing, after giving effect to any
prepayment thereof on the First Amendment Date, shall be assumed by
Foamex (such loans being the "Term D Loans") and the terms and
conditions thereof shall be amended and restated by the provisions of
this Agreement relating to Term D Loans and, from and after the First
Amendment Date, all Term D Loans shall in all respects be deemed Term
Loans and Loans hereunder; provided, that, the aggregate amount of Term
D Loans shall not exceed an amount equal to the difference of (i)
$140,000,000 minus (ii) an amount equal to the excess, if any of (I)(x)
the face amount of New Foamex Notes outstanding on the First Amendment
Date plus (y) the face amount of any other Permitted Subordinated
Indebtedness issued on the First Amendment Date plus (z) the aggregate
value of any contribution to the equity of Foamex made on the First
Amendment Date over (II) $70,000,000.
(ii) On the First Amendment Date, Scotiabank, as the initial
Term D Loan Lender, shall be deemed (upon receipt of payment therefor,
as set forth in the immediately following sentence) to have assigned to
certain Lenders (as set forth on Exhibit C to the First Amendment), and
each such Lender shall be deemed to have purchased, Term D Loans in the
principal amount indicated on such signature pages. Upon such payment
therefor as agreed upon between Scotiabank and such Lender, such Lender
shall be a Lender of Term D Loans hereunder.
(iii) Term D Loans are hereby designated `Designated Senior
Debt' for all purposes of the New Foamex Subordinated Note Indenture
and the New Foamex Subordinated Notes."
2.9. A new Section 3.01(b)(ix) is hereby added to the Credit Agreement
to read as follows:
"(ix) On each Quarterly Payment Date set forth below, Foamex
shall make a scheduled repayment of the aggregate outstanding principal
amount (expressed as a percentage of the original principal amount of
the Term D Loans), if any, of all Term D
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<PAGE>
Loans in an amount equal to the amount set forth below opposite the
applicable Quarterly Payment Date:
Percentage of Original
Period Principal Amount
------------------ ----------------------
March 31, 1998 0.25%
June 30, 1998 0.25%
September 30, 1998 0.25%
December 31, 1998 0.25%
March 31, 1999 0.25%
June 30, 1999 0.25%
September 30, 1999 0.25%
December 31, 1999 0.25%
March 31, 2000 0.25%
June 30, 2000 0.25%
September 30, 2000 0.25%
December 31, 2000 0.25%
March 31, 2001 0.25%
June 30, 2001 0.25%
September 30, 2001 0.25%
December 31, 2001 0.25%
March 31, 2002 0.25%
June 30, 2002 0.25%
September 30, 2002 0.25%
December 31, 2002 0.25%
March 31, 2003 0.25%
June 30, 2003 0.25%
September 30, 2003 0.25%
December 31, 2003 0.25%
March 31, 2004 0.25%
June 30, 2004 0.25%
September 30, 2004 0.25%
December 31, 2004 0.25%
March 31, 2005 0.25%
June 30, 2005 0.25%
September 30, 2005 0.25%
December 31, 2005 0.25%
March 31, 2006 23%
June 30, 2006 23%
September 30, 2006 23%
December 31, 2006 23%
Section 2.10. The proviso to Section 3.02(b)(ii) of the Credit
Agreement is amended by (a) replacing the "or" prior to the term "Term C Loan"
with a "," and (b) adding the phrase "or Term D Loan" after the phrase "Term C
Loan" contained therein.
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<PAGE>
Section 2.11. Section 4.02(b)(vi) of the Credit Agreement is amended by
changing the number "twelve (12)" contained therein to "fifteen (15)".
Section 2.12. Section 6.01(a)(iv) of the Credit Agreement is amended by
(a) adding the phrase "or, in the case of any such Subsidiary that is a limited
liability company, a limited liability company," after the phrase "is a
corporation" in subclause (A) thereof, (b) adding the phrase "or, in the case of
any such Subsidiary that is a limited liability company, a foreign limited
liability company," after the phrase "foreign corporation" in subclause (B)
thereof, and (c) adding the phrase "or, in the case of any such Subsidiary that
is a limited liability company, limited liability company authority," after the
phrase "corporate power" in subclause (C) thereof.
Section 2.13. Section 6.01(b)(i) of the Credit Agreement is amended by
adding the phrase "or, in the case of any such Subsidiary that is a limited
liability company (or any other limited liability company), limited liability
company power," after the phrase "corporate power" contained therein.
Section 2.14. Section 6.01(h) of the Credit Agreement is amended by (a)
changing the date "June 29, 1997" therein to "September 28, 1997", (b) deleting
the term "estimated" therefrom and (c) changing the date "June 30, 1997" therein
to the date "September 28, 1997".
Section 2.15. Section 6.01(aa) of the Credit Agreement is amended by
(a) adding the phrase ", the New Foamex Indenture" after the phrase "the
Subordinated Debenture Indenture" in the first sentence thereof, (b) adding the
phrase ", the New Foamex Notes" after the phrase "the Subordinated Debentures"
in the first sentence thereof and (c) adding the phrase "and the New Foamex
Indenture" after the phrase "the 1993 Subordinated Debenture Indenture" in the
second sentence thereof.
Section 2.16. Section 6.01(bb) of the Credit Agreement is amended by
adding the phrase ", the New Foamex Indenture" after each appearance of the
phrase "the Subordinated Debenture Indenture" in such section.
Section 2.17. Section 7.01(f) of the Credit Agreement is amended by
changing the reference of "Fiscal Year 1997" to "Fiscal Year 1998".
Section 2.18. Section 8.01 of the Credit Agreement is amended by adding
the phrase "or, in the case of any such Subsidiary that is a limited liability
company, limited liability company existence," after the phrase " corporate
existence" contained therein.
Section 2.19. Section 9.02 of the Credit Agreement is amended by (a)
replacing the amount "$50,000,000" appearing in clause (iii) thereof with the
phrase "$100,000,000; provided, however, that the aggregate amount of such sales
to and such Investments in Subsidiary Guarantors other than GFI, Foamex Fibers
and Crain LLC shall not exceed $50,000,000", (b) amending clause (vi) thereof by
adding the words "or lease" after the word "sale" in the first and second lines
thereof, (c) deleting the word "and" after clause (viii) thereof, (d) adding the
word "and" after the ";" at the end of clause (ix) thereof and (e) adding a new
clause (x) thereto to read as follows:
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<PAGE>
"(x) sales or other dispositions of assets in connection with
the Crain Restructuring;".
Section 2.20. Section 9.04 of the Credit Agreement is amended by (a)
changing the phrase "$50,000,000, in the aggregate at any time outstanding"
appearing in clause (vi) thereof "$100,000,000 in the aggregate at any time
outstanding; provided, however, that the aggregate amount of all such sales or
transfers to and all loans or advances to Subsidiary Guarantors other than GFI,
Foamex Fibers and Crain LLC shall not exceed $50,000,000 in the aggregate at any
time outstanding, "(b) deleting the word "and" after clause (x) thereof, (c)
adding the word "and" after the ";" at the end of clause (xi) thereof, (d)
adding a new clause (xii) thereto to read as follows:
"(xii) Investments made by Foamex in Crain LLC on the First
Amendment Date in connection with the Contribution;".
"and (e) by adding a new last sentence to the proviso thereto to read
as follows:
"Notwithstanding the foregoing, the Borrowers shall not be required to
enter into Lockbox Agreements relating to deposit accounts maintained
by Crain Industries or it Subsidiaries until the later of the 60th day
after the First Amendment Date and such later date as consented to by
the Administrative Agents".
Section 2.21. Clause (iii) of Section 9.05 of the Credit Agreement is
amended and restated in its entirety to read as follows :
"(iii) Accommodation Obligations of the Subsidiary Guarantors
in connection with their guaranty of (A) the New Foamex Subordinated
Notes, but only to the extent set forth in the New Foamex Subordinated
Note Indenture and (B) the New Foamex Notes, but only to the extent set
forth in the New Foamex Indenture;".
Section 2.22. Clause (ii)(x) of Section 9.06 of the Credit Agreement is
amended and restated in its entirety to read as follows :
"(x) regularly scheduled interest payments in respect of the
New Foamex Subordinated Notes, the Subordinated Debentures, the 1993
Subordinated Debentures and the New Foamex Notes if such interest
payments are permitted to be made pursuant to the terms of the New
Foamex Subordinated Notes and the New Foamex Subordinated Note
Indenture, the Subordinated Debentures and the Subordinated Debenture
Indenture, the 1993 Subordinated Debentures and the 1993 Subordinated
Debenture Indenture or the New Foamex Notes and the New Foamex
Indenture, as the case may be,".
Section 2.23. Section 9.07 of the Credit Agreement is amended by adding
the phrase (a) ", New Foamex Notes" after the phrase "the Senior Notes" and (b)
"New Foamex Indenture" after the phrase "the Senior Note Indenture" contained
therein.
Section 2.24. Section 9.08 of the Credit Agreement is amended by (a)
deleting the "or" immediately prior to clause (vii) thereof and (b) adding
immediately prior to the period at the end thereof a new clause (viii) thereto
to read as follows:
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<PAGE>
"or (viii) the Contribution, the transactions contemplated by the Crain
Transaction Documents and the Crain Restructuring".
Section 2.25. Section 9.09 of the Credit Agreement is amended by (a)
changing the word "or" at the end of clause (i) of the proviso of the first
sentence thereto and (b) adding a new clause (iii) thereto prior to the period
at the end of such sentence to read as follows:
"and (iii) each General Partner may dividend or transfer the Equity
Interests it owns in Foamex International or Trace Foam Sub to TIHI or
a wholly-owned Subsidiary thereof".
Section 2.26. Section 9.13 of the Credit Agreement is amended by adding
the phrase "or to Crain Industries or its Subsidiaries in connection with the
Contribution" immediately prior to the period at the end thereof.
Section 2.27. Section 9.14 of the Credit Agreement is amended by
changing the phrase "on the Effective Date" to the phrase "on the First
Amendment Date except to reflect the issuance of Equity Interests to Crain
Industries and/or its Subsidiaries in connection with the Contribution".
Section 2.28. Section 9.16 of the Credit Agreement is amended by (a)
amending and restating clause (iv) thereof in its entirety to read as follows:
"(iv) repayments of the Existing Secured Debt, the New Foamex
Subordinated Notes, the Subordinated Debentures, the 1993 Subordinated
Debentures and the New Foamex Notes to the extent required to be made
pursuant to the terms of the Existing Secured Debt Indentures, the New
Foamex Subordinated Note Indenture, the Subordinated Debenture
Indenture, the 1993 Subordinated Debenture Indenture and the New Foamex
Indenture, respectively;
(b) deleting the "and" immediately prior to clause (v) thereof and (c)
adding immediately prior to the period at the end thereof a new clause
(vi) thereto to read as follows:
"or (vi) repayments of Indebtedness incurred pursuant to the provisions
of Section 9.01(vii)(x)."
Section 2.29. Article X of the Credit Agreement is hereby amended and
restated in its entirety to read as follows:
"ARTICLE X
FINANCIAL COVENANTS
Each Borrower covenants and agrees that so long as any Commitments are
outstanding and thereafter until all of the Obligations are paid in full (or, in
the case of contingent Obligations (other than indemnities not yet due), Cash
Collateral has been deposited in the Cash Collateral Account in the full amount
of such Obligations on terms satisfactory to the Lenders), unless the Requisite
Lenders shall otherwise give prior written consent thereto:
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<PAGE>
10.1 Minimum Net Worth. The Net Worth of Foamex and its Subsidiaries on
a consolidated basis at all times during any period from the last day of the
fiscal quarter in each Fiscal Year of the Borrowers set forth below to the next
to last day of the next succeeding fiscal quarter shall not be less than the
minimum amount set forth opposite the first such fiscal quarter:
Fiscal Quarter Minimum Net
--------------- -----------
Worth(in millions)
-----
Second fiscal quarter of 1997 $(154.3)
Third fiscal quarter of 1997 (151.0)
Fourth fiscal quarter of 1997 (146.4)
First fiscal quarter of 1998 (142.0)
Second fiscal quarter of 1998 (136.4)
Third fiscal quarter of 1998 (128.9)
Fourth fiscal quarter of 1998 (121.4)
First fiscal quarter of 1999 (117.2)
Second fiscal quarter of 1999 (111.9)
Third fiscal quarter of 1999 (104.8)
Fourth fiscal quarter of 1999 (97.6)
First fiscal quarter of 2000 (92.8)
Second fiscal quarter of 2000 (86.7)
Third fiscal quarter of 2000 (78.4)
Fourth fiscal quarter of 2000 (70.2)
First fiscal quarter of 2001 (64.8)
Second fiscal quarter of 2001 (57.9)
Third fiscal quarter of 2001 (48.6)
Fourth fiscal quarter of 2001 (39.4)
First fiscal quarter of 2002 (33.4)
Second fiscal quarter of 2002 (25.7)
Third fiscal quarter of 2002 (15.5)
Fourth fiscal quarter of 2002 (5.3)
First fiscal quarter of 2003 1.2
Second fiscal quarter of 2003 9.6
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<PAGE>
Fiscal Quarter Minimum Net
--------------- -----------
Worth(in millions)
-----
Third fiscal quarter of 2003 20.7
Fourth fiscal quarter of 2003 31.9
First fiscal quarter of 2004 38.9
Second fiscal quarter of 2004 47.8
Third fiscal quarter of 2004 59.7
Fourth fiscal quarter of 2004 71.6
First fiscal quarter of 2005 79.5
Second fiscal quarter of 2005 89.7
Third fiscal quarter of 2005 103.2
Fourth fiscal quarter of 2005 116.8
First fiscal quarter of 2006 123.8
Second fiscal quarter of 2006 131.8
Third fiscal quarter of 2006 136.8
Fourth fiscal quarter of 2006 and 141.8
thereafter
10.2 Minimum Interest Coverage Ratio. Interest Coverage Ratio of Foamex
and its Subsidiaries on a consolidated basis, as determined as of the last day
of each fiscal quarter of the Borrowers set forth below for the four fiscal
quarter period ending on such date, shall not be less than the minimum ratio set
forth opposite such fiscal quarter:
Fiscal Quarter Minimum Ratio
-------------- -------------
Second fiscal quarter of 1997 2.50:1.00
Third fiscal quarter of 1997 2.50:1.00
Fourth fiscal quarter of 1997 2.50:1.00
First fiscal quarter of 1998 2.10:1.00
Second fiscal quarter of 1998 2.10:1.00
Third fiscal quarter of 1998 2.10:1.00
Fourth fiscal quarter of 1998 2.10:1.00
First fiscal quarter of 1999 2.10:1.00
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Fiscal Quarter Minimum Ratio
-------------- -------------
Second fiscal quarter of 1999 2.10:1.00
Third fiscal quarter of 1999 2.10:1.00
Fourth fiscal quarter of 1999 2.25:1.00
First fiscal quarter of 2000 2.25:1.00
Second fiscal quarter of 2000 2.25:1.00
Third fiscal quarter of 2000 2.25:1.00
Fourth fiscal quarter of 2000 2.50:1.00
First fiscal quarter of 2001 2.50:1.00
Second fiscal quarter of 2001 2.50:1.00
Third fiscal quarter of 2001 2.50:1.00
Fourth fiscal quarter of 2001 2.75:1.00
First fiscal quarter of 2002 2.75:1.00
Second fiscal quarter of 2002 2.75:1.00
Third fiscal quarter of 2002 2.75:1.00
Fourth fiscal quarter of 2002 3.00:1.00
First fiscal quarter of 2003 3.00:1.00
Second fiscal quarter of 2003 3.00:1.00
Third fiscal quarter of 2003 3.00:1.00
Fourth fiscal quarter of 2003 3.00:1.00
First fiscal quarter of 2004 3.00:1.00
Second fiscal quarter of 2004 3.00:1.00
Third fiscal quarter of 2004 3.00:1.00
Fourth fiscal quarter of 2004 3.00:1.00
First fiscal quarter of 2005 3.00:1.00
Second fiscal quarter of 2005 3.00:1.00
Third fiscal quarter of 2005 3.00:1.00
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Fiscal Quarter Minimum Ratio
-------------- -------------
Fourth fiscal quarter of 2005 3.00:1.00
First fiscal quarter of 2006 3.00:1.00
Second fiscal quarter of 2006 and thereafter 3.00:1.00
10.3 Minimum Fixed Charge Coverage Ratio. Fixed Charge Coverage Ratio
of Foamex and its Subsidiaries on a consolidated basis, as determined as of the
last day of each fiscal quarter of the Borrowers set forth below for the four
fiscal quarter period ending on such date, shall not be less than the minimum
ratio set forth opposite such fiscal quarter:
Fiscal Quarter Minimum Ratio
-------------- -------------
Second fiscal quarter of 1997 1.10:1.00
Third fiscal quarter of 1997 1.10:1.00
Fourth fiscal quarter of 1997 1.10:1.00
First fiscal quarter of 1998 1.00:1.00
Second fiscal quarter of 1998 1.00:1.00
Third fiscal quarter of 1998 1.10:1.00
Fourth fiscal quarter of 1998 1.10:1.00
First fiscal quarter of 1999 1.10:1.00
Second fiscal quarter of 1999 1.10:1.00
Third fiscal quarter of 1999 1.10:1.00
Fourth fiscal quarter of 1999 1.10:1.00
First fiscal quarter of 2000 1.10:1.00
Second fiscal quarter of 2000 1.10:1.00
Third fiscal quarter of 2000 1.10:1.00
Fourth fiscal quarter of 2000 1.10:1.00
First fiscal quarter of 2001 1.10:1.00
Second fiscal quarter of 2001 1.10:1.00
Third fiscal quarter of 2001 1.10:1.00
Fourth fiscal quarter of 2001 1.10:1.00
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Fiscal Quarter Minimum Ratio
-------------- -------------
First fiscal quarter of 2002 1.10:1.00
Second fiscal quarter of 2002 1.10:1.00
Third fiscal quarter of 2002 1.10:1.00
Fourth fiscal quarter of 2002 1.10:1.00
First fiscal quarter of 2003 1.10:1.00
Second fiscal quarter of 2003 1.10:1.00
Third fiscal quarter of 2003 1.10:1.00
Fourth fiscal quarter of 2003 1.10:1.00
First fiscal quarter of 2004 1.00:1.00
Second fiscal quarter of 2004 1.00:1.00
Third fiscal quarter of 2004 1.00:1.00
Fourth fiscal quarter of 2004 1.00:1.00
First fiscal quarter of 2005 1.00:1.00
Second fiscal quarter of 2005 1.00:1.00
Third fiscal quarter of 2005 1.00:1.00
Fourth fiscal quarter of 2005 1.00:1.00
First fiscal quarter of 2006 1.00:1.00
Second fiscal quarter of 2006 and thereafter 1.00:1.00
10.4 Maximum Leverage Ratio. Total Net Debt to EBDAIT Ratio of Foamex
and its Subsidiaries on a consolidated bases, as determined as of the last day
of each fiscal quarter of the Borrowers set forth below for the four fiscal
quarter period ending on such date, shall not exceed the maximum ratio set forth
below:
Fiscal Quarter Minimum Ratio
-------------- -------------
Second fiscal quarter of 1997 5.00:1.00
Third fiscal quarter of 1997 5.00:1.00
Fourth fiscal quarter of 1997 5.75:1.00
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Fiscal Quarter Minimum Ratio
-------------- -------------
First fiscal quarter of 1998 5.75:1.00
Second fiscal quarter of 1998 5.75:1.00
Third fiscal quarter of 1998 5.75:1.00
Fourth fiscal quarter of 1998 5.00:1.00
First fiscal quarter of 1999 5.00:1.00
Second fiscal quarter of 1999 5.00:1.00
Third fiscal quarter of 1999 5.00:1.00
Fourth fiscal quarter of 1999 4.50:1.00
First fiscal quarter of 2000 4.50:1.00
Second fiscal quarter of 2000 4.50:1.00
Third fiscal quarter of 2000 4.50:1.00
Fourth fiscal quarter of 2000 3.90:1.00
First fiscal quarter of 2001 3.90:1.00
Second fiscal quarter of 2001 3.90:1.00
Third fiscal quarter of 2001 3.90:1.00
Fourth fiscal quarter of 2001 3.50:1.00
First fiscal quarter of 2002 3.50:1.00
Second fiscal quarter of 2002 3.50:1.00
Third fiscal quarter of 2002 3.50:1.00
Fourth fiscal quarter of 2002 3.25:1.00
First fiscal quarter of 2003 3.25:1.00
Second fiscal quarter of 2003 3.25:1.00
Third fiscal quarter of 2003 3.25:1.00
Fourth fiscal quarter of 2003 3.00:1.00
First fiscal quarter of 2004 3.00:1.00
Second fiscal quarter of 2004 3.00:1.00
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Fiscal Quarter Minimum Ratio
-------------- -------------
Third fiscal quarter of 2004 3.00:1.00
Fourth fiscal quarter of 2004 3.00:1.00
First fiscal quarter of 2005 3.00:1.00
Second fiscal quarter of 2005 3.00:1.00
Third fiscal quarter of 2005 3.00:1.00
Fourth fiscal quarter of 2005 3.00:1.00
First fiscal quarter of 2006 3.00:1.00
Second fiscal quarter of 2006 and thereafter 3.00:1.00
Section 2.30. Section 11.01(p) of the Credit Agreement is hereby
amended and restated in its entirety to read as follows:
(p) New Foamex Subordinated Notes and Existing Secured Debt.
Any "Event of Default" (or any event or occurrence or circumstance
which would become an "Event of Default" with the passage of time or
the giving of notice or both) as defined in the New Foamex Subordinated
Note Indenture, the New Foamex Indenture or any indenture or other
document relating to the Existing Secured Debt shall have occurred and
be continuing. Any of the terms of the New Foamex Subordinated Notes,
New Foamex Notes or any Existing Secured Debt Indenture or other
document relating to the Existing Secured Debt shall be amended,
supplemented or otherwise modified without the prior written consent of
the Requisite Lenders (except for such amendments, supplements or
modifications deemed immaterial by the Administrative Agents)."
Section 2.31. A new Section 11.01(s) is hereby added to the Credit
Agreement to read as follows:
"(s) Refinancing of the New Foamex Notes. Foamex shall have failed to
refinance in full the aggregate amount of New Foamex Notes on or prior to March
1, 2005 pursuant to the issuance of new subordinated indebtedness of Foamex
having terms, conditions, covenants, subordination, maturity and redemption
provisions and all other material agreements no more disadvantageous to Foamex
or to the Lenders or Agents as those contained in the New Foamex Subordinated
Notes and issued pursuant to documentation in form and substance satisfactory to
the Requisite Lenders."
SECTION 3. Consent of the Requisite Lenders. The Requisite Lenders
hereby consent to (a) the amendment and restatement of (i) the Foamex
International Guaranty substantially in the form attached hereto as Exhibit A,
(ii) the Schedules to the Credit Agreement in the form attached hereto as
Exhibit B, (b) the execution and delivery of amendments or supplements to the
Loan Documents by the Collateral Agent and to make all filings and to take all
such other actions as the
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<PAGE>
Collateral Agent and the Administrative Agents deem necessary or advisable to
subject the assets of Crain Industries and its Subsidiaries to the Lien of the
Loan Documents upon consummation of the Contribution and (c) an amendment to the
Partnership Agreement to be in form and substance satisfactory to the
Administrative Agents and their counsel to admit Crain Industries as a general
partner of Foamex..
SECTION 4. Conditions to Effectiveness. This Agreement shall become
effective on the date (the "Effective Date") when the following conditions
precedent have been satisfied (unless waived by the Requisite Lenders or unless
the deadline for delivery has been extended by the Administrative Agents):
(i) Documents. The Administrative Agents shall have received
on or before the Effective Date all of the following in form and
substance satisfactory to the Requisite Lenders:
(a) this Agreement and all other agreements,
documents and instruments, described in the List of Closing
Documents, attached hereto and made a part hereof as Exhibit
C, each duly executed where appropriate and in form and
substance satisfactory to the Requisite Lenders; without
limiting the foregoing, the Borrowers hereby direct their
counsel, Willkie Farr & Gallagher, and each of their local
counsel, to prepare and deliver to the Administrative Agents,
the Lenders, the Issuing Banks and Mayer, Brown & Platt,
counsel to the Funding Agent, the opinions referred to in such
List of Closing Documents; and
(b) such additional documentation as either
Administrative Agent or any of the Requisite Lenders may
reasonably request.
(ii) Perfection of Liens. The Collateral Agent shall have
received evidence that all Liens granted to the Collateral Agent with
respect to all Collateral (including without limitation, all of the
assets of Crain Industries and Crain LLC) are perfected and of first
priority, except as otherwise permitted under this Agreement or as set
forth in the Intercreditor Agreements. The Borrowers and Crain LLC
shall have complied with Section 8.14 of the Credit Agreement.
(iii) Consummation of Transaction. The transactions
contemplated by the Crain Transaction Documents shall have been
consummated in accordance with the terms thereof, without any waiver or
forbearance of the terms and conditions therefor set forth therein
without the prior written consent of the Administrative Agents, and
Foamex shall have irrevocably accepted for exchange in accordance with
the Exchange Offer or shall have been defeased or called for redemption
in accordance with the terms of the Existing Crain Indenture all of the
outstanding Existing Crain Notes.
(iv) Issuance of New Foamex Notes or Other Subordinated Debt.
(i) The New Foamex Notes shall have been issued in accordance with the
Exchange Offer and the New Foamex Indenture (and the related exchange
agreements) without any waiver or forbearance of the terms and
conditions therefor set forth in the New Foamex Note Exchange
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<PAGE>
Memorandum (or such related exchange agreements) by any party thereto
without the prior written consent of the Administrative Agents or (ii)
other Permitted Subordinated Indebtedness of Foamex (the "Other
Subordinated Debt) shall have been issued by Foamex pursuant to
documentation acceptable to the Administrative Agents. Such New Foamex
Notes shall be in a minimum principal amount which, together with (i)
the amount of any Equity Interests utilized by Foamex International in
connection with the Crain Merger Agreement and (ii) the gross cash
proceeds of sale of the Other Subordinated Debt, shall equal at least
$60,000,000.
(v) Payment of Obligations Under Bridge Financing. The
Borrowers shall have paid the Bridge Financing with the proceeds of
Revolving Loans so that the aggregate outstanding principal amount
thereof prior to the amendment and restatement of such Bridge Financing
under this Amendment as Term D Loans shall not exceed the difference of
(i) $140,000,000 minus (ii) an amount equal to the excess, if any of
(I)(x) the face amount of New Foamex Notes outstanding on the First
Amendment Date plus (y) the face amount of any other Permitted
Subordinated Indebtedness issued on the First Amendment Date plus (z)
the aggregate value of any contribution to the equity of Foamex made on
the First Amendment Date over (II) $70,000,000.
(vi) Consents. Each of the Borrowers, each of the Borrowers'
Subsidiaries, each General Partner, and Crain Industries and its
subsidiaries shall have received all material consents and
authorizations required pursuant to any material Contractual Obligation
with any other Person and shall have obtained all material consents and
authorizations of, and effected all notices to and filings with, any
Governmental Authority, in each case, as may be necessary to allow each
of the Borrowers, any of the Borrowers' Subsidiaries and each General
Partner, Crain Industries and its subsidiaries to lawfully and without
risk of rescission, (i) execute, deliver and perform, in all material
respects, its obligations under this Agreement, the other Loan
Documents and the Transaction Documents to which it is, or is to be, a
party and each other agreement or instrument to be executed and
delivered by it pursuant thereto or in connection therewith and (ii)
create and perfect or continue the validity and perfection of the Liens
on the Collateral to be owned by it in the manner and for the purpose
contemplated by the Loan Documents.
(vii) No Legal Impediments. No law, regulation, order,
judgment or decree of any Governmental Authority shall, and neither
Administrative Agent shall have received any notice that litigation is
pending or threatened which is likely to (i) enjoin, prohibit or
restrain the making of the Loans and/or the issuance of Letters of
Credit and/or the Exchange Offer, the Contribution or the consummation
of the other transactions contemplated by the Crain Transaction
Documents or (ii) impose or result in the imposition of a Material
Adverse Effect.
(viii) No Change in Condition. No change in the condition
(financial or otherwise), business, performance, properties, assets,
operations or prospects of either Borrower or any of its Subsidiaries
or Crain Industries and its subsidiaries shall have occurred since
December 29, 1996, which change, in the judgment of the Lenders, will
have or is reasonably likely to have a Material Adverse Effect.
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<PAGE>
(ix) No Default. No Event of Default or Potential Event of
Default shall have occurred and be continuing or would result from the
consummation of the Contribution, the Exchange Offer or the other
transactions contemplated by the Crain Transaction Documents.
(x) Representations and Warranties. All of the representations
and warranties contained in Section 6.01 and in any of the other Loan
Documents shall be true and correct in all material respects on and as
of the Effective Date.
(xi) Financial Information, etc. The Administrative Agents
shall have received on or prior to the Effective Date the consolidated
pro forma balance sheet of Foamex as at September 28, 1997 (giving pro
forma effect as of such date to the Contribution and the other
transactions contemplated by the Crain Transaction Documents and this
Agreement and the then existing legal and capital structure of the
Borrowers and their respective Subsidiaries), and detailed financial
projections through Fiscal Year 2007 on an annual basis, in each case
in form and substance reasonably satisfactory to the Administrative
Agents and the Lenders.
(xii) Compliance Certificate. The Administrative Agents shall
have received a Compliance Certificate on a pro forma basis as if the
Credit Extensions to be made on the Effective Date and Contribution and
the other transactions contemplated by the Crain Transaction Documents
had occurred as of September 28, 1997 and as to such other items
therein as the Administrative Agents may reasonably request, dated the
Effective Date, duly executed (and with all schedules thereto duly
completed) and delivered by the chief executive, financial or
accounting officer of the Borrowers. Such Compliance Certificate shall
be used for the determination of the Applicable Margin as to all Loans
and the Applicable Commitment Fee Margin.
(xiii) Solvency, etc. The Administrative Agents shall have
received the solvency certificates, dated the Effective Date, duly
executed and delivered by the chief financial or accounting Authorized
officer of each of the Borrowers.
(xiv) Amendment Fee Paid. There shall have been paid to the
Funding Agent, for the pro rata account of each of the Lenders
executing this First Amendment on or prior to the Effective Date, an
amendment fee equal to .075% of such Lender's aggregate Commitments and
Loans (other than Term D Loans).
SECTION 5. Representations and Warranties. The Borrowers and the
General Partners hereby represent and warrant to the Lenders party hereto that
(i) the execution, delivery and performance of this First Amendment by each
Borrower and the General Partners are within their respective partnership and
corporate powers and have been duly authorized by all necessary partnership and
corporate action, and (ii) this First Amendment constitutes the legal, valid and
binding obligation of each Borrower and each General Partner, enforceable
against each of them, respectively, in accordance with its terms, except as such
enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium
or other laws relating to or limiting creditors' rights generally or by
equitable principles generally.
-21-
<PAGE>
SECTION 6. Reference to and Effect on the Loan Documents.
6.1. Upon the effectiveness of this First Amendment, on and after the
date hereof each reference in the Credit Agreement to "this Agreement",
"hereunder", "hereof", "herein" or words of like import, and each reference in
the other Loan Documents to the Credit Agreement, shall mean and be a reference
to the Credit Agreement as amended hereby.
6.2. Except as specifically amended above, all of the terms of the
Credit Agreement and all other Loan Documents shall remain unchanged and in full
force and effect.
6.3. The execution, delivery and effectiveness of this First Amendment
shall not, except as expressly provided herein, operate as a waiver of any
right, power or remedy of any Lender or either Administrative Agent under the
Credit Agreement or any of the Loan Documents, nor constitute a waiver of any
provision of the Credit Agreement or any of the Loan Documents.
SECTION 7. Execution in Counterparts. This First Amendment may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed and delivered shall be
deemed to be an original and all of which taken together shall constitute one
and the same agreement.
SECTION 8. Governing Law. This First Amendment shall be governed by,
and shall be construed and enforced in accordance with, the laws of the State of
New York.
SECTION 9. Guarantor Consent. By its signature below, each of Foamex
International, Foamex and GFI consents to this First Amendment in its separate
capacity as a guarantor under the Foamex International Guaranty, the Foamex
Guaranty and the GFI Guaranty, respectively, and each hereby affirms its
obligations under such guaranties.
SECTION 10. Headings. Section headings in this First Amendment are
included herein for convenience of reference only and shall not constitute a
part of this First Amendment or be given any substantive effect.
-22-
<PAGE>
IN WITNESS WHEREOF, this First Amendment has been duly executed as of
the date first above written.
FOAMEX L.P.
By: FMXI, Inc.,
Its Managing General Partner
By: /s/ George L. Karpinski
------------------------------
Title: Vice President
GENERAL FELT INDUSTRIES, INC.
By: /s/ George L. Karpinski
------------------------------
Title: Vice President
TRACE FOAM COMPANY, INC.
By: /s/ Barry Zimmerman
------------------------------
Title: Executive Vice President
FMXI, INC.
By: /s/ George L. Karpinski
------------------------------
Title: Vice President
FOAMEX INTERNATIONAL INC., as guarantor
By: /s/ George L. Karpinski
------------------------------
Title: Vice President
CITICORP USA, INC., as Administrative
Agent, Collateral Agent, individually
as a Lender, and as Intercreditor
Collateral Agent
By: /s/ Timothy L. Freeman
------------------------------
Title: Attorney-in-Fact
-23-
<PAGE>
CITIBANK, N.A., as Issuing Bank
By: /s/ Timothy L. Freeman
------------------------------
Title: Attorney-in-Fact
THE BANK OF NOVA SCOTIA, as
Administrative Agent, Funding Agent,
Issuing Bank, individually as a
Lender, and as Intercreditor Agent
By: /s/ M. Alli
------------------------------
Title: Sr. Relationship Manager
ALLSTATE INSURANCE COMPANY
By: /s/
------------------------------
Title: Authorized Signatory
By: /s/
------------------------------
Title: Authorized Signatory
BANKBOSTON, N.A.
By: /s/ Maura Wadlinger
------------------------------
Title: Vice President
KZH-SOLEIL CORPORATION
By: /s/ Virginia R. Conway
------------------------------
Title: Authorized Agent
THE BANK OF NEW YORK
By: /s/ Walter C. Parelli
------------------------------
Title: Vice President
BANKERS TRUST COMPANY
By: /s/ Gregory Shearin
------------------------------
Title: Vice President
-24-
<PAGE>
COMMERCIAL LOAN FUNDING TRUST I
By: Wilmington Trust Company solely
in its capacity as owner trustee and
not in its individual capacity
By: /s/ Michele Swanson
------------------------------
Title: Authorized Signatory
BHF-BANK AKTIENGESELLSCHAFT
By: /s/ Linda Pace
------------------------------
Title: Vice President
By: /s/ John Sykes
------------------------------
Title: Assistant Vice President
COMPAGNIE FINANCIERE DE CIC ET DE
L'UNION EUROPEENNE
By: /s/ Brian O'Leary
------------------------------
Title: Vice President
By: /s/ Sean Mounier
------------------------------
Title: First Vice President
CORESTATES BANK, N.A.
By: /s/ David W. Mills
------------------------------
Title: Vice President
-25-
<PAGE>
CREDIT LYONNAIS NEW YORK BRANCH
By: /s/ Attila Koc
------------------------------
Title: First Vice President
DEEPROCK & COMPANY
By
------------------------------
Name:
Title:
HELLER FINANCIAL, INC.
By: /s/ Thomas W. Bukowski
------------------------------
Title: Senior Vice President
ORIX USA CORPORATION
By: /s/
------------------------------
Title: Authorized Signatory
PILGRIM AMERICA PRIME RATE TRUST
By: /s/ Michael J. Bacevich
------------------------------
Title: Vice President
THE FUJI BANK, LIMITED, NEW YORK
BRANCH
By: /s/ Teiji Teramoto
------------------------------
Title: Vice President and Manager
GENERAL ELECTRIC CAPITAL CORPORATION
By: /s/ Janet Williams
------------------------------
Title: Duly Authorized Signatory
-26-
<PAGE>
THE MITSUBISHI TRUST AND BANKING
CORPORATION
By: /s/ Toshihiro Hayashi
------------------------------
Title: Senior Vice President
METROPOLITAN LIFE INSURANCE COMPANY
By: /s/ James R. Dingler
------------------------------
Title: Director
MASSACHUSETTS MUTUAL LIFE INSURANCE
COMPANY
By: /s/ John B. White
------------------------------
Title: Managing Director
PAMCO CAYMAN LTD.
By: Protective Asset Management,
L.L.C., as Collateral Manager
By: /s/ James Dondero
------------------------------
Title: President
KZH-ING-1 CORPORATION II
By: /s/ Virginia R. Conway
------------------------------
Title: Authorized Agent
OCTAGON CREDIT INVESTORS LOAN
PORTFOLIO
(a unit of The Chase Manhattan Bank)
By: /s/ Joyce C. DeLucca
------------------------------
Title: Managing Director
-27-
<PAGE>
THE NORTHWESTERN MUTUAL LIFE
INSURANCE COMPANY
By: /s/ Richard A. Strait
------------------------------
Title: Vice President
SENIOR HIGH INCOME PORTFOLIO, INC.
By: /s/ Anthony R. Clemente
------------------------------
Title: Authorized Signatory
THE SANWA BANK, LIMITED
By: /s/ Christian Kambouri
------------------------------
Title: Vice President
MORGAN GUARANTY TRUST COMPANY OF
NEW YORK
By
------------------------------
Name:
Title:
NATIONSBANK, N.A.
By: /s/ Philip Durand
------------------------------
Title: Authorized Signatory
CYPRESS TREE INVESTMENT MANAGEMENT
COMPANY, INC.
As: Attorney-in-Fact and on behalf
of First Allmerica Life
Insurance Company
By: /s/ Philip C. Robbins
------------------------------
Title: Assistant Vice President
-28-
<PAGE>
CRESCENT/MACH I PARTNERS, L.P.
By: TCW Asset Management Company
Its Investment Manager
By: /s/ Justin L. Driscoll
------------------------------
Title: Senior Vice President
DEBT STRATEGIES FUND, INC.
By: /s/ Anthony R. Clemente
------------------------------
Title: Authorized Signatory
FLEET NATIONAL BANK
By: /s/ Kevin J. Chamberlain
------------------------------
Title: Assistant Vice President
VAN KAMPEN AMERICAN CAPITAL PRIME
RATE INCOME TRUST
By: /s/ Jeffrey W. Maillet
------------------------------
Title: Senior Vice President
and Director
ROYALTON COMPANY
By: Pacific Investment Management
Company, as its Investment
Advisor
By: /s/ R. Kreg
------------------------------
Title: Authorized Signatory
PPM AMERICA, INC., as attorney in
fact, on behalf of Jackson National
Life Insurance Company
By: /s/ Michael DiRe
------------------------------
Title: Managing Director
-29-
<PAGE>
THE SAKURA BANK, LTD.
By: /s/ Y. Nagura
------------------------------
Title: Vice President
SENIOR DEBT PORTFOLIO
By: Boston Management and
Research, as Investment Advisor
By: /s/ Payson F. Swaffield
------------------------------
Title: Vice President
CANADIAN IMPERIAL BANK OF COMMERCE
By
------------------------------
Name:
Title:
VAN KAMPEN CLO I, LIMITED
By: Van Kampen American Capital
Management Inc., as Collateral
Manager
By: /s/ Jeffrey W. Maillet
------------------------------
Title: Senior Vice President and
Director
ALLIED SIGNAL INC.
By: Shenkman Capital Management,
Inc., as Attorney-in-Fact
By
------------------------------
Name:
Title:
-30-
<PAGE>
TCW LEVERAGED INCOME TRUST, L.P.
By: TCW Advisers (Bermuda), Ltd.,
as General Partner
By: /s/ Mark L. Gold
------------------------------
Title: Managing Director By: TCW
Investment Management Company, as
Investment Adviser
By: /s/ Justin L. Driscoll
------------------------------
Title: Senior Vice President
KZH-CRESCENT CORPORATION
By: /s/ Virginia R. Conway
------------------------------
Title: Authorized Agent
CAPTIVA FINANCE LTD.
By: /s/ John H. Cullinane
------------------------------
Title: Authorized Signatory
STRATA FUNDING LTD.
By: /s/ John H. Cullinane
------------------------------
Title: Director
AERIES FINANCE LTD.
By: /s/ Ian David Moore
------------------------------
Title: Director
NATEXIS BANQUE (formerly Banque
Francaise du Commerce Exterieur)
By: /s/ Evan Kraus
------------------------------
Title: Associate
By: /s/ Kevin Dooleil
------------------------------
Title: Vice President
-31-
Exhibit 5.1
February 6, 1998
Foamex L.P.
Foamex Capital Corporation
General Felt Industries, Inc.
Foamex Fibers, Inc.
Foamex LLC
1000 Columbia Avenue
Linwood, Pennsylvania 19061
Re: $98,000,000 13-1/2% Senior Subordinated Notes Due 2005 Exchange Offer
Ladies and Gentlemen:
We have acted as counsel for Foamex L.P., a Delaware limited
partnership ("Foamex"), Foamex Capital Corporation, a Delaware corporation
("FCC", and together with Foamex, the "Issuers") and General Felt Industries,
Inc., a Delaware corporation ("General Felt"), Foamex Fibers, Inc., a Delaware
corporation ("Foamex Fibers") and Foamex LLC, a Delaware limited liability
company ("FLLC", and together with General Felt and Foamex Fibers, the
"Subsidiary Guarantors") in connection with the filing by the Issuers and the
Subsidiary Guarantors of a Registration Statement on Form S-4 (the "Registration
Statement") with the Securities and Exchange Commission (the "Commission")
registering under the Securities Act of 1933, as amended, an aggregate principal
amount of $98,000,000 of the Issuers' 13-1/2% Senior Subordinated Notes due 2005
(the "New Notes") offered in exchange for a like principal amount of the
Issuers' outstanding 13-1/2% Senior Subordinated Notes due 2005 (the "Old
Notes") of which $98,000,000 is outstanding. The New Notes are to be issued
pursuant to an indenture dated as of December 23, 1997 (the "Indenture"), among
the Issuers, the Subsidiary Guarantors, Crain Holdings Corp., a Delaware
corporation and The Bank of New York, as trustee (the "Trustee"). Capitalized
terms used herein and not otherwise defined herein have the meanings ascribed
thereto in the Indenture.
In rendering the opinions set forth herein, we have examined originals,
or copies certified or otherwise identified to our satisfaction, of such
documents, corporate records and other instruments as we have deemed necessary
or appropriate for purposes of this opinion, including the Indenture, the
<PAGE>
Foamex L.P.
Foamex Capital Corporation
General Felt Industries, Inc.
Foamex Fibers, Inc.
Foamex LLC
February 6, 1998
Page 2
Registration Rights Agreement, dated as of December 23, 1997 (the "Registration
Rights Agreement"), among Foamex and the Subsidiary Guarantors, the form of the
New Notes and the Registration Statement.
In rendering the opinions contained herein, we have assumed (a) the due
authorization, execution and delivery of each of the Indenture, the Registration
Rights Agreement and the New Notes by each of the parties thereto, (b) that each
of such parties has the legal power to act in the respective capacity or
capacities in which it is to act thereunder, (c) the authenticity of all
documents submitted to us as original, (d) the conformity to the original
documents of all documents submitted to us as copies and (e) the genuineness of
all signatures on all documents submitted to us.
Based on the foregoing, we are of the opinion that (i) the New Notes,
when duly issued and authenticated in accordance with the provisions of the
Indenture and delivered in exchange for the Old Notes pursuant to the
Registration Rights Agreement and in accordance with the terms of the Exchange
Offer as described in the Registration Statement, will constitute valid and
binding obligations of the Issuers enforceable against the Issuers in accordance
with their terms (subject in each case to applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer and other similar laws affecting
creditors' rights generally from time to time in effect and to general
principles of equity, including, without limitation, concepts of materiality,
reasonableness, good faith and fair dealing, regardless of whether considered in
a proceeding in equity or at law); and (ii) the Guarantees, upon the due
issuance and authentication of the New Notes with the Guarantees endorsed
thereon in accordance with the provisions of the Indenture and when the New
Notes with the Guarantees endorsed thereon are delivered in exchange for the Old
Notes pursuant to the Registration Rights Agreement and in accordance with the
terms of the Exchange Offer as described in the Registration Statement, will
constitute valid and binding obligations of the Subsidiary Guarantors
enforceable against the Subsidiary Guarantors in accordance with their terms
(subject in each case to applicable bankruptcy, insolvency, reorganization,
moratorium, fraudulent transfer and other similar laws affecting creditors'
rights generally from time to time in effect and to general principles of
equity, including, without limitation, concepts of materiality, reasonableness,
good faith and fair dealing, regardless of whether considered in a proceeding in
equity of at law).
<PAGE>
Foamex L.P.
Foamex Capital Corporation
General Felt Industries, Inc.
Foamex Fibers, Inc.
Foamex LLC
February 6, 1998
Page 3
We do not express any opinion with respect to matters governed by any
laws other than the laws of the State of New York and the federal laws of the
United States of America.
We know that we are referred to as counsel who has passed upon the
legality of the issuance of the New Notes and the Guarantees on behalf of Foamex
in the Registration Statement filed with the Commission, and we hereby consent
to such use of our name in said Registration Statement and to the filing of this
opinion with said Registration Statement as Exhibit 5.1 thereto.
Very truly yours,
/s/ Willkie Farr & Gallagher
Exhibit 8.1
February 6, 1998
Foamex L.P.
Foamex Capital Corporation
General Felt Industries, Inc.
Foamex Fibers, Inc.
Foamex LLC
1000 Columbia Avenue
Linwood, Pennsylvania 19061
Re: $98,000,000 13-1/2% Senior Subordinated Notes Due 2005 Exchange Offer
Ladies and Gentlemen:
We have acted as counsel for Foamex L.P., a Delaware limited
partnership ("Foamex"), Foamex Capital Corporation, a Delaware corporation
("FCC", and together with Foamex, the "Issuers") and General Felt Industries,
Inc., a Delaware corporation ("General Felt"), Foamex Fibers, Inc., a Delaware
corporation ("Foamex Fibers") and Foamex LLC, a Delaware limited liability
company ("FLLC", and together with General Felt and Foamex Fibers, the
"Subsidiary Guarantors") in connection with the filing by the Issuers and the
Subsidiary Guarantors of a Registration Statement on Form S-4 (the "Registration
Statement") with the Securities and Exchange Commission (the "Commission")
registering under the Securities Act of 1933, as amended, an aggregate principal
amount of $98,000,000 of the Issuers' 13-1/2% Senior Subordinated Notes due 2005
(the "Now Notes") offered in exchange for a like principal amount of the
Issuers' outstanding 13-1/2% Senior Subordinated Notes due 2005 of which
$98,000,000 is outstanding. The New Notes are to be issued pursuant to an
indenture dated as of December 23, 1997 (the "Indenture"), among the Issuers,
the Subsidiary Guarantors, Crain Holdings Corp., a Delaware corporation and The
Bank of New York, as trustee (the "Trustee").
Capitalized terms used herein and not otherwise defined herein have the
meanings ascribed thereto in the Indenture.
We hereby confirm that the statements set forth in the prospectus (the
"Prospectus") forming a part of the Registration Statement under the heading
"Certain Federal Income Tax Considerations", accurately describe the material
Federal income
<PAGE>
tax consequences to holders of the New Notes issued pursuant to
the Prospectus.
We know that we are referred to under the heading "Legal Matters" in
the Prospectus, and we hereby consent to such use of our name therein and to the
use of this opinion for filing with the Registration Statement as Exhibit 8.1
thereto.
Very truly yours,
/s/ Willkie Farr & Gallagher
SECOND AMENDMENT TO
AMENDED AND RESTATED TAX SHARING AGREEMENT OF FOAMEX L.P.
THIS SECOND AMENDMENT TO AMENDED AND RESTATED TAX SHARING AGREEMENT OF
FOAMEX L.P. (the "Amendment") is made as of December 23, 1997, by and between
Foamex L.P., a Delaware limited partnership ("Foamex"), Foamex International
Inc., a Delaware corporation ("FII"), FMXI, Inc., a Delaware corporation
("FMXI"), Trace Foam Company, Inc., a Delaware corporation ("Trace"), and
Crain Industries, Inc., a Delaware corporation ("Crain").
W I T N E S S E T H:
WHEREAS, Foamex, FII, FMXI, Trace and certain other parties entered into
that certain First Amended and Restated Tax Sharing Agreement, dated as of
December 14, 1993 as amended June 12, 1997 (the "Original Agreement");
WHEREAS, a newly formed wholly owned subsidiary of FII has merged (the
"Merger") with and into Crain Holdings Corp. ("Crain Holdings"), a Delaware
corporation which owns all of the outstanding common stock of Crain, pursuant to
an Agreement and Plan of Merger, dated as of December 8, 1997, and as a result
of which Merger, Crain Holdings has become a wholly owned subsidiary of FII, and
following such Merger, Crain Holdings merged with Crain;
WHEREAS, Crain has contributed all of its retail business to Foamex LLC, a
newly formed Delaware limited liability company ("FLLC"); and
WHEREAS, Crain has contributed its interest in FLLC and all of its other
assets to Foamex subject to all of its liabilities for a partnership interest in
Foamex (the "Contribution").
WHEREAS, Foamex, FMXI, Trace, FII and Crain entered into that certain
Third Amendment (the "Third Amendment") to Fourth Amended and Restated Agreement
of Limited Partnership of Foamex L.P., dated as of December 23, 1997, to
reflect the change in the partners of Foamex (the "Partnership Agreement");
NOW, THEREFORE, in consideration of the premises and the mutual covenants
set forth herein and for other good and valid consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound, agree as follows:
<PAGE>
1. Amendment. The parties hereto agree that the Participation
Percentages for purposes of the Original Agreement shall have meaning set forth
in the Partnership Agreement.
2. Governing Law. This Amendment shall be governed by and construed and
enforced in accordance with the laws of the State of New York.
3. Limitation. Except as expressly set forth herein, this Amendment
shall not be deemed to waive, amend or modify any term or condition of the
Original Agreement, each of which shall remain in full force and effect and are
hereby ratified and confirmed.
4. Counterparts. This Amendment may be executed in any number of
counterparts, each of which when executed and delivered will be deemed to be an
original, and all of which taken together will be deemed to be but one and the
same instrument.
-2-
<PAGE>
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.
FOAMEX L.P.
By: FMXI, INC.
its Managing General Partner
By: /s/ George Karpinski
-------------------------
Name: George Karpinski
Title: Vice President
FOAMEX INTERNATIONAL INC.
By: /s/ George Karpinski
-------------------------
Name: George Karpinski
Title: Senior Vice President
FMXI, INC.
By: /s/ George Karpinski
-------------------------
Name: George Karpinski
Title: Vice President
TRACE FOAM COMPANY, INC.
By: /s/ Philip N. Smith, Jr.
-------------------------
Name: Philip N. Smith, Jr.
Title: Vice President
CRAIN INDUSTRIES, INC.
By: /s/ George Karpinski
-------------------------
Name: George Karpinski
Title: Vice President
-3-
EXHIBIT 12.1--Statement Regarding Computation of Ratio of Earnings to Fixed
Charges
<TABLE>
<CAPTION>
Foamex Year ended Three Quarters
- - ------ ------------------------------------------------ -----------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- -------- -------- ------- -------
(Dollars in thousands, except ratios)
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges
Consolidated pretax income (loss)
from continuing operations ........... $22,175 $(7,665) $44,536 $(46,721) $ 61,363 $41,195 $46,771
Interest ............................... 18,178 47,375 41,352 44,550 43,211 31,855 33,355
Interest portion of rental expense ..... 1,467 3,867 4,533 4,533 3,767 2,868 2,690
Amortization of Capitalized Interest ... 47 67 108 152 171 132 132
------- ------- ------- -------- -------- ------- -------
Earnings ............................... 41,867 $43,644 $90,709 $ 2,514 $108,512 $76,050 $82,948
======= ======= ======= ======== ======== ======= =======
Interest ............................... $18,178 $47,375 $41,532 $ 44,550 $ 43,211 $31,855 $33,355
Interest portion of rental expense ..... 1,467 3,867 4,533 4,533 3,767 2,868 2,690
Capitalized Interest ................... 64 425 576 468 -- -- --
------- ------- ------- -------- -------- ------- -------
Fixed charges .......................... $19,709 $51,667 $46,641 $ 49,551 $ 46,978 $34,723 $36,045
======= ======= ======= ======== ======== ======= =======
Ratio of earnings to fixed charges ..... 2.12 1.94 2.31 2.19 2.30
======= ======= ======== ======= =======
Defiency ............................... $ 8,023 $ 47,037
======= ========
</TABLE>
Pro Forma
---------------------------
Fiscal Yr. Three Quarters
1996 1997
---------- --------------
Ratio of earnings to fixed charges
Consolidated pretax income from
continuing operations ................ $ 53,583 $42,613
Interest ............................... 65,569 50,123
Interest portion of rental expense ..... 6,862 5,171
Amortization of Capitalized Interest ... 171 132
-------- -------
Earnings ............................... $126,185 $98,039
======= =======
Interest ............................... $ 65,569 $50,123
Interest portion of rental ............. 6,862 5,171
Capitalized Interest ................... 171 132
-------- -------
Fixed charges .......................... $ 72,602 $55,426
======== =======
Ratio of earnings to fixed charges ..... 1.74 1.77
======== =======
Deficiency .............................
EXHIBIT 12.1--Statement Regarding Computation of Ratio of Earnings to Fixed
Charges
<TABLE>
<CAPTION>
General Felt Year ended Three Quarters
- - ------------ ------------------------------------------------ -----------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- -------- -------- ------- -------
(Dollars in thousands, except ratios)
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges
Consolidated pretax income (loss)
from continuing operations ........... $(1,086) $(4,133) $13,977 $(11,048) $ 24,809 $17,269 $ 7,811
Interest ............................... 7,686 6,068 1,178 1,164 2,179 1,474 765
Interest portion of rental expense ..... 1,116 1,268 1,175 944 706 451 398
------- ------- ------- -------- -------- ------- -------
Earnings ............................... $ 7,716 $ 3,203 $16,330 $ (8,940) $ 27,694 $19,194 $ 8,974
======= ======= ======= ======== ======== ======= =======
Interest ............................... $ 7,686 $ 6,068 $ 1,178 $ 1,164 $ 2,179 $ 1,474 $ 765
Interest portion of rental expense ..... 1,116 1,268 1,175 944 706 451 398
------- ------- ------- -------- -------- ------- -------
Fixed charges .......................... $ 8,802 $ 7,336 $ 2,353 $ 2,108 $ 2,885 $ 1,925 $ 1,163
======= ======= ======= ======== ======== ======= =======
Ratio of earnings to fixed charges ..... 6.94 960 9.97 7.72
======= ======== ======= =======
Deficiency ............................. $ 1,086 $ 4,133 $ 11,048
======= ======= ========
</TABLE>
EXHIBIT 12.3--Statement Regarding Computation of Ratio of Earnings to Fixed
Charges
<TABLE>
<CAPTION>
Crain Industries, Inc. Fiscal Years Ended Four Months
- - ---------------------- ------------------------------------------------ ended Year ended
August 28, August 27, August 26, August 25, December 31, December 31,
1992 1993 1994 1995 1995 1996
------- ------- ------- -------- -------- -------
(Dollars in thousands, except ratios)
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges
Consolidated pretax income (loss)
from continuing operations ........... $10,063 $ 5,020 $16,544 $ 9,556 $ (155) $ 991
Interest ............................... 1,939 2,016 2,564 3,431 5,753 16,459
Interest portion of rental expense ..... 1,795 1,995 2,342 2,451 1,000 3,095
------- ------- ------- -------- -------- -------
Earnings ............................... $13,797 $ 9,031 $21,450 $ 15,438 $ 6,598 $20,545
======= ======= ======= ======== ======== =======
Interest ............................... $ 1,939 $ 2,016 $ 2,564 $ 3,431 $ 5,753 $16,459
Interest portion of rental expense ..... 1,795 1,995 2,342 2,451 1,000 3,095
------- ------- ------- -------- -------- -------
Fixed charges .......................... $ 3,734 $ 4,011 $ 4,906 $ 5,882 $ 6,753 $19,554
======= ======= ======= ======== ======== =======
Ratio of earnings to fixed charges ..... 3.69x 2.25x 4.37x 2.62x -- 1.05x
Deficiency ............................. -- -- -- -- $ (155) --
======= ======= ======= ======== ======== =======
<CAPTION>
Three Quarters Ended
---------------------------
1996 1997
---------- --------------
Ratio of earnings to fixed charges
Consolidated pretax income (loss) from
continuing operations ................ $ 2,212 $ (824)
Interest ............................... 12,119 13,063
Interest portion of rental expense ..... 2,322 3,481
-------- -------
Earnings ............................... $ 16,653 $15,720
======= =======
Interest ............................... $ 12,119 $13,063
Interest portion of rental expense ..... 2,322 3,481
-------- -------
Fixed charges .......................... $ 14,441 $16,544
======== =======
Ratio of earnings to fixed charges ..... 1.15x --
Deficiency ............................. -- (824)
======== =======
</TABLE>
EXHIBIT 21.1
Subsidiaries of Foamex L.P.
1. FCC
a) Legal name: Foamex Capital Corporation
b) State of Incorporation: Delaware
c) Ownership: Wholly owned by Foamex L.P.
2. Foamex Canada
a) Legal name: Foamex Canada, Inc.
b) Jurisdiction of Organization: Ontario, Canada
c) Ownership: Wholly owned by Foamex L.P.
3. Latin America
a) Legal name: Foamex Latin America, Inc.
b) State of incorporation: Delaware
c) Ownership: Wholly owned by Foamex L.P.
4. Foamex Mexico
a) Legal name: Foamex Mexico, Inc.
b) State of incorporation: Delaware
c) Ownership: Wholly owned by Latin America
5. Foamex Mexico II
a) Legal name: Foamex Mexico II, Inc.
b) State of incorporation: Delaware
c) Ownership: Wholly owned by Latin America
6. Grupo Foamex
a) Legal name: Grupo Foamex de Mexico, S.A. de C.V.
b) Jurisdiction of incorporation: Mexico
c) Ownership: Owned 99.9% by Foamex Mexico; one share
owned by Latin America
7. TEFSA
a) Legal name: Transformacion de Espumas y Filetros, S.A. de
C.V.
b) Jurisdiction of incorporation: Mexico
c) Ownership: Owned 99.9% by Foamex Mexico; one share
owned by Grupo Foamex
<PAGE>
8. Foamex de Mexico
a) Legal name: Foamex de Mexico, S.A. de C.V.
b) Jurisdiction of incorporation: Mexico
c) Ownership: Owned 99.9% by Grupo Foamex Mexico; one
share owned by Foamex Mexico II
9. Colchones
a) Legal name: Colchones y de Todo en Espuma, S.A. de
C.V.
b) Jurisdiction of incorporation: Mexico
c) Ownership: Owned 99.9% by Foamex de Mexico; one share
owned by Pablo Mijares Ortega
10. Foamex Asia
a) Legal name: Foamex Asia, Inc.
b) State of incorporation: Delaware
c) Ownership: Wholly owned by Foamex L.P.
11. General Felt
a) Legal name: General Felt Industries, Inc.
b) State of incorporation: Delaware
c) Ownership: Wholly owned by Foamex L.P.
12. Foamex Fibers
a) Legal name: Foamex Fibers, Inc.
b) State of incorporation: Delaware
c) Ownership: Wholly owned by General Felt
13. Foamex Delaware
a) Legal name: Foamex Delaware, Inc. (formerly Foamex
Brazil, Inc.)
b) State of incorporation: Delaware c) Ownership: Wholly owned by
Foamex L.P.
11. Foamex LLC
a) Legal name: Foamex LLC
b) State of organization: Delaware
c) Ownership: Wholly owned by Foamex L.P.
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4 of
our report dated February 26, 1997, on our audits of the consolidated financial
statements of Foamex L.P. and subsidiaries. We also consent to the reference to
our firm under the caption "Experts".
Coopers & Lybrand L.L.P.
Philadelphia, Pennsylvania
February 3, 1998
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4 of
our report dated February 26, 1997, on our audits of the consolidated financial
statements of General Felt Industries, Inc. and subsidiaries. We also consent to
the reference to our firm under the caption "Experts".
Coopers & Lybrand L.L.P.
Philadelphia, Pennsylvania
February 3, 1998
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4 of
our report dated February 26, 1997, on our audits of the balance sheets of
Foamex Capital Corporation. We also consent to the reference to our firm under
the caption "Experts".
Coopers & Lybrand L.L.P.
Philadelphia, Pennsylvania
February 3, 1998
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4 of
our report dated June 20, 1997, on our audits of the financial statements of
Foamex Fibers, Inc. We also consent to the reference to our firm under the
caption "Experts".
Coopers & Lybrand L.L.P.
Charlotte, North Carolina
February 3, 1998
EXHIBIT 23.5
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4 of
our report dated February 26, 1997, on our audit of the consolidated balance
sheet of FMXI, Inc. and subsidiary. We also consent to the reference to our firm
under the caption "Experts".
Coopers & Lybrand L.L.P.
Philadelphia, Pennsylvania
February 3, 1998
EXHIBIT 23.6
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4 of
our report dated February 26, 1997, on our audit of the consolidated balance
sheet of Trace Foam Company, Inc. and subsidiary. We also consent to the
reference to our firm under the caption "Experts".
Coopers & Lybrand L.L.P.
Princeton, New Jersey
February 3, 1998
EXHIBIT 23.7
CONSENT OF INDEPENDENT ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report dated January 31, 1997, on the financial statements of Crain Industries,
Inc. (and to all references to our firm) included in or made a part of this
registration statement.
Arthur Andersen L.L.P.
St. Louis, Missouri
February 3, 1998
Exhibit 25
================================================================================
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) |__|
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5160382
(Jurisdiction of incorporation or (I.R.S. Employer
organization if not a U.S. national bank) Identification No.)
48 Wall Street, New York, N.Y. 10286
(Address of principal executive offices) (Zip code)
FOAMEX L.P.
FOAMEX CAPITAL CORPORATION
GENERAL FELT INDUSTRIES, INC.
FOAMEX FIBERS, INC.
FOAMEX LLC
(Exact name of obligor as specified in its charter)
Delaware 05-0475617
Delaware 22-3182164
Delaware 13-3476119
Delaware 13-3819884
Delaware
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1000 Columbia Avenue
Linwood, Pennsylvania 10961
(Address of principal executive offices) (Zip code)
13 1/2% Senior Subordinated Notes Due 2005
(Title of the indenture securities)
================================================================================
<PAGE>
1. General information. Furnish the following information as to the Trustee:
(a) Name and address of each examining or supervising authority to which
it is subject.
- - --------------------------------------------------------------------------------
Name Address
- - --------------------------------------------------------------------------------
Superintendent of Banks of the State of New York 2 Rector Street
New York, N.Y. 10006,
and Albany, N.Y. 12203
Federal Reserve Bank of New York 33 Liberty Plaza
New York, N.Y. 10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, New York 10005
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
2. Affiliations with Obligor.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
16. List of Exhibits.
Exhibits identified in parentheses below, on file with the Commission, are
incorporated herein by reference as an exhibit hereto, pursuant to Rule
7a-29 under the Trust Indenture Act of 1939 (the "Act") and 17 C.F.R.
229.10(d).
1. A copy of the Organization Certificate of The Bank of New York
(formerly Irving Trust Company) as now in effect, which contains the
authority to commence business and a grant of powers to exercise
corporate trust powers. (Exhibit 1 to Amendment No. 1 to Form T-1
filed with Registration Statement No. 33-6215, Exhibits 1a and 1b to
Form T-1 filed with Registration Statement No. 33-21672 and Exhibit 1
to Form T-1 filed with Registration Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form T-1
filed with Registration Statement No. 33-31019.)
2
<PAGE>
6. The consent of the Trustee required by Section 321(b) of the Act.
(Exhibit 6 to Form T-1 filed with Registration Statement No.
33-44051.)
7. A copy of the latest report of condition of the Trustee published
pursuant to law or to the requirements of its supervising or examining
authority.
3
<PAGE>
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of New
York, a corporation organized and existing under the laws of the State of New
York, has duly caused this statement of eligibility to be signed on its behalf
by the undersigned, thereunto duly authorized, all in The City of New York, and
State of New York, on the 22nd day of January, 1998.
THE BANK OF NEW YORK
By: /s/ JAMES W.P. HALL
------------------------------
Name: JAMES W.P. HALL
Title: VICE PRESIDENT
<PAGE>
Exhibit 7 to Form T-1
Consolidated Report of Condition of
THE BANK OF NEW YORK
of 48 Wall Street, New York, N.Y. 10286
And Foreign and Domestic Subsidiaries, a member of the Federal Reserve System,
at the close of business September 30, 1997, published in accordance with a call
made by the Federal Reserve Bank of this District pursuant to the provisions of
the Federal Reserve Act.
DOLLAR AMOUNTS
(in thousands)
ASSETS
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin $ 5,004,638
Interest-bearing balances......................... 1,271,514
Securities:
Held-to-maturity securities....................... 1,105,782
Available-for-sale securities..................... 3,164,271
Federal funds sold and Securities purchased under
agreements to resell.............................. 5,723,829
Loans and lease financing receivables:
Loans and leases, net of unearned income.......... 34,916,196
LESS: Allowance for loan and lease losses......... 581,177
LESS: Allocated transfer risk reserve............. 429
Loans and leases, net of unearned income, 34,334,590
allowance, and reserve............................
Assets held in trading accounts............................ 2,035,284
Premises and fixed assets
(including capitalized leases)............................. 671,664
Other real estate owned.................................... 13,306
Investments in unconsolidated subsidiaries and associated
companies.................................................. 210,685
<PAGE>
Customers' liability to this bank on acceptances outstanding
1,463,446
Intangible assets.......................................... 753,190
Other assets............................................... 1,784,796
-------------
Total assets............................................... $ 57,536,995
=============
LIABILITIES
Deposits:
In domestic offices............................... $ 27,270,824
Noninterest-bearing............................... 12,160,977
Interest-bearing.................................. 15,109,847
In foreign offices, Edge and Agreement
subsidiaries, and IBFs............................ 14,687,806
Noninterest-bearing............................... 657,479
Interest-bearing.................................. 14,030,327
Federal funds purchased and Securities sold under
agreements to repurchase................................... 1,946,099
Demand notes issued to the U.S. Treasury................... 283,793
Trading liabilities........................................ 1,553,539
Other borrowed money:
With remaining maturity of one year or less....... 2,245,014
With remaining maturity of more than one year
through three years............................... 0
With remaining maturity of more than three
years............................................. 45,664
Bank's liability on acceptances executed and
outstanding................................................ 1,473,588
Subordinated notes and debentures.......................... 1,018,940
Other liabilities.......................................... 2,193,031
-------------
Total liabilities.......................................... 52,718,298
-------------
EQUITY CAPITAL
Common Stock............................................... 1,135,284
Surplus.................................................... 731,319
Undivided profits and capital reserves..................... 2,943,008
<PAGE>
Net unrealized holding gains (losses) on available-for-sale
securities................................................. 25,428
Cumulative foreign currency translation adjustments........ (16,342)
-------------
Total equity capital....................................... 4,818,697
-------------
Total liabilities and equity capital....................... $ 57,536,995
=============
I, Robert E. Keilman, Senior Vice President and Comptroller of the
above-named bank do hereby declare that this Report of Condition has been
prepared in conformance with the instructions issued by the Board of Governors
of the Federal Reserve System and is true to the best of my knowledge and
belief.
Robert E. Keilman
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
J. Carter Bacot
Thomas A. Renyi
Alan R. Griffith
Directors
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001041747
<NAME> Foamex Fibers, Inc.
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-START> DEC-30-1996
<PERIOD-END> SEP-28-1997
<EXCHANGE-RATE> 1
<CASH> 192
<SECURITIES> 0
<RECEIVABLES> 906
<ALLOWANCES> 0
<INVENTORY> 7,459
<CURRENT-ASSETS> 9,804
<PP&E> 2,790
<DEPRECIATION> 0
<TOTAL-ASSETS> 16,398
<CURRENT-LIABILITIES> 1,932
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 11,847
<TOTAL-LIABILITY-AND-EQUITY> 16,398
<SALES> 17,627
<TOTAL-REVENUES> 17,627
<CGS> 13,834
<TOTAL-COSTS> 13,834
<OTHER-EXPENSES> 937
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,854
<INCOME-TAX> 1,053
<INCOME-CONTINUING> 1,801
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,801
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000040588
<NAME> General Felt Industries, Inc.
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-START> DEC-30-1996
<PERIOD-END> SEP-28-1997
<EXCHANGE-RATE> 1
<CASH> 209
<SECURITIES> 0
<RECEIVABLES> 46,889
<ALLOWANCES> 0
<INVENTORY> 20,338
<CURRENT-ASSETS> 73,688
<PP&E> 30,713
<DEPRECIATION> 0
<TOTAL-ASSETS> 156,805
<CURRENT-LIABILITIES> 43,916
<BONDS> 2,227
0
0
<COMMON> 0
<OTHER-SE> 101,731
<TOTAL-LIABILITY-AND-EQUITY> 156,805
<SALES> 223,648
<TOTAL-REVENUES> 223,648
<CGS> 201,108
<TOTAL-COSTS> 201,108
<OTHER-EXPENSES> 14,111
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 765
<INCOME-PRETAX> 7,811
<INCOME-TAX> 3,099
<INCOME-CONTINUING> 4,712
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,712
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
LETTER OF TRANSMITTAL
for
Offer for all Outstanding 13 1/2% Senior Subordinated Notes Due 2005
in Exchange for up to $98,000,000 principal amount of
13 1/2% Senior Subordinated Notes Due 2005
of
FOAMEX L.P.
and
FOAMEX CAPITAL CORPORATION
Pursuant to the Prospectus
Dated __________, 1998
- - --------------------------------------------------------------------------------
THE EXCHANGE OFFER WELL EXPIRE AT MIDNIGHT, NEW YORK CITY TIME, ON
____________, 1998, UNLESS EXTENDED OR TERMINATED (THE "EXPIRATION DATE").
- - --------------------------------------------------------------------------------
The Exchange Agent for the Exchange Offer is:
THE BANK OF NEW YORK
By Hand Or By Registered Or
Overnight Delivery: Facsimile Transmissions: Certified Mail:
(Eligible Institutions Only)
The Bank of New York (212) 815-6339 The Bank of New York
101 Barclay Street, To Confirm by Telephone 101 Barclay Street,
Ground Level or for Information Call: 7th Floor
Corporate Trust Services New York, New York 10286
Window (212) 815-3687 Attention: George Johnson
New York, New York 10286 Reorganization Section
Attention: George Johnson
Reorganization Section
Delivery of this Letter of Transmittal (the "Letter of Transmittal") to an
address, or transmission via facsimile to a number, other than as set forth
above, will not constitute a valid tender of 13 1/2% Senior Subordinated Notes
due 2005 (the "Old Notes")
The Instructions contained herein should be read carefully before this
Letter of Transmittal is completed and signed.
<PAGE>
This Letter of Transmittal is to be used by registered holders of Old
Notes ("Holders") if (i) certificates representing Old Notes are to be
physically delivered to the Exchange Agent by such Holders; (ii) tender of Old
Notes is to be made by book-entry transfer to the Exchange Agent's account at
The Depositary Trust Company ("DTC" or the "Book-Entry Transfer Facility")
pursuant to the procedures set forth in the Prospectus, dated _________, 1998
(as the same may be amended from time to time, the "Prospectus") under the
caption "The Exchange Offer--Book-Entry Transfer" by any financial institution
that is a participant in DTC and whose name appears on a security position
listing as the owner of Old Notes or (iii) delivery of Old Notes is to be made
according to the guaranteed delivery procedures set forth in the Prospectus
under the caption "The Exchange Offer--Guaranteed Delivery Procedures," and, in
each case, instructions are not being transmitted through the DTC Automated
Tender Program ("ATOP"). Delivery of documents to the Book-Entry Transfer
Facility in accordance with such Book-Entry Transfer Facility's procedures does
not constitute delivery to the Exchange Agent.
In order to properly complete this Letter of Transmittal, a Holder must
(i) complete the box entitled "Method of Delivery" by checking one of the three
boxes therein and supplying the appropriate information, (ii) complete the box
entitled "Description of Old Notes," (iii) if such Holder is a Participating
Broker Dealer (as defined below) and wishes to receive additional copies of the
Prospectus for delivery in connection with resales of New Notes, check the
applicable box, (iv) sign this Letter of Transmittal by completing the box
entitled "Please Sign Here", (v) if appropriate, check and complete the boxes
relating to the "Special Issuance Instructions" and "Special Delivery
Instructions," and (vi) complete the Substitute Form W-9. Each Holder should
carefully read the detailed Instructions below prior to the completing this
Letter of Transmittal. See "The Exchange Offer--Procedures For Tendering" in the
Prospectus.
Holders of Old Notes that are tendering by book-entry transfer to the
Exchange Agent's account at DTC can execute the tender through ATOP for which
the transaction will be eligible. DTC participants that are accepting the
Exchange Offer should transmit their acceptance to DTC, which will edit and
verify the acceptance and execute a book-entry delivery to the Exchange Agent's
account at DTC. DTC will then send an Agent's Message to the Exchange Agent for
its acceptance. Delivery of the Agent's Message by DTC will satisfy the terms of
the Exchange Offer as to execution and delivery of a Letter of Transmittal by
the participant identified in the Agent's Message. DTC participants may also
accept the Exchange Offer by submitting a Notice of Guaranteed Delivery through
ATOP.
If Holders desire to tender Old Notes pursuant to the Exchange Offer and
(i) certificates representing such Old Notes are not lost but are not
immediately available, (ii) time will not permit this Letter of Transmittal,
certificates representing such Holder's Old Notes and all other required
documents to reach the Exchange Agent prior to the Expiration Date or (iii) the
procedures for book-entry transfer cannot be completed prior to the Expiration
Date, such Holders may effect a tender of such Old Notes in accordance with the
guaranteed delivery procedures set forth in the Prospectus under the caption
"The Exchange Offer--Guaranteed Delivery Procedures." See Instruction 2 below.
A Holder having Old Notes registered in the name of a broker, dealer,
commercial bank, trust company or other nominee must contact such broker,
dealer, commercial bank, trust company or other nominee if they desire to accept
the Exchange Offer with respect to the Old Notes so registered.
THE EXCHANGE OFFER IS NOT BEING MADE TO (NOR WILL TENDERS OF OLD NOTES BE
ACCEPTED FROM OR ON BEHALF OF) HOLDERS IN ANY JURISDICTION IN WHICH THE MAKING
OR ACCEPTANCE OF THE EXCHANGE OFFER WOULD NOT BE IN COMPLIANCE WITH THE LAWS OF
SUCH JURISDICTION.
All capitalized terms used herein and not defined herein shall have the
meaning ascribed to them in the Prospectus.
2
<PAGE>
Your bank or broker can assist you in completing this form. The
instructions included with this Letter of Transmittal must be followed.
Questions and requests for assistance or for additional copies of the
Prospectus, this Letter of Transmittal and the Notice of Guaranteed Delivery may
be directed to the Exchange Agent, whose address and telephone number appear on
the front cover of this Letter of Transmittal. See Instruction 11 below.
3
<PAGE>
- - --------------------------------------------------------------------------------
METHOD OF DELIVERY
- - --------------------------------------------------------------------------------
[_] CHECK HERE IF CERTIFICATES FOR TENDERED OLD NOTES ARE BEING DELIVERED
HEREWITH.
[_] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH A
BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution:
--------------------------------------------
Account Number: Transaction Code Number:
------------------------- ----------
[_] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE
OF GUARANTEED DELIVERY PREVIOUSLY DELIVERED TO THE EXCHANGE AGENT PURSUANT
TO INSTRUCTION 2 BELOW AND COMPLETE THE FOLLOWING:
[_] Name of Registered Holder(s):
---------------------------------------------
Window Ticket No. (if any):
-----------------------------------------------
Date of Execution of Notice of Guaranteed Delivery:
-----------------------
Name of Eligible Institution that Guaranteed Delivery:
--------------------
If Delivered by Book-Entry Transfer (yes or no):
--------------------------
Account Number: Transaction Code Number:
------------------ ---------
- - --------------------------------------------------------------------------------
List below the Old Notes to which this Letter of Transmittal relates. If
the space provided below is inadequate, list the certificate numbers and
principal amounts on a separately signed schedule and affix the schedule to this
Letter of Transmittal.
- - --------------------------------------------------------------------------------
DESCRIPTION OF OLD NOTES
- - --------------------------------------------------------------------------------
Name(s) and Address(es) | | Aggregate |
of Holder(s) | Certificate |Principal Amount |Principal Amount
(Please fill in, if blank) | Numbers* | Represented** | Tendered
- - --------------------------------------------------------------------------------
| | |
-----------------------------------------------------
| | |
-----------------------------------------------------
| | |
-----------------------------------------------------
| | |
-----------------------------------------------------
| | |
-----------------------------------------------------
| | |
-----------------------------------------------------
| | |
-----------------------------------------------------
| Total Principal | |
| Amount of Old | |
| Notes | |
- - --------------------------------------------------------------------------------
* Need not be completed by Holders tendering by book-entry transfer (see
below).
** Unless otherwise indicated in the column labeled "Principal Amount Tendered"
and subject to the terms and conditions of the Prospectus, a Holder will be
deemed to have tendered the entire aggregate principal amount represented by
the Old Notes indicated in the column labeled "Aggregate Principal Amount
Represented." See Instruction 3.
- - --------------------------------------------------------------------------------
4
<PAGE>
FOR PARTICIPATING BROKER-DEALERS ONLY:
[_] CHECK HERE AND PROVIDE THE INFORMATION REQUESTED BELOW IF YOU ARE A
PARTICIPATING BROKER-DEALER (AS DEFINED BELOW) AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND, DURING THE 120-DAY PERIOD FOLLOWING THE
CONSUMMATION OF THE EXCHANGE OFFER, 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO, AS WELL AS ANY NOTICES FROM THE ISSUERS TO SUSPEND AND RESUME USE OF
THE PROSPECTUS. BY TENDERING ITS OLD NOTES AND EXECUTING THIS LETTER OF
TRANSMITTAL, EACH PARTICIPATING BROKER-DEALER AGREES TO USE ITS REASONABLE BEST
EFFORTS TO NOTIFY THE ISSUERS OR THE EXCHANGE AGENT WHEN IT HAS SOLD ALL OF ITS
NEW NOTES. (If no Participating Broker-Dealers check this box, or if all
Participating Broker-Dealers who have checked this box subsequently notify the
Issuers or the Exchange Agent that all their New Notes have been sold, the
Issuers will not be required to maintain the effectiveness of the Exchange Offer
registration statement or to update the Prospectus and will not provide any
notices to any Holders to suspend or resume use of the Prospectus.)
Provide the name of the individual who should receive, on behalf of the Holder,
additional copies of the Prospectus, and amendments and supplements thereto, and
any notices to suspend and resume use of the Prospectus:
Name:
---------------------------------------------------------------------------
Address:
------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
Telephone No.:
-----------------------------
Facsimile:
---------------------------------
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
5
<PAGE>
Ladies and Gentlemen:
By execution hereof, the undersigned acknowledges receipt of the
Prospectus, dated _________, 1998 (as the same may be amended from time to time,
the "Prospectus" and, together with the Letter of Transmittal, the "Exchange
Offer"), of Foamex L.P., a Delaware limited partnership (the "Company"), and
Foamex Capital Corporation, a Delaware corporation ("FCC" and, together with the
Company, the "Issuers"), and this Letter of Transmittal and instructions hereto,
which together constitute Issuers' offer to exchange $1,000 principal amount of
the 13 1/2% Senior Subordinated Notes due 2005 (the "New Notes") of the Issuers,
upon the terms and subject to the conditions set forth in the Exchange Offer,
for each $1,000 principal amount of their outstanding 13 1/2% Senior
Subordinated Notes due 2005 (the "Old Notes").
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Issuers the principal amount of Old Notes
indicated above. Subject to, and effective upon, the acceptance for exchange of
the Old Notes tendered herewith, the undersigned hereby exchanges, assigns and
transfers to, or upon the order of, the Issuers all right, title and interest in
and to such Old Notes. The undersigned hereby irrevocably constitutes and
appoints the Exchange Agent as the true and lawful agent and attorney-in-fact of
the undersigned (with full knowledge that the Exchange Agent also acts as the
agent of the Issuers) with respect to such Old Notes with full power of
substitution (such power-of-attorney being deemed to be an irrevocable power
coupled with an interest) to (i) present such Old Notes and all evidences of
transfer and authenticity to, or transfer ownership of, such Old Notes on the
account books maintained by the Book-Entry Transfer Facility to, or upon the
order of, the Issuers, (ii) present such Old Notes for transfer of ownership on
the books of the Company or the trustee under the Indenture (the "Trustee'), and
(iii) receive all benefits and otherwise exercise all rights of beneficial
ownership of such Old Notes, all in accordance with the terms and conditions of
the Exchange Offer as described in the Prospectus.
The undersigned represents and warrants that it has full power and
authority to tender, exchange, assign and transfer the Old Notes tendered hereby
and to acquire New Notes issuable upon the exchange of such tendered Old Notes,
and that, when the same are accepted for exchange, the Issuers will acquire good
and unencumbered title to the tendered Old Notes, free and clear of all liens,
restrictions, charges and encumbrances and not subject to any adverse claim or
right. The undersigned also warrants that it will, upon request, execute and
deliver any additional documents deemed by the Exchange Agent or the Issuers to
be necessary or desirable to complete the exchange, assignment and transfer of
the Old Notes tendered hereby or transfer ownership of such Old Notes on the
account books maintained by the book-entry transfer facility.
The Exchange Offer is subject to certain conditions as set forth in the
Prospectus under the caption "The Exchange Offer--Conditions." The undersigned
recognizes that as a result of these conditions (which may be waived by the
Issuers, in whole or in part, in the reasonable discretion of the Issuers), as
more particularly set forth in the Prospectus, the Issuers may not be required
to exchange any of the Old Notes tendered hereby and, in such event, the Old
Notes not exchanged will be returned to the undersigned at the address shown
above.
THE EXCHANGE OFFER IS NOT BEING MADE TO ANY PERSON THAT IS AN "AFFILIATE"
OF THE ISSUERS WITHIN THE MEANING OF RULE 405 UNDER THE SECURITIES ACT. THE
UNDERSIGNED UNDERSTANDS AND AGREES THAT THE ISSUERS RESERVE THE RIGHT NOT TO
ACCEPT TENDERED OLD NOTES FROM ANY TENDERING HOLDER IF THE ISSUERS DETERMINE, IN
THEIR REASONABLE DISCRETION, THAT SUCH ACCEPTANCE COULD RESULT IN A VIOLATION OF
APPLICABLE SECURITIES LAWS.
The undersigned, if the undersigned is a beneficial holder, represents,
or, if the undersigned is a broker, dealer, commercial bank, trust company or
other nominee, represents that it has received representations from the
beneficial owners of the Old Notes (the "Beneficial Owner") stating that (i) the
New Notes to be acquired in connection with the Exchange Offer by the Holder and
each Beneficial Owner of the Old Notes are being acquired by the Holder and each
such Beneficial Owner in the ordinary course of business of the Holder and each
such Beneficial Owner, (ii) the Holder and each such Beneficial Owner are not
engaged in, do not intend to engage in, and have no arrangement or understanding
with any person to participate in, a
6
<PAGE>
distribution of the New Notes, (iii) the Holder and each Beneficial Owner
acknowledge and agree that any person participating in the Exchange Offer for
the purpose of distributing the New Notes must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction of the New Notes acquired by such person and cannot
rely on the position of the staff of the Commission set forth in the no-action
letters that are discussed in the Prospectus under the caption "The Exchange
Offer--Purpose and Effect of the Exchange Offer" and may only sell the New Notes
acquired by such person pursuant to a registration statement containing the
selling security holder information required by Item 507 of Regulation S-K under
the Securities Act, (iv) if the Holder is a broker-dealer that acquired Old
Notes as a result of market-making or other trading activities, it will deliver
a prospectus in connection with any resale of New Notes acquired in the Exchange
Offer (but by so acknowledging and by delivering a prospectus, the undersigned
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act) and (v) neither the Holder nor any such Beneficial Owner is
an "affiliate," as defined under Rule 405 of the Securities Act, of the Issuers.
In addition, if the undersigned is not a broker-dealer, the undersigned
represents that it is not engaged in, and does not intend to engage in, a
distribution of New Notes. If the undersigned is a broker-dealer that will
receive New Notes for its own account in exchange for Old Notes that were
acquired as a result of market-making activities or other trading activities, it
acknowledges that it will deliver a prospectus in connection with any resale of
such New Notes; however, by so acknowledging and by delivering a prospectus, the
undersigned will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
EACH BROKER-DEALER WHO ACQUIRED OLD NOTES FOR ITS OWN ACCOUNT AS A RESULT
OF MARKET-MAKING ACTIVITIES OR OTHER TRADING ACTIVITIES (A "PARTICIPATING BROKER
DEALER"), BY TENDERING SUCH OLD NOTES AND EXECUTING THIS LETTER OF TRANSMITTAL,
AGREES THAT, UPON RECEIPT OF NOTICE FROM THE ISSUERS OF THE OCCURRENCE OF ANY
EVENT OR THE DISCOVERY OF ANY FACT WHICH MAKES ANY STATEMENT CONTAINED OR
INCORPORATED BY REFERENCE IN THE PROSPECTUS UNTRUE IN ANY MATERIAL RESPECT OR
WHICH CAUSES THE PROSPECTUS TO OMIT TO A STATE A MATERIAL FACT NECESSARY IN
ORDER TO MAKE THE STATEMENTS CONTAINED OR INCORPORATED BY REFERENCE THEREIN, IN
LIGHT OF THE CIRCUMSTANCES UNDER WHICH THEY WERE MADE, NOT MISLEADING OR OF THE
OCCURRENCE OR CERTAIN OTHER EVENTS SPECIFIED IN THE REGISTRATION RIGHTS
AGREEMENT, SUCH PARTICIPATING BROKER-DEALER WILL SUSPEND THE SALE OF NEW NOTES
PURSUANT TO THE PROSPECTUS UNTIL THE ISSUERS HAVE AMENDED OR SUPPLEMENTED THE
PROSPECTUS TO CORRECT SUCH MISSTATEMENT OR OMISSION AND HAVE FURNISHED COPIES OF
THE AMENDED OR SUPPLEMENTED PROSPECTUS TO THE PARTICIPATING BROKER-DEALER OR THE
ISSUERS HAVE GIVEN NOTICE THAT THE SALE OF THE NEW NOTES MAY BE RESUMED, AS THE
CASE MAY BE.
EACH PARTICIPATING BROKER-DEALER SHOULD CHECK THE BOX HEREIN UNDER THE
CAPTION "FOR PARTICIPATING BROKER-DEALERS ONLY" IN ORDER TO RECEIVE ADDITIONAL
COPIES OF THE PROSPECTUS, AND ANY AMENDMENTS AND SUPPLEMENTS THERETO, FOR USE IN
CONNECTION WITH RESALES OF THE NEW NOTES, AS WELL AS ANY NOTICES FROM THE
ISSUERS TO SUSPEND AND RESUME USE OF THE PROSPECTUS. BY TENDERING ITS OLD NOTES
AND EXECUTING THIS LETTER OF TRANSMITTAL, EACH PARTICIPATING BROKER-DEALER
AGREES TO USE ITS REASONABLE BEST EFFORTS TO NOTIFY THE ISSUERS OR THE EXCHANGE
AGENT WHEN IT HAS SOLD ALL OF ITS NEW NOTES. IF NO PARTICIPATING BROKER-DEALERS
CHECK SUCH BOX, OR IF ALL PARTICIPATING BROKER-DEALERS WHO HAVE CHECKED SUCH BOX
SUBSEQUENTLY NOTIFY THE COMPANY OR THE EXCHANGE AGENT THAT ALL THEIR NEW NOTES
HAVE BEEN SOLD, THE ISSUERS WILL NOT BE REQUIRED TO MAINTAIN THE EFFECTIVENESS
OF THE EXCHANGE OFFER REGISTRATION STATEMENT OR TO UPDATE THE PROSPECTUS AND
WILL NOT PROVIDE ANY HOLDERS WITH ANY NOTICES TO SUSPEND OR RESUME USE OF THE
PROSPECTUS.
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<PAGE>
The undersigned understands that tenders of the Old Notes pursuant to any
one of the procedures described under "The Exchange Offer--Procedures for
Tendering" in the Prospectus and in the instructions hereto will constitute a
binding agreement between the undersigned and the Issuers in accordance with the
terms and subject to the conditions of the Exchange Offer. All authority herein
conferred or agreed to be conferred by this Letter of Transmittal and every
obligation of the undersigned hereunder shall be binding upon the heirs, legal
representatives, successors and assigns, executors, administrators and trustees
in bankruptcy of the undersigned and shall survive the death or incapacity of
the undersigned. Tendered Old Notes may be withdrawn at any time prior to 5:00
p.m. on the Expiration Date in accordance with the terms of the Exchange Offer.
The undersigned understands that if the undersigned's Old Notes are
accepted for exchange, the undersigned will receive accrued interest thereon to,
but not including, the date of issuance of the New Notes, such interest to be
payable with the first interest payment on the New Notes, but will not receive
any payment in respect of interest on the Old Notes accrued after the issuance
of the New Notes.
The undersigned also understands and acknowledges that the Issuers reserve
the right in their sole discretion to purchase or make offers for any Old Notes
that remain outstanding subsequent to the Expiration Date in the open market, in
privately negotiated transactions, through subsequent exchange offers or
otherwise. The terms of any such purchases or offers could differ from the terms
of the Exchange Offer.
The undersigned understands that the delivery and surrender of the Old
Notes is not effective, and the risk of loss of the Old Notes does not pass to
the Exchange Agent, until receipt by the Exchange Agent of this Letter of
Transmittal, or a manually signed facsimile hereof, properly completed and duly
executed, with any required signature guarantees, together with all accompanying
evidences of authority and any other required documents in form satisfactory to
the Issuers. All questions as to form of all documents and the validity
(including time of receipt) and acceptance of tenders and withdrawals of Old
Notes will be determined by the Issuers, in their sole discretion, which
determination shall be final and binding.
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions," the undersigned hereby requests that any Old Notes representing
principal amounts not tendered or not accepted for exchange be issued in the
name(s) of the undersigned and that New Notes be issued in the name(s) of the
undersigned (or, in the case of Old Notes delivered by book-entry transfer, by
credit to the account at the Book-Entry Transfer Facility). Similarly, unless
otherwise indicated herein in the box entitled "Special Delivery Instructions,"
the undersigned hereby requests that any Old Notes representing principal
amounts not tendered or not accepted for exchange and certificates for New Notes
be delivered to the undersigned at the addressees) shown above. In the event
that the "Special Issuance Instructions" box or the "Special Delivery
Instructions" box is, or both are, completed, the undersigned hereby requests
that any Old Notes representing principal amounts not tendered or not accepted
for exchange be issued in the name(s) of, certificates for such Old Notes be
delivered to, and certificates for New Notes be issued in the name(s) of, and be
delivered to, the person(s) at the address(es) so indicated, as applicable. The
undersigned recognizes that the Issuers have no obligation pursuant to the
"Special Issuance Instructions" box or "Special Delivery Instructions" box to
transfer any Old Notes from the name of the registered Holder(s) thereof if the
Issuers do not accept for exchange any of the principal amount of such Old Notes
so tendered.
8
<PAGE>
PLEASE SIGN HERE
(To Be Completed By All Holders of Old Notes
Regardless of Whether Old Notes Are Being Physically Delivered Herewith)
This Letter of Transmittal must be signed by the Holder(s) of Old Notes
exactly as their name(s) appear(s) on certificate(s) for Old Notes or, if
delivered by a participant in the Book-Entry Transfer Facility, exactly as such
participant's name appears on a security position listing as the owner of Old
Notes, or by person(s) authorized to become Holder(s) by endorsements and
documents transmitted with this Letter of Transmittal. If signature is by a
trustee, executor, administrator, guardian, attorney-in-fact, officer or other
person acting in a fiduciary or representative capacity, such person must set
forth his or her full title below under "Capacity" and submit evidence
satisfactory to the Issuers of such person's authority to so act. See
Instruction 4 below.
If the signature appearing below is not of the record holder(s) of the Old
Notes, then the record holder(s) must sign a valid bond power.
X
-------------------------------------------------------------------------------
X
-------------------------------------------------------------------------------
Signature(s) of Registered Holder(s) or Authorized Signatory
Date: , 1998
---------------------------------------------------------------------------
Name(s):
------------------------------------------------------------------------
Capacity:
-----------------------------------------------------------------------
Address:
------------------------------------------------------------------------
(Including Zip Code)
Area Code and Telephone No.:
----------------------------------------------------
PLEASE COMPLETE SUBSTITUTE FORM W-9 HEREIN
[_] CHECK HERE IF YOU ARE A BROKER DEALER WHO ACQUIRED THE OLD NOTES FOR ITS
OWN ACCOUNT AS A RESULT OF MARKET MAKING OR OTHER TRADING ACTIVITIES AND
WISH TO RECEIVE ADDITIONAL COPIES OF THE PROSPECTUS AND COPIES OF ANY
AMENDMENTS OR SUPPLEMENTS THERETO.
Name:
---------------------------------------------------------------------
Address:
------------------------------------------------------------------
MEDALLION SIGNATURE GUARANTEE (See Instruction 4 below)
Certain Signatures Must Be Guaranteed by an Eligible Institution
- - --------------------------------------------------------------------------------
(Name of Eligible Institution Guaranteeing Signatures)
- - --------------------------------------------------------------------------------
(Address (including zip code) and Telephone Number
(including area code) of Firm)
- - --------------------------------------------------------------------------------
(Authorized Signature)
- - --------------------------------------------------------------------------------
(Printed Name)
- - --------------------------------------------------------------------------------
(Title)
Dated: , 1998
--------------------------------------------------------------------
9
<PAGE>
- - -------------------------------------- --------------------------------------
SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 3, 4, 5 and 7) (See Instructions 4 and 5)
To be completed ONLY if To be completed ONLY if
certificates for Old Notes in a certificates for Old Notes in a
principal amount not tendered or not principal amount not accepted for
accepted for exchange are to be exchange or certificates for New Notes
issued in the name of, or certificates are to be sent to someone other than
for New Notes are to be issued to the person or persons whose
the order of, someone other than signature(s) appear(s) within this
the person or persons whose Letter of Transmittal or to an address
signature(s) appear(s) within this different from that shown in the box
Letter of Transmittal. entitled "Description of Old Notes"
within the Letter of Transmittal.
Issue: [_] Old Notes Deliver: [_] Old Notes
[_] New Notes [_] New Notes
(check as applicable) (check as applicable)
Name: Name:
--------------------------------- ---------------------------------
(Please Print) (Please Print)
Address: Address:
------------------------------ ------------------------------
- - -------------------------------------- --------------------------------------
(Zip Code) (Zip Code)
- - --------------------------------------
(Tax Identification or
Social Security Number)
(See Substitute Form W-9 herein)
Credit Old Notes not exchanged and
delivered by book entry transfer to
the Book Entry Transfer Facility
account set below:
----------------------------------
(Book Entry Transfer Facility
Account Number)
Credit New Notes to the Book Entry
Transfer Facility account set below:
----------------------------------
(Book Entry Transfer Facility
Account Number)
- - -------------------------------------- ---------------------------------------
10
<PAGE>
INSTRUCTIONS
Forming Part of the Terms and Conditions of the Exchange Offer
1. Delivery of this Letter of Transmittal and Certificates for Old Notes or
Book-Entry Confirmations; Withdrawal of Tenders.
To tender Old Notes in the Exchange Offer, physical delivery of
certificates for Old Notes or confirmation of a book-entry transfer into the
Exchange Agent's account with a Book-Entry Transfer Facility of Old Notes
tendered electronically, as well as a properly completed and duly executed copy
or manually signed facsimile of this Letter of Transmittal, or in the case of a
book-entry transfer, an Agent's Message, and any other documents required by
this Letter of Transmittal, must be received by the Exchange Agent at its
address set forth herein prior to the Expiration Date. Tenders of Old Notes in
the Exchange Offer may be made prior to the Expiration Date in the manner
described in the preceding sentence and otherwise in compliance with this Letter
of Transmittal. THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL,
CERTIFICATES FOR OLD NOTES AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE
AGENT, INCLUDING DELIVERY THROUGH DTC AND ANY ACCEPTANCE OF AN AGENT'S MESSAGE
TRANSMITTED THROUGH ATOP, IS AT THE ELECTION AND RISK OF THE HOLDER TENDERING
OLD NOTES. IF SUCH DELIVERY IS MADE BY MAIL, IT IS SUGGESTED THAT THE HOLDER USE
PROPERLY INSURED, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED AND THAT
SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. NO ALTERNATIVE,
CONDITIONAL OR CONTINGENT TENDERS OF OLD NOTES WELL BE ACCEPTED. Except as
otherwise provided below, the delivery will be made when actually received by
the Exchange Agent. This Letter of Transmittal, certificates for the Old Notes
and any other required documents should be sent only to the Exchange Agent, not
to the Company, the Trustee or DTC.
Old Notes tendered pursuant to the Exchange Offer may be withdrawn at any
time prior to 5:00 p.m. New York time on the Expiration Date. In order to be
valid, notice of withdrawal of tendered Old Notes must comply with the
requirements set forth in the Prospectus under the caption "The Exchange
Offer--Withdrawal of Tenders."
2. Guaranteed Delivery Procedures.
If Holders desire to tender Old Notes pursuant to the Exchange Offer and
(i) certificates representing such Old Notes are not lost but are not
immediately available, (ii) time will not permit this Letter of Transmittal,
certificates representing such Holder's Old Notes and all other required
documents to reach the Exchange Agent prior to the Expiration Date or (iii) the
procedures for book-entry transfer cannot be completed prior to the Expiration
Date, such Holders may effect a tender of Old Notes in accordance with the
guaranteed delivery procedures set forth in the Prospectus under the caption
"The Exchange Offer--Guaranteed Delivery Procedures."
Pursuant to the guaranteed delivery procedures:
(i) such tender must be made by or through an Eligible
Institution;
(ii) prior to the Expiration Date, the Exchange Agent must have
received from such Eligible Institution, at one of the addresses set forth on
the cover of this Letter of Transmittal, a properly completed and validly
executed Notice of Guaranteed Delivery (by manually signed facsimile
transmission, mail or hand delivery) in substantially the form provided with the
Prospectus, setting forth the name(s) and address(es) of the registered
Holder(s) and the principal amount of Old Notes being tendered and stating that
the tender is being made thereby and guaranteeing that, within three New York
Stock Exchange ("NYSE") trading days from the date of the Notice of Guaranteed
Delivery, the Letter of Transmittal (or a manually signed facsimile thereof),
properly completed and duly executed, or, in the case of a book-entry transfer,
an Agent's Message, together with certificates representing the Old Notes (or
confirmation of book-entry transfer of such Old Notes into the
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<PAGE>
Exchange Agent's account at a Book-Entry Transfer Facility), and any other
documents required by this Letter of Transmittal and the instructions thereto,
will be deposited by such Eligible Institution with the Exchange Agent; and
(iii) this Letter of Transmittal (or a manually signed facsimile
thereof), properly completed and validly executed with any required signature
guarantees, or, in the case of a book-entry transfer, an Agent's Message,
together with certificates for all Old Notes in proper form for transfer (or a
Book-Entry Confirmation with respect to all tendered Old Notes), and any other
required documents must be received by the Exchange Agent within three NYSE
trading days after the date of such Notice of Guaranteed Delivery.
3. Partial Tenders.
If less than the entire principal amount of any Old Notes evidenced by a
submitted certificate is tendered, the tendering Holder must fill in the
principal amount tendered in the last column of the box entitled "Description of
Old Notes" herein. The entire principal amount represented by the certificates
for all Old Notes delivered to the Exchange Agent will be deemed to have been
tendered, unless otherwise indicated. The entire principal amount of all Old
Notes not tendered or not accepted for exchange will be sent (or, if tendered by
book-entry transfer, returned by credit to the account at the Book-Entry
Transfer Facility designated herein) to the Holder unless otherwise provided in
the "Special Issuance Instructions" or "Special Delivery Instructions" boxes of
this Letter of Transmittal.
4. Signatures on this Letter of Transmittal, Bond Powers and Endorsements;
Guarantee of Signatures.
If this Letter of Transmittal is signed by the Holder(s) of the Old Notes
tendered hereby, the signature(s) must correspond with the name(s) as written on
the face of the certificate(s) without alteration, enlargement or any change
whatsoever. If this Letter of Transmittal is signed by a participant in one of
the Book-Entry Transfer Facilities whose name is shown as the owner of the Old
Notes tendered hereby, the signature must correspond with the name shown on the
security position listing as the owner of the Old Notes.
If any of the Old Notes tendered hereby are registered in the name of two
or more Holders, all such Holders must sign this Letter of Transmittal. If any
tendered Old Notes are registered in different names on several certificates, it
will be necessary to complete, sign and submit as many separate copies of this
Letter of Transmittal and any necessary accompanying documents as there are
different names in which certificates are held.
If this Letter of Transmittal or any certificates for Old Notes or bond
powers are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, such persons should so indicate when signing, and
proper evidence satisfactory to the Issuers of their authority so to act must be
submitted with this Letter of Transmittal.
IF THIS LETTER OF TRANSMITTAL IS EXECUTED BY A PERSON OR ENTITY WHO IS NOT
THE REGISTERED HOLDER, THEN THE REGISTERED HOLDER MUST SIGN A VALID BOND POWER,
WITH THE SIGNATURE OF SUCH REGISTERED HOLDER GUARANTEED BY A PARTICIPANT IN A
RECOGNIZED MEDALLION SIGNATURE PROGRAM (A "MEDALLION SIGNATURE GUARANTOR").
No signature guarantee is required if (i) this Letter of Transmittal is
signed by the registered Holder(s) of the Old Notes tendered herewith (or by a
participant in one of the Book-Entry Transfer Facilities whose name appears on a
security position listing as the owner of Old Notes) and certificates for New
Notes or for any Old Notes for principal amounts not tendered or not accepted
for exchange are to be issued, directly to such Holder(s) or, if tendered by a
participant in one of the Book-Entry Transfer Facilities, any Old Notes for
principal amounts not tendered or not accepted for exchange are to be credited
to such participant's account at
12
<PAGE>
such Book-Entry Transfer Facility and neither the "Special Issuance
Instructions" box nor the "Special Delivery Instructions" box of this Letter of
Transmittal has been completed or (ii) such Old Notes are tendered for the
account of an Eligible Institution. IN ALL OTHER CASES, ALL SIGNATURES ON
LETTERS OF TRANSMITTAL ACCOMPANYING OLD NOTES MUST BE GUARANTEED BY A MEDALLION
SIGNATURE GUARANTOR. In all such other cases (including if this Letter of
Transmittal is not signed by the Holder), the Holder must either properly
endorse the certificates for Old Notes tendered or transmit a separate properly
completed bond power with this Letter of Transmittal (in either case, executed
exactly as the name(s) of the registered Holder(s) appear(s) on such Old Notes,
and, with respect to a participant in a Book Entry Transfer Facility whose name
appears on a security position listing as the owner of Old Notes, exactly as the
name(s) of the participant(s) appear(s) on such security position listing), with
the signature on the endorsement or bond power guaranteed by a Medallion
Signature Guarantor, unless such certificates or bond powers are executed by an
Eligible Institution.
Endorsements on certificates for Old Notes and signatures on bond powers
provided in accordance with this Instruction 4 by registered Holders not
executing this Letter of Transmittal must be guaranteed by a Medallion Signature
Guarantor.
5. Special Issuance and Special Delivery Instructions.
Tendering Holders should indicate in the applicable box or boxes the name
and address to which Old Notes for principal amounts not tendered or not
accepted for exchange or certificates for New Notes, if applicable, are to be
sent or issued, if different from the name and address of the Holder signing
this Letter of Transmittal. In the case of payment to a different name, the
taxpayer identification or social security number of the person named must also
be indicated. If no instructions are given, Old Notes not tendered or not
accepted for exchange will be returned, and certificates for New Notes will be
sent, to the Holder of the Old Notes tendered.
6. Taxpayer Identification Number.
Each tendering Holder is required to provide the Exchange Agent with the
Holder's social security or Federal employer identification number, on
Substitute Form W-9, which is provided under "Important Tax Information" below,
or alternatively, to establish another basis for exemption from backup
withholding. A Holder must cross out item (2) in the Certification box in Part
III on Substitute Form W-9 if such Holder is subject to backup withholding.
Failure to provide the information on the form may subject such Holder to 31%
Federal backup withholding tax on any payment made to the Holder with respect to
the Exchange Offer. The box in Part I of the form should be checked if the
tendering or consenting Holder has not been issued a Taxpayer Identification
Number ("TIN") and has either applied for a TIN or intends to apply for a TIN in
the near future. If the box in Part I is checked the Holder should also sign the
attached Certification of Awaiting Taxpayer Identification Number. If the
Exchange Agent is not provided with a TIN within 60 days thereafter, the
Exchange Agent will withhold 31% on all such payments of the New Notes until a
TIN is provided to the Exchange Agent.
7. Transfer Taxes.
The Issuers will pay all transfer taxes applicable to the exchange and
transfer of Old Notes pursuant to the Exchange Offer, except if (i) deliveries
of certificates for Old Notes for principal amounts not tendered or not accepted
for exchange are registered or issued in the name of any person other than the
Holder of Old Notes tendered thereby, (ii) tendered certificates are registered
in the name of any person other than the person signing this Letter of
Transmittal or (iii) a transfer tax is imposed for any reason other than the
exchange of Old Notes pursuant to the Exchange Offer. If satisfactory evidence
of payment of such taxes or exemption therefrom is not submitted herewith, the
amount of such transfer taxes will be billed directly to such tendering Holder.
13
<PAGE>
8. Irregularities.
All questions as to the form of all documents and the validity (including
time of receipt) and acceptance of all tenders and withdrawals of Old Notes will
be determined by the Issuers, in their sole discretion, which determination
shall be final and binding. Alternative, conditional or contingent tenders of
Old Notes will not be considered valid. The Issuers reserve the absolute right
to reject any and all tenders of Old Notes that are not in proper form or the
acceptance of which, in the Issuers' opinion, would be unlawful. The Issuers
also reserve the right to waive any defects, irregularities or conditions of
tender as to particular Old Notes. The Issuers' interpretations of the terms and
conditions of the Exchange Offer (including the instructions in this Letter of
Transmittal) will be final and binding. Any defect or irregularity in connection
with tenders of Old Notes must be cured within such time as the Issuers
determine, unless waived by the Issuers. Tenders of Old Notes shall not be
deemed to have been made until all defects or irregularities have been waived by
the Issuers or cured. A defective tender (which defect is not waived by the
Issuers or cured by the Holder) will not constitute a valid tender of Old Notes
and will not entitle the Holder to New Notes. None of the Issuers, the Trustee,
the Exchange Agent or any other person will be under any duty to give notice of
any defect or irregularity in any tender or withdrawal of any Old Notes, or
incur any liability to Holders for failure to give any such notice.
9. Waiver of Conditions.
The Issuers reserve the right, in their reasonable discretion, to amend or
waive any of the conditions to the Exchange Offer.
10. Mutilated, Lost, Stolen or Destroyed Certificates for Old Notes.
Any Holder whose certificates for Old Notes have been mutilated, lost,
stolen or destroyed should write to or telephone the Trustee at the address or
telephone number set forth on the cover of this Letter of Transmittal for the
Exchange Agent.
11. Requests for Assistance or Additional Copies.
Questions relating to the procedure for tendering Old Notes and requests
for assistance or additional copies of the Prospectus, this Letter of
Transmittal, the Notice of Guaranteed Delivery or other documents may be
directed to the Exchange Agent, whose address and telephone number appear above.
14
<PAGE>
IMPORTANT TAX INFORMATION
Under federal income tax laws, a Holder who tenders Old Notes prior to
receipt of the New Notes is required to provide the Exchange Agent with such
Holder's correct TIN on the Substitute Form W-9 below or otherwise establish a
basis for exemption from backup withholding. If such Holder is an individual,
the TIN is his or her social security number. If the Exchange Agent is not
provided with the correct TIN, a $50 penalty may be imposed by the Internal
Revenue Service ("IRS") and payments, including any New Notes, made to such
Holder with respect to Old Notes exchanged pursuant to the Exchange Offer may be
subject to backup withholding.
Certain Holders (including, among others, all corporations and certain
foreign persons) are not subject to these backup withholding and reporting
requirements. Exempt Holders should indicate their exempt status on the
Substitute Form W-9. A foreign person may qualify as an exempt recipient by
submitting to the Exchange Agent a properly completed IRS Form W-8, signed under
penalties of perjury, attesting to that Holder's exempt status. A Form W-8 can
be obtained from the Exchange Agent. See the enclosed "Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9" for
additional instructions. Holders are urged to consult their own tax advisors to
determine whether they are exempt.
If backup withholding applies, the Exchange Agent is required to withhold
31% of any payments made to the Holder or other payee. Backup withholding is not
an additional Federal income tax. Rather, the Federal income tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained from the IRS.
Purpose of Substitute Form W-9
To prevent backup withholding on payments, including any New Notes, made
with respect to Old Notes exchanged pursuant to the Exchange Offer, the Holder
is required to provide the Exchange Agent with (i) the Holder's correct TIN by
completing the form below, certifying that the TIN provided on the Substitute
Form W-9 is correct (or that such Holder is awaiting a TIN) and that (A) such
Holder is exempt from backup withholding, (B) the Holder has not been notified
by the IRS that the Holder is subject to backup withholding as a result of
failure to report all interest or dividends or (C) the IRS has notified the
Holder that the Holder is no longer subject to backup withholding and (ii) if
applicable, an adequate basis for exemption.
What Number to Give the Exchange Agent
The Holder is required to give the Exchange Agent the TIN (e.g., social
security number or employer identification number) of the registered Holder. If
the Old Notes are held in more than one name or are held not in the name of the
actual owner, consult the enclosed "Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9" for additional guidance on which
number to report.
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SUBSTITUTE FORM W-9
Request for Taxpayer Identification Number and Certification
PAYOR'S NAME: FOAMEX L.P.
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<S> <C> <C> <C> <C>
PAYEE INFORMATION
(Please print or type)
Individual or business name (if joint account, list first and circle the name of
person or entity whose number you furnish in Part 1 below)
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Check appropriate box: [_] Individual/Sole proprietor [_] Corporation [_] Partnership [_] Other
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Address (number, street, and apt. or suite no.):_____________________________________________________________________
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City, state and ZIP code:____________________________________________________________________________________________
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PART I Taxpayer Identification Number ("TIN") PART II Payees Exempt from Backup
Enter your TIN below. For individuals, this is your social security number. Withholding
For other entities, it is your employer identification number. Refer to the Check box (See page 2 of the
chart on page 1 of the Guidelines for Certification of Taxpayer Identification Guidelines for further
Number on Substitute Form W-9 (the "Guidelines") for further clarification. If clarification. Even if you are
you do not have a TIN, see instructions on how to obtain a TIN on page 2 of the exempt from backup withholding,
Guidelines, check the appropriate box below indicating that you have applied you should still complete and
for a TIN and, in addition to the Part III Certification, sign the attached sign the certification below):
Certification of Awaiting Taxpayer Identification Number.
Social security number: [_] EXEMPT
[_] [_] [_] - [_] [_] - [_] [_] [_] [_]
[_] Applied For
Employer identification number
[_] [_] - [_] [_] [_] [_] [_] [_] [_]
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PART III Certification
Certification Instructions: You must cross out item 2 below if you have been notified by the Internal Revenue
Service (the "IRS") that you are currently subject to backup withholding because of underreporting interest or
dividends on your tax return (See page 2 of the Guidelines for further clarification).
Under penalties of perjury, I certify that:
1. The number shown on this form is my correct taxpayer identification number (or I am waiting for a number to be
issued to me), and
2. I am not subject to backup withholding because : (a) I am exempt from back up withholding, (b) I have not been
notified by the IRS that I am subject to backup withholding as a result of a failure to report all interest or
dividends, or (c) the IRS has notified me that I am no longer subject to backup withholding.
Signature ___________________________________________________________ Date ____________________________
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NOTE: FAILURE TO COMPLETE AND RETURN THIS SUBSTITUTE FORM W-9 MAY RESULT IN
BACKUP WITHHOLDING OF 31% OF ANY PAYMENT MADE TO YOU PURSUANT TO THE EXCHANGE
OFFER. PLEASE REVIEW THE ENCLOSED "GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9" FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATION IF YOU CHECKED THE BOX
"APPLIED FOR" IN PART I OF SUBSTITUTE FORM W-9
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CERTIFICATION OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify, under penalties of perjury, that a TIN has not been issued to
me, and either (a) I have mailed or delivered an application to receive a TIN to
the appropriate IRS Service Center or Social Security Administration Office, or
(b) I intend to mail or deliver an application in the near future. I understand
that I must provide a TIN to the payor within 60 days of submitting this
Substitute Form W-9 and that if I do not provide a TIN to the payor within 60
days, the payor is required to withhold 31% of all reportable payments
thereafter to me until I furnish the payor with a TIN.
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Signature
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Date
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16
NOTICE OF GUARANTEED DELIVERY
for
Tender of all Outstanding
13 1/2% Senior Subordinated Notes due 2005
in Exchange for New
13 1/2% Senior Subordinated Notes due 2005
of
FOAMEX L.P.
and
FOAMEX CAPITAL CORPORATION
As set forth in the Prospectus dated _________, 1998 (as the same may be
amended from time to time, the "Prospectus") of Foamex L.P. (the "Company") and
Foamex Capital Corporation ("FCC" and, together with the Company, the "Issuers")
under the caption "The Exchange Offer--Guaranteed Delivery Procedures," and in
the accompanying Letter of Transmittal (the "Letter of Transmittal") and
Instruction 2 thereto, this form or one substantially equivalent, must be used
to tender any of the Issuers' outstanding 13 1/2% Senior Subordinated Notes due
2005 (the "Old Notes") pursuant to the Exchange Offer, if (i) certificates
representing the Old Notes to be tendered for exchange are not lost but are not
immediately available, (ii) time will not permit a Holder's Letter of
Transmittal, certificates representing the Old Notes to be tendered and all
other required documents to reach The Bank of New York (the "Exchange Agent")
prior to the Expiration Date with respect to the Exchange Offer, or (iii) the
procedures for book-entry transfer cannot be completed prior to the Expiration
Date. This form may be delivered by an Eligible Institution by mail or hand
delivery or transmitted, via manually signed facsimile, to the Exchange Agent as
set forth below.
Terms not otherwise defined herein shall have their respective meanings as
set forth in the Prospectus.
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THE EXCHANGE OFFER WILL EXPIRE AT MIDNIGHT, NEW YORK CITY TIME, ON
____________, 1998, UNLESS EXTENDED OR TERMINATED (THE "EXPIRATION DATE").
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The Exchange Agent for the Exchange Offer is:
THE BANK OF NEW YORK
By Hand Or Facsimile Transmissions: By Registered Or
Overnight Delivery: (Eligible Institutions Certified Mail:
Only)
The Bank of New York (212) 815-6339 The Bank of New York
101 Barclay Street, To Confirm by Telephone 101 Barclay Street,
Ground Level or for Information Call: 7th Floor
Corporate Trust Services New York, New York 10286
Window (212) 815-3687 Attention: George Johnson
New York, New York 10286 Reorganization Section
Attention: George Johnson
Reorganization Section
Delivery of this Notice of Guaranteed Delivery to an address other than as
set forth above or transmission of instructions via facsimile transmission to a
number other than as set forth above will not constitute a valid delivery.
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Ladies and Gentlemen:
The undersigned hereby tender(s) to the Issuers, upon the terms and
subject to the conditions set forth in the Prospectus and the Letter of
Transmittal, receipt of which is hereby acknowledged, the principal amount of
Old Notes set forth below pursuant to the guaranteed delivery procedures set
forth in the Prospectus under the caption "The Exchange Offer--Guaranteed
Delivery Procedures."
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender the Old Notes. The undersigned will, upon
request, execute and deliver any additional documents deemed by the Exchange
Agent or the Issuers to be necessary or desirable for the perfection of the
undersigned's tender.
Tenders may be withdrawn in accordance with the procedures set forth in
the Prospectus. The undersigned authorizes the Exchange Agent to deliver this
Notice of Guaranteed Delivery to the Issuers and the Trustee as evidence of the
undersigned's tender of Old Notes.
All authority herein conferred or agreed to be conferred by this Notice of
Guaranteed Delivery shall survive the death or incapacity of the undersigned and
every obligation of the undersigned under this Notice of Guaranteed Delivery
shall be binding upon the heirs, personal representatives, executors,
administrators, successors, assigns, trustees in bankruptcy and other legal
representatives of the undersigned.
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PLEASE SIGN AND COMPLETE
X
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Signature(s) of Registered Holder(s) or Authorized Signatory
Date: , 1998
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Name(s) of Registered Holder(s):
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Principal Amount of Notes Tendered:
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Address:
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(Including Zip Code)
Area Code and Telephone No.
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If Notes will be delivered by book-entry transfer, complete the following:
Certificate No.(s) of Notes (if available):
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Depository Account No.
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This Notice of Guaranteed Delivery must be signed by the Holder(s) exactly as
their names appear on certificates for Old Notes or on a security position
listing as the owner of Old Notes, or by person(s) authorized to become
Holder(s) by endorsements and documents transmitted with this Notice of
Guaranteed Delivery. If signature is by a trustee, executor, administrator,
guardian, attorney-in-fact, officer or other person acting in a fiduciary or
representative capacity, such person must set forth his or her full title below
under "Capacity" and submit evidence satisfactory to the Issuers of such
person's authority to so act.
Please print name(s) and address(es)
Name(s):
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Capacity:
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Address(es):
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(Including Zip Code)
DO NOT SEND OLD NOTES WITH THIS FORM. OLD NOTES SHOULD BE SENT TO THE EXCHANGE
AGENT, TOGETHER WITH A PROPERLY COMPLETED AND VALIDLY EXECUTED LETTER OF
TRANSMITTAL AND ANY OTHER RELATED DOCUMENTS.
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GUARANTEE
(Not to be used for signature guarantee)
The undersigned, a member firm of a registered national securities exchange or
of the National Association of Securities Dealers, Inc. or a commercial bank or
trust company having an office or correspondent in the United States, hereby
guarantees that, within three New York Stock Exchange trading days from the date
of this Notice of Guaranteed Delivery, a properly completed and duly executed
Letter of Transmittal (or a manually signed facsimile thereof), together with
certificates representing the Old Notes tendered hereby in proper form for
transfer (or confirmation of the book-entry transfer of such Old Notes into the
Depositary's account at a Book-Entry Transfer Facility, pursuant to the
procedure for book-entry transfer set forth in the Prospectus under the caption
"The Exchange Offer--Book-Entry Transfer"), and any other required documents
will be deposited by the undersigned with the Exchange Agent at its address set
forth above.
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Name of Firm
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Address (including zip code)
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Telephone Number (including area code)
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Authorized Signature
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Name
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Title
Dated: , 1998
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